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Investment Pattern

Investment Pattern

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Published by: JD070588 on Feb 23, 2010
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Changing Trend of Investment Pattern in India andEmergence of Mutual Fund Industry[HDFC Asset Management Company]
Sheeba Lole
MBA II Semester
Shree Amreli Jilla Leuva Patel MBA Collage Of Women
Amreli–365 601 GJE-mail:vijaypithadia@lycos.com
ABSTRACT:This project is about hoe the Investor's Behavior is changing and they are now leaving behind thesacred investment options like the fixed deposits, company deposits, gold etc. Investors are nowlooking towards equity linked investment options.Like most developed and developing countries the mutual fund cult has been catching on in India.There are various reasons for this. Mutual Fund makes it easy and less costly for investors to satisfytheir need for capital growth, income preservation.And in addition to this a mutual fund brings the benefit of diversification and money management tothe individual investor, providing an opportunity for financial success that was once available only to aselect few.In this project I have given a brief about economy, inflation, and equity and debt market. Then it isexplained how to cope with the inflation and how mutual fund is one of the best investment optionstoday. A brief about mutual fund industry and the some information about HDFC Mutual Fund and itsvarious products are givenINTRODUCTION:Many individuals find investments to be fascinating because they can participate in the decisionmaking process and see the results of their choices. Not all investments will be profitable, as investorwills not always make the correct investment decisions over the period of years; however, you shouldearn a positive return on a diversified portfolio. In addition, there is a thrill from the major success,along with the agony associated with the stock that dramatically rose after you sold or did not buy.Both the big fish you catch and the fish that get away can make wonderful stories.Investing is not a game but a serious subject that can have a major impact on investor's future wellbeing. Virtually everyone makes investments. Even if the individual does not select specific assets suchas stock, investments are still made through participation in pension plan, and employee savingprogramme or through purchase of life insurance or a home. Each of this investment has commoncharacteristics such as potential return and the risk you must bear. The future is uncertain, and youmust determine how much risk you are willing to bear since higher return is associated with acceptingmore risk.In 1986, Microsoft Corporation first offered its stock to the public. Nine years later, the stock's valuehad increased over 5,000 percent- a $ 10,000 investment was worth over $ 5,00,000 in the same
year, worlds of wonder also offered its stocks to the public. Nine years later the company was defunct-a $ 10,000 was worth nothing. These are two examples of emerging firms that could do exceedinglywell or fail. Would investing in large, well establish firms generate more consistent returns? Theanswer depends, of course, on which firms were invested in. Over the years some investments havegenerated extraordinary gains, while others have produced only mediocre returns, and still othershave resulted in substantial losses.The individual should start by specifying investment goals. Once these goals are established, theindividual should be aware of the mechanics of investing and the environment in which investmentdecisions are made. These include the process by which securities are issued and subsequently boughtand sold, the regulations and tax laws that have been enacted by various levels of government, andthe sources of information concerning investment that are available to the individual.An understanding if this financial background leads to three important general financial concepts thatapply to investing.Toady the field of investment is even more dynamic than it was only a decade ago. World eventrapidly-events that alter the values of specific assets the individual has so many assets to choosefrom, and the amount of information available to the investors is staggering and continually growing.Furthermore, inflation has served to increased awareness of the importance of financial planning andwise investing. In this project I will first talk about economy, inflation, equity markets and debtmarkets to understand investments behavior.INFLATION:Inflation is a situation where there is ' too much money chasing too few goods'. In such times buyersbid up prices of scarce products/services The scarcity could be caused by supply issues or a faster thanexpected rise in demand. Irrespective of what causes inflation, the impact is the same. The value of the currency you are holding declines.Let's explain this with the help of an example. Suppose the Indian Rupee was freely exchangeable withonly one commodity- crude oil. Let's assume the conversion rate is Re 1= 1 barrel of crude (wish itwere true!). Now there is tension in the Gulf region resulting in reduced supply. Due to the subsequentrise in price of crude oil in international markets, we would now have to pay more Rupees for everybarrel of oil. Suppose crude prices rise by 10%. The new exchange rate will be Rs. 1.1 = 1 barrel of declined from 1 barrel of crude per Rupee to only 0.91 barrel of crude per Rupee this is the erosion inthe value of the currency that we are talking about. Also note that while the Indian Rupee may beappreciating vis-à-vis other currencies, in the ' real sense' there is erosion in value.Another important fallout one can expect due to rising inflation is higher interest rates. The centralbanks aim to reduce demand in the economy by rising the cost of money.When making fresh investments or evaluating your existing holdings in potentially inflationary timesyou need to keep two things in mind:The possibility of higher interest ratesThe erosion in the value of the currency
CONCEPT OF MUTUAL FUND:A mutual fund is a pool of money, collected from investors, and is invested according to certaininvestment objectives.A mutual fund is created when investors put their money tighter. It is therefore a pool of the investor'sfunds The most important characteristic of a mutual fund is that the contributors and the beneficiariesof the fund are the same class of people, namely the investors. The term mutual means that investorscontribute to the pool, and also benefit from the pool. There are no other claimants to the funds. Thepool of fund mutually by investors is the mutual fund.A mutual fund's business is to invest the funds thus collected, according to the wishes of the investorswho created the pool. In many markets these wishes are articulated as "investment mandates".Usually, the investors appoint professional investment managers, to manage their "product", and offerit for investment to the investor. This product represents a share in the pool, and pre-statesinvestment objectives. For example, a mutual fund, which sells a " money market mutual fund ", isactually seeking investors willing to invest in a pool that would invest predominantly in money marketinstruments.IMPORTANT CHARACTERSTICS:A Mutual fund belongs to the investors who have pooled their funds. The ownership of the mutual fundin the hands of the investorsInvestment professional and other service providers, who earn a fee for their services, from the fund,manage the mutual fund.The pool of funds is invested in a portfolio of marketable investments. The value of the portfolio isupdated every day.The investor's share in the fund is denominated by "units". The value of the units changes with changein the portfolio's value, every day. The value of one unit of investors is called as the Net Asset Value orNAV.The investment portfolio of the mutual fund is created according to the stated investment objectives of the fund.PHASES IN THE HISTORY OF MUTUAL FUND:The history of mutual fund in India can be divided into 5 important phases:A 1963-1987: The Unit Trust of India was the sole player in the industry. Created by an Act of Parliament in 1963, UTI launched its first product, the unit scheme 1964, which is even today thesingle largest mutual fund scheme. UTI created a number products such as monthly income plans,children's plans, equity-Oriented schemes and offshore funds during this period. UTI managed assetsof Rs 6700 crore at the end of this phase.B 1987-1993: In 1987 public sector banks and financial institutions entered the mutual fund industry.SBI mutual fund was the first non-UTI fund to be set up in 1987. Significant shift of investors fromdeposits to mutual fund industry happened during this period. Most funds were growth oriented closed

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