PROJECT REPORT

ON

“INVESTMENT AVENUES”

BY

SHILPA AGRAWAL

2009- 2010

IN PARTIAL FULFILLMENT OF

MASTER OF BUSINESS ADMINISTRATION DEGREE

DISHA INSTITUTE OF MANAGEMENT AND TECHNOLOGY,RAIPUR
 CHAPTER – 1

INTRODUCTION ON VARIOUS
INVESTMENT AVENUES
INVESTMENTS
The dictionary meaning of investment is to commit money in order to earn a financial return or
to make use of the money for future benefits or advantages. People commit money to
investments with an expectation to increase their future wealth by investing money to spend in
future years. For example, if you invest Rs. 1000 today and earn 10 %over the next year, you
will have Rs.1100 one year from today.

An investment can be described as perfect if it satisfies all the needs of all investors. So, the
starting point in searching for the perfect investment would be to examine investor needs. If all
those needs are met by the investment, then that investment can be termed the perfect
investment. Most investors and advisors spend a great deal of time understanding the merits of
the thousands of investments available in India. Little time, however, is spent understanding
the needs of the investor and ensuring that the most appropriate investments are selected for
him.

The Investment Needs of an Investor

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

Fixed Deposits – They cover the fixed deposits of varied tenors offered by the commercial
banks and other non-banking financial institutions. These are generally a low risk prepositions
as the commercial banks are believed to return the amount due without default. By and large
these FDs are the preferred choice of risk-averse Indian investors who rate safety of capital &
ease of investment above all parameters. Largely, these investments earn a marginal rate of
return of 6-8% per annum.
Government Bonds – The Central and State Governments raise money from the market
through a variety of Small Saving Schemes like national saving certificates, Kisan Vikas Patra,
Post Office Deposits, Provident Funds, etc. These schemes are risk free as the government does
not default in payments. But the interest rates offered by them are in the range of 7% - 9%.

Money-back insurance - Insurance in India is mostly sold and bought as investment products.
They are preferred because of their add-on benefits like financial life-cover, tax-savings and
satisfactory returns. Even if one does not manage to save money and invest regularly in
financial instruments, with insurance, the policyholder has no choice. If he does not pay his
premiums on time, his insurance cover will lapse. Money-back Insurance schemes are used as
investment avenues as they offer partial cash-back at certain intervals. This money can be
utilized for children’s education, marriage, etc.

Endowment Insurance – These policies are term policies. Investors have to pay the premiums
for a particular term, and at maturity the accrued bonus and other benefits are returned to the
policyholder if he survives at maturity.

Bullion Market – Precious metals like gold and silver had been a safe heaven for Indian
investors since ages. Besides jewellery these metals are used for investment purposes also.
Since last 1 year, both Gold and Silver have highly appreciated in value both in the domestic as
well as the international markets. In addition to its attributes as a store of value, the case for
investing in gold revolves around the role it can play as a portfolio diversifier.

Stock Market – Indian stock markets particularly the BSE and the NSE, had been a preferred
destination not only for the Indian investors but also for the Foreign investors. Although Indian
Markets had been through tough times due to various scams, but history shows that they
recovered very fast. Many types of scrip had been value creators for the investors. People have
earned fortunes from the stock markets, but there are people who have lost everything due to
incorrect timings or selection of fundamentally weak companies.
Real Estate- Returns are almost guaranteed because property values are always on the rise due
to a growing world population. Residential real estate is more than just an investment. There
are more ways than ever before to profit from real estate investment.

Mutual Funds - There is a collection of investors in Mutual funds that have professional fund
managers that invest in the stock market collectively on behalf of investors. Mutual funds offer
a better route to investing in equities for lay investors. A mutual fund acts like a professional
fund manager, investing the money and passing the returns to its investors. All it deducts is a
management fee and its expenses, which are declared in its offer document.

