“STUDY ON INVESTMENT IN FINANCIAL INSTRUMENTS BY

WORKING PEOPLE IN MUMBAI”

A Project Submitted to

University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Accounting and Finance)

Under the Faculty of Commerce

By

Ajay Rajbhar

Under the Guidance of

Prof. S. Kaleeshwari Nadar

GURU NANAK COLLEGE OF ARTS SCIENCE AND COMMERCE

GTB NAGAR, SION, MUMBAI 400037

April 2019
 “STUDY ON INVESTMENT IN FINANCIAL INSTRUMENTS BY
WORKING PEOPLE IN MUMBAI”

A Project Submitted to

University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Accounting and Finance)

Under the Faculty of Commerce

By

Ajay Rajbhar

Under the Guidance of

Prof. S. Kaleeshwari Nadar

GURU NANAK COLLEGE OF ARTS SCIENCE AND COMMERCE

GTB NAGAR, SION, MUMBAI 400037

April 2019

2
 Acknowledgment

To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.

I would like to acknowledge the following as being idealistic channels and fresh dimensions in the
completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do this project.

I would like to thank my Principal, Dr. Pushpinder Bhatia for providing the necessary facilities
required for completion of this project.

I take this opportunity to thank our Coordinator S. Kaleeshwari Nadar for her moral support
and guidance.

I would also like to express my sincere gratitude towards my project guide S.

Kaleeshwari Nadar whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference books and
magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in the
completion of the project especially my Parents and Peers who supported me throughout my
project.

3
 Declaration by learner

I the undersigned Mr.Ajay Rajbhar here by, declare that the work embodied in this project

work titled “STUDY ON INVESTMENT IN FINANCIAL INSTRUMENTS BY

WORKING PEOPLE IN MUMBAI” forms my own contribution to the research work carried
out under the guidance of S. Kaleeshwari Nadar is a result of my own research work and has
not been previously submitted to any other University for any other Degree/ Diploma to this or
any other University.

Wherever reference has been made to previous works of others, it has been clearly indicated as
such and included in the bibliography.

I, here by further declare that all information of this document has been obtained and presented
in accordance with academic rules and ethical conduct.

Ajay Rajbhar

S. Kaleeshwari Nadar

4
 Certificate

This is to certify that Mr. Ajay Rajbhar has worked and duly completed his Project Work
for the degree of Bachelor in Commerce (Accounting & Finance) under the Faculty of
Commerce in the subject of Financial Management and his project is entitled “STUDY ON
INVESTMENT IN FINANCIAL INSTRUMENTS BY WORKING PEOPLE IN
MUMBAI” under My supervision.

I further certify that the entire work has been done by the learner under my guidance and that no
part of it has been submitted previously for any Degree or Diploma of any University.

It is his own work and facts reported by his personal findings and investigations.

S. Kaleeshwari Nadar

Date of submission:

5
 INDEX

Sr. No. Title of the Chapter Page

no
Chapter No.1 Introduction 07

1.1 Types of Financial Markets 10

1.2 Types of Financial instruments 14

1.3 Analysis of instruments 19

1.4 Important factors to be considered before selection of financial 26

instruments

1.5 Mutual funds Vs equity investments 29

1.6 Various factors affecting investment decision 46

Chapter No.2 Research and methodology 48

2.1 Objective 49

2.2 Scope of study 50

2.3 Limitation of study 51

2.4 Sources of data 52

Chapter No. 3 Literature review 54

Chapter No.4 Data Analysis, Interpretation and Presentation 58

Chapter No.5 Findings 78

Chapter No.6 Conclusion 79

6
 CHAPTER NO. 1 - INTRODUCTION
A financial instrument is a claim against a person or an institution for payment, at a Future date,
of a sum of money or a periodic payment in the form of interest or dividend. A financial
instrument represents paper wealth such as shares, debentures, bonds, notes etc,. Different types
of financial instruments can be designed to suit the risk and return preferences of different
classes of investors. Savings and investments are linked through a wide variety of complex
financial instruments known as "securities". securities are financial instruments that are
negotiable and tradable. Financial securities may be of primary and secondary securities. Primary
securities are also termed as direct securities as they are directly issued by the ultimate borrowers
of funds to the ultimate savers. Secondary securities are also referred to as indirect securities, as
they are issued by the financial intermediaries to the ultimate savers. Bank deposits, mutual
funds units and insurance policies are secondary securities. Financial instruments differ in terms
of marketability, liquidity, reversibility, type of options, return, risk and transaction costs.
Financial instruments help financial markets and financial intermediaries to perform the
important role of channelizing funds from lender to borrowers. Financial Instruments are also
known as investment Avenues.

In Mumbai, many families save money on a monthly basis from their income mainly to secure
their future. Putting ones money in savings account or locker will not help the money to
multiply. One can multiply their money by Investing. An individual can invest money in various
financial instruments which are available in Mumbai.

Financial instruments are assets that can be traded. They can also be seen as packages of capital
that may be traded. Most types of financial instruments provide an efficient flow and transfer of
capital all throughout the world's investors. These assets can be cash, a contractual right to deliver
or receive cash or another type of financial instrument, or evidence of one's ownership of an entity.
The present financial market is flooded with a lot investment instruments, viz., Shares, Bonds,

7
Mutual funds, Insurance plans, Fixed Deposits, other money and capital market instruments and
also various options of investment in Real Estate and Commodity Market etc. Sometimes people
refer to these options as "investment vehicles," which is just another way of saying "a way to
invest." Each of these vehicles has its own positives and negatives and ultimate decision of
investment is influenced by the individual investor’s perception regarding the risk and return of
concerned investment opportunity available in the market. Further, the investment decisions is full
of complexity because of volatility of market conditions, Inflation rate fluctuations, impact of
Global environment, Cash reserve ratio, and Repo rates. Therefore, it is imperative to analyze these
factors while taking an investment decision. Keeping above in mind, the study has been done to
see the perception of investors which provides understanding to readers about the various factors
which should be keep in mind at the time of investment. The study is useful to company in
providing the understanding about the investors’ perception to devise the suitable
product/marketing strategies, which would help it in making their policies or strategies in order to
attract them. Further. financial planner get advent to make portfolio according to response given
by respondents, which belong to different occupations, having different income level, different age
level or which instrument is mostly like by the investors for investment. The study would further
helpful for readers in understanding about the various investment opportunities available in the
market.

International Accounting Standards defines financial instruments as any contract that gives rise
to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial instruments act as channels to invest the money. There are various financial
instruments available on the market currently. It acts as a tool to raise funds. For investment
purpose, there are many ways to save money. An investor has to choose the best investment
option to fetch the best return on the invested money.
instruments provide an efficient flow of money and transfer of capital throughout the world.
These tools can be real or virtual documents representing agreement involving any monetary
value. It has a monetary value, and it constitutes a legally enforceable agreement between two or
more parties regarding a right to payment of money.

A financial instrument is a claim against a person or an institution for payment, at a future date,
of a sum of money or a periodic payment in the form of interest or dividend. A financial

8
instrument represents paper wealth such as shares, debentures, bonds, notes etc,. Different types
of financial instruments can be designed to suit the risk and return preferences of different
classes of investors. Savings and investments are linked through a wide variety of complex
financial instruments known as „securities‟. Financial securities are financial instruments that are
negotiable and tradable. Financial securities may be of primary and secondary securities. Primary
securities are also termed as direct securities as they are directly issued by the ultimate Borrower
of funds to the ultimate savers. Secondary securities are also referred to as indirect securities, as
they are issued by the financial intermediaries to the ultimate savers. Bank deposits, mutual
funds units and insurance policies are secondary securities. Financial instruments differ in terms
of marketability, liquidity, reversibility, type of options, return, risk and transaction costs.
Financial instruments help financial markets and financial intermediaries to perform the
important role of channelizing funds from lender to borrowers. Financial Instruments are also
known as investment avenues.

9
1.1 TYPES OF FINANCIAL MARKETS
A financial market consists of two major segments: (a) Money Market; and (b) Capital Market.
While the money market deals in short-term credit, the capital market handles the medium term
and long-term credit. Let us discuss these two types of markets in detail.

