This action might not be possible to undo. Are you sure you want to continue?
UNDER THE GUIDANCE OF: Ms.Ankita Karvy Consultants Limited, Lucknow & Dr. Madhvendra Misra. Faculty, Indian Institute of Information Technology, Allahabad.
On the successful completion of my summer training project I would like to pay my heartfelt thanks to all who helped me during the course of my training. I take the opportunity to thank the faculty members Mrs.Shveta Singh and Dr.Madhvendra Misra at Indian Institute of Information Technology Allahabad who provided me continuous guidance and support throughout the course of the project. I also pay my heartfelt gratitude towards Mr. Sandeep Agarwal, Branch Head. Karvy Consultants Limited, Agra, Ms. Rachna Jain, Ms. Saraswati Hiordai, Mr. Anuroop Vidhwans and all other members at Karvy Agra, who made my training a lifetime learning experience. I am also thankful to Ms.Ruchi Dhawan, Deputy Head HR (Lucknow Region) and Ms. Ankita at Karvy Lucknow who provided me an opportunity to be a part of the organization during the course of the training. I also take the opportunity to thank my family, friends and all the respondents without whose cooperation this project would have been really difficult. Last but not the least I thank the Almighty without whose Gracious presence this project would have never been completed.
1. PREFACE. 2. INTRODUCTION. 3. AIM . 4. OBJECTIVES. 5. PORTFOLIO MANAGEMENT. 6. RISK ANALYSIS. 7. PORTFOLIO ANALYSIS. 7.1 FIXED DEPOSITS. 7.2 PUBLIC PROVIDENT FUND. 7.3 GOI SECURITIES. 7.4 NATIONAL SAVING CERTFICATES. 7.5 POST OFFICE. 7.6 INSURANCE. 7.7 MUTUAL FUNDS. 7.8 STOCK MARKET. 8. RESEARCH MEHODOLOGY. 9. THE SURVEY. 9.1 FINDINGS. 10. ANALYSIS AND RECOMMNEDATIONS. 11. LIMITATIONS. 12. CONCLUSION. 13. APPENDIX. 14. BIBLIOGRAPHY.
When it is done in a number of securities it forms a portfolio and thereby it bears the aggregate risk and return features of the various components of the portfolio. When investment is done in one single security it bears the risk and return features of that particular security only. This leads to the need for an intensive analysis of various opportunities of investment and then find out where to invest. It is the basic motivating factor behind all investments and the desire is to earn better returns. Also the returns in a portfolio are comparatively high and stable. 4 . how much to invest and for what duration to invest. An investment is a commitment of funds made in expectation of some positive return. In the present day the investor finds a large number of avenues where he may invest hence the decisions regarding portfolio are of great importance. Investment is a long-term concept. The main motive of investment is to earn returns. This project mainly aims to study all the available for an investor and drawing a basic comparison among them and thereby deriving results that would be useful to plan an ideal portfolio. when to invest.PREFACE. A general perception is that risk in a portfolio is less as compared to that in an individual security.
thereby avoiding the risk that the portfolio will be badly affected because a single security or a particular market sector turns sour. And in order to make diversification all these steps need to be followed properly. which are essentially pools of money from many investors that are invested by professionals or according to indices. It means having a mix of investments across sectors. money market funds etc. By diversifying across assets. of different companies from different sectors. There are basically three steps to diversification. and mutual funds. markets. A good portfolio will have stocks. But diversification needs to be done carefully and with adequate prudence. bonds.INTRODUCTION. When one diversifies. But the basic question is why should an investor maintain an investment portfolio and that why should the individual not keep himself limited to a single security? And the answer to this question is that an investor has different types of needs and one single form of investment shall be unable to meet all his requirements. bonds. A portfolio is a collection of investments all owned by the same individual or organization. 5 . So the key to investment success is the proper diversification of assets. the money is spread among many different securities. Also maintaining the whole amount in a single entity shall be very risky. which are investments in individual businesses. time horizons. Diversification means more than just having different types of investments. the investor can reduce the risk without necessarily having to reduce the returns. Diversification is the key to a balanced investment portfolio. which are investments in debt that are designed to earn interest. These investments often include stocks. and instruments. mutual funds. The golden rule is that if there is a diversified portfolio the overall portfolio risk will be lower.
regular evaluation of the investment strategy shall also be needed and a further analysis how the investments are performing and whether or not the investment goals of the individual has changed. The third and the final step is to select the specific investments. To maintain appropriate diversification. And thus arises the concept of portfolio management.The first step is that of analysis of Liquidity Considerations. Here the investor needs to consider the tax consequences of various instruments. the aim of investing is to develop a source of yearly income. he will have to concentrate on growth investmentsreal estate or growth stocks. However. So a close and continuous monitoring of the various components of the portfolio is needed. Generally investment managers advise that keeping 10% to 15% of the portfolio in these types of investments is an adequate amount for most people. 6 . The second step is to establish the investment goals and objectives. concentration on income-generating investments such as highdividend stocks or bonds will be needed. The investor should establish how much of the portfolio will need to be invested in relatively liquid assets that can be quickly converted to cash when needed. If one is looking for long-term results.