Unit Linked Insurance Plans - ULIPs are remarkably alike to mutual funds in terms of their
structure and functioning; premium payments made are converted into units and a net asset
value (NAV) is declared for the same. In traditional insurance products, the sum assured is the
corner stone; in ULIPs premium payments is the key component.
 Return Safety Volatility Liquidity Convenienc
e
Equity High Low High High Moderate

Bonds Moderate High Moderate Moderate High

Co. Moderate Moderate Moderate Low Low

Debentures
Co. FDs Moderate Low Low Low Moderate

Bank Low High Low High High

Deposits
PPF Moderate High Low Moderate High

Life Low High Low Low Moderate

Insurance
Gold Moderate High Moderate Moderate Gold

Real Estate High Moderate High Low Low

Mutual High High Moderate High High

Funds
 CHAPTER -2

MUTUAL FUND

INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS

ASPECTS.
Mutual fund is a trust that pools the savings of a number of investors who share a common
financial goal. This pool of money is invested in accordance with a stated objective. The joint
ownership of the fund is thus “Mutual”, i.e. the fund belongs to all investors. The money thus
collected is then invested in capital market instruments such as shares, debentures and other
securities. The income earned through these investments and the capital appreciations realized are
shared by its unit holders in proportion the number of units owned by them. Thus a Mutual Fund is
the most suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost. A Mutual Fund is
an investment tool that allows small investors access to a well-diversified portfolio of equities,
bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are
issued and can be redeemed as needed. The funds Net Asset value (NAV) is determined each day.

Investments in securities are spread across a wide cross-section of industries and sectors and thus
the risk is reduced. Diversification reduces the risk because all stocks may not move in the same
direction in the same proportion at the same time. Mutual fund issues units to the investors in
accordance with quantum of money invested by them. Investors of mutual funds are known as unit
holders.

Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity
to invest in a diversified, professionally managed basket of securities at a relatively low cost. The
flow chart below describes broadly the working of a mutual fund
ADVANTAGES OF MUTUAL FUND

• Portfolio Diversification

• Professional management

• Reduction / Diversification of Risk

• Liquidity

• Flexibility & Convenience

• Reduction in Transaction cost

• Safety of regulated environment

• Choice of schemes

• Transparency

DISADVANTAGE OF MUTUAL FUND

• No control over Cost in the Hands of an Investor

• No tailor-made Portfolios

• Managing a Portfolio Funds

• Difficulty in selecting a Suitable Fund Scheme

Type of Mutual Fund Schemes

BY STRUCTURE

Open Ended Schemes

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

Close Ended Schemes

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

Interval Schemes

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

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

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

• Diversified Equity Funds

• Mid-Cap Funds
• Sector Specific Funds
• Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-
return matrix.

2. Debt funds:

The objective of these Funds is to invest in debt papers. Government authorities, private
companies, banks and financial institutions are some of the major issuers of debt papers. By
investing in debt instruments, these funds ensure low risk and provide stable income to the
investors. Debt funds are further classified as:

Gilt Funds: Invest their corpus in securities issued by Government, popularly known as
Government of India debt papers. These Funds carry zero Default risk but are associated with
Interest Rate risk. These schemes are safer as they invest in papers backed by Government.

Income Funds: Invest a major portion into various debt instruments such as bonds, corporate
debentures and Government securities.

MIPs: Invests maximum of their total corpus in debt instruments while they take minimum
exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly
high on the risk-return matrix when compared with other debt schemes.
Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds
primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers
(CPs). Some portion of the corpus is also invested in corporate debentures.

Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and
preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-
bank call money market, CPs and CDs. These funds are meant for short-term cash management of
corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes
rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual
funds.

3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest
in both equities and fixed income securities, which are in line with pre-defined investment
objective of the scheme. These schemes aim to provide investors with the best of both the worlds.
Equity part provides growth and the debt part provides stability in returns.

Further the mutual funds can be broadly classified on the basis of investment parameter viz,
Each category of funds is backed by an investment philosophy, which is pre-defined in the
objectives of the fund. The investor can align his own investment needs with the funds objective
and invest accordingly.

