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(money or other claims to resources) into others' pockets.. The basic meaning of the term being an asset held to have some recurring or capital gains. Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in the form of interest, income, or appreciation of the value of the instrument.  It is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management and finance no matter for households, firms, or governments. In finance, investment is the commitment of funds by buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such asgold or collectibles An investment programme should consist of safety of principal, liquidity, income stability, adequate income, purchasing power stability, appreciation, legality and transferability Classification of investments Different methods of classification of the investment avenues are available. Some of the methods with examples are given hereunder: A Physical investments They are tangible items like motorcars, aeroplanes, ships, buildings, plant and equipment, machinery etc. Another sub-classification in this is of physical assets which are useful for further production and creation of income, like machinery equipment etc. mentioned above and those which are not useful for further production like gold and silver ornaments. b. Financial investments Financial assets are those which are used for consumption or for production of goods and services or for further creation of assets. c. Marketable and non marketable investments Examples of marketable investments are shares, bonds and other instruments issued by government or companies which are listed in the stock exchanges are easily marketable and can be converted into cash in a short time. Non-marketable investments are bank deposits, provident and pension funds. Insurance
certificates, post office deposits, National savings certificates, company deposits, private limited companies shares etc.
d. Transferable non-transferable investments Instruments like shares, bonds can be transferred in the name of others or can be sold or exchanged for cash or kind whereas some instruments like insurance certificates, post office deposits, and national savings certificates cannot be transferred.
Driviing forces of investment a.retirement plan b. avoidance of taxation c .tempting high rates of interest d. high inflation and resultant expectation of increase in the monetary return e. Hike in incomes f. Availability of a large number of investment avenues g. Legal safeguards h. Existence of financial institutions to encourage savings etc.
INVESTMENT AVENUES There are many investment avenues in which one can invest : 1 PROVIDENT FUND.. 2. .COMMODITIES 3.BULLION 4 MUTUAL FUND. 5. SAVING A/C 6. NATIONAL SAVING CERTIFICATES 7. SHARES 8. REAL ESTATE 9. DERIVATIVES 10.GOVERNMENT SECURITIES 11 FIXED DEPOSITS 12.INSURANCE 13.ANTIQUE 14.ART AND PAINTING
provident fund Public Provident Fund. It also serves as a retirement planning tool for many of those who do not have any structured pension plan covering them. Types of Provident Fund : • Statutory provident fund • Recognized provident fund • Unrecognized provident fund • Public provident fund Applicability All the establishments employing 20 or more persons (5 or more incase of Cinema Theatres) have to provide for contributions to the above mentioned Provident Funds or one can opt for it voluntarily also. is a savings cum tax saving instrument. This is covered under the Employees Provident Fund and Miscellaneous Provisions Act of 1952.1. The balances in PPF account cannot be attached by any authority normally. Provident fund –as an investment option It is an investment option that can be very useful in the long run. popularly known as PPF. .
education of children.Benefits : • Since the amount is automatically deducted from salary. hence the money invested is safe. Many people use this money to set up a life after retirement. • It is gilt-edged. meaning it is backed by the government. financing of insurance policies and medical care. • It is a simple and sturdy investment. The EPF scheme also takes care of housing. Disadvantages • The rate of return is not as high as what you would get from high-risk investments such as shares and mutual funds • Withdrawals in PPF are allowed only after the completion of four years of the account. it is a sort of forced saving imposed on employees. However. • EPF & PPF schemes offer the highest risk-adjusted returns among all fixed-income instruments. liquidity in this instrument is poor as it is difficult to get the withdrawals done . The employees automatically save money which will come in handy for them in times of need. • Decent return of 8 to 12% on investment is another advantage and also the risk involved is quite minimum.
The amount of deposit can be varied to suit the convenience of the account holders. • In an era when highly-skilled employees like to hop. Otherwise. The account holder can retain the account after maturity for any period without making any further deposits. Withdrawals at each job switch may not allow a corpus to be built and the power of compounding to work. this can turn out to be a disaster. Maximum deposit limit is Rs.000 in a financial year. In this case the account will continue to earn interest at normal rate as admissible till the account is closed. One deposit with a minimum amount of Rs. after the maturity period of 15 years. Tabs on Investment Minimum deposit required in a PPF account is Rs. The account holder also has an option to extend the PPF account for any period in a block of 5 years at each time. . Taxability The withdrawals are exempt from tax if the concerned employee has rendered continuous service of more than 5 years.500/.• The biggest drawback is that individuals get the option of withdrawing the whole amount in EPF account on termination of or resignation from a job. 500 in a financial year.is mandatory in each financial year. 70. Maturity The maturity period of the account is 15 years. Maximum number of deposits is twelve in a financial year. it would be taxable at the applicable slab rates. Rate of interest is 8% compounded annually.
Account Transfer The Account is transferable from one post Office / bank to another and from post Office to bank or from a bank to a post office.for each defaulted year. the account will be treated as discontinued. . Premature Closure or Withdrawal Premature closure of a PPF Account is not permissible except in case of death.500/. Premature withdrawal is permissible in the 7th year of the account subject. Tax Benefits Deposits in PPF are eligible for rebate under section 80-C of Income Tax Act.50/. The interest on deposits is totally tax free. The discontinued account can be activated by payment of the minimum deposit of Rs. Nominee/legal heir of PPF Account holder cannot continue the account after the death. Thereafter one withdrawal in every year is permissible. Deposits are exempt from wealth tax.Lapse in Deposits If deposits are not made in a PPF account in any financial year. to a limit of 50% of the amount at credit preceding three year balance.with default fee of Rs.
if you buy one futures contract to open then you sell one futures contract to close that market position. so successful investors can expect much higher returns compared to more conventional investment products.Futures contracts have an expiry date and need to be occasionally rolled over from the current contract month to the following contract month. Trading futures is easy. these commodities include grains such as wheat. The execution method of trading futures contracts is similar to trading physical shares. gold and silver.COMMODITIES A commodity is a normal physical product used by everyday people during the course of their lives. Short-selling is the ability to sell commodity futures creating an open position in the expectation to buy-back at a later time to profit from a fall in the market. must be facilitated by the use of trading liquid. there is an expectation when trading commodity futures of achieving higher returns compared to shares or real estate. at a fixed date and price in the future. Futures contracts can be broken by simply offsetting the transaction. as mentioned above.2. and can be accessed by using the services of any full or on-line futures brokerage service. The process of trading commodities. The full list of commodity markets is numerous and too detailed. For example. The reason is because the biggest advantage to trading commodity futures. corn and rice or metals such as copper. For example. Traditionally. The best way to trade the commodity markets is by buying and selling futures contracts on local and international exchanges. for the private investor is the opportunity to legally short-sell these markets. exchangeable. and standardized futures contracts. Futures contracts give the investor ease of use and the ability to buy or sell without delay. but futures contracts have an expiry date and are deliverable. If you wish to trade the up-side of commodity . or metals that are used in production or as a traditional store of wealth and a hedge against inflation. as it is not practical to trade the physical commodities. A futures contract is used to buy or sell a fixed quantity and quality of an underlying commodity.
The increased use of commodity trading vehicles in investment management has led practitioners to create investable commodity indices and products that offer unique performance opportunities for investors in physical commodities. Previous research that direct stock and bond investment offers little evidence of providing returns consistent with direct commodity investment. Thus for investors. The commodity markets will always produce rising of falling trends. However. commodity-based products have a variety of uses. and with the abundance of information and trading opportunities available there is no reason for any investor to exclusively trade the share market when there is potential profits from trading commodity futures.futures. As is true for stock and bond performance. they are used as performance benchmarks for evaluation of commodity trading advisors and provide a historical track record useful in developing asset allocation strategies. direct commodity investment may be the principal means by which one can obtain exposure to commodity price movements. commodity-based firms may not be exposed to the risk of commodity price movement. old G Copper Silver Sugar Wheat Zeera Guar . the investor benefits of commodity or commodity-based products lie primarily in their ability to offer risk and return trade-offs that cannot be easily replicated through other investment alternatives. Besides being a source of information on cash commodity and futures commodity market trends. then it will simply be a buy-to-open and sell-to close set of transactions similar to share trading. The commodities that are traded in the market. as well as investment in managed futures and hedge fund products.
most government issued gold coins have a currency value of between US$10 and US$100. which is as close as one can practically get to pure. not from an artificial currency value.3. they are .Bullion Bullion refers to any precious metal in a form in which its primary value comes from the worth of the metal. Purity also varies widely in bullion. with countries sometimes releasing as few as 20 to 50 of a certain bullion coin. are popular with collectors.000. Bullion is most often traded in the form of coins minted by national governments. or in bulk ingots. Extremely limited presses are also relatively frequent. The weight of bullion is usually measured in troy ounces. one of the reasons they are so popular with collectors. As an example. The average minting of a bullion coin is less than 10. While government issued coins have a nominal value assigned to them upon minting. one can see that the government-assigned currency value of a bullion coin is essentially meaningless. but usually contain at least one troy ounce of gold. and from the beginning of the twenty-first century on was worth at least US$350 a troy ounce. Silver coins. The metal the bullion consists of is obviously important in determining its overall value: gold is worth more than silver. while platinum is worth more than gold.99% purity. The value of bullion is affected by three factors: metal. this value is virtually always overshadowed by the commodity value of the metal itself. particularly. Given that the exchange rate of gold consistently rises. though many countries release coins with 99. because of the relatively low worth of their metal. where one troy ounce is equal to approximately 31g. weight and purity.