MONEY MARKET
The money market is a market for short-term funds, which deals in financial assets whose period
of maturity is up to one year. It should be noted that money market does not deal in cash or
money as such but simply provides a market for credit instruments such as bills of exchange,
promissory notes, commercial paper, treasury bills, etc. These financial instruments are close
substitute of money. These instruments help the business units, other organizations and the
Government to borrow the funds to meet their short-term requirement. Money market does not
imply to any specific market place. Rather it refers to the whole networks of financial institutions
dealing in short-term funds, which provides an outlet to lenders and a source of supply for such
funds to borrowers. Most of the money market transactions are taken place on telephone, fax or
Internet. The Indian money market consists of Reserve Bank of India, Commercial banks, Co-
operative banks, and other specialized financial institutions. The Reserve Bank of India is the
leader of the money market in India.
Some Non-Banking Financial Companies (NBFCs) and financial institutions like LIC, GIC, UTI,
etc. also operate in the Indian money market.

10
MONEY MARKET INSTRUMENTS:

Following are some of the important money market instruments or securities.

(a) Call Money: Call money is mainly used by the banks to meet their temporary requirement of
cash. They borrow and lend money from each other normally on a basis. It is repayable on demand
and its maturity period varies in between one day to a fortnight. The rate of interest paid on call
money loan is known as call rate.

(b) Treasury Bill: A treasury bill is a promissory note issued by the RBI to meet the short-term
requirement of funds. Treasury bills are highly liquid instruments, which means, at any time the
holder of treasury bills can transfer of or get it discounted from RBI.
These bills are normally issued at a price less than their face value; and redeemed at face value.
So the difference between the issue price and the face value of the Treasury bill represents the
interest on the investment. These bills are secured instruments and are issued for a period of not
exceeding 364 days. Banks, Financial institutions and corporations normally play major role in the
Treasury bill market.

(c) Commercial Paper: Commercial paper (CP) is a popular instrument for financing working
capital requirements of companies. The CP is an unsecured instrument issued in the form of
promissory note. This instrument was introduced in 1990 to enable the corporate borrowers to raise
short-term funds. It can be issued for period ranging from 15 days to one year. Commercial papers
are transferable by endorsement and delivery. The highly reputed companies (Blue Chip
companies) are the major player of commercial paper market.

(d) Certificate of Deposit: Certificate of Deposit (CDs) are short-term instruments issued by
Commercial Banks and Special Financial Institutions (SFIs), which are freely transferable from

11
one party to another. The maturity period of CDs ranges from 91 days to one year. These can be
issued to individuals, co-operatives and companies.

(e) Trade Bill: Normally the traders buy goods from the wholesalers or manufactures on credit.
The sellers get payment after the end of the credit period. But if any seller does not want to wait
or in immediate need of money he/she can draw a bill of exchange in favor of the buyer. When
buyer accepts the bill it becomes a negotiable instrument and is termed as bill of exchange or trade
bill. This trade bill can now be discounted with a bank before its maturity. On maturity the bank
gets the payment from the drawer i.e., the buyer of goods. When trade bills are accepted by
Commercial Banks it is known as Commercial Bills. So trade bill is an instrument, which enables
the drawer of the bill to get funds for short period to meet the working capital needs.

CAPITAL MARKET
Capital Market may be defined as a market dealing in medium and long-term funds. It is an
institutional arrangement for borrowing medium and long-term funds and which provides facilities
for marketing and trading of securities. So it constitutes all long-term borrowings from banks and
financial institutions, borrowings from foreign markets and raising of capital by issue various
securities such as shares debentures, bonds, etc. In the present chapter let us discuss about the
market for trading of securities.
The market where securities are traded known as Securities market. It consists of two different
segments namely primary and secondary market. The primary market deals with new or fresh issue
of securities and is, therefore, also known as new issue market; whereas the secondary market
provides a place for purchase and sale of existing securities and is often termed as stock market or
stock exchange.

PRIMARY MARKET
The Primary Market consists of arrangements, which facilitate the procurement of long-term funds
by companies by making fresh issue of shares and debentures. You know that companies make

12
fresh issue of shares and/or debentures at their formation stage and, if necessary, subsequently for
the expansion of business. It is usually done through private placement to friends, relatives and
financial institutions or by making public issue. In any case, the companies have to follow a well-
established legal procedure and involve a number of intermediaries such as underwriters, brokers,
etc. who form an integral part of the primary market.

SECONDARY MARKET
The secondary market known as stock market or stock exchange plays an equally important role
in mobilizing long-term funds by providing the necessary liquidity to holdings in shares and
debentures. It provides a place where these securities can be encased without any Difficult and
delay. It is an organized market where shares, and debentures are traded regularly with high degree
of transparency and security. In fact, an active secondary market facilitates the growth of primary
market as the investors in the primary market are assured of a continuous market for liquidity of
their holdings. The major players in the primary market are merchant bankers, mutual funds,
financial institutions, and the individual investors; and in the secondary market you have all these
and the stockbrokers who are members of the stock exchange who facilitate the trading.

13
1.2 Types of Financial Instruments in India

1. Equities:

It is a type of security that represents the ownership of a company. Equities are traded in stock
markets. It can also be purchased through Initial Public Offerings (IPO), whenever a company
issues shares to the public for the first time. In India, share trading actively happens in stock
exchanges; prominent ones are BSE (Bombay Stock Exchange) and NSE (National Stock
Exchange). It is one of the best options to invest in equities over an extended period as it will
fetch good returns. It is also subject to market-related risk, and one needs to do thorough research
before investing in equities. Equity shares constitute permanent capital for the firm and it cannot
be redeemed during the lifetime of the company and as per the Companies Act of 1956, a
company cannot purchase its own shares during its existence. At the time of liquidation, the
equity shareholders can demand the refund of their capital amount and the same will be paid
after meeting all the other prior claim including preference shareholders.

2. Mutual Funds in India:

Mutual Funds are top-rated because the initial investment amount is very less and the risk is
diversified. Mutual funds allow a group of individuals to invest their money together. The
investment avenue is famous because of cost-efficiency, risk-diversification, professional
management and sound regulation. The minimum amount to be invested can be as small as INR
500, and the frequency of investment is usually monthly or quarterly. Mutual Funds are financial
instruments. These funds are collective investments which gather money from different investors
to invest in stocks, short-term money market financial instruments, bonds and other securities
and distribute the proceeds as dividends. The Mutual Funds in India are handled by Fund

14
Managers, also referred as the portfolio managers. The Securities Exchange Board of India
regulates the Mutual Funds in India. The unit value of the Mutual Funds in India is known as net
asset value per share (NAV). The NAV is calculated on the total amount of the Mutual Funds in
India, by dividing it with the number of units issued and outstanding units on daily basis.

3. Bonds:
Bonds are fixed income instruments which are issued to raise working capital. Both private
entities, such as companies, financial institutions, and the central and state government institutions
issue this to raise funds. The bonds issued by the government carries the lower rate of risk but
guarantees returns. The bonds issued by private institutions have high risks.
Bonds have long been considered the boring, poorer performing alternative to stocks. However, in
most portfolios, there is an important role to be played by bonds and it is crucial to understand the
nature of this alternative to the stock market.
Bond is basically a loan. The owner of a bond has given the issuer-whether it be a corporation, a
government or another agency-a sum of money that can be used at any point. In exchange, the
issuer will pay interest to the bondholder over a period of time and will eventually return the initial
amount loaned, called the principal. Unlike a stock, the bondholder does not own a part of the
company.

4. Deposits:
Investing the money in banks or post-office is one of the standard method of savings followed in
India. The risk factor involved is zero, and the return on investment is guaranteed.

5. Cash and Cash Equivalents:

These are relatively safe and highly liquid investment options. All the securities that can be
immediately converted into cash within three months are known as cash and cash equivalents.
Treasury bills, gold, money market funds are cash equivalents.

15
6 .Futures and Options:
Derivatives Instruments are a Financial Contracts which solve the primary purpose of hedging the
asset price fluctuation. It Derives value from its underlying assets, hence it is called as derivatives.
There are various types of derivative used worldwide, but in India currently we have Two
Exchange Traded Derivatives namely Futures and Options

Call option and Put option-

Apart from hedging, trader uses these instruments as it offers better leverage, convenience in
holding Long and Short positions, Low Cost to trade compared to Equity delivery and enable
traders to profit sideways movement using options.