BY INVESTMENT OBJECTIVE

• Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these
schemes is to provide capital appreciation over medium to long term. These schemes normally
invest a major part of their fund in equities and are willing to bear short-term decline in value for
possible future appreciation.
• Income Schemes: Income Schemes are also known as debt schemes. The aim of these
schemes is to provide regular and steady income to investors. These schemes generally invest in
fixed income securities such as bonds and corporate debentures. Capital appreciation in such
schemes may be limited.

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

• Money Market Schemes: Money Market Schemes aim to provide easy liquidity,
preservation of capital and moderate income. These schemes generally invest in safer, short-term
instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call
money.

OTHER SCHEMES

• Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax
laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any
Equity Linked Savings Scheme (ELSS) are eligible for rebate.
• Index Schemes: Index schemes attempt to replicate the performance of a particular
index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only
those stocks that constitute the index. The percentage of each stock to the total holding will be
identical to the stocks index weightage. And hence, the returns from such schemes would be more
or less equivalent to those of the Index.
RISK V/S RETURN
 CHAPTER – 3

RESEARCH METHODOLOGY
RESEARCH METHODOLOGY

This report is based on primary as well secondary data, however primary data collection was given

more importance since it is overhearing factor in attitude studies. One of the most important users

of research methodology is that it helps in identifying the problem, collecting, analyzing the

required information data and providing an alternative solution to the problem .It also helps in

collecting the vital information that is required by the top management to assist them for the better

decision making both day to day decision and critical ones.

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

Data sources:

Research is totally based on primary data. Secondary data can be used only for the reference.

Research has been done by primary data collection, and primary data has been collected by

interacting with various people. The secondary data has been collected through various websites.

Duration of Study:

The study was carried out for a period of 1 week, from 20 sep to 26 sep 2009.
Need for the study:
To study the perception of the people about investment of their savings.
To understand basic requirement of the common man and their view towards investment.

OBJECTIVES OF THE STUDY:

PRIMARY OBJECTIVE
To Study the various investment avenues and the investors risk preference towards it.

SECONDARY OBJECTIVES
To find out the general demographic factors of the investors dealing in capital market.
To find out the preference level of investors on various Capital Market instruments.
To find out the type of risk which are considered by the investors?
To find out the ways through which the investors minimizes their risk.
QUESTIONNAIRE

A study of preferences of the investors for investment in mutual funds.

1. Personal Details:

(a). Name:-

(b). Age:-

(c). Qualification:-

Govt. Ser Pvt. Ser Business Agriculture Others

(d). Occupation. Pl tick (√)

Govt. Ser Pvt. Ser Business Agriculture Others

(e). What is your monthly family income approximately? Pl tick (√).

Up to Rs. 10,001 to Rs. 15,001 to Rs. 20,001 to Rs. 30,001 and

Rs.10,000 15000 20,000 30,000 above

2. What kind of investments you have made so far? Pl tick (√). All applicable.

a. Saving account b. Fixed deposits c. Insurance d. Mutual Fund

e. Post Office-NSC, etc f. Shares/Debentures g. Gold/ Silver h. Real Estate

3. While investing your money, which factor will you prefer?

.
(a) Liquidity (b) Low Risk (c) High Return (d) Trust

4. Are you aware about Mutual Funds and their operations? Pl tick (√). Yes No

5. If yes, how did you know about Mutual Fund?

 a. Advertisement b. Peer Group c. Banks d. Financial Advisors

6. Have you ever invested in Mutual Fund? Pl tick (√). Yes No

7. If not invested in Mutual Fund then why?

(a) Not aware of MF (b) Higher risk (c) Not any specific reason

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

a. SBIMF b. UTI c. HDFC d. Reliance e. Kotak f. Other. specify

9. When you plan to invest your money in asset management co. which AMC will you prefer?

Assets Management Co.

a. SBIMF
b. UTI
c. Reliance
d. HDFC
e. Kotak
f. ICICI

10. Which Channel will you prefer while investing in Mutual Fund?

(a) Financial Advisor (b) Bank (c) AMC

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

a. One Time Investment b. Systematic Investment Plan (SIP)