67% pure. and the Canadian Maple Leaf series is available in gold. depicting wildlife. but some bullion coins are produced in very limited quantities in kilograms and even heavier. Usually these coins will have one main symbol they use each year. Investment coins are generally coins that have been minted after 1800. The depict a panda bear. gold and silver. silver. The American Eagle series is available in gold. with the Canadian maple leaf embossed. and are made of gold. • • • A bullion coin is a coin struck from precious metal and kept as a store of value or an investment. palladium. Gold Maple Leafs were the first 99. China also had a short-lived series of unicorn gold and silver coins. and a limited run of twenty bullion coins in excess of 260 troy ounces (8kg).99% pure gold coins to be released. Bullion coins are usually available in gold and silver.cheaper in general.S. A very limited platinum coin is also released by Canada. Chinese Pandas: These come in platinum. silver bullion coins. the image of which changes each year. rather than used in day-to-day commerce. Bullion coins are also typically available in various weights. gold and silver. gold. . South African Krugerrands: These were the first bullion coins ever released by a nation. Examples of bullion coins include: • U. more than gold or platinum. though some nations choose to keep the same theme but alter the image yearly. these coins are embossed with the image of a bald eagle. platinum and also palladium. For this reason. Canadian Maple Leafs: These coins are minted in platinum. silver. with the exception of the Krugerrand and the Swiss Vreneli which are only available in gold. At this point. most major countries offer at least one type of bullion coin. copper and brass. silver and platinum. These are usually multiples or fractions of 1 troy ounce. are often valued substantially above the market value of silver. have a purity of not less than 900 thousandths and is or has been a legal tender in its country of origin. Eagles: Minted in platinum (since 1997). Gold Eagles are 91.
and often are opposed to the forces which determine the price of most common financial assets. precious metals can often provide a "hedge against inflation. e. precious metal investments help diversify and lower overall risk. Over long periods of time precious metals have purchased a constant basket of basic goods and services. by definition expressed per one troy ounce. storage and distribution. and the precious metal. dollar lost more than half its value while Gold prices rose nearly five times. dollar has steadily declined over time and is expected to continue to do so. recession and expansion.S. The ISO currency code of gold bullion is XAU. but also for precious metals (gold. By adding precious metals in general to a portfolio of stocks. . THE DECLINING DOLLAR The purchasing power of the U. silver. an investor is introducing a tangible asset to the mix. This increases the degree of diversification and protects the portfolio against fluctuations in value of any one asset type. This independent movement of precious metals to the other financial assets can reduce overall portfolio volatility and contributes balance. The premium also is affected by prevailing demand. ISO 4217 includes codes not only for currencies. The margin that is paid varies depending on what type of coin it is. ECONOMIC FORCES The economic forces that affect the price of precious metals are different from. the weight of the coin. between 1971 and 1981 the U.S." For example. This is due to their comparative small size and the costs associated with manufacture. as compared to "1 USD") and certain other entities used in international finance.Bullion coins sell for a premium over the market price of the metal on the commodities exchanges. palladium and platinum. Special Drawing Rights. ADVANTAGES Bullion is the basic commodity traded in the precious metals market. Economies fluctuate between inflation. bonds and mutual funds. PRESERVATION OF PURCHASING POWER Precious metals have traditionally performed well as a long-term store of wealth and purchasing power.g.
can easily and quietly be passed on to your heirs as a gift. we are not required to report the purchase or sale of bullion. Bullion has been regarded as hard currency for over 5. When an economy grows faster than its money supply. Some experts suggest that 10 to 15- percent of portfolio assets should be precious metals. every portfolio needs a secure foundation. In fact. the real value of each unit of money goes up. such as coins. and is not subject to reportability and confiscation. No matter what level of risk an investor wishes to take. EASE OF OWNERSHIP For investors who wish to take possession or direct control of their assets. The only ways of achieving this are for the money to circulate faster or to lower the cost of the transactions. Legally. by phone. or where it is stored. Thousands of dealers nationwide buy and sell bullion daily over the counter. This increases the value of cash. the same money must be used to execute a larger volume of transactions. Disadvantages • A gold standard leads to deflation whenever an economy using the gold standard grows faster than the gold supply. It is internationally recognized for its value based on its current market price. No one needs to know how much bullion you own. it is classified like fine art and crystal. precious metals can represent an important part of your asset allocation. If deflation drives costs down. Owning bullion is easy and convenient. Some forms of bullion. and decreases the monetary value of real . by fax and at auctions. Bullion is one of the most liquid investments available anywhere. FINANCIAL PRIVACY Bullion is one of the best forms of legally private wealth. buying physical bullion has appeal. Most of our clients feel that they would like to keep a certain portion of their wealth from the prying eyes of those who have access to all assets listed under their social security number.000 years.ASSET ALLOCATION Whether you are conservative or aggressive in your investment approach.
Lenders become wealthier. Some gold standard advocates consider this to be both acceptable and necessary whilst others who are not opposed to fractional reserve banking argue that only base currency and not deposits would need to be replaced. which may limit its use in current applications. this is specifically a disadvantage of return to the gold standard and not the efficacy of the gold standard itself. However. The amount of such base currency (M0) is only about one tenth as much as the figure (M2) listed above. Therefore. and the value of the money required to pay the mortgage goes up. the ratio can be defined as $2. the monthly cost of a fixed-rate home mortgage stays the same. This in turn tends to increase the ratio of debts to assets . For example. instead of using the ratio of $1. assuming interest rates remain unchanged. • Deflation rewards savers and punishes debtors. Thus deflation rewards cash savings. or $32. However in practice it has always been possible for governments to control deflation by leaving the gold standard or by artificial expenditure. For example. Real debt burdens therefore rise. where more than $8.assets.3 trillion is in circulation or in deposit (M2).000 per ounce. a return to the gold standard. if also combined with a mandated end to fractional reserve banking. but the value of the house goes down.000 metric tons. but may choose to save some of their additional wealth rather than spending it all. alone.5 trillion. Deflation is considered to be difficult to control. causing borrowers to cut spending to service their debts or to default.000 per ounce effectively raising the value of gold to $9 trillion. and hence monetary policy could no longer be used to stabilize the economy in times of • • .S. This is less than the value of circulating money in the U. the total value of all the gold ever mined would be around $4.500 per kilogram. Many economists believe that economic recessions can be largely mitigated by increasing money supply during economic downturns. The overall amount of expenditure is therefore likely to fall. since the same asset can be purchased with less money. The total amount of gold that has ever been mined has been estimated at around 142. and to be a serious economic risk.000 per ounce. would result in a significant increase in the current value of gold. Assuming a gold price of US$1. Following a gold standard would mean that the amount of money would be determined by the supply of gold. Deflation also robs a central bank of its ability to stimulate spending.
In the United States from 1879 to 1913 the coefficient of variation of the annual change in price levels was 17. If a country wanted to devalue its currency it would generally produce sharper changes than the smooth declines seen in fiat currencies. Some have contended that the gold standard may be susceptible to speculative attacks when a government's financial position appears weak. Additionally three increases by the Federal Reserve in bank reserve requirements in 1936 and 1937. It has been argued by among others Anna Schwartz that this kind of instability in short term price levels can lead to financial instability as lenders and borrowers become uncertain about the value of debt. which doubled bank reserve requirements lead to yet another contraction of the money supply. depending on the method of devaluation.88. and not the gold standard. but Fed operatives failed to utilize them. as they willfully kept monetary policy tighter than was required by the gold standard. creating deflation. Some hold the view that this contributed to the severity and length of the Great Depression as the gold standard forced the central banks to keep monetary policy too tight. • Monetary policy would essentially be determined by the rate of gold production.0. although others contend that this very threat discourages governments' engaging in risky policy (see Moral Hazard). This disadvantage however is shared by all fixed exchange rate regimes and not just limited to gold money. citing that the Federal Reserve couldn't expand credit enough to offset the deflationary forces at work in the market. Opponents of this viewpoint have argued that gold stocks were available to the Federal Reserve for credit expansion in the early 1930s. All fixed currencies that appear weak are subject to speculative attack. For example. Milton Friedman however argued that the main cause of the severity of the Great Depression in the United States was the Federal Reserve. it does in the short term bring high price volatility. Such reason is often employed to partially blame the gold standard for the Great Depression. Although the gold standard gives long term price stability. some believe the United States was forced to raise its interest rates in the middle of the Great Depression to defend the credibility of its currency after unusually easy credit policies in the 1920s. whereas from 1943 to 1990 it was only 0.economic recession. or deflation if there is a decrease. • • • . Fluctuations in the amount of gold that is mined could cause inflation if there is an increase.
you’ll receive either units or shares that represent your proportionate share of the pool of fund assets. • The price that investors pay for mutual fund shares is the fund's per share net asset value (NAV). In return for putting money into the fund. The manager uses the money to buy stocks. the fund manager charges fees based on the value of the fund’s assets. • Mutual fund shares are “redeemable” • There is an opportunity to create and sell new shares to accommodate new investors.4. In return for administering the fund and managing its investment portfolio. • mutual funds typically are managed by separate entities known as "investment advisers" HOW A FUND DETERMINES ITS SHARE VALUE : .MUTUAL FUND: What is a mutual fund? “its an collective scheme which collect from small investors and on behalf of them invest in different security to minimize risk and maximize profit. CHARACTERSTIC • Investors purchase mutual fund shares from the fund itself. bonds or other securities according to specific investment objectives that have been established for the fund. A mutual fund is a pool of money that is managed on behalf of investors by a professional money manager.
Market value of fund’s asset minus fund’s liability divided by no of outstanding shares is equal to net asset value or fund share price. It is just like a recurring deposit with the post office or bank where you put in a small amount everymonth. TYPES OF MUTUAL FUND 1)Open ended mutual fund : Mutual funds are ‘open-ended’ investment funds. or both by making an equal allocation of the corpus in debt and equity instruments . capital appreciation by investing in equities. 2) Close ended mutual fund: These have a fixed number of units and a fixed tenure. meaning that new investors can contribute money to the fund at anytime and existing investors can return there units or shares to the fund for redemption at any time when you redeem your units or shres of a mutual fund you will receive a cheque based on the current market value of the fund’s portfolio.such funds with there conservative investment approach are best suited for income . 4) Money Market Funds: . The difference here is that the amount is invested in a mutual fund. 3) SYSTEMATIC INVESTMENT PLAN A Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help you save regularly. These funds have various objective : generating steady income by investing in debt instruments. There is fixed lockin period for withdrawing and if you withdraw before that lockin period you will be charged with exit load. these funds declare dividend annually or semi annually. after which their units are redeemed or they are made open ended. The minimum amount to be invested can be as small as Rs 100 and the frequency of investment is usually monthly or quarterly.