Futures contracts gives Rights with Obligations to the Traders, hence the open position is settled
on the maturity date. Option Contracts gives Rights to the Buyer with NO OBLIGATION, hence
he needs to pay some premium to the seller to get the contract. Seller of the Option has the
Obligations

Call Option Buyers – Has Rights to Buy

Put Option Buyers – Has Rights to Sell

• Commodity Futures Contracts

A futures contract is an agreement for buying or selling a commodity for a predetermined delivery
price at a specific future time. Futures are standardized contracts that are traded on organized
futures exchanges that ensure performance of the contracts and thus remove the default risk. The
commodity futures have existed since the Chicago board of trade was established in 1848 to bring
farmers and merchants together. The major function of futures market is to transfer price risk from
hedgers to speculators. For example, suppose a farmer is expecting his crop of wheat to be ready
in two months‟ time, but is worried that the price of wheat may decline in this period. In order to
minimize his risk, he can enter into a futures contract to sell his crop in two months‟ time at a price
determined now. This way he is able to hedge his risk arising from a possible adverse change in
the price of his commodity.

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• Commodity Options Contracts
Like futures, options are also financial instruments used for hedging and speculation. The
commodity option holder has the right, but not the obligation, to buy or sell a specific quantity of
a commodity at a specified price on or before a specified date.

Option contracts involve two parties – the seller of the option, who writes the option in favour of
the buyer, who pays a certain premium to the seller as a price for the option. There are two types
of commodity options: a „call‟ option gives the holder a right to buy a commodity at an agreed
price, while a „put‟ option gives the holder a right to sell a commodity at an agreed price on or
before a specified date called expiry date.
Futures and options trading therefore helps in hedging the price risk and also provide investment
opportunity to investors who are willing to assume risk for a possible return. Further, futures
trading and the ensuing discovery of price can help farmers in deciding which crops to grow.
They can also help in building a competitive edge and enable businesses to smoothen their
earnings because non-hedging of the risk would increase the volatility of their quarterly earnings.
Thus futures and options markets perform important functions that cannot be ignored in modern
business environment.
Commodity markets are markets where raw or primary products are exchanged. These raw
commodities are traded on regulated commodities exchanges, in which they are bought and sold
in standardized contracts.

The terms commodities and futures are often used to depict commodity trading or futures
trading. It is similar to the way stocks and equities are used when investors talk about the stock
market. Commodities are the actual physical goods like gold, crude oil, corn, soy beans, etc.
Futures are contracts of commodities that are traded at a commodity exchange like MCX. Apart
from numerous regional exchanges, India has three national commodity exchanges namely,
Multi Commodity Exchange (MCX), National Commodity and Derivatives Exchange (NCDEX)
and National Multi-Commodity Exchange (NMCE).

Forward Markets Commission (FMC) is the regulatory body of commodity market. It is one of a
few investment areas where an individual with limited capital can make extraordinary profits in a
relatively short period of time. Selected information about the most important commodity
exchanges in India is given here.
17
Investment Avenues

By Investment Avenue we mean a particular organization or system in which an investor can

place his surplus funds with the objectives of having certain gains in the future. This organization
may be well organized like a bank, financial institution, mutual funds and company or in an
unorganized manner like chit fund organization, Nidhis (a type of non-banking finance
company) or curry (a type of non-banking finance company in southern India). Different
investment avenues have different features; few offer a fixed return and certain others offer stock
market based returns and yet certain others offer a mix of these two. Few of these have an
element of safety and yet others do not have any kind of safety. In certain cases these are in
negotiable form and in other cases these are non-negotiable. Investment avenues of a country are
subject to different rules and regulations of either the government or some apex body like
Reserve Bank of India, NABARD, SEBI or Companies Act. Following are the features of
investment avenues.

• A place where one can invest his surplus

• Fixed or floating return

• Security vs. Non-security form

• Investment accepting organization might have an obligation or not Negotiable vs. Non-
negotiable.

• Risk is the inherent part of every avenue

• May be in an organized form or unorganized form

• Market oriented vs. others

Investment avenues can be broadly divided into following types.

• Security form

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• Non security form

• Traditional form

• Other emerging avenue

1.3 ANALYSIS OF INSTRUMENTS:

Overview:-
There are many ways to invest your money. Of course, to decide which investment vehicles are
suitable for you, you need to know their characteristics and why they may be suitable for a
particular investing objective.

• Debt Market

• Public Provident Fund

• Fixed Deposits

• Bonds

• Mutual Funds

• Banks Deposits

• Equity Market

• Initial Public Offer

• Insurance

• Forex

• Cash

19
• Gold

• Real Estate

20
Features of different types of financial instruments
1. DEBT INSTRUMENTS:

21
Debt instruments protect your capital, therefore the importance of a solid debt portfolio. This not
only gives stability, but also offers you optimal returns, liquidity and tax benefits. Debt products,
besides safeguarding your capital, can be used to meet short, medium and long-term financial
needs.

1.1 SHORT TERM INVESTMENT

They are good for short term goals, you can look at liquid funds, floating rate funds and
short term bank deposits as options for this category of investments. Liquid funds have
retuned around 5% post-tax returns as compared to 5.6% post-tax that your one-year 8%
bank fixed deposit gives you. So, if you have funds for investment for over a period of one
year, it is better to go in for bank deposits. However, liquid funds are better, if your time
horizon is less than one-year, say around six months. This is because the bank deposit rates
decrease proportionately with Lower periods, while liquid funds will yield the same
annualized returns for any period of time. Short-term floating rate funds can be considered
at par to liquid funds for short term investments.
a) Fixed Maturity Plan (FMP): If you know exactly for how much time you need to invest
your surplus, a smarter option is to invest in FMPs. They are shorter-tenured debt schemes
that buy and hold securities till maturity, thereby eliminating the interest rate risk. Try and
opt for FMPs that offer a double indexation benefit. Fund houses usually launch double-
indexation FMP’s during the end of the financial year so that they cover two financial year
closings.

1.2. Medium & Long-Term Options

These options typically offer low or virtually no liquidity. They are, however, largely useful as
income accumulation tools because of the assured interest rates they offer. These instruments
(small savings schemes) should find place in your long-term debt portfolio.

22
23
2. BONDS

2.1. Overview

It is a fixed income instrument issued for a period of more than one year with the purpose of
raising capital. The central or state government, corporations and similar institutions sell bonds.
A bond is generally a promise to repay the principal along with a fixed rate of interest on a
specified date, called the Maturity Date. The main attraction of bonds is their relative safety. If
you are buying bonds from a stable government, your investment is virtually guaranteed, or risk-
free. The safety and stability, however, come at a cost. Because there is little risk, there is little
potential return. As a result, the rate of return on bonds is generally lower than other securities.

2.2. Tax Saving Bonds

These are those bonds that have a special provision that allows the investor to save on tax.

Examples of such bonds are:

a) Infrastructure Bonds
b) Capital Gains Bonds

a. Rural Electrification Corporation (REC) Bonds

b. National Highway Authority of India (NHAI)
c. National Bank for Agriculture & Rural Development
c) RBI Tax Relief Bonds

24
25
3. MUTUAL FUNDS

3.1. Overview

A mutual fund is a body corporate registered with SEBI that pools money from the
Individuals/corporate investors and invests the same in a variety of different financial Instruments
or securities such as Equity Shares, Government Securities, Bonds, Debentures, etc. The income
earned through these investments and the capital appreciations realized are shared by its unit
holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most
suitable investment for the common man as it offers an opportunity to invest in a diversified,
professionally managed basket of securities at a relatively low cost.

Mutual fund units are issued and redeemed by the Asset Management Company (AMC) based on
the fund’s net asset value (NAV), which is determined at the end of each trading session. Mutual
funds are considered to be the best investments as on one hand it provides good Returns and on
the other hand it gives us safety in comparison to other investments avenues.

26
Important Factors to Consider Before Choosing Mutual Fund:

1. Investment objective and style

There’s an objective that every mutual fund, without exceptions, follow. This helps them to
determine and invest in various asset classes that would help meet the objectives. Check if the
fund’s objective and yours align so that your goals are also fulfilled. Choosing a fund with
similar objective makes your investment reach its goal faster and better.

As for the style, you can choose from large cap, mid cap, small or micro-cap, multi-cap and flexi
cap funds. These are market capitalizations though which you can structure your portfolio better.
You must also assess the fund’s management style to know how well it would be able to handle
your money.

2. Fund performance

The performance needs to be considered because it gives you an idea of how it has handled
money in the past over a period of time. Ensure that you measure the performance over a
significantly long period so that you know the pattern and can make a good judgment. You may
want to look into what kind of risks the fund has exposed you to over a period of time. Also,
check if there was any clogging of risk-adjusted returns. Review the various portfolio that was
held by them and how often was it churned. This should give you the entire snapshot of the
fund’s performance.

3. Experience of the fund manager

This plays a significant role in generating returns. How? A fund manager has to keep moving the
capital in the direction where the market seems promising. This requires expertise and experience.
Besides their tenure also help you determine how reliable they are. The fund performance is largely
impacted by the fund manager’s expertise and tenure and thus, it becomes crucial to be sure who
you are entrusting your hard-earned money to.

