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AN ASSIGNMENT ON INVESMENT AVENUES
AN ASSIGNMENT ON INVESTMENT AVENUES
SUBMITTED BY:SR NO. 1 2 3 4 5 GROUP MEMBER JARIVALA NIMESH S. MAISURIYA NIRAJ R. MAISURIYA NIRAV R. PATEL DIVYESH J. PATEL NIKHIL M. ROLL NO. 13 23 24 46 56
SUBMITTED TO:KHUSHBU MAM
SR NO. 1 2 3 4 5 6
NAME OF TOPIC What is investment avenues Types of investors Characteristics of investing Investment avenues Growth of sources Allocation of assets
PAGE NO. 4 4 9 11 12 15
WHAT IS INVESTMENT AVENUE
Different investment avenues are available to investors. Mutual funds also offer good investment opportunities to the investors. Like all investments, they also carry certain risks. The investors should compare the risks and expected yields after adjustment of tax on various instruments while taking investment decisions. The investors may seek advice from experts and consultants including agents and distributors of mutual funds schemes while making investment decisions.
Types of investor
In continuation of the lessons I’ve learned from Rich Dad Poor Dad author, Robert Kiyosaki, I will discuss today what he called “Types of Investors.” According to him, there are two main types of investors: Average Investors and Professional Investors. Average investors buy packaged securities such as mutual funds, treasury bills, or real-estate-investment trusts. Professional investors are more aggressive—they create investment opportunities or get in on the ground floor of new offerings, build businesses and marketing networks, assemble groups of financiers to fund deals too large for them to undertake alone, and pick the companies with the most promise for initial public offerings of stock.
There are five different types of professional investors:
The Accredited Investor
As defined by Robert Kiyosaki, accredited investors are individual investor that earns at least $200,000 in annual income ($300,000 for a couple) and/or has a net worth of $1 million. An accredited investor has access to many lucrative investments that, because of their risk may be legally off-limits to people of lesser income. Although usually financially educated, accredited investors are not necessarily fully literate. They may be content with security and comfort rather than wealth, and may rely on advisors to develop and implement their financial plans.
The Qualified Investor
This investor is well versed in either fundamental or technical investing and so there are two types of qualified investors - the fundamental investor and technical investor. Fundamental investing requires the ability to assess a company’s potential by reviewing financial statements, tracking the industry the company represents, and calculating how changes in interest rates and the economy as a whole could affect profitability. The fundamental investor uses financial ratios, which you’ll learn all about later, to assess the strength of a company he or she is considering as an investment. Technical investing is different—it is based on knowledge of the sales history of a company’s stock, the mood of the market in general, and techniques such as short selling and options. The fundamental investor is typically an S in the CASHFLOW Quadrant because he or she will usually operate alone in evaluating stocks, either through examining fundamentals or using technical analysis in evaluating potential investments. Unlike a fundamental investor, a technical investor (often a stock trader) does not necessarily look for well-run, profitable corporations. If people are rushing to invest in a certain type of industry, say dot-com companies, the technical investor may jump on the bandwagon, regardless of whether these companies are showing earnings, let alone profits. Technical investing is thus more speculative than fundamental, but it can yield greater rewards. Regardless of investment style, qualified investors know how to make, or at least preserve, money in an up or down market.
The Sophisticated Investor.
The goal of this investor is to build wealth by developing a foundation of assets that can generate high cash returns with minimum payment of taxes. Armed with the three Es— education, experience, and excess cash—the sophisticated investor takes advantage of tax, corporate, and securities laws to protect capital and maximize earnings. When operating from the B quadrant, the investor can choose the best structure or entity through which to create assets. This entity provides some degree of control over the investment and also serves as a firewall between personal and business finances in the event of a lawsuit. Sophisticated investors exercise control over the timing of taxes and the character of their income. They know, for example, to defer paying taxes on capital gains from real estate by rolling over profits to more expensive property. They look at economic downturn as an opportunity to pay bargain basement prices for quality securities, and they create deals instead of simply waiting for the right one to come along. Sophisticated investors take risks but abhor gambling, hate losing but are not afraid to, are financially intelligent yet rely on experts to teach them more, own little in their names yet command great wealth. Although they become partners in real-estate ventures and large shareholders in corporations, they lack one essential strength: management control over their assets.
The Inside Investor.
Building or owning a profitable business is the primary goal of this investor. Whether as an officer of a corporation or owner of a majority of its shares of stock, the inside investor exercises some degree of management control. By running business systems from the inside, he or she learns how to analyze them from the outside and thereby becomes a sophisticated investor as well. Although inside investors have financial intelligence, they do not necessarily have financial resources and thus may not meet the definition of an accredited investor. If inside investors mind
their own business and succeed, however, they can become not only accredited investors but ultimate investors as well.