6) Growth or Equity Funds: Invest primarily in common shares (equities) of Canadian or foreign companies. bankers acceptances and corporate notes. is to provide investors with a regular income stream with low risk. Performance will be affected by the success or failure of specific investments and by the performance of the stock markets generally. These are generally very low-risk funds offering low returns. 9) Specialty Funds: May invest primarily in a specific geographical area (e. These funds can offer investors international diversification and exposure to foreign companies. debt securities and money market instruments with the objective of providing reasonable returns with low to moderate risk... The goal is typically long-term growth because the value of the assets held increases over time. 5) Fixed Income Funds: Invest in debt securities like bonds. but may hold other assets as well. 8) Global and Foreign Funds: May be fixed income. 7) Balanced Funds: Invest in a ‘balanced’ portfolio of equities. growth or balanced funds that invest in foreign securities. Asia) or a specific industry (e. Some money market funds specialize in Canadian or US money market instruments or invest only in treasury bills. but are subject to risks associated with investing in foreign countries and foreign currencies. typically.g. Some growth funds focus on large ‘bluechip’ companies. 10) Index Funds: .Invest in short-term (less than one year to maturity) corporate and government debt securities such as treasury bills.g. debentures and mortgages that pay regular interest. Fund values will go up and down to some extent. The goal. high technology companies). particularly in response to changes in prevailing interest rates. while others invest in smaller or riskier companies. or in corporate preferred shares that pay regular dividends.
3. Capital gains from sale of securities within the fund. either directly or through a network of registered dealers. 3. 5. 6.Trustee: The entity that has title to the securities owned by the fund (when the fund is organized as a trust. 2. and report on the financial statements of the fund.Mutual Fund Manager: Establishes one or more mutual funds. 7. 4. Several parties are involved in the organization and operation of a mutual fund. .Custodian: The bank or trust company appointed by the Mutual Fund Manager to hold all of the securities owned by the fund.Auditor: The independent accountants retained by the Mutual Fund Manager to audit each year. The Mutual Fund Manager also often acts as the Portfolio Adviser.Transfer Agent and Registrar: The group responsible for maintaining a list of all investors in the fund. Dividends/ coupon payments 2. Returns to investors is in the form of : 1.Portfolio Adviser: The professional money manager appointed by the Mutual Fund Manager to direct the Mutual fund’s investments. instead of as a corporation) on behalf of the unitholders. markets them and oversees their general administration. Mutual Fund share price appreciation. including: 1.Invest in a portfolio of securities selected to represent a specified target index or benchmark such as the S&P/TSX Composite Index.Principal Distributor: Coordinates the sale of the fund to investors.
balanced and international funds) and allow you to switch between funds within their ‘fund family’ at little or no charge. •• Performance Monitoring: The value of most mutual funds is reported daily in the financial press and on many internet sites. as long as the distribution stays in the plan. you are buying an interest in a portfolio of dozens of different securities. you will generally not be taxed on distributions of income or capital gains.g.TAX TREATMENT: You should understand how you will be taxed on your mutual fund investment. when you withdraw money or investments from the registered plan. at least within the type of securities held in the fund. When you buy a mutual fund.g. you can begin buying units with a relatively small amount of money (e. This means that you will have to pay income tax on the distributions you receive. •• Professional Management: Mutual funds are managed by professionals who are experienced in investing money and who have the skills and resources to research many different investment opportunities. •• Liquidity: Units or shares of mutual funds can be redeemed at any time. This can enable you to change the balance of your portfolio as your personal needs or market conditions change. Advantages : There are many reasons why people invest in mutual funds: •• Diversification: Investing in a number of different securities helps reduce the risk of investing. growth.. However.g.. it is taxed as income at your going tax rate. giving you instant diversification. 7 •• Affordability: With many mutual funds. $500 for the initial purchase). $50 per month). •• Flexibility: Many mutual fund companies administer several different mutual funds (e. . Generally. Some mutual funds also let you buy more units on a regular basis with even smaller installments (e. money market. You may wish to ask your tax adviser about the tax implications of holding a mutual fund investment and you should read carefully any tax information provided by the mutual fund. allowing you to continually monitor the performance of your investment. When you redeem your mutual fund holdings you must report any capital gains. unless you hold your investment in a Registered Retirement Savings Plan (RRSP) or other registered plan for which the fund is a qualifying investment. fixed-income. If you hold your investment in a registered plan. a mutual fund will distribute enough income and capital gains each year so that the mutual fund itself will not have to pay any income tax..
Check the fund manager’s track record over a period of time when choosing a fund. Even the best portfolio advisers are wrong sometimes. and studies have shown that few portfolio advisers are able to consistently out-perform the market. As a mutual fund investor. you will also be paying. Those fees and commissions reduce the return on your investment and are charged. whether the fund performs well or not. .What are some of the potential disadvantages? When you invest in a mutual fund you place your money in the hands of a professional manager. in almost all cases. Sales commissions and redemption fees can have a very significant impact on your return if you decide to redeem your mutual fund investment in the short-term. The return on your investment will depend heavily on that manager’s skill and judgement. for management services and for various administrative and sales costs. through management expenses and commissions.
or one has access to the bank’s ATM. though some banks do charge for withdrawing money early. is the target of embezzlement or mismanagement of funds. In addition to earning interest on your deposits. In most cases. the savings account also provides a safe place to put your money. people can withdraw money from a savings account at any time.SAVING A/C A savings account typically refers to an account in which one places money to earn a small amount of interest. Most banks. the Federal Deposit InsuranceCorporation (FDIC) insures your account. the savings account funds are usually easily accessible.5. you might have difficulty if the bank encounters financial problems. up to 100. If your savings account isn’t FDIC insured. These include: • • • • Commercial banks Credit unions Mutual savings banks Savings and loan associations Each of these institutions offers interest payments to the account holder based on the amount of money held in the account. The term "bank" is used here loosely. credit unions and money markets funds do offer this insurance . at least at any time the bank is open. Savings accounts may be opened at a number of different financial institutions.000 US dollars (USD). In fact. If the bank declares bankruptcy. a requirement when shopping for a savings account is to look for one that is FDIC insured. far better than stowing it in the mattress or the cookie jar.
-Free cheque book. -Free Debit Card for primary account holder for lifetime of the account. FDIC Insured Limit 3.Benefit of Saving Accounts -Free Passbook facility available at home branch for account holders. Often there's a minimum balance that has to be kept with the bank. 50000 -Self/Third Party Cash Deposit/Withdrawal at non-home branches -Free National Electronic Funds Transfer facility. Phone Banking & Mobile Banking. For example. Disadvantages of a Savings Account 1. -Free unlimited transactions: Cash withdrawal and balance enquiry. so if you wanted to deposit more than that. typically far below the yields on CDs. a $5 charge is levied. at all bank ATMs & on any other Bank's ATM using your Debit Card. without any usage charges. commodities. Net Banking. Minimum Balance Requirement 2.10 percent APY. Transaction Time Delay . Up to $250.Low Interest Rate 1. you would have to use two banks to get it all insured. For example. IRAs.000 per bank is federally insured by the FDIC through 2013. if a savings account balance falls below $100 at Iowa-Nebraska State Bank. Bank of America's regular savings account offers 0. Savings accounts offer relatively low interest rates. -Free Demand Drafts on particular Bank locations upto Rs. stocks and bonds.
Transaction time delay is one to several business days. there may be a transaction time delay. who has attained 10 years age. house-wives. "You are limited to six withdrawals . 2." If transfers in a billing cycle exceed the stated limit..4.in case of joint accounts Interest Rate Current Interest Rate for the Post Office Savings Bank Account is 3. minors and others in inculcating a habit of thrift in themselves. To use Bank of America again. 50/.5 per cent. 6. The salient features of Post Offices Savings accounts are as under: Who can open? Any resident adult individual singly or jointly with one or two other adults.00. a fee is levied even if minimum balance is maintained.000/. 1. 500/. Rs. Such interest is calculated and credited in the account at the end of each year. including bill payments.. Transferability Transferablity is possible.in case of a single account. A minor. Nomination facility There is nomination facility available. The interest for a month is calculated on the lowest balance at credit of an account between the close of the tenth day and end of the month. Hasty banking moves can incur a penalty because an account may be technically overdrawn for a brief time. . Maximum amount Rs. Numbers of Transfers Limit 5.in case of account with cheque book facility.000/.00. Post Office Savings Account This scheme helps individuals. Minor's accounts can be opened through guardians. If transferring money.in case of account without cheque book facility. can also open the account. Minimum amount Rs. depending on the bank. Rs.
In case the date of maturity falls on Sunday or postal holiday. Other Features : The amount of deposit made at the time of opening of the account cannot be varied. Minor's accounts can be opened through guardians.000 in a joint account in a year. who has attained 10 years age.1. can also open the account. No interest is payable for the balance less than Rs.Interest Taxability The interest earned is exempt under section 10(15)(i). A minor. Interest Taxability The interest received is taxable. 5/Interest Rate: The interest paid varies as declared by the Directorate.50 in any particular month and for the balance more than Rs.00. Minimum amount Monthly Rs.000/. 10/Maximum amount Any amount in multiples of Rs. Small Savings from time to time. . The salient features of the scheme are : Who can open? Any resident adult individual singly or jointly with one or two other adults. The Recurring Deposit Account matures on the date on which it is opened after the end of the term. Other Features : Only one single and one joint account can be opened at one post office.in a single account and Rs. Post Office Recurring Deposit Scheme Post Office Recurring Deposit Scheme provides the facility of saving small sums of money every month to meet future financial goals and earn relatively higher risk free returns.200. the payment becomes due on the business day immediately preceding the date of maturity.