27
4. Expense ratio

This is usually considered when you invest in an equity fund. The higher the expense ratio, the
more it affects you directly. It comprises of the brokerage fees and other costs that the mutual fund
houses charge from investors. Hence, you need to see if the charges are not over the top. However,
there are funds that charge high but make it up by offering a higher NAV or better returns. So
consider these also while checking the expense ratio.

5. Exit load

Exit load is another cost that you directly incur. It is a fraction of the NAV that you receive and
thus, leaves a hole in your investment value. So, the lower exit load a fund offers, the better is it
for you. Having said that, it only comes into play if you wish to sell your units. It is always
beneficial that you stay invested for a long term to reap good returns from any mutual fund.

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4. EQUITY

4.1. Overview

Equities are often regarded as the best performing asset class vis-à-vis its peers over longer time
frames. However equity-oriented investments are also capable of exposing investors to the highest
degree of volatility and risk. There are a number of factors, which affect the performance of
equities ad studying and understanding all of them on an ongoing basis, can be challenging for
most.

Stock markets have always been a draw for investors for their ability to generate wealth over the
long-term. Fear, greed and a short-term investment approach act as hurdles that frustrate the
investor from achieving his/her investment goals. You need to keep in mind the risk associated
with the stocks. You also need to diversify your equity portfolio i.e., include more stocks and
sectors. This helps you diversify your investment risk, so even if something were to go wrong with
a stock/industry in your portfolio, other stocks/industries should help you shore up your portfolio.

Two important resources that are critical to investing directly in stock markets are quality stock
research and a reliable and inexpensive stock broker. The first one – research on stocks is the most
critical input that investors need to identify before they begin investing in stock markets. This is
because even while you may have the risk appetite for equities, you still need credible, stock
market related research that can help you make the right investment decision.

The good thing about the Indian market, riding on the back of an economy that has grown by over
7% in the last two years, is that you can’t miss being part of growth if you invest in the stock
markets carefully. The bad part is the CHOICE! Of the listed 4,758 stocks on BSE and the NSE,
how do you even get close to taking a call? Here comes the need of a financial advisor who can
make your investment decisions and monitor your funds. Clearly, as Indians earn more, save more
and accumulate more, financial advisors will play a crucial role in helping individuals create,
protect and manage wealth.

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Some of the main differences between mutual funds and equity can be seen
below

 Risk
Mutual funds are usually considered to be best suited for those individuals who have a low
risk profile or are risk-averse by nature. However, investors in equity or individual stocks
tend to be more active with a penchant for taking risks. In this sense, mutual funds are seen
as a ‘safer’ bet in comparison to equity stocks, due to their low risk quotient.
 Returns
While mutual funds offer investors very decent returns over a period of time, equity stocks
have the potential to bring the investor extremely high returns over a much shorter period
of time. Investing in stocks can be tricky, and is usually only done by individuals with an
in-depth understanding of market conditions.
 Volatility
Equity stocks or individual stocks are very volatile by nature. The value of these
investments could skyrocket or plummet within an extremely short span of time, leading
to either massive profits or damaging losses. However, mutual funds are a much more
stable form of investment due to its diversity. This makes it a less volatile form of
investment since all gains and losses are spread out over a wider range of stocks.
 Convenience
Individuals who invest in mutual funds enlist the services of a fund manager who takes
care of his or her portfolio, making it an extremely convenient form of investment.
However, investing in equity requires the individual to constantly monitor his or her
investments due to the ever-changing nature of individual stocks.
 Costs
Trading in individual or equity stocks usually comes at a huge cost. Sometimes, any profits
made from the sale of a stock can be wiped out due to the high trading cost involved. This
is one of the reasons why only those investors with a high risk profile tend to invest in
equity. Trading in mutual funds, however, comes at a much lower cost since these expenses
are spread over all portfolios within the fund.

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5. INSURANCE

5.1. Overview

Life insurance has traditionally been looked upon pre-dominantly as an avenue that offers tax
benefits while also doubling up as a saving instrument. The purpose of life insurance is to
indemnify the nominees in case of an eventuality to the insured. In other words, life insurance is
intended to secure the financial future of the nominees in the absence of the person insured.
The purpose of buying a life insurance is to protect your dependents from any financial difficulties
in your absence. It helps individuals in providing them with the twin benefits of insuring
themselves while at the same time acting as a compulsory savings instrument to take care of their
future needs. Life insurance can aid your family on a rainy day, at a time when help from every
quarter is welcome and of course, since some plans also double up as a savings instrument, they
assist you in planning for such future needs like children’s marriage, purchase of various household
items, gold purchases or as seed capital for starting a business.
Traditionally, buying life insurance has always formed an integral part of an individual’s annual
tax planning exercise. While it is important for individuals to have life cover, it is equally important
that they buy insurance keeping both their long-term financial goals and their tax planning in mind.
This note explains the role of life insurance in an individual’s tax planning exercise while also
evaluating the various options available at one’s disposal.
Life is full of dangers, but with insurance, you can at least ensure that you and your dependents
don’t suffer. It’s easier to walk the tightrope if you know there is a safety net. You should try and
take cover for all insurable risks. If you are aware of the major risks and buy the right products,
you can cover quite a few bases. The major insurable risks are as follows:
• Life
• Health
• Income
• Professional Hazards
• Assets

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6. GOLD

6.1. Overview

In India, gold has traditionally played a multi-faceted role. Apart from being used for adornment
purpose, it has also served as an asset of the last resort and a hedge against inflation and currency
depreciation. India has more than 13,000 tons of hoarded gold, which translates to around Rs.6,
50,000 crores. Gold is an asset class that’s associated with safety.
However, the ups and down that the yellow metal has seen over the last few months, has made it
look similar to other market investment assets. This is due to an unprecedented demand for gold
as an investment avenue since the last couple of years.
Gold has attracted a high level of attention in last couple of years, with an image shift from a non-
volatile asset to a hot investment avenue. The future outlook for the metal looks positive given its
proven linear relationship with the crude oil and non-linear with the US dollar. The much-awaited
gold exchange-traded funds would provide a very good vehicle to the investors and a sensible
alternative to the current forms available for investment.
Gold has got lot of emotional value than monetary value in India. India is the largest consumer of
gold in the world. In western countries, majority of stock of gold is kept in central banks. But in
India, people use gold mainly as jewels. When look at gold in a business sense, anybody can
understand that gold is one of the all-time best investment tool in India. Following data shows
Indian gold market current scenario.

Size of the gold economy in India is more than Rs. 30000 crores.
Number of gold jewelry manufacturing units is almost 100000.
Number of people employed more than 500000.
Gems & Jewellery constitute 25 percent of Indians exports and about 10 percent of our import bill
constitutes gold import.
Official estimates of the stock of gold in India are 9000 tons; unofficial estimates of the stock of
gold in India are 12000 to 14000 tons.
Gold held by the reserve bank of India as on 31st March, 2010 was 358 tons.
Gold production in India is 2 tons per annum.

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India has the highest demand for gold in the world and more than 90 percent of this gold is acquired
in the form of jewellery. The movement of gold prices is one of the important variables
determining demand for gold. The increase in the irrigation, technological change in agriculture
have generated large marketable surplus; and a highly skewed rural income distribution is another
factors contributing to additional demand for gold.

Advantages of Investing in Gold

Gold has been a useful commodity throughout the economic history of mankind. In the earlier
civilizations gold used to be a currency itself. There used be to coins made of gold and silver. The
gold remained in the market as a standard for trading purposes till the beginning of the 20th
century. In the second half of the previous century gold was replaced by paper currencies the world.
Here are the few benefits of investing in gold.

A) Stability in Trading Value: Although there have been some down turns but over the last few
decades gold has overall seen a surge in its value. It has been used as a way of preserving wealth.
Take the example of its equivalence to US dollar. In the early 70s, one ounce of gold equaled 35
$ which has now risen to 1000$. The value of dollar might have decreased due to various reasons
chief of them being an increase in the amount of money available in the market.

B)Economic Weapon

From the various statistics of the central banks and IMF it is evident that almost one Fifth of the
reserves are in the form of gold. Had the gold not been a symbol of security the economists would
have never preserved the wealth of the country in the form of the gold. It is also used against the
inflation. The buying power of the gold owner is preserved or increases with the increase of
inflation. Inflation can harm in the long run when buying goods at an increased price or when
currency is devalued.