The Ultimate Investor.
The goal of the ultimate investor is to own a business that is so successful that shares are sold to the public. Making an initial public offering (IPO) is expensive and full of risks, yet it allows business owners to cash in on the equity they have built up in the company, while also raising money to pay down debt and fund expansions. The ultimate investor is one who has mastered every rule and enjoys playing the game for its own sake. Which type of investor do you belong? As for me, I am not even a professional investor. I am just an average investor. But with the continuous learnings that I feed my mind, I hope to become a professional investor someday and be able to reach the ‘ultimate investor’ status.
CHARACTERISICS OF INVESTMENT
Certain features characterize all investments. The following are the main characteristics features if investments: -
1.Return: All investments are characterized by the expectation of a return. In fact, investments are made with the primary objective of deriving a return. The return may be received in the form of yield plus capital appreciation. The difference between the sale price & the purchase price is capital appreciation. The dividend or interest received from the investment is the yield. Different types of investments promise different rates of return. The return from an investment depends upon the nature of investment, the maturity period & a host of other factors.
2.Risk: Risk is inherent in any investment. The risk may relate to loss of capital, delay in repayment of capital, nonpayment of interest, or variability of returns. While some investments like government securities & bank deposits are almost risk less, others are more risky. The risk of an investment depends on the following factors. 0
The longer the maturity period, the longer is the risk. The lower the credit worthiness of the borrower, the higher is the risk.
The risk varies with the nature of investment. Investments in ownership securities like equity share carry higher risk compared to investments in debt instrument like debentures & bonds.
3. Safety: The safety of an investment implies the certainty of return of capital without loss of money or time. Safety is another features which an investors desire for his investments. Every investor expects to get back his capital on maturity without loss & without delay.
4. Liquidity: An investment, which is easily saleable, or marketable without loss of money & without loss of time is said to possess liquidity. Some investments like company deposits, bank deposits, P.O. deposits, NSC, NSS etc. are not marketable. Some investment instrument like preference shares & debentures are marketable, but there are no buyers in many cases & hence their liquidity is negligible. Equity shares of companies listed on stock exchanges are easily marketable through the stock exchanges.
An investor generally prefers liquidity for his investment, safety of his funds, a good return with minimum risk or minimization of risk & maximization of return.
INVESTMENT AVENUES IN INDIA
There are a large number of investment instruments available today. To make our lives easier we would classify or group them under 4 main types of investment avenues. We shall name and briefly describe them.
1. Financial securities: These investment instruments are freely tradable and negotiable. These would include equity shares, preference shares, convertible debentures, non-convertible debentures, public sector bonds, savings certificates, giltedged securities and money market securities.
2. Non-securitized financial securities: These investment instruments are not tradable, transferable nor negotiable. And would include bank deposits, post office deposits, company fixed deposits, provident fund schemes, national savings schemes and life insurance.
3. Mutual fund schemes: If an investor does not directly want to invest in the markets, he/she could buy units/shares in a mutual fund scheme. These schemes are mainly growth (or equity) oriented, income (or debt) oriented or balanced (i.e. both growth and debt) schemes.
4.Real assets: Real assets are physical investments, which would include real estate, gold & silver, precious stones, rare coins & stamps and art objects. Before choosing the avenue for investment the investor would probably want to evaluate and compare them. This would also help him in creating a well diversified portfolio, which is both maintainable and manageable.
GROWTH OF SOURCES
GROWTH OF INDIAN EQUITY MARKET
The Indian Equity Market is more popularly known as the Indian Stock Market. The Indian equity market has become the third biggest after China and Hong Kong in the Asian region. According to the latest report by ADB, it has a market capitalization of nearly $600 billion. As of March 2009, the market capitalization was around $598.3 billion (Rs 30.13 lakh crore) which is one-tenth of the combined valuation of the Asia region. The market was slow since early 2007 and continued till the first quarter of 2009.