30th September and 31st December If the interest payable every quarter is not claimed by a depositor. . The Scheme is for the benefit of senior citizens. 2004. No deduction shall be made in case of premature closure of an account at any time due to death of a depositor. A depositor may open the account in his individual capacity or jointly with spouse. The salient features of the scheme are as under: Who can open? Any citizen.00. 15. an amount equal to 1% of the deposit shall be deducted and the balance paid to the depositor. 1. subject to specified conditions. Minimum amount Rs.Non-residents and HUFs are ineligible to open the account under the scheme. fifteen lacs) Interest Rate: 9% per annum.The holder of an account may prematurely close the account after 3 years of date of opening of the account.5% of the deposit shall be deducted and the balance paid to the depositor. In case the account is closed on or after the expiry of two years from the date of opening of the account.000/Maximum amount Rs.(Rs.000/. 30th June. such interest do not earn additional interest. Post Office Senior Citizens Savings Scheme Post Office Senior Citizens Savings Scheme has been notified with effect from August 2.Citizens who have retired under a voluntary or a special voluntary retirement scheme and have attained the age of 55 years are also eligible. an amount equal to 1. whose age is 60 years or above. Interest at the rate applicable from time to time to Post Office Savings Account shall be payable on such premature closure of account. Interest is payable quarterly on 31st March. Premature withdrawal In case the account is closed after expiry of one year but before expiry of two years from the date of opening of the account.
Deduction u/s 80C Available w.5% 7. In case of deposits for two.25% 6.e. three or five years withdrawn prematurely after the expiry of one year from the date of deposit. 200/Interest Rate: One Year Two years Three years Five Years 6.5% The interest on deposits is calculated on quarterly compounding basis and is payable annually. interest is payable for the completed years and months at 2% lower rate than specified for the completed period. Financial Year 2007-08 i. Premature withdrawal No interest is paid for the deposit withdrawn prematurely after six months but before the expiry of one year. An adult individual on behalf of a minor. No upper limit. 50/-.f. Maximum amount In multiples of Rs. The salient features of the scheme are as under: Who can open? Any individual singly or jointly with another adult. Assessment Year 2008-09 Post Office Time Deposit Scheme Post Office Time Deposit Scheme offers the facility of investing surplus funds at relatively higher rates of interest. . Minimum amount Rs.e.25% 7. The deposits made under this scheme for a period of 5 years are also eligible for tax bebefits under section 80C of Income Tax Act.
Minors have a separate limit of investment of Rs. However.Post Office Monthly Income Scheme Post Office Monthly Income Scheme (MIS) is meant for investors who want to invest a sum amount initially and earn interest on a monthly basis for their livelihood. Premature withdrawal An amount equal to 5 per cent of the initial investment amount is deducted from the payment. therefore. if the account is closed before three years from the date of the opening of the account. 3 lakhs and the same is not clubbed with the limit of guardian. more beneficial for retired persons. The salient features of the scheme are as under: Who can open? Any individual singly or jointly with other one or two adults. A guardian on behalf of minor or a person of unsound mind.Facility of automatic credit of monthly interest to saving account if accounts are at the same post office. no bonus is applicable to any premature closure of the Account Other features Deposits are exempt from Wealth Tax. Non-Resident Indians and HUFs are ineligible to open the account. Interest Rate: 8 per cent per annum payable monthly. 6.National Savings Certificate (NSC) (VIII Issue) . Additionally bonus of 10 per cent of the deposit amount on maturity after six years. The scheme is. No amount is deducted for the withdrawal after three years.A minor who has attained the age of 10 years.Interest not withdrawn do not earn any interest.
Premature encashment of the certificate is not permissible except at a discount in the case of death of the holder(s). Maturity Period of maturity of a certificate is six years. . There is no maximum limit on the purchase of the certificates. They not only save tax on their hard-earned income but also make an investment which are sure to give good and safe returns. 5000. getting double benefits. as amended from time to time.National Savings Certificate. Income Tax rebate is available on the amount invested and interest accruing under Section 88 of Income Tax Act.000. as amended from time to time. Denominations and Limit National Savings Certificates are available in the denominations of Rs. forfeiture by a pledge and when ordered by a court of law. Rs. 1000. is a time-tested tax saving instrument that combines adequate returns with high safety. Tax Benefits Interest accrued on the certificates every year is liable to income tax but deemed to have been reinvested. popularly known as NSC. Income tax relief is also available on the interest earned as per limits fixed vide section 80L of Income Tax. Rs. & Rs. This is of course a huge benefit for you can decide as much as your budget allows. Maturity value of a certificate of any other denomination is at proportionate rate. Presently interest paid is 8 % per annum half yearly compounded. So it is for you to decide how much you want to put in the NSCs. 10. 100 Rs 500. A large chunk of middle class families use NSCs for saving on their tax. NSCs are an instrument for facilitating long-term savings.
stocks have historically averaged about 10% annual returns However. and you get voting rights in certain company issues Over the long run. . In British English. mutual funds. the usage of the word share alone to refer solely to stocks is so common that it almost replaces the word stock itself. stocks offer no guarantee of any returns and can lose value. even in the long run Investments in stocks can generate returns through dividends. limited partnerships. your return is the dividend plus the capital gain. However. In simple Words.SHARES shares are best investment avenue available from a long period of time. So. a share or stock is a document issued by a company. A share is issued by a company or can be purchased from the stock market. and REIT's. RETURN YOU GET ON SHARES: By owning a share you can earn a portion and selling shares you get capital gain. you also run a risk of making a capital loss if you have sold the share at a price below your buying price. Characterstic : • • • Owning a stock or a share means you are a partial owner of the company. which entitles its holder to be one of the owners of the company. share is a unit of account for various financial instruments including stocks.
No preferential rights: At the time of winding up of the company. Common shares represent ownership in a company and a claim (dividends) on a portion of profits. The general investors should identify a sub-broker for regular trading in shares and palce his order for purchase and sale through the sub-broker. the risk faced by the investors is obviously high. well. These brokers have a network of sub-brokers who provide them with orders. All major company decisions cannot be taken without the consent of the equity share holders.How does one trade in shares ? Every transaction in the stock exchange is carried out through licensed members called brokers. by means of capital growth. Common Stock Common stock is. • • . Over the long term. yields higher • Risk: Since the investor has ownership rights. who oversee the major decisions made by management. There are two type of shares: There are two main types of stocks: common stock and preferred stock. they generally do not entertain small investors. the majority of stock is issued is in this form. since most stock exchange brokers deal in very high volumes. We basically went over features of common stock in the last section. you have to approach a broker However. When people talk about stocks they are usually referring to this type. To trade in shares. Investors get one vote per share to elect the board members. Voting rights : They have voting rights. The sub/broker will transmit the order to his broker who will then execute it . common Types: – EQUITY OR COMMON STOCK – PREFERRED STOCK OR PREFERENCE SHARES Equity Capital: . common stock. In fact. the equity share holders are not given preferential rights for repayment of funds.
• Tax treatment: – Dividends are tax free in the hands of shareholders – After October 1. with at least one general partner and one limited partner. 2. 1956 – Types: • Preferential allotment • Qualified institutional placement 3. . • Taxation is in the hands of the entity.no tax obligation provided the rights & obligations remain same. DIVIDEND REINVESTMENT PLAN (DRIP) – Equity investment option offered directly from the underlying company. – Tax treatment: • LPs and general partnerships have been accorded the same tax treatment. 2004 equity share sold through a recognized stock exchange would be entitled for an exemption from the Long Term Capital Gains provided STT (Securities Transaction Tax)has been paid OPTIONS RELATED TO EQUITY SHARES 1. profit accruing is exempt from tax • Remuneration of partners. taxed under ‘income from business and profession’ • Conversion from general to LLP. – Created by statute (Revised Uniform Limited Partnership Act) – General Partners pay the Limited Partners a return on their investment. PRIVATE PLACEMENT – Issue of shares or of convertible securities by a company to a select group of persons under Section 81 of the Companies Act. LIMITED PARTNERSHIP – A limited partnership (LP) consists of two or more persons. – Returns from dividends immediately invested for the purpose of price appreciation – No brokerage fees – Tax treatment : • No tax deductions or rebates given. – It is a separate entity and files taxes as a separate entity.
Preferred Stock Preferred stock represents some degree of ownership in a company but usually doesn't come with the same voting rights. bondholders and preferred shareholders are paid. (This may vary depending on the company. – Redeemable or non.redeemable : irredeemable preference shares are no longer in existence. the common shareholders will not receive money until the creditors. which has variable dividends that are never guaranteed. investors are usually guaranteed a fixed dividend forever. – Participating or non-participating : this implies having voting right and not having them – Convertible & Non convertible : into equity shares • Tax treatment: – Classified as ‘franked investment income’ – No standard rate tax to be paid on the income .cumulative : The dividend if not paid in case of a cumulative preference shares accumulates and is paid at a later date. This is different than common stock. • No tax exemption or rebate available for these instruments PREFERRED STOCK returns than almost every other investment. GDR and IDR : • Negotiable certificates or financial instruments that provide investors ownership rights to stocks or bonds in a foreign country • Foreign Venture Capital Investors (FVCIs) and Venture Capital funds (VCFs) would not be eligible to invest in IDRs. Some people consider preferred stock to be more like debt than equity.ADR. If a company goes bankrupt and liquidates. Another advantage is that in the event of liquidation. preferred shareholders are paid off before the common shareholder (but still after debt holders). meaning that the company has the option to purchase the shares from shareholders at anytime for any reason (usually for a premium).) With preferred shares. A good way to think of these kinds of shares is to see them as being in between bonds and common shares • They have a prior claim on the assets of the company in the event of liquidation • Less risky • Types: – Cumulative or non. This higher return comes at a cost since common stocks entail the most risk. Preferred stock may also be callable.