C) Lesser Production of Gold Like any other mineral gold reserves have also started to deplete.
This has resulted in lesser production of gold from the gold producing countries. On the other hand

33
the human population is increasing all the time. This has automatically resulted in a supply demand
gap which in turn increases the price of gold further.

D) Diversification Gold also provides a choice with a diversification in assets. Gold is not
dependent on the values of stocks, securities or bonds. Statistics show that over a period an increase
in value of one commodity has shown a decrease in the value of other commodity.

E) Immune Gold has immune from the geo political situations. Throughout the history of mankind
there have been a variety of changes in political landscapes of the different countries, resulting in
a collapse of their monetary system. But gold is not a property of only one nation. Its value has the
same effect on all the currencies.

Disadvantages of Investing in Gold

Gold investment is no doubt a thrilling option. However they are not free from limitations. Many
investors blindly take decisions on the basis of the ups and downs in the stock markets and this
creates havoc especially when the gold market is demonstrating a different behavior. Gold
investment is very important as it contributes to the national and international economy. Here are
few disadvantages to invest in gold.

A) Massive Growth Potential is Curtailed Right Now Gold has seen a near meteoric rise in
value over the last decade, but that has mostly been exhausted. What that means to potential
investors is that gold has much strength, but massive growth potential is not one of them. The
problem for gold in growth terms is that the market itself is highly evaluated. Everyone knows
the value of investing in gold and that takes away a lot of the opportunity. In other markets,
there are opportunities and sectors where people still have not discovered the potential that
exists. The value of gold is likely to rise slowly in the coming years, but other options are also
available that enjoys rapid growth potential.

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B) Lack of Constant Revenue from Dividends With many investment types, like real estate or
stocks, investors can reap the rewards of their investment without having to sell their asset. This
happens with dividends, which comes from stocks and come in the form of rent payments when
own a real estate property. The good thing about dividend earnings is that investor can take the
money from those items and reinvest right back in the investment. Real estate owners take their
money and put it back into the property, adding value. Stock investors typically just reinvest their
dividends automatically in order to purchase more stock. Gold does not offer any dividends. When
investor purchase coins, bars or bullion, he or she own those items and the value is derived when
sell them. This is a downside that investors have to consider, because many of them depend upon
the residuals to further investments. Though gold provides a nice, steady, stable investment type,
it does not offer extra “perk” that is often seen a staple of the financial world.

C) Must Provide Physical Storage Space for Gold One of the important things that many gold
investors cite as a positive can be considered a negative by others. Investors who buy gold typically
like to have it on hand.

They do this because the entire point of gold is to have something tangible in case the system
itself fails miserably. Though investors can have certificates to account for their gold ownership,
this defeats the purpose of investing in gold in the first place. With that in mind, if investor own
actual physical gold, they need to have safe place to store it. Because gold coins are small and can
be easily stolen, investor cannot leave them laying around. If it is not properly stored then it can
be dangerous to keep gold in home. Gold investment has its own advantages and disadvantages
and investors are very well aware about opportunities and threats for investing in gold. But in a
current scenario it is desirable to have solid gold investment in investor’s portfolio.

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7. REAL ESTATE

7.1. Overview

Real estate is a great investment option, as it gives you capital appreciation and rental income. It’s
an investment option since it fights inflation. The fundamentals for investing in property markets
remain strong in India - relatively low interest rates, strong capital flows, high employment growth,
abundant liquidity, attractive demographics (young population and migration from West), increase
in affordability, and a large supply of stock to keep up with demand and focus on quality. The
price you pay for a property should reflect the future rent/income at which you let it. As in the
stock market, the prices in real estate are also driven by sentiments. All that is required to reverse
a price movement is a change in sentiment.

saving for a home the moment you begin your career. Early acquisition helps you to repay your
home loan well within your working life. Also, the EMI as a percentage of your salary decreases
as your pay increases making the outflows more affordable. If you lock into the interest rate for
the loan, the interest outflow will be less than the compounding effect of Inflation.

You should be very clear about why you want to invest in real estate. It is a very good tool for
wealth creation but like all other assets, has its share of risks. Careful planning, however, can
minimize the risks.

The growth curve of Indian economy is at an all-time high and contributing to the upswing is the
real estate sector in particular. Investments in Indian real estate have been strongly taking up over
other options for domestic as well as foreign investors. The boom in the sector has been so
appealing that real estate has turned out to be a convincing investment as compared to other
investment vehicles such as capital and debt markets and bullion market.

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Advantages of Investment in Properties
In general, property is considered a fairly low-risk investment, and can be less volatile than
shares. Some of the advantages of investing in property includes following.

A) Tax Benefits
A number of deductions can be claimed on tax return, such as interest paid on the loan, repairs
and maintenance, rates and taxes, insurance, agent's fees, travel to and from the property to
facilitate repairs, and buildings depreciation.

B) Negative Gearing
Tax deductions can also be claimed as a result of negative gearing, where the costs of keeping
the investment property exceed the income gained from it.

C) Long - Term Investment

Many people like the idea of an investment that can fund them in their retirement. Rental
housing is one sector that rarely decreases in price, making it a good potential option for long-
term investments.

D) Positive Asset Base

There are many benefits from having an investment property when deciding to take out another
loan or invest in something else. Showing potential lender that have the ability to maintain a loan
without defaulting will be highly regarded. The property can also be useful as security when
taking out another home, car or personal loan.

E) Safety Aspect
Low-risk investments are always popular with untrained "mum and dad" investors.. Housing in
metropolitan areas is constantly in demand with the high purchase price being offset by
substantial rental income and a yearly return of between 6 to 9 percent.

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F) High Leverage Possibilities
Investment properties can be purchased at 80 percent LVR (loan to valuation ratio), or up to 90
percent LVR with mortgage insurance. The LVR is calculated by taking the amount of the loan
and dividing it by the value of the property, as determined by the lender. This high leverage
capacity results in a higher return for the investor at a lower risk due to less personal finance ties
up in the property. By choosing a property intelligently, investors can make this form of
investment work for them. However, as with all investments there are some disadvantages to be
aware of. Disadvantages of investment properties includes the following.

G) Liquidity

Investor can sell the property if things go bad, but however this can take many months unless
willing to accept a price less than the property is worth. Unlike the stock market, investor will
have to wait for any financial rewards.

H) Putting all your Eggs in one Basket

If investor has tied up all money in property, overexposure to one particular type of investment
can be a dangerous thing. If the property market crashes investor can stand to lose significantly.

I) Capital Gain Tax

Capital gain tax is imposed by the federal government on the appreciation of investments and
payable on disposal. Increase in tax rates reduces the amount of appreciation benefit.

J) Other Costs
Negative gearing may offer tax deductions each financial year, however ongoing payments to
cover the shortfall need to be budgeted for every month. Also, costs involved in purchasing and
disposing of the property can be substantial.

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8) FOREX

8.1 Overview
If you read about investing, you've seen the word forex trading. But because forex doesn't get much
publicity in the major publications and websites, many investors don't know that forex is just short
for "foreign exchange". So trading the forex market is simply trading foreign currencies.
As recently as ten years ago, currency trading had high barriers to entry, so only large banking and
institutional firms had access to the tools and systems required to play in the forex trading game.
Recently, however, technology has developed to the point that any individual investor can hop
right in and trade with one of the many online platforms.

The foreign exchange market also known as FOREX. FOREX or currency market is a global,
worldwide decentralized over the counter financial market for trading currencies. Financial centers
around the world function as anchors of trading between a wide range of different types of buyers
and sellers round the clock, with the exception of weekends. The foreign exchange market
determines the relative values of different currencies.The primary purpose of the foreign exchange
is to assist international trade and investment, by allowing businesses to convert one currency to
another currency. For example, it permits a US business to import British goods and pay Pound,
even though the business's income is in US dollars. It also supports speculation, and facilitates the
carry trade, in which investors borrow low-yielding currencies and lend or invest in high-yielding
currencies, and which may lead to loss of competitiveness in some countries.
In a typical foreign exchange transaction, an investor purchases a quantity of one currency by
paying a quantity of another currency. The modern foreign exchange market began forming during
the 1970s when countries gradually switched to floating exchange rates from the previous
exchange rate regime, which remained fixed as per the Bretton Woods system.

The foreign exchange market is unique because of:-

• Its huge trading volume, leading to high liquidity;

• Its geographical dispersion;

• Its continuous operation: 24 hours a day except weekends;

• The variety of factors that affect exchange rates;

39
• The low margins of relative profit compared with other markets of fixed income; and
• The use of leverage to enhance profit margins with respect to account size.