GROWTH OF MUTUAL FUND IN INDIA
By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is estimated that by 2010 March-end, the total assets of all scheduled commercial banks should be Rs 40,90,000 crore. The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years we have seen annual growth rate of 9%. According to the current growth rate, by year 2010, mutual fund assets will be double. Let us discuss with the following table: Aggregate deposits of Scheduled Com Banks in India (Rs.Crore) Month/Year Deposits Change in % over last yr Source - RBI Mutual Fund AUM’s Growth Month/Year MarMarMar12
Mar-98 Mar-00 Mar-01 Mar-02 60541 0 85159 3 15 98914 1 14
1131188 1280853 13 12 -
1567251 1622579 18 3
Mar-04 Sep-04 4-Dec
98 MF AUM's Change in % over last yr Source
03 13762 6 45 AMFI 15114 1 9 149300 1
68984 93717 83131 94017 75306 26 13 12 25
Some facts for the growth of mutual funds in India
100% growth in the last 6 years. Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide. Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required. We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion. 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities. Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products. SEBI allowing the MF's to launch commodity mutual funds. Emphasis on better corporate governance. Trying to curb the late trading practices. Introduction of Financial Planners who can provide need based advice.
GROWTH OF INSURANCE INDUSTERY IN INDIA
With an annual growth rate of 15-20% and the largest number of life insurance policies in force, the potential of the Indian insurance industry is huge. Total value of the Indian insurance market (2004-05) is estimated at Rs. 450 billion (US$10 billion). According to government sources, the insurance and banking services’ contribution to the country's gross domestic product (GDP) is 7% out of which the gross premium collection forms a significant part. The funds available with the state-owned Life Insurance Corporation (LIC) for investments are 8% of GDP.
The life insurance industry in India grew by an impressive 36%, with premium income from new business at Rs. 253.43 billion during the fiscal year 2004-2005, braving stiff competition from private insurers. This report, “Indian Insurance Industry: New Avenues for Growth 2012”, finds that the market share of the state behemoth, LIC, has clocked 21.87% growth in business at Rs.197.86 billion by selling 2.4 billion new policies in 2004-05. But this was still not enough to arrest the fall in its market share, as private players grew by 129% to mop up Rs. 55.57 billion in 2004-05 from Rs. 24.29 billion in 2003-04.
There are presently 12 general insurance companies with four public sector companies and eight private insurers. According to estimates, private insurance companies collectively have a 10% share of the non-life insurance market.
Though the total volume of LIC's business increased in the last fiscal year (20042005) compared to the previous one, its market share came down from 87.04 to 78.07%. The 14 private insurers increased their market share from about 13% to about 22% in a year's time.
Birla Asset Allocation Plan - Conservative: Invest
With the stock market seeming ripe for correction, are you looking for a relatively safe fund in which to park your profits from equity funds? The Conservative option of Birla Sun Life's Asset Allocation Fund may fit this role admirably. This Fund of Funds product (it redirects your investment into other funds) mixes and matches debt and equity funds within the Birla Sun Life fold to provide the investor with a conservative portfolio. The fund aims to allocate 75-80 per cent of its portfolio to debt funds and 25-30 per cent to equity funds. Though the fund has the leeway to park up to 30 per cent in non-Birla Sun Life schemes, it has seldom used this leeway in the past. The fund appears to have managed healthy returns within the confines of this mandate, with a five-year
compounded annualised return of over 12 per cent and a one year return of over 22 per cent. Suitability: The Birla Sun Life Asset Allocation Fund- Conservative option loosely follows the Monthly Income Plan structure in its asset allocation, without the monthly dividend payout feature, of course. The lack of monthly payouts may be an advantage, as it removes the need for the fund to churn its portfolio and book profits at monthly intervals to meet dividend commitments. Though the Fund of Funds structure does result in a slight duplication of costs (each fund, including this product, will suffer an annual management charge), the fund house has kept the expense ratio for this fund low at 0.35 per cent a year. That Birla Sun Life Mutual Fund has a long and consistent record in managing debt funds in the Indian context, also makes this fund a good choice. Performance: The fund's track record shows that it has been quite dynamically managed with a focus on containing losses to the investor. Consider this. Over the past ten years, the worst yearly returns from this fund came when its NAV lost 6.5 per cent (in 2008, when both debt and equity options took a hit). But its best yearly show saw its NAV appreciate by over 24 per cent (2009) — a good risk-reward ratio! The fund has managed this show by actively shuffling the debt portion of its portfolio, even while picking the more defensive equity funds (the Index Fund, MNC Fund and Dividend Yield Fund) from the Birla repertoire for the equity portion. The fund has made quite a few good timing calls in the portfolio. In November 2008, when both equity and debt markets were in turmoil, the fund had 36 per cent of its assets in Birla's Short Term Debt Fund with a large cash holding of 45 per cent. This was deployed in the subsequent months.
By March 2009, just ahead of the equity rally, the fund acquired a larger equity exposure through funds such as Birla Sun Life Index Fund, Birla Sun Life Dividend Yield Fund and the Midcap Fund. Fund facts: The fund has a current NAV per unit of Rs 19.3 and is managed by Mr Satyabarata Mohanty.
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