HYBRID SECURITIES • Combines the elements of the two broader groups of securities DEBT and EQUITY • Predictable return until certain date • Options available at maturity • Examples: – Preference shares – Convertible/ exchangeable bond – Warrants – Options • Tax treatment: – Based on the different hybrid securities used .
the word "interest" can mean either an ownership interest (also known as a feesimple interest) or a leasehold interest. Real estate investments fall into one of the four following categories: private equity. Alternatively. any losses as a result of natural disasters and the obligation to pay property taxes). a leasehold interest only exists when a landowner agrees to pass some of his rights on to a tenant in exchange for a payment of rent. you have an ownership interest in that home. you get back the balance of your mortgage principal. to legally use and transfer the title of the land/property). In the private market. . such as a real estate investment trust (REIT).8. You receive periodic interest payments from the owner and a security charge against the property in the form of a mortgage. private debt and public debt. You would be participating in the public market if you purchased a share or unit in a publicly traded real estate company. public equity. You would own and operate the piece of real estate yourself (or through a property manager). and you would receive the rent payments and value changes from that investment. the investor is entitled to the full rights of ownership of the land (for example. and must also assume the risks and responsibilities of a landowner (for example. On the other side of the relationship. If you own a home. you are lending funds to an owner or purchaser of real estate. In an ownership interest. Your choice of which one to invest in depends on the type of exposure you are seeking for your portfolio. This type of real estate investing is quite like that of bonds. If you rent an apartment. Broadening that definition somewhat. you would be purchasing a direct interest in one or more real estate properties. When you invest in debt.Real Estate Investments The most basic definition real estate is "an interest in land". The first type of market you could participate in is the private market. At the end of the mortgage term. you could choose to invest in the public real estate market. you have a leasehold interest in real estate.
If you invest in debt secured by non-income-producing real estate. Risk The risk with real estate is that it can go down sharply too. Income-Producing and Non-Income-Producing Investments There are four broad types of income-producing real estate: offices. . remember that the borrower's personal income must be sufficient to cover the mortgage payments. 2. so all of your return must be through capital appreciation. Capital appreciation Real estate appreciates in capital . mini-storage. parking lots and seniors care housing. When you are an equity investor.An equity investment. vacation properties or vacant commercial buildings. such as houses.A key aspect of the capital appreciation is that. The other risk is related to its liquidity itself. represents a residual interest in the property. Real estate prices in India do not have a formal/scientific basis for quoting. You stand to gain a lot when the property value increases or if you are able to get more rent for your building. it can be realised only when it is sold. such as hotels. The key criteria in these investments that we are focusing on is that they are income producing. The current worldwide economic turmoil is because of real estate prices dropping more than the expectation. There are many other less common types as well. Non-income-producing investments. you are essentially the owner of the property. are as sound as income-producing investments. Brokers are the key pins holding the structure together. retail. because there is no tenant income to secure the payments Characterstic of real state investment: 1. Just keep in mind that if you invest equity in a non-income producing property you will not receive any rent. The capital appreciation of the house can favorably be used in the form of a mortgage loan for business purpose or in the form of a reverse mortgage post retirement. This has to be factored in before making an investment decision. industrial and leased residential.particularly land and property. on the other hand.
Because of the high costs of “trading” real estate. real! You can visit your investment. 6. and those with material non-public information are not permitted to trade upon the information. High Transaction Costs Private market real estate has high purchase costs and sale costs. lawyers' fees. and can allow an investor to see profit opportunities that might otherwise not have presented themselves. Selling at 'Market Price' is counted in number of months not days. no public exchange exists for the trading of real estate. expertise or resources.Tangible Real estate is. Landscaping must be handled.Requires Management Because real estate is tangible. On purchases. longer holding periods are common and speculative trading is rarer than for stocks. when the building starts to age. An exception to this characteristic is an investment in fixed-term debt. speak with your tenants. an equity real estate investment does not normally mature . public stock markets are much more efficient .3. Lower Liquidity With the exception of real estate securities. 5. allowing greater profits to be made by those with special information. Liquidity Real estate is probably the most illiquid of all common investment avenues. In the real estate markets. well. it needs to be managed in a hands-on manner. 8. information is king. You can see it and touch it. by definition a mortgage would have a fixed maturity. This makes real estate more difficult to sell because deals must be . engineers' fees and many other costs that can raise the effective purchase price well beyond the price the seller will actually receive. 9. Tenant complaints must be addressed. On sales. and show it off to your family and friends.Inefficient Markets An inefficient market is not necessarily a bad thing. If there is an urgency to sell a property the value could drop drastically.information is efficiently disseminated among market participants. it needs to be renovated. a substantial brokerage fee is usually required for the property to be properly exposed to the market. 7. And. 4.No fixed maturity Unlike a bond which has a fixed maturity date. It just means that information asymmetry exists among participants in the market. there are real-estate-agent-related commissions. In contrast.
Benefits Some of the benefits of having real estate in your portfolio are as follows: 1. real estate allows you to achieve higher returns for a given level of portfolio risk. Real estate returns have relatively low correlations with other asset classes (traditional investment vehicles such as stocks and bonds). The advantage is that we can use indexation benefits to our advantage. 11. The tax on the sale of the only house or agricultural property can be brought down to zero by reinvesting the sale proceeds in a new house or agricultural property.Real estate returns are directly linked to the rents that are received from tenants. Tax treatment Real estate attracts capital gains tax. we can estimate the true appreciation of the real estate after adjusting for inflation. Diversification Value . rental rates are increased whenever a lease term expires and the tenant is renewed. This is a number. real estate income tends to increase faster in inflationary environments.As part of a portfolio.usually a couple months at least. Similarly. you're buying two things: the physical real estate. allowing an investor to maintain its real returns.The positive aspects of diversifying your portfolio in terms of asset allocation are well documented. Variability among Regions While it sounds cliché. Inflation Hedge . There can be a substantial lag between the time you decide to sell a property and when it actually is sold . Underlying Tenant Quality When assessing an income-producing property. This is important because when you purchase the property. 3. location is one of the important aspects of real estate investments. Some leases contain provisions for rent increases to be indexed to inflation. cities and even within the same city. Either way. an important consideration is the quality of the underlying tenancy. which links the inflation to property values. IV. because your selection of which market to invest in has as large an impact on your eventual returns as your choice of property within the market. and the income stream from the tenants. 10. . These regional differences need to be considered when making an investment. a piece of real estate can perform very differently among countries. by adding real estate to a portfolio you could maintain your portfolio returns while decreasing risk.privately brokered. the risk of the investment is greater. which adds to the diversification of your portfolio. regions. If the tenants are likely to default on their monthly obligation. 2.Yield Enhancement . By using indexation. The capital gains can also be invested in low interest yielding Capital Gains Bonds. In other cases. The indexation index is announced every year by the income tax department.
Disadvantages: Costly to Buy.With some exceptions. Purchases need to be made in a variety of geographical locations and across asset classes.It can be a challenge to build a meaningful. improving the exterior and re-tenanting the building with higher quality tenants. Requires Management . diversified real estate portfolio. An investor has a greater degree of control over the performance of a real estate investment than other types of investments. Ability to Influence Performance Examples of such activities include: replacing a leaky roof.For transactions in the private real estate market. First. . Sell and Operate . you need strategic management of the property to consider the longer term market position of the investment. which can be out of reach for many investors. you require property management to deal with the day-to-day operation of the property. Second. transaction costs are significant when compared to other investment classes Real estate is also costly to operate because it is tangible and requires ongoing maintenance.4. Performance Measurement : Risk and return are easy to determine in the stock market but measuring real estate performance is much more challenging. Difficult to Acquire . real estate requires ongoing management at two levels.
DERIVATIVES Derivative is a product whose value is derived from the value of one or more basic variables. called bases (underlying asset. A security derived from a debt instrument. . where settlement takes place on a specific date in the future at today's pre-agreed price. 1956 (SC(R)A) defines "derivative" to include1. wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset.calls and puts. 2. The price of this derivative is driven by the spot price of wheat which is the "underlying". DERIVATIVE PRODUCTS Derivative contracts have several variants. of underlying securities. A contract which derives its value from the prices. commodity or any other asset. at a given price on or before a given future date. Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Puts give the buyer the right. In the Indian context the Securities Contracts (Regulation) Act. risk instrument or contract for differences or any other form of security. Options: Options are of two types . The most common variants are forwards. index. in a contractual manner. Such a transaction is an example of a derivative. forex. loan whether secured or unsecured. options and swaps. . For example. futures. Forwards: A forward contract is a customized contract between two entities. share.9. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts. or reference rate). or index of prices. The underlying asset can be equity.