AIM The aim of the study is to mainly analyze the risk associated with investment in various securities. and thereby find out that how an ideal portfolio should be planned such that the investor gets the maximum return out of the investment made and fulfilling his liquidity requirement simultaneously. 7 .
OBJECTIVES The aim of the project being an exhaustive analysis of portfolio decisions of an investor the study would be carried out keeping the following objectives in mind. To study the different types of risk and return factors that are associated with each type of investment and thereby find out the role that each type of security plays in an investor’s portfolio. their preferences about different types of investment opportunities based on the collection of primary data. to analyze and find out that how an ideal portfolio can be planned for an individual that would give him adequate return without any hindrance to his liquidity requirements. To find out how individuals actually plan their portfolio. Lastly. 8 . To study the concept of risk why does it arise and the various types of risks that are associated with investment. An intensive study of the various avenues of investment those are available to an investor.
The way to manage the composition of the investment portfolio is known as portfolio management. Investment decisions can then be made based on a better understanding of what will be gained or lost through the inclusion or exclusion of certain investments. and finally selection of investments that provides the greatest value to the investor. This category of investors prefers investing in the securities that have a fixed return and keep the 9 . Each investor has different kinds of needs and should keep in mind all his needs before any investment decision is taken. It is the way of diversifying a portfolio of investments that takes into account risk and return considerations. security. The various needs that an investor has are mainly of four types: LONG TERM PROFIT: Investment is a long-term concept. And their desire for return is also not very high. budgeting. Through portfolio management. costs. The processes. liquidity and return. The aim of Portfolio Management is to achieve the maximum return from a portfolio that the investor has. the investor can explicitly assess the tradeoffs among competing investment opportunities in terms of their benefit. Such investors do not worry much about the current earnings. When any investor makes an investment he aims to acquire a good return in the long run. They want the investment to grow in the long-term. The investor has to balance the parameters which define a good investment i. This means that the investors have a desire for capital appreciation in their investment. and risks. The goal is to obtain the highest return out of the investment made. Such investors do not take a very high degree of risk. prioritization.e. Any investment made should give good yield in the long run.PORTFOLIO MANAGEMENT. practices and specific activities to perform continuous and consistent evaluation.
Also we have a large number of ULIP’s that are attracting the investment from the individuals.so now the concept of rebate in tax has been eliminated. INSURANCE: Insurance is also a motive of investment.capital also safe. These types of investments are like debt based mutual funds. I00000/. bank and corporate fixed deposits. Others include NSC’s and treasury bills. These securities are mostly those that relate to the infrastructure developments in the country. We find a very large category of investors who invest only for the sole purpose to save tax. Hence they play in the stock market and trade actively in the securities so that they may 10 . These ULIP’s serve the dual benefit to the investor it fulfills the investment needs as well as the insurance needs as well. The income tax gives certain leverages in the payment of tax in case certain amount of investment is made in certain specific kinds of securities. These investors have a desire for high current earnings. They are generally made in the infrastructure bonds. Life insurance is also taken as a method of investment. SHORT TERM EARNINGS: Some of the investors aim for just short t term earnings. But in case the withdrawals begin to be taxed this would dampen the spirit of investment in these securities. But now the taxation system has changed. TAX SAVING: Another investment aim that people have is that to save tax. But now the investor has to select fro himself that what are his primary needs and what are of a secondary nature. and now there is a common limit of Rs. The reason is that each individual has certain amount of insurance needs. Their investments are again very fixed. Section 88 and Section 80(l) have been clubbed under Section 80 c. It serves both purposes that are of insurance as well as investment. All the leverages under Section80 (ccc). Also with the tax regime being changed these now stand in direct competition with the ordinary mutual funds.