When buying and selling in the forex currency trading system market, you'll see that there are four
"currency pairs" that dominate the percentage of trades. Those four are the Euro vs U.S. Dollar,
US Dollar vs Japanese Yen, US Dollar vs Swiss Franc, and US Dollar vs British Pound.

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9) FIXED DEPOSITS

Same as a term or time deposit. Money may be placed with a bank, merchant bank, building society
or credit union for a fixed term at a fixed rate of interest which remains unchanged during the
period of the deposit. Depositors may have to accept an interest penalty if they break the deposit,
ie, ask to take the money out before the agreed period has expired.
Few points which FD investors must consider at the time of investment,

1. Safety
FD have conventionally been the premier choice for investors with a low risk appetite; assured
returns is the key factor which attracts investors towards deposits. Stick to FDs of the highest credit
rating i.e. those with a “AAA” rating even if their rates seem modest vis-à-vis those offered by
company deposits.

2. Tenure
Short tenured fixed deposits continue to be your best bet. With interest rates on the ascent, a further
hike in rates offered by fixed deposits cannot be ruled out. Locking your investments in longer
tenured instruments may lead to an opportunity loss.

3. Liquidity
Find out how FD fares on the pre-mature encashment front i.e. how easily can your investment be
liquidated. Also enquire about the penalty clauses, e.g. do you suffer a loss of interest and/or
principal amount. Compare how various FDs rank on this parameter and pick the best deal; thereby
try to minimise the impact of illiquidity which is typically associated with FDs.

4. Additional benefits
Fixed deposits from reputed entities offer additional benefits, e.g. they can be used as collateral
against which loans can be raised. Select a fixed deposit scheme which scores favourably on such
parameters.
Any investment portfolio should comprise the right mix of safe, moderate and risky
investments.While mutual funds and stocks are the favorite contenders for moderate and risky
investments, fixed deposits, government bonds etc. are considered safe investments. Fixed deposits

41
have been particularly popular among a large section of investors in India as a safe investment
option for a long period.
With fixed deposits or FDs as they are popularly known, a person can invest an amount for a fixed
duration. The banks provide interest rates depending on this loan amount and the tenure of deposit.
Here are the benefits, drawbacks of fixed deposits and precautions one should take while making
such investments.

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10) Savings Bank Account
In a savings bank account, account holder has the option to deposit his small savings with the aim
to have safety and interest income on such deposit. Investor has the convenience of withdrawal of
his money through different mechanisms like by cheque, by withdrawal slip, through ATM card,
etc. Bank offers anywhere banking which offers operation of the bank account for deposit and
withdrawal from anywhere across the country at the designated branches. In a saving bank account
one can have limited number of transactions in each month and it has the restrictions that frequent
transactions cannot be made in this account. Although banks have a norm for maintaining
minimum balance in the savings bank account, yet there are the banks which offer zero balance
savings bank account. The main reason people use banks to hold their money isn't because of the
lucrative returns from interest rates - it is because the bricks, sensors and a tempered steel safe
convey a sense of security that a sock drawer can't match.

11) Chit Fund

Chit funds have been a popular savings scheme in several parts of India. It has paved it‟s way as
a convenient finance option amongst businessmen, small scale Industrialist and other small time
investors. Though very often shrouded by news of fraudulence, they have still managed to retain
their popularity. Chit funds evolved years ago, when the present system of banking did not exist.
Few families in a village would get together to form a chit or a group, to save money and to avail
of loans amongst the group formed. A sensible person is chosen to manage the group. This informal
system of saving prevailed only on trust. Gradually, as groups became larger and the money
involved became huge, many companies started chit fund schemes with attractive offers. Thus to
provide regulation for chit funds and for matters connected therewith, the government introduced
the Chit Funds Act in 1982.

A chit fund is a savings and borrowing scheme, in which a group of people enter into an agreement
to contribute fixed amounts periodically for a specified period of time. The amount so collected or
the chit value is distributed among each of the persons in turns, which is determined by way of lots
or an auction. Chit funds provide an opportunity to save excess cash on a daily, weekly or monthly

43
basis, and give an easy access to it in case of emergency. Chit fund schemes possess a
predetermined chit value and duration. The amount collected from members is auctioned out every
month. Bidders can bid up to a maximum of this total collected value. The difference between the
gross sum collected and the actual auction amount, known as the discount, is then equally
distributed among subscribers, or, is deducted from the next month‟s premium.

Benefits of Investing in Chit Fund

• It inculcates the habit of compulsory regular saving.

• It earns dividends every month. So the net effective rate of return proves to be pretty attractive.

• For any unexpected financial requirement, bidding for the lump sum amount, could prove to be
a better option than going through the hassles of a loan.
• Chit fund investments are not affected by any market fluctuations.
•Finance option through chit funds are easier to repay through the remaining monthly installments.

Drawbacks of Investing in Chit Fund

Chit-funds do not offer any predetermined or fixed returns. Higher returns are earned when there
are more number of members in the group or if the duration of the scheme is longer. One would
earn more, when more members need emergency funds. Thus returns cannot be calculated and
decided when one joins the scheme. With the plethora of chit fund companies around, the safety
of a chit fund lies in choosing the right one. In a registered chit fund company, under legal binding,
the activities are regulated and institutionalized by the chit fund act, and hence could be considered
safe. However, other unregistered companies operating informally do exist. One needs to exercise
caution while choosing where he desires to invest.

Chit funds definitely are an attractive option for regular saving. It inculcates a disciplined
approach to financial planning.

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13) Public Provident Fund
PPF is a 30 year old constitutional plan of the central government happening with the objective of
providing old age profits security to the unorganized division workers and self-employed persons.
Any individual salaried or non-salaried can open a PPF account. Investor may also pledge on
behalf of a minor, HUF, AOP and BOI. Even NRIs can open PPF account. A person can contain
only one PPF account. Also two adults cannot open a combined PPF account. The collective annual
payment by an individual on account of himself his minor child and HUF/AOP/BOI cannot exceed
Rs.70000 or else the excess amount will be returned without any interest.
The yearly contribution to PPF account ranges minimum Rs.500 to a maximum of Rs.70000
payable in multiple of Rs.500 either in lump sum or in convenient installments, not exceeding 12
in a year. The account will happen to obsolete if the required minimum of Rs.500 is not deposited
in any year. The account can be regularized by depositing for each year of default, arrears of Rs.500
along with penalty of Rs.100.A PPF account can be opened at any branch of State Bank of India
or its subsidiaries or in few national banks or in post offices.

On opening of account a pass book will be issued wherein all amounts of deposits, withdrawals,
loans and repayment together with interest due shall be entered. The account can also be transferred
to any bank or post office in India. Deposits in the account earn interest at the rate notify by the
central government from time to time. Interest is designed on the lowest balance among the fifth
day and last day of the calendar month and is attributed to the account on 31st March every year.
So to derive the maximum, the deposits should be made between 1st and 5th day of the month.
Even though PPF is 15 year scheme but the effectual period works out to 16 years i.e. the year of
opening the account and adding 15 years to it. The sum made in the 16th financial year will not
earn any interest but one can take advantage of the tax rebate. The investor is allowed to make one
removal every year beginning from the seventh financial year of an amount not more than 50
percent of the balance at the end of the fourth year or the financial year immediately preceding the
withdrawal, whichever is less. This facility of making partial withdrawals provide liquidity and
the withdrawn amount can be used for any purpose.

45
Features of PPF Account

• It is not necessary to make a deposit in every month of the year. The amount of deposit can be
varied to suit the convenience of the account holders.
• Those who are contributing to GPF fund or EPF account can also open a PPF account.

• No age is prescribed for opening a PPF account.

• Pre-mature closure of a PPF account is not permissible except in case of death.
• Nominee/legal heir of PPF account holder on death of the account holder cannot continue the
account, but account had to be closed.
• The account holder has an option to extend the PPF account for any period in a block of 5 years
on each time.
• The account holder can retain the account after maturity for any period without making any
further deposits. The balance in the account will continue to earn interest at normal rate as
admissible on PPF account till the account is closed.
• Deposits are exempt from wealth tax.

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Various factors which affects investment decision
1. CRR:

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI
decides to increase the percent of this, the available amount with the banks comes down. RBI is
using this method (increase of CRR rate), to drain out the excessive money from the banks.

How It Affects :
a) From a stock market perspective Rising interest rates have several implications including -

* slowing down the overall growth in the economy; this effectively means that demand for goods
and services, and investment activity, gets adversely impacted.