. that is. They can be regarded as portfolios of forward contracts. Thus a swaption is an option on a forward swap.hedgers. Baskets: Basket options are options on portfolios of underlying assets. Warrants: Options generally have lives of upto one year. A receiver swaption is an option to receive fixed and pay floating. Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They use futures or options markets to reduce or eliminate this risk. 1. Rather than have calls and puts. Futures and options contracts can give them an extra leverage. and arbitrageurs trade in the derivatives market. Hedgers face risk associated with the price of an asset. Speculators wish to bet on future movements in the price of an asset. 2. The underlying asset is usually a moving average of a basket of assets. Swaptions: Swaptions are options to buy or sell a swap that will become operative at the expiry of the options. These are options having a maturity of upto three years. the majority of options traded on options exchanges having a maximum maturity of nine months.but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date. with the cash flows in one direction being in a different currency than those in the opposite direction. Currency swaps: These entail swapping both principal and interest between the parties. PARTICIPANTS IN THE DERIVATIVES MARKETS The following three broad categories of participants . speculators. A payer swaption is an option to pay fixed and receive floating. Longer-dated options are called warrants and are generally traded over-the-counter. they can increase both the potential gains and potential losses in a speculative venture. the swaptions market has receiver swaptions and payer swaptions. LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities. Equity index options are a form of basket options. The two commonly used swaps are: Interest rate swaps: These entail swapping only the interest related cash flows between the parties in the same currency.
specifically options are most valuable in volatile markets. The potential loss from holding the security is hedged with the options position. you gain because you own the put option. In this case. The largest difference between the two markets is that with OTC contracts. Derivatives. 2. Advantages: Investors typically use derivatives for three reasons: 1. Because options offer investors the ability to leverage their positions. If. they see the futures price of an asset getting out of line with the cash price. . then you may buy a put option.To hedge a position: Hedging a position is usually done to protect against or insure the risk of an asset. they will take offsetting positions in the two markets to lock in a profit. while the exchange derivatives are not subject to this risk due to the clearing house acting as the intermediary.To increase leverage:Leverage can be greatly enhanced by using derivatives. 3.3. then the movement of the option is magnified. Arbitrageurs are in business to take advantage of a discrepancy between prices in two different markets. large speculative plays can be executed at a low cost Trading Derivatives can be bought or sold in two ways. Some are traded over-the-counter (OTC) while others are traded on an exchange. for example. When the price of the underlying asset moves significantly in a favorable direction. Derivatives that trade on an exchange are standardized contracts. This market is the larger of the two markets and is not regulated. there is counterparty risk since the contracts are made privately between the parties and are unregulated. OTC derivatives are contracts that are made privately between parties such as swap agreements. High volatility increases the value of both puts and calls. Many investors watch the Chicago Board Options Exchange Volatility Index (VIX) which measures the volatility of the S&P 500 Index options. For example if you own shares of a stock and you want to protect against the chance that the stock's price will fall. if the stock price rises you gain because you own the shares and if the stock price falls.To speculate on an asset's movement: Speculating is a technique when investors bet on the future price of the asset.
The key features of these securities are: They are issued at face value. These do not form part of the borrowing programme of the Central Government. The term Government Securities includes: Central Government Securities. Coupon or interest rate is fixed at the time of issuance.03% payable half yearly.10. These are called dated securities because these are identified by their date of maturity and the coupon. and remains constant till redemption of the security.in lieu of the Central Government's market borrowing programe. In addition to the above. Interest /Coupon payment is made on a half yearly basis on its face value. which carries a coupon of 11.The market borrowing of the Central Government is raised through the issue of dated securities and 364 days treasury bills either by auction or by floatation of loans. Central Government Securities. The tenor of the security is also fixed. The security is redeemed at par (face value) on its maturity date. . Types of Government Securities Government Securities are of the following types: Dated Securities : They are generally fixed maturity and fixed coupon securities usually carrying semiannual coupon. 11. treasury bills of 91 days are issued for managing the temporary cash mismatches of the Government..g.03% GOI 2012 is a Central Government security maturing in 2012.GOVERNMENT SECURITIES Government securities(G-secs) are sovereign securities which are issued by the Reserve Bank of India on behalf of Government of India. State Government Securities Treasury bills The Central Government borrows funds to finance its 'fiscal deficit'. e.
the coupon of which is benchmarked against average yield on 364 Days Treasury Bills for last six months. Interest /Coupon payment is made on a half yearly basis on its face value. The key features of these securities are: They are issued at face value. Floating rate bonds of four year maturity were first issued on September 29. The benchmark rate may be Treasury bill rate. Partly Paid Stock: This is stock where payment of principal amount is made in installments over a given time frame. bank rate etc. Such stocks have been issued a few more times thereafter. Coupon or interest rate is fixed as a percentage over a predefined benchmark rate at time of issuance. 1994 for Rs. The tenor of the security is also fixed. The security is redeemed at par (face value) on its maturity date. 2000 crore. It meets the needs of investors with regular flow of funds and the need of Government when it does not need funds immediately. Recently RBI issued a floating rate bond. There may be a cap and a floor rate attached thereby fixing a maximum and minimum interest rate payable on it. The first issue of such stock of eight year maturity was made on November 15. The tenor of the security is fixed. but this amount is paid in installments over a specified period. 1994 and were followed by two subsequent issues in 1994-95 and 1995-96 respectively. Floating Rate Bonds: These are bonds with variable interest rate with a fixed percentage over a benchmark rate.Zero Coupon bonds: These are bonds issued at discount to face value and redeemed at par. 1995. The coupon is reset every six months. followed by another issue on December 5. The security is redeemed at par (face value) on its maturity date. The difference between the issue price (discounted price) and face value is the return on this security. The key features of these securities are: They are issued at a discount to the face value. 1995. Coupon or interest rate is fixed at the time of issuance. and remains constant till redemption of the security. the . The securities do not carry any coupon or interest rate. These were issued first on January 19. The key features of these securities are: They are issued at face value.
Capital indexed Bonds: These are bonds where interest rate is a fixed percentage over the wholesale price index. In other words it means that holder of bond can sell back (put option) bond to Government in 2007 or Government can buy back (call option) bond from holder in 2007.25% GOI 2008 indicates the following: . Coupon or interest rate is fixed as a percentage over the wholesale price index at the time of issuance.72%. The tenor of the security is fixed.Though the benchmark does not change. The principal redemption is linked to the Wholesale Price Index. These provide investors with an effective hedge against inflation. in year 2007. Interest /Coupon payment is made on a half yearly basis on its face value. Example: 12. The security is redeemed at par (face value) on its maturity date. However the bond has call and put option after five years i. 1997 on tap basis. the rate of interest may vary according to the change in the benchmark rate till redemption of the security. Features of Government Securities Nomenclature The coupon rate and year of maturity identifies the government security. This bond has been priced in line with 5 year bonds. The principal redemption is linked to the Wholesale Price Index. Bonds with Call/Put Option: First time in the history of Government Securities market RBI issued a bond with call and put option this year. They were of five year maturity with a coupon rate of 6 per cent over the wholesale price index. The key features of these securities are: They are issued at face value. Interest /Coupon payment is made on a half yearly basis on its face value. This bond is due for redemption in 2012 and carries a coupon of 6. Therefore the actual amount of interest paid varies according to the change in the Wholesale Price Index. These bonds were floated on December 29.e. The tenor of the security is also fixed.
and is actively involved in the trading of government securities. Primary Dealers and Financial Institutions have been allowed to hold these securities with the Public Debt Office of Reserve Bank of India in dematerialized form in accounts known as Subsidiary General Ledger (SGL) Accounts. firms.only and in multiples there of. Foreign Institutional Investors.Treasury bills can be purchased for a minimum amount of Rs 25000/. State Government Securities can be purchased for a minimum amount of Rs 1. corporate bodies. Eligibility All entities registered in India like banks. government dated securities can be purchased for a minimum amount of Rs.000/. Primary Dealers. research organizations. companies. 10. is a leading Primary Dealer in the government securities market.12. Entities having a Gilt Account with Banks or Primary Dealers can hold these securities with them in dematerialized form. mutual funds. They can be purchased from Primary Dealers. Provident Funds. Nepal Rashtra bank and even individuals are eligible to purchase Government Securities.only.25% is the coupon rate. In addition government securities can also be held in dematerialized form in demat accounts maintained with the Depository Participants of NSDL. GOI denotes Government of India. Forms of Issuance of Government Securities Banks. institutions.000/-only. financial institutions. PNB Gilts Ltd. Minimum Amount In terms of RBI regulations. partnership firms. which is the borrower. . trusts. State Governments.. Availability Government securities are highly liquid instruments available both in the primary and secondary market. 2008 is the year of maturity.
Repayment Government securities are repaid at par on the expiry of their tenor. Benefits of Investing in Government Securities No tax deducted at source Additional Income Tax benefit u/s 80L of the Income Tax Act for Individuals Qualifies for SLR purpose Zero default risk being sovereign paper Highly liquid. The different repayment methods are as follows : For SGL account holders. Transparency in transactions and simplified settlement procedures through CSGL/NSDL . Day Count For government dated securities and state government securities the day count is taken as 360 days for a year and 30 days for every completed month. For Gilt Account Holders. would receive the maturity proceeds and they would pay the Gilt Account Holders. However for Treasury bills it is 365 days for a year. the maturity proceeds would be credited to their current accounts with the Reserve Bank of India. the Bank/Primary Dealers. For entities having a demat account with NSDL.the maturity proceeds would be collected by their DP's and they in turn would pay the demat Account Holders.