This kind of investment is very short term in nature and here the main aim is to gain high by due to the fluctuations in the market in the short run.make short-term profits. Each security has certain features regarding the returns that it would pay and the risk that it has. So for this purpose an analysis of all possible avenues of investment has been made in the following chapters. Now in any investors portfolio there can be large number of combinations of securities. These investors study the market very closely as most of their investments are linked to the market. Also these types of investors do not prefer any lock in period of their investments made. They have a high preference for liquidity. 11 . Only only those investors who have a high-risk appetite do this type of investment.
unexpected change in the government policies. These are only some of the preliminary risks that investors face but when an intensive analysis is made we find a large number of risks that we generally ignore as an investor. In the course of investment an investor faces a large number of risks and some of them can be controlled and some of them are out of control of an individual. There are certain industries that are very vulnerable to this type of risk. The two basic types of investment risks are: BUSINESS RISK: Business risk is. any risk of loss that takes places to fluctuations in the market. the most familiar risk that the investor generally considers and easily understands. ALIKE FOR MEN AND NATIONS. mismanagement. Before any investment decision is taken it is necessary for an individual to analyze all the possible risks associated to the investment being made.RISK ANALYSIS. Risk is the possibility of losing or of not gaining in value. and financial insolvency. This can be in form of either in form of happening of some unexpected negative event or the non-occurrence of an expected positive event. It is the potential for loss of value through competition. It is an unsystematic risk that is specific to the company in which the investment is made. An individual faces variety of risks that include risk of loss of capital. risk of getting inadequate returns.” -George Woodberry. It is the difference between what should happen and what actually happens. So before an investor invests his money in a company he is supposed to 12 . It arises due to the possibility that a company may not be able to meet ongoing operating expenditures. “RISK IS A PART OF GOD”s GAME. It is the measure of a particular investment's volatility and of the possibility that it will cause an investor some degree of financial loss.
This type of a risk is more in investments made in the equity market as well as mutual funds. This would help the investor to earn returns like that prevailing in the market and maximize the return that he earns in the course of investment. The reason is that returns in equity are directly related to the operations of the company and in case of mutual funds on the efficiency of the fund manager and his way to manage the portfolio of the fund. Risk can be quantified. As it has been defined as a negative event or a positive event not occurring various methods have been developed that help to quantify the risk that can be associated with the investment being made. This is a risk that an investor can avoid by intensive study of the past performance of the company.carefully analyze the operational aspects of the company. In case of equity shares an investor who applies in an IPO should consider that at what price the share is available in the open market and then bid accordingly. The value should be adequate and should give the true position of the security. VALUATION RISK This risk is associated with the risk in the value at which the security is available in the market. 13 . This type of risk mainly arises when a security is directly purchased from the market. Now an investor has to understand that risk has got certain features and before he takes any investment decision he should consider these features of risk. When the purchase is NAV based an investor should be careful about the return that the investor shall get back from the investment in form of capital appreciation and recurring return in form of dividends. This feature creates an inbuilt feature of it being mitigated. So now since risk can be quantified it can be managed and controlled. It applies in case of mutual funds as well.
Also people in the mid stage of their life cycle also have less risk bearing capacity due to various responsibilities that they have. For any investor the risk is not same in all stages of his life. Although it is believed inflation is under control. Hence people in this stage of their life need to carefully examine all the risks associated with the investment being made by them. earning requirements of the person and many other financial as well as psychological factors. the cure of higher interest rates may at some point be as bad as the problem. Different investors have different risk appetite that depends upon a variety of other factors. Another factor that works in the later stages of the life are liquidity is more desired due to causes like emergency medical needs and the individuals do not have a regular recurring source of income. Hence these investors need to keep their money safe such that they do not face any problem in future. During the course of study it was found that generally investors ignore certain basic facts about risks involved in investment. 14 . It corrodes the real value of money. It destroys value and creates recessions. Another factor of risk for the investors need to pay a lot of attention to is that of inflation. It is considered as a tax on everyone. So the conclusion is that age of a person has an inverse relationship with the age of the investor. Though risks are pervasive and inherent to any financial decision but a common investor fails to understand them. Inflation can have very drastic effects on the investment made. It depends upon the investor that what is the amount of risk that he wishes to take. People in the later stages of their life have a lower risk bearing capacity the reason is that their earning capacity is lower and they have limited savings. These include liquidity preference of the investor. stage of a person’s life.Here a lot depends upon the risk bearing capacity of the investor. They not only have to generate enough recurring income but also keep in mind the long term capital aspect in mind while they take any investment decision.