* apart from the fact that overall growth is impacted, companies take a hit on account of higher
interest costs that they have to bear on their outstanding loans (to the extent their cost of funds is
not locked in)

* since some investors tend to leverage and invest in the stock markets, higher interest rates
increase expectation of returns from the stock markets; this has the impact of lowering current
stock prices.
* an overall decline in stock prices has a cascading effect as leveraged positions are unwound (on
account of meeting margin requirements), leading to still lower stock prices.

b) From a debt market perspective If you are contemplating on investing monies in the debt market,
you will benefit from higher interest rates on offer. However, existing investors in debt oriented
funds may take a one time hit; but at the same time, since overall interest rates are higher, from
here on, such funds will yield higher return

c) From the perspective of borrower: As a prospective borrower, you are the worst hit. The cost
of money i.e. interest rates will rise post the CRR hike. You will probably need to settle in for a

47
lower loan amount given the EMI.
If you are an existing borrower, as long as the rate of interest on your loan is fixed, you are immune
to any rise in interest rates. However, if you have a floating rate loan, then expect either the tenure
of the loan or the EMI to jump soon.

2. Inflation:
Inflation is defined as an increase in the price of bunch of Goods and services that projects the
Indian economy. An increase in inflation figures occurs when there is an increase in the average
level of prices in Goods and services. Inflation happens when there are less Goods and more
buyers, this will result in increase in the price of Goods, since there is more demand and less supply
of the goods.

How it affects:
The investors have less money to invest if there is increase in prices of goods or increase in
inflation rate. So it restrict investor to invest in order to fulfill other needs.

3. Global factors:

If there is any change in global environment then it also affects the investors decision of
investment, as present scenario there is change in crude price which is very high due to that it
affects Indian economy as increase in rates of each product which results in high inflation rate.
Due to that investors have less amount for investment. Also these factors change the investors
mind of investment. Still if they want to invest they look to that instruments which are constant in
prices like gold. If they have handsome amount for investment then they look for real estate sector.
So due to these factors their investment decision goes affected and it changes their behavior pattern
towards investment.

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 Chapter 2)

RESEARCH METHODOLOGY

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 Objectives

The various objectives of the study are-

1) To study the various financial opportunities available for investment.

2) To study about the investors perception regarding various investment opportunities available
in the market.

3) To analyze the investment patterns of the investment.

4) To examine the investors changing behavior regarding various investment opportunities.

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

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 Limitation of the Study
Geographic Scope: The sample used for the study has been taken from the investors of Mumbai
city.

Frame work: Sampling frame (i.e the list of population members) from which the sample units are
selected was incomplete as it takes into consideration only those (target investors) who have made
their investments

.Although adequate care was taken to elicit the accurate information from the respondents.. Apart
from the problem faced in articulating, it is the validity of the feedback can be speculated. Despite
the above limitations the study is useful in that it does point out the trends and helps to identify the
dimensions for improving the scope of investment.

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 Sources of data

Primary data is data that is tailored to a company’s needs, by customizing true approach focus
groups, survey, field-tests, interviews or observation. Primary data delivers more specific results
than secondary research, which is an especially important consideration when one launching a new
product or service.

In addition, primary research is usually based on statistical methodologies. The tiny sample can
give an accurate representation of a particular market. Secondary data is based on information
gleaned from studies previously performed by government agencies, chambers of commerce, trade
associations and other organizations.

This includes census bureau information. Much kind of this information can be found in libraries
or on the web, but looks and business publications, as well as magazines and newspapers. Analysis
of individual investment patterns can be done by this primary data analysis. In this project I have
done a survey with a questionnaire with a sample size of 100 individuals who are employees ,
salaried person & students.

The questionnaire includes the economic status of the individuals, age group, etc.

Secondary data is used to the extent required. Reference is given in bibliography.

53
Nature of Research: Study is descriptive and analytical in nature. It is descriptive as it describes
the existing financial instruments available in the market. It is analytical as it analyses the
perception of the investors.,

Universe and Sample Size:-MUMBAI region have been taken as universe of the study.
Convenient sampling technique is used and a sample of 57 investors has been taken for the purpose
of the study.

Data Collection and Sources:-The study is based on both primary and secondary data. Following
are the sources of secondary data:

Research Instruments: Interview and questionnaire have been used to conduct the study. A
structured questionnaire consisting close-ended questions have been made, which is filled by the
trainee during direct interaction with the respondents.

Interviews have been taken of Relationship managers of different NBFC's and BANKS to seek the
investor’s behavior towards investment.

Analysis pattern: Critical examinations of various investment instruments have been done and a
comparison is made, based on their merits and demerits. The data collected form questionnaire is
edited, tabulated and analyzed. Various graphical techniques have been used to present the data in
more meaningful way.

54
 Chapter 3)

LITERATURE REVIEW

55
Various studies have been done to know Investors perception regarding various financial
opportunities available in market for investment. The different studies tell the perception of
investors i.e. where they want to invest and what they see at the time of investment. Large costs
associated with evaluating market conditions. Even Individual savers may not have the ability to
collect process and produce information on possible investments. High information cost may
prevent capital to flow to its highest value use. So Financial intermediaries undertake the costly
process of researching investment possibilities for others. Savers do not like risk; but high-return
projects are riskier; financial systems that ease risk diversification induce a portfolio shift towards
higher return project. Banks, mutual funds, securities markets provide vehicles for trading, pooling
and diversifying risk Risk diversification —> savings rate —> resource allocation —> economic
growth.

•Yameen (2001) delivered massage, investors will need to be alert to any new development in
capital market and take advantage of the Investor Education and Awareness Campaign program
which to be undertaken by the Capital Market Section to acquaint of the risks and rewards of
investing on the Capital market.Speech was also focused on to create a new breed of financial
intermediaries, which will deal on the market for their clients. They have to be professionals with
quite advanced knowledge on stock exchange operations, techniques, law and companies
valuation. Investors depend to a large extent on their professional advice when investing on the
market. Furthermore, these intermediaries must be men of integrity and honesty as they would deal
with clients‟ money Confidence of investors in these professionals is a key to the success of the
capital market.

•Makbul Rahim (2001) argued in his speech that the regulatory framework must provide the right
environment for the development and the growth of the market. High standards of probity and
professional conduct have to be maintained and reach world class standards. Integrity is very
important as well confidence. The development of a proper free flow ofinformation and disclosure
helps investors to make informed investment decisions.

•P. M. Deleep Kumar and G. Raju (2001) showed that the capital market is becoming more and
more risky and complex in nature so that ordinary investors are unable to keep track of its
movement and direction. The study revealed that the Indian market is probably more volatile than

56
developed country markets, which is probably why a much higher proportion of savings in
developed countries go into equities.

Peter Carr and Dilip Madan (2001) disclosed that generally does not formally consider
derivatives securities as a potential investment vehicles. Derivatives are considered at all, they are
only viewed as tactical vehicles for efficiently re-allocating funds across broad asset classes, such
as cash, fixed income, equity and alternative investments. They studied thatunder reasonable
market conditions, derivatives comprise an important, interesting and separate asset class,
imperfectly correlated with other broad asset classes. If derivatives are not held in our economy
then the investor confines his holdings to the bond and the stock and the optimal derivatives
position is zero.

•Prof. Peter McKenzie (2001) in his speech at seminar investors have a choice instead of placing
their money in only one company they can pick areas of growth and move their money, buying
and selling and placing it where it is going to be most profitable. The individual investor does not
have to make an individual decision where to place his savings. These decisions are made by an
expert fund manager, which would spread the risk by spreading the investments across different
sectors of the economy.

•Hong Kong Exchanges and Clearing Ltd. (2002) surveyed on derivatives retail investors, and
argued first based on empirical evidence that years of trading experience and usual deal size have
a positive correlation. Second, Male investors traded to trade more frequently than female
investors. Third, the usual deal size of investor with higher personal income traded to be larger.
Fourth majority of respondents are motivated by their stock trading experience to start derivatives
trading. Fifth, trading for profit is the key reason for derivatives trading other than high rate of
return, hedging, etc. Sixth, the most significant motivating factors are more liquid market and more
transparent market. Seventh, majority of traders are infrequent in trade- 3 times or less in a month
and Index futures is the most popular product to trade most frequently. Ninth, a large proportion
of the investors invest in exchange cash products than derivatives or investment avenues. Through
empirical evidence form investor‟s opinion, study argued that the liquidity of derivatives products
other than futures is low. High transaction costs or margin requirement is the barrier for active

57
participation in derivatives market. But also shows that more active traders do not have much
complaint towards transaction costs and margin requirement.