In a price based auction. Multiple/variable Price Based or French Auction: procedure is used in auctions of Government dated securities and treasury bills.Methods of Issuance of Government Securities Government securities are issued by various methods. Bids at yields higher than the cut-off yield is rejected and those lower than the cut-off are accepted. Cut off yield: is the rate at which bids are accepted. The bidders submit bids in terms of the price. Bids: Bids are to be submitted in terms of yields to maturity/prices as announced at the time of auction. the Reserve Bank of India announces the issue size(or notified amount) and the tenor of the paper to be auctioned. as well as the coupon rate. the tenor of the paper to be auctioned. Bids are accepted at different prices / yields quoted in the individual bids. This method of auction is normally used in case of reissue of existing government securities. which are as follows: Auctions: Auctions for government securities are either yield based or price based. In an yield based auction. The bids are accepted at the same prices as decided in the cut off. The bidders submit bids in terms of the yield at which they are ready to buy the security. The cut-off yield is set as the coupon rate for the security. The basic features of the auctions are given below: Method of auction: There are two methods of auction which are followedUniform price Based or Dutch Auction: procedure is used in auctions of dated government securities. . the Reserve Bank of India announces the issue size(or notified amount). since the auction is a multiple price auction. Bidders who have bid at lower than the cut-off yield pay a premium on the security.
the underwriters do not have to subscribe to the issue necessarily unless they have bid for it. Notified amount: The amount of security to be issued is ‘notified’ prior to the auction date. Bids at prices lower than the cut-off are rejected and at higher than the cut-off are accepted. Price based auctions lead to finer price discovery than yield based auctions. On-tap issue This is a reissue of existing Government securities having pre-determined yields/prices by Reserve Bank of India. The unsubscribed portion devolves on RBI or on the Primary Dealers if the auction has been underwritten by PDs. The period for which the issue is kept open may be time specific or volume specific. In case of the auction being fully subscribed. the issue remains open to further subscription by the investors as and when considered appropriate by RBI. Reserve Bank of India may sell government securities through on tap issue at lower or higher prices than the prevailing market prices. the interest dates and the date of maturity remain the same as determined in the initial primary auction. thereby getting a lower yield. Underwriting in Auction. The Reserve Bank of India (RBI) may participate as a non-competitor in the auctions. for information of the public. Such an action on the part of the Reserve Bank of India leads to a realignment of the market . Cut off price: It is the minimum price accepted for the security. for the underwriting which has been accepted. Underwriting fee is paid at the rates bid by PDs . After the initial primary auction of a security. If there is a devolvement. Bidders who have bid at higher than the cut-off price pay a premium on the security. The coupon rate. The devolvement is at the cut-off price/yield. the successful bids put in by the Primary Dealers are set-off against the amount amount underwritten by them while deciding the amount of devolvement. Coupon rate for the security remains unchanged.
prices of government securities. Tap stock provides an opportunity to unsuccessful bidders in auctions to acquire the security at the market determined rate.
Fixed coupon issue Government Securities may also be issued for a notified amount at a fixed coupon. Most State Development Loans or State Government Securities are issued on this basis.
Private Placement The Central Government may also privately place government securities with Reserve Bank of India. This is usually done when the Ways and Means Advance (WMA) is near the sanctioned limit and the market conditions are not conducive to an issue. The issue is priced at market related yields. Reserve Bank of India may later offload these securities to the market through Open Market Operations (OMO). After having auctioned a loan whereby the coupon rate has been arrived at and if still the government feels the need for funds for similar tenure, it may privately place an amount with the Reserve Bank of India. RBI in turn may decide upon further selling of the security so purchased under the Open Market Operations window albeit at a different yield. Open Market Operations (OMO) Government securities that are privately placed with the Reserve Bank of India are sold in the market through open market operations of the Reserve Bank of India. The yield at which these securities are sold may differ from the yield at which they were privately placed with Reserve Bank of India. Open market operations are used by the Reserve Bank of India to infuse or suck liquidity from the system. Whenever the Reserve Bank of India wishes to infuse the liquidity in the system, it purchases government securities from the market, and whenever it wishes to suck out the liquidity from the system, it sells government securities in the market.
11.What are fixed deposit? Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit Account, a certain sum of money is deposited in the bank for a specified time period with a fixed rate of interest. The rate of interest for Bank Fixed Deposits depends on the maturity period. It is higher in case of longer maturity period. There is great flexibility in maturity period and it ranges from 15days to 5 years. The interest can be compounded quaterly, half-yearly or annually and varies from bank to bank. Minimum deposit amount is Rs 1000/- and there is no upper limit. Loan / overdraft facility is available against bank fixed deposits. Premature withdrawal is permissible but it involves loss of interest. Advantages of Fixed Deposit Fixed deposits with the banks are nearly 100% safe as all the banks operating in the country, irrespective of whether they are nationalised, private, or foreign, are governed by the RBI's rules and regulations, and give due weightage to the interest of the investor. Till recently, all bank deposits were insured under the Deposit Insurance & Credit Guarantee Scheme of India, which has now been made optional. Nonetheless, bank deposits are among the safest modes of investment. • One can get loans up to 75- 90% of the deposit amount from banks against fixed deposit receipts. Though the interest charged will be slightly more than the interest earned by the deposit.
DISADVANTAGE: the money cannot be withdrawn until the duration is complete, the funds cannot be used even in emergency situations. . Changes in the goinginterest rate may also rise to a point above and beyond the interest rate applied to existing deposits. This means account holders are actually earning less interest with fixed deposits than with other types of loans and accounts. Tax Implications 1. The amount invested in fixed deposits with a maturity period of 5 years in a Scheduled bank is eligible for tax deduction under section 80C. However, the interest earned on the deposit is taxable.
2. Tax will be deducted at the source, if the interest income on a fixed deposit per annum exceeds Rs.10000. How to open a bank fixed deposit a/c? You can open a FD account with any bank, be it nationalized, private or foreign and make the deposit. However, some banks insist that you open a savings account with them to operate a FD. Before opening a fixed deposit account, check the financial position of the bank. Also, try to check the rates of interest for different banks for different periods. Instead of putting a big amount in one fixed deposit, keep the amount in five or ten small deposits.
with the fee being dependent upon the frequency and severity of the event occurring. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage. in exchange for payment. Types of insurance Term insurance plans Term insurance is the cheapest form of life insurance available. Insurance is a commercial enterprise and a major part of the financial services industry. called the premium. The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a large. Insurance involves pooling funds from many insured entities (known as exposures) in order to pay for relatively uncommon but severely devastating losses which can occur to these entities. an insured or policyholder is the person or entity buying the insurance policy. Risk management. uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss. possibly devastating loss. insurance is a form of risk management primarily used to hedge against the risk of a contingent. has evolved as a discrete field of study and practice. from one entity to another. In order to be insurable. the practice of appraising and controlling risk. the risk insured against must meet certain characteristics in order to be an insurable risk. The insured receives a contract called the insurance policy which details the conditions and circumstances under which the insured will be compensated.12. Since a term insurance contract only pays in the event of eventuality the life cover comes at low premium . An insurer is a company selling the insurance. INSURANCE In law and economics. but individual entities can also self-insure through saving money for possible future losses. The insured entities are therefore protected from risk for a fee.
Unit Linked Insurance Plans Unit linked insurance plan (ULIP) is life insurance solution that provides for the benefits of risk protection and flexibility in investment. Pension plans Pension plans allow an individual to save in a tax deferred manner.rates . Once the contract reaches the vesting age . Endowment plans pay a death benefit in the event of an eventuality should the customer survive the benefit period a maturity benefit is paid to the life insured. An annuity is paid till the life the lifetime of the insured or a predetermined period depending upon the annuity option chosen by the life insured. Term insurance is a useful tool to purchase against risk of early death and protection of an asset. The investment is denoted as units and is . Whole of life plans A whole of life plan provides life insurance cover to an individual upto a specified age . Savings accumulate over the deferment period. A whole of life plan is suitable for an individual who is looking for an extended life insurance cover and /or wants to pay premium over as long as tenure as possible to reduce the amount of upfront premium payment. the individual has the option of choosing an annuity plan from a life insurance company. Endowment plans Endowment plans are savings and protection plans that provide a dual benefit of protection as well as savings. An individual can either contribute through regular premiums or make a single premium investments.
automobile accidents.e. In a ULIP. For example. balanced. Since insurance operates through pooling resources. Risks which can be insured by private companies typically share seven common characteristics: 1. and worker injuries may all easily meet this criterion. in a known place. Definite Loss. The loss takes place at a known time. Conversely an individual faced with a liquidity crunch has the option of paying a lower amount (the difference being adjusted in the accumulated value of his ULIP). It is important to remember that in a ULIP. Large number of similar exposure units. . actresses and sports figures. i. which is famous for insuring the life or health of actors. 2. Other types of losses may only be definite in theory. ULIP investors can shift their investments across various plans/asset classes (diversified equity funds. However. the investment risk is generally borne by the investor. The classic example is death of an insured person on a life insurance policy. allowing insurers to benefit from the law of large numbers in which predicted losses are similar to the actual losses. Occupational disease. debt funds etc. all exposures will have particular differences. the majority of insurance policies for individual members of large classes. and from a known cause. ULIP investors have the option of investing across various schemes. In a ULIP. which may lead to different rates.represented by the value that it has attained called as Net Asset Value (NAV). quarterly or monthly basis. the invested amount of the premiums after deducting for all the charges and premium for risk cover under all policies in a particular fund as chosen by the policy holders are pooled together to form a Unit fund. if an individual has surplus funds. diversified equity funds. half-yearly. The returns in a ULIP depend upon the performance of the fund in the capital market.. balanced funds. investors have the choice of investing in a lump sum (single premium) or making premium payments on an annual. Exceptions include Lloyd's of London. A Unit is the component of the Fund in a Unit Linked Insurance Policy. Fire. he can enhance the contribution in ULIP. The policy value at any time varies according to the value of the underlying assets at the time. Investors also have the flexibility to alter the premium amounts during the policy's tenure.
Affordable Premium. Further. The size of the loss must be meaningful from the perspective of the insured. 3. place and cause of a loss should be clear enough that a reasonable person. and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. There are two elements that must be at least estimable. The event that constitutes the trigger of a claim should be fortuitous. Events that contain speculative elements. while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim. adjusting losses. If there is no such chance of loss. If the likelihood of an insured event is so high. as the accounting profession formally recognizes in financial accounting standards. The loss should be ‘pure. Probability of loss is generally an empirical exercise. There is little point in paying such costs unless the protection offered has real value to a buyer. that the resulting premium is large relative to the amount of protection offered. Accidental Loss. Insurance premiums need to cover both the expected cost of losses. with sufficient information.for instance. may involve prolonged exposure to injurious conditions where no specific time.’ in the sense that it results from an event for which there is only the opportunity for cost. place or cause is identifiable. and the attendant cost. the transaction may have the form of insurance. 6. meaning that the one losses do not happen all at once and individual losses are not severe enough to bankrupt the insurer. 4. it is not likely that anyone will buy insurance. 5. even if on offer. Large Loss. 7. Calculable Loss. if not formally calculable: the probability of loss. Insurable losses are ideally independent and non-catastrophic. insurers may . the time. but not the substance. Limited risk of catastrophically large losses. Ideally. or at least outside the control of the beneficiary of the insurance. are generally not considered insurable. could objectively verify all three elements. plus the cost of issuing and administering the policy. or the cost of the event so large. the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer. such as ordinary business risks. For small losses these latter costs may be several times the size of the expected cost of losses.