Both the conditions may prove harmful for an investor. Another risk is related to the trends in the market. Nowadays if an investor has a low risk capacity he can enter the equity market with the help of mutual funds especially for the investors in the later stages of the life. So as a guard against the factor of inflation even the investors in the later stage of their life maintain some of their assets in stocks. since it erodes the value of their income stream. Stocks are the best protection against inflation since companies have the ability to adjust prices to the rate of inflation. Hence it is recommended for the investors to not be lured by the assured returns they should try to make their money work hard for them so that the yields are optimum. Inflation hurts investors on fixed incomes the most. One should neither have an over optimistic view nor an over pessimistic view about the market. But the investor should always try to get maximum out of the investment that he makes and hence take advantage of the high returns in the equity market. People who invest in fixed income bearing sources of investment feel that they are able to earn a fixed amount and do not realize the fact their real income is actually falling. This would help them to maintain a pace in their income. An investor should not enter the 15 .Investors historically have retreated to “hard assets” such as real estate and precious metals. in times of inflation. But in normal course the fails to understand that his fact. Here they would enjoy a large number of benefits that have been stated later under the chapter of mutual funds. especially gold. Not taking any risk is one of the biggest risks that an investor might have to face. Equity and equity related instruments have been the only option of investment that has beaten the effect of inflation. So it is proved that assured returns are not always the best as they are always lower than what an investment actually should earn. Some investors fear from making investments in the equity market due to the inherent risk that prevails in this form of investment.
Risks need to be treated as by-products of any investment exercise. Most of the time we see that the investors tend to follow the crowd instead of analyzing that what shall be a better option for them.market when it is on a rising trend under the impression that it would further rise in future because the market may behave in just an opposite manner. But the final verdict is that risks cannot be eliminated they can however be managed effectively if the investors are prepared to walk an extra mile. Rather it would be a better option to exit the market when it is high that would help the investor to get good return on the initial investment made. All macro factors need to be taken care of while deciding the portfolio of an investor. The same thing applies for a pessimistic approach towards the market. 16 . Being too bullish can prove harmful so the investors should keep a close watch of the changes in the market. The information upon which the investment decision needs to be based should be authentic. Only a close study of the market is also not sufficient decisions regarding the selling and buying in the market also need to be taken promptly. But if the fall is over estimated then the investors would refrain from entering the market. And any profit from future rise would not be available to the investor. The reason is that suppose the market is high and an investor plans to sell his security but by the time he finally decides to sell it the prices may have reduced so the gap between the time of the idea generation and the final action may be a cause of loss for the investor. So by carefully studying the trends in the market an investor should adopt an effective investment strategy so that the risk due wrong estimation of the market trends can be reduced. Even the buying decisions need to be taken promptly as delay in actual purchase may lead to paying of high price by the investor. The major risk that investors have is that of irrationality. Awareness about risk and knowledge regarding the ramifications of the same is the first step to risk management. Generally when the market is falling it is the right time to enter the market.
A PORTFOLIO MAY INCLUDE: 17 .
They are the middle path investments with adequate returns and sufficient liquidity. Moreover. The major reason being the slowdown in economy resulting in default by some companies. the yield is generally low with a maximum interest of 5%-5. But still the investor needs to be selective and careful while he makes a selection of the fixed deposit. The term "fixed" in fixed deposits denotes the period of maturity or tenor. This. does not mean that the depositor loses all his rights over the money for the duration of the tenor decided. as per RBI regulations no interest is paid for any premature withdrawals for the period 15 days to 29 or 15 to 45 days as the case may be. however. All that is likely to change for the better.5% per annum for a period of three years or more. 18 . The deposits can be withdrawn before the period is over. presupposes a certain length of time for which the depositor decides to keep the money with the bank and the rate of interest payable to the depositor is decided by this tenor. Fixed deposits remain the most popular instrument for financial savings in India. Company deposits as a saving instrument have declined in popularity over the last three years. For nationalized banks. However. in such cases goes down which is charged as a penalty for premature withdrawal made by the investor. The most common are bank deposits. As opposed to that. The idea is to select the right company to minimize the risk. NBFCs and company deposits are more attractive. Corporate performance is likely to improve and stricter control by RBI should improve NBFCs record. the amount of interest payable to the depositor.FIXED DEPOSITS. There are mainly two avenues for parking savings in the form of fixed deposits. therefore. Fixed Deposits. The rate of interest differs from bank to bank and is generally higher for private sector and foreign banks.
Presently we see a lot of fall in the interest rates offered by the banks but the Indian investor is not that enterprising and so a lot of investors still prefer to invest in bank FD’s rather than any other form of investment. Hence the banks are making efforts to attract the investors’ money and have been successful to large extent.25% to 6. Some of them.25% that is much less than what is paid by the other areas of investment. 19 . The current rates that are being offered by the banks vary from 3. Under these schemes the interest is credited regularly to the investors account and the investor can thereby withdraw the amount as per his requirement. There is only slight variation in the interest rates offered by the banks on these deposits. So the banks have started offering various schemes related to fixed deposits.So the main problem with the fixed deposits is that of liquidity and withdrawal in case of need by the investor. But again the investor can be quite sure about the returns that he would get from the investment in the fixed deposits. Certain banks also offer loans against these deposits as well. Multi Benefit Fixed Deposit Scheme. Canara Bank offers loan against deposits and also allows part withdrawal from the deposit as and when needed. Like Anupam Account Scheme. which were a part of study during its course. So fixed deposit remains the choice of the conservative investors who do not have much of liquidity requirements. So the fixed deposits offer certain amount recurring income to the investor. have been stated below. Union Bank of India also a large number of deposit schemes under fixed as well as recurring deposits. The banks offer regular income scheme under the fixed deposits. To state a few Punjab National Bank has large number of fixed deposit schemes and hence the investor is offered a wide choice to select the scheme according to his need.
00 4.25 4.00 4.a.45 days 46 .) Less than Rs.25 5.75 5.25 4.25 5.90 days 91 .179 days 180 days < 1 year 1 year < 2 years 2 years < 3 years 3 years < 5 years 5 years and above Rs.75 6.25 5.25 PERIOD 07 .50 4.50 5.75 6. 20 .Rates offered by Union Bank of India are differentiated on the amount of deposits.75 4. Rates are same for all amounts of deposit.25 5.50 5.75 5. The rates are as follows: FIXED DEPOSIT RATES OFFERED BY UNION BANK OF INDIA Amount of Deposit (% p.25 4.00 5. 15 Lacs & Lacs above 3.50 4.50 4.00 5. 1 crore & above 4.75 6. 15 Rs.50 5.50 4.14 days 15 .25 Canara Bank has an absolutely same rates list. But there a clear distinction has not been made in the amount of deposit.00 5.
3. An investor needs to analyze the cash flows in the company.75 6. If an investors desires to have a corporate fixed deposit then it is necessary to work on the principle of adequate diversification over a number of companies as well as industries.25%for maturity period of 5 years and above. Neither there is risk of loss of capital nor there is risk regarding the current earnings.00 5.50% p.50 5. As far as the risk involved in investing in fixed deposits is concerned there is hardly any risk involved. But this safety is limited to bank fixed deposits only.a. for maturity periods of 1 year and above upto 5 years and 0. FIXED DEPOSIT RATES OFFERED BY STATE BANK OF INDIA PERIOD 7 days to 14 days 15 days to 45 days 46 days up to 179 days 180 days to less than one year 1 year to less than 3 years 3 years to less than 5 years 5 years and above %p. Also in case of corporate fixed deposits the investor should not keep his money locked in for a longer duration this ensures the safety of the principal money.State Bank of India has a bit different rates being offered and some additional benefits as well. Corporate fixed deposits carry a certain degree of risk.50 5. RISK ANALYSIS OF FIXED DEPOSITS.00 4.a. A lot depends upon the performance of the company.25 The rate of interest on deposits of Senior Citizen under Senior Citizen Deposit Scheme under Domestic pay additional Interest of 0.00 4. The companies that offer higher rates of interest should be avoided as most of the times they fail to 21 .
such restrictions should be done away with and the SLR should be brought down gradually.4 per cent. This reflects the government’s need to have access to bank funds to finance its deficit. If such a risk weight 22 . of which the following are important: High level of Statutory Liquidity Ratio (SLR): Banks are statutorily required to invest 25 per cent of their net demand and time liabilities in government and other approved securities. So the risk level automatically rises.6 per cent to 55. in a market driven regime. banks’ credit-deposit ratio has moved up from 53. This skewness in risk-weights is unrealistic. largely due to the pick up in credit growth during the last year. banks investment-deposit ratio has moved up sharply from 38. Over the same period. Uniform risk-weights on all commercial lending: RBI guidelines for capital adequacy require banks to assign 100% risk weight to its loan portfolio while its investments in government securities attract a risk weight of only 2. The preference of banks for government securities has been influenced by several factors. The return on these deposits is also certain to large extent. But in India not many companies issue public deposits. The interest shall be paid at the end of the period if the withdrawal is not made in midst of the duration for which the deposit has been made. as all commercial loans do not bear the same level of risk.5% to cover market risk. Even companies with poor cash flows are an alarm for the investors. The new Basel Capital Accord or Basel 2 recommends a continuum of risk weights that reflects the borrowers’ credit rating.9 per cent.pay so. However. FIXED DEPOSIT TRENDS