•M. Imamual Haque and Khan Ashfaq Ahmad (2002) argued that the sluggish trends in
primary equity markets need to be reverse by restoring investors‟ confidence in market. Savings
for retirement essential seek long term growth and for that investment in equity is desirable. It is a
well established fact that investments in equities give higher returns than debt and it would,
therefore, be in the interest of the banks to invest in equities.

•Warren Buffet (2002) argued that derivatives as time bombs, both for the parties that deal in
them and the economic system. He also argued that those who trade derivatives are usually paid,
in whole or part, on “earnings” calculated by mark-to-market accounting. But often there is no real
market, and “mark-to-model” is utilized. This substitution can bring on largescale mischief. In
extreme cases, mark-to-model degenerates into mark-myth.Many people argue that derivatives
reduce systemic problems, in that participant who can‟t bear certain risks are able to transfer them
to stronger hands. He said that the derivatives genie is now well out of the bottle, and these
instruments will almost certainly multiply in variety and number until some event makes their
toxicity clear.

•Swarup K. S. (2003) empirically found that equity investors first enter capital market though
investment in primary market. The main reason for slump in equity offering is lack of investor
confidence in the primary market. It appeared from the analysis that the investors give importance
to own analysis as compared to brokers‟ advice. They also consider market price as a better
indicator than analyst recommendations.

58
 Chapter 4)

DATA INTERPRETATION

59
Q.1 What do you think are the best option for investing your money ?
 Safe / low risk investments
 Moderate risk investments
 High risk investment
 Traditional investments

Choice No of respondents Percentages %

Safe / low risk 27 50

Moderate risk 20 37

High risk 8 14.08

Traditional 9 16.07

Total 64 100

60
 no of respondents

14%

13% 42% safe/ low

moderate
high
31%
traditional

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

61
 2. Are you aware of the following investment Avenue?
 Safe / low risk investments
 Moderate risk investments
 High risk investment
 Traditional investments

Choice No of respondents Percentages %

Safe / low risk 26 49.01

Moderate risk 28 52.08

High risk 15 28.03

Traditional 15 28.03

Total 84 100

respondents

18%
31% low / risk
moderate risk
18% high risk
traditional

33%

Interpretation:

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

62
 3. Reason for selecting this options.
 Low risk
 Medium risk, medium return
 High risk , high return

Choice No of respondents Percentages

Low risk 18 33.33

Medium risk, medium 30 55.60

return

High risk , high return 11 20.40

Total 59 100

no of respondents

19%
30%
low risk
meduim risk
high risk
51%

Interpretation:

From above we can say that 51% respondent for

medium, 30 % for low and 19% for high risk.

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

Choice No of respondents Percentages

private 22 41.5

Public 34 64.2

Foreign 1 1.9

Total 56 100

no of frespondents

2%

38%
private
public
60%
foreign

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

64
 5. What are your saving objective?

 Children education
 Retirement plans
 Home purchase
 Health care
 Others

Choice No of respondents Percentages

Children edu. 10 18.5

Retirement plan 11 20.4

Home purchase 28 51.9

Health care 14 25.9

Others 18 33.3

Total 81 100

no of respondents

12%
22%
14% child edu
retiremdent plans
17% home purchase

35% helth care

other

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

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

Choice No of respondent percentages%

Income and capital 19 31.75

Short term growth 6 9.52

Growth and income 17 26.98

Long term growth 20 31.75

Total 62 100

no of respondent

32% 31%
income and capital
short term growth
growth and income
10%
long term growth
27%

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

67
 7. What is the purpose behind investment.

 Wealth creation
 Tax savings
 Future expectation
 Earn return

Choice No of respondent Percentages%

Wealth creation 20 28.17

Tax savings 08 11.27

Future expectation 31 43.66

Earn return 12 16.90

Total 71 100

no of respondent

17%
28%

wealth creation
tax savings
11% future expectation
44%
earn return

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 Interpretation:

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

69
 8. At which rate do you want your investment to grow?

 Slow and steadily

 Average rate
 Fast rate

 At market rate

Choices No of respondent Percentages

Slow and steadily 7 11.67

Average rate 28 46.67

Fast rate 12 20

At market rate 13 21.67

Total 60 100

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 no of respondent

12%
22%

slow and steadily

average rate
20%
46% fastrate
at market rate

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

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

Choices No of respondent Percentages%

Yes 21 37.50

No 35 62.50

Total 56 100

no of respondent

37%
yes
no
63%

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

72
 10. What percentage of your income do you invest.

 0-5%
 5-15%
 15-25%
 25 & above

Choices No of respondent Percentage %

0-5% 16 31.37

5-15% 18 35.29

15-25% 12 23.53

25 & above 05 9.8

Total 61 100

no of respondent

10%
31%
24% 0-5%
5-15%
15-25%
35% 25 & above

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 Interpretation:

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

74
 11. What’s the time period you prefer.

 Short term (0-1 years)

 Medium term (1-5 years)
 Long term ( 5 & above)

Choice No of respondent Percentages %

Short term 19 35.19

Medium term 24 44.44

Long term 11 20.37

Total 54 100

no of respondent

20%
35%

short term
medium term

45% long term

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

75
 12. What is your source of investment advice.

 Family and friends

 Newspaper and news
 Internet
 Financial advisor

Choices No of respondent Percentages%

Family and friends 29 37.18

Newspaper and new 10 12.82

Internet 25 32.05

Financial advisor 14 17.95

Total 78 100

no of respondent

18%
37%
family and friends
newspapers and news
32% internet
13% financial advisor

76
 Interpretation:
From the above data, we can say that 37% people get influenced by their
family and friends, 32% get news from internet, 18% respondent have their
personal financial advisor and rest get information from news.

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 Chapter no. 5

5.1 Findings

5.2 Conclusion

78
5.1 Findings

• It is found from the analysis that maximum of the respondents have invested their money
through mutual funds.
• It is followed from the analysis that maximum of the investors are salaried people.
• It is known from the analysis that maximum of the investors are earning below Rs 30,000 Pm.
They invest 15-25% of their income.

• It is observed that 62% respondent do not invest directly in share market, they invest via mutual
funds.
• It is inferred from the analysis that maximum of the investors have invested their money
through public sector.
• It is cleared from the analysis that maximum of the respondents are getting information through
their friends and family and by financial advisors.

79
5.2 CONCLUSION

As it could be seen from the above factors that investors are having low saving potential, growth
of capital acts as a primary objective behind investments, investors taking financial decisions
independently, which depicts that there is a need of financial planners to approach these investors
in a proper manner so as to provide value additions to the saving potential and portfolio.

80
Annexure:

Q.1 What do you think are the best options for investing your money.

1-Safe/ low risk investment Avenue(Saving account/FD)

2-Moderate risk investment Avenue (Mutual fund/LIC/Debentures)

3-High risk investment (Equity shares/ Forex market)

4-Traditional investment(Real estate/Gold/ silver)

Q.2 Are you aware of the following investment Avenue.

1-Safe/ low risk investment Avenue(Saving account/FD)

2-Moderate risk investment Avenue (Mutual fund/LIC/Debentures)

3-High risk investment (Equity shares/ Forex market)

4-Traditional investment(Real estate/Gold/ silver)

Q.3 Reason for selecting these options.

1-low/risk

2-medium risk, medium return

3-high risk, high return

Q.4 In which sector do you prefer to invest your money.

1-private sector

2-public sector

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3-Foreign

Q.5 What are your saving objective.

1-Children education

2-Retirement plan

3-Home purchase

4-Health care

5-Other

Q.6 What is your investment objective.

1-Income and capital

2-short term growth

3-Growth and income

4-Long term growth

Q.7 What is the purpose behind investment

1-wealth creation

2-Tax savings

3-future expectation

4-Earn return

82
Q.8 At which rate do you want your investment to grow.

1-Slow and steadily rate

2-Average rate

3-Fast rate

4-At market rate

Q.9 Do you invest your money in share market.

1-Yes

2-No

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

1- 0-5%

2- 5-15%

3-15-25%

4- 25 & above.

Q.11 What's the time period you prefer.

1- Short term(0-1) year

2-Medium term (1-5) year

3-Long term( 5 year & above)

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Q.12 What is your source of investment advice.

1-Family and friends

2-Newspaper and news

3-Internet

4-Financial advisor

84
 BIBLIOGRAPHY

BOOKS REFERRED

Financial management SYBAF SEM 04

WEBLOGRAPHY

o Web site – www.slideshare.com

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

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