S. or are insured by a single insurer who syndicates the risk into the reinsurance market.prefer to limit their exposure to a loss from a single event to some small portion of their capital base. Insurable interest – the insured typically must directly suffer from the loss. What that "stake" is will be determined by the kind of insurance involved and the nature of the property ownership or relationship between the persons. In commercial fire insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurer’s capital constraint. for example. the insurer may sue those liable for insured's loss Tax Benefits on Insurance and Pension .. Insurable interest must exist whether property insurance or insurance on a person is involved. Capital constrains insurers' ability to sell earthquake insurance as well as wind insurance in hurricane zones. Contribution – insurers which have similar obligations to the insured contribute in the indemnification. 3. Several commonly cited legal principles of insurance include: 1. on the order of 5 percent. Such properties are generally shared among several insurers. When a company insures an individual entity. according to some method 5. The concept requires that the insured have a "stake" in the loss or damage to the life or property insured. or compensates the insured in the case of certain losses only up to the insured's interest 2. Subrogation – the insurance company acquires legal rights to pursue recoveries on behalf of the insured. Utmost good faith – the insured and the insurer are bound by a good faith bond of honesty and fairness 4. In the U. flood risk is insured by the federal government. there are basic legal requirements. Indemnity – the insurance company indemnifies.
subject to norms prescribed in that section. To assist you in tax planning. Our Pension plans are eligible for a tax deduction under Sec. 80C. 2. . The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D). 4. the tax breaks that are available under our various insurance and pension policies are described below: 1. 3.Life insurance and retirement plans are effective ways to save taxes when doing your year end tax planning. Our health insurance plans/riders are eligible for tax deduction under Sec. Our life insurance plans are eligible for tax deduction under Sec. 80CCC. 80D.
Once. Life insurance is a unique investment that helps you to meet your dual needs . Goal based savings Each of us has some goals in life for which we need to save. it could be buying a house. life insurance. insurance products also have a strong inbuilt wealth creation proposition. as your life stage and therefore your financial goals change. Simultaneously. it becomes imperative to make the right choice when investing your hard-earned money. planning for one's retirement will begin to take precedence.Life insurance. especially tailored to meet your financial needs: Need for Life Insurance Today. For a young. As one grows older. along with a strong element of asset appreciation. Life insurance is the only investment option that offers specific products tailormade for . they decide to start a family. While most financial instruments have the underlying benefit of asset appreciation. Let us look at these unique benefits of life insurance in detail. property. the goal changes to planning for the education or marriage of their children. Given the plethora of choices.asset appreciation or asset protection. Modern day investments include gold. newly married couple. and protecting your assets. The core benefit of life insurance is that the financial interests of one’s family remain protected from circumstances such as loss of income due to critical illness or death of the policyholder. fixed income instruments. mutual funds and of course. life insurance is unique in that it gives the customer the reassurance of asset protection.saving for life's important goals. The customer therefore benefits on two counts and life insurance occupies a unique space in the landscape of investment options available to a customer. Clearly. an investment can play two roles . Asset Protection From an investor's point of view. the instrument in which you invest should offer corresponding benefits pertinent to the new life stage. there is no shortage of investment options for a person to choose from.
if investors want to receive the item’s full value should the worst occur. Possibly the most important thing is insurance. Antiques offer a unique opportunity for investors because they can perform double duty as an investment and a home decoration. But when keeping investment grade antiques in the home. Special care and cleaning is likely to be required. Valuable antiques must be specifically insured. . Ultimately. Typically insurance companies will require appraisals of the items in question to confirm the value. Antiques have the potential to provide impressive returns for those who truly love them and are willing to put in the time and effort required to learn the ins and outs of the market. investors need to take some precautions. if buyers expect too much return. and there are many books on these subjects that can be used for reference. antiques are a lifestyle investment. A certified appraiser can provide the necessary legal documents.Antiques : The market seeks the rare and one of a kind. Authorities agree that art and antiques are vulnerable to fluctuations in public tastes and other factors. They can be high-risk speculative investments. rather than simply included as part of a general home insurance policy.13.
and then they sell coins until prices get way too cheap. In order of importance. they are: 1. Government coinage policies and promotions The government’s coinage policies and promotions have a tremendous impact on people’s desire and ability to collect coins. People buy coins until prices get way too high. commodities. internal forces of the supply/demand equation. There are four major external forces that can apply pressure to the prices of rare collectible coins. What Inflation Means for Your Coin Investment Rare coins are an excellent inflation hedge. commercial real estate and so on the coin investing market reacts to the price-driven. 3. 2. the rare collectible coin market has always done very well in periods of increasing inflation.How an Investment in Rare Collectible Coins Offers Both Diversity and Profits It’s a clear fact that the coin market moves in cycles. currencies. The cycle repeats itself again and again. Investing in coins can also bode well even without huge moves in gold and silver. In the past. Like all markets stocks. Internal forces are constantly working within the rare coin investing market. Five Important Advantages of Rare Collectible Coin Investments 1. markets. Liquidity . Gold and silver prices The fluctuations in gold and silver prices have had a clear impact on the rare collectible coin market. The market builds momentum going each way. Both internal and external forces cause this cyclical behavior.
inflation. When uncertainty afflicts global markets. war and social unrest. . currency failure. These crises include investment market declines. low prices tend to drive coins off the market. in the rare coin investment market. The only way new demand can be satisfied is with higher prices. When the time comes to sell your coins. Investors also buy gold early in a bull market and sell it before a bear market begins. Affordability A painting can cost lakhs of rupees or more. 3. Diminishing Supply This is a subtle yet very important coin investment advantage. This is a sharp contrast to other investments First. Investors generally buy gold as a hedge or safe haven against any economic. Favorable Tax Treatment This is a seldom talked about (but significant) advantage of coin investing. 4. political. any increase in demand makes price increases inevitable. In fact. a limited supply reduces the downside risk. gold is the most popular as an investment. you can expect and receive immediate payment 2.Rare coins are the most liquid of all collectibles. The supply of coins cannot be increased to meet the new demand. This is mainly because the factors that affect the prices of gold are different from those that impact the prices of other assets like equities for instance. But rare collectible coins seldom cost more than a few lakhs. As prices come down. in an attempt to gain financially. production gluts (as in the oil market) do not depress prices further and hinder a price recovery. offered by the rare collectible coin market. The supply of rare coins is diminishing daily. social or currency-based crises. burgeoning national debt. Second. Gold is a storehouse of value. You do not have to pay taxes on your rare coin profits until you actually sell the coins GOLD: Of all the precious metals. Commodities like gold are a hedge against inflation.
instead of storing the actual gold bullion. This does not mean. such as gold forwards. that diamonds can never be used or considered as investments. Any such investor would need to ensure that he maintained sufficient personal liquidity to avoid distress selling. 4. 5. homogeneity and fungibility.investors prefer to take refuge in gold because in times of inflation (i. Arts & Paintings : . Jewellery: The most traditional and the dominant form of buying gold in India Polished and rough diamonds lack some of the desirable attributes of investment vehicles. gold prevents erosion in the value of the purchasing power. The very lack of liquidity itself could be used by a speculator who was prepared to make a market in diamonds. Exchange-traded funds 3. currently trade on various exchanges around the world and over-the-counter (OTC) directly in the private market. however. Accounts Most Swiss banks offer gold accounts where gold can be instantly bought or sold just like any foreign currency. Certificates A certificate of ownership can be held by gold investors. Such an investor would need to expend effort to market his stock. and to advertise his readiness to buy and would effectively become a trader rather than investor. futures and options. Grading and certification by recognised laboratories goes some way to redressing this. including liquidity. fall in purchasing power). 5. Biscuits and Bars 2. Derivatives Derivatives.e. However diamonds can never be commoditized sufficiently to allow efficient and sufficiently liquid markets. Forms of Gold investments 1. 6. except by others.
1000000 REASON for sale rate-Establishment of refinery in Barmer 2). Traditionally. however.) 1202 2650 313 231. ceramics. MY PORTFOLIO INVESTMENT 1). classical sculptures. of share ICICI 34 Asian Paints 11 Bharti Airtel 96 Ajanta Pharma 110 All are Long Term Investment 4). residential plot planning to sale it out after 1 year @ Rs. 648000 land size 30by 60 foot at BARMER in KUSHAL VIHAR. 45000per kg till June 5). there has been little interest in operation of a commercial fund that invested in art works rather than in shares.30000 per year in ICICI PRUDENTIAL Policy name. coins. antique furniture and other upmarket collectibles.Life stage RP Term -10 years Sum assured-300000 3).LAND-Rs.) 40868 29150 30048 25498 125564 . drawings. in share upto Rs.SHARE MARKETShare purchased on 16/11/2010 COMPANY No.FIXED DEPOSIT Amt per share(Rs. bonds or real estate and that provided superior financial rewards for investors by trading those works. MUTUAL FUND-Rs.There is a long history of individuals and retailers actively trading old master paintings. Bullion SILVER-Purchased 3kg of silver @39500 per kg Expecting the inc.8 Total (Rs.
P.P.75% 6).F –Rs.Rs. 20000 per year Term _ 15 year Rate of Interst-8% The main reason in investing PPF is that at the time some one get bank corrupt no one can take the amount deposited in PPF . 200000 in YES BANK @ yearly interest of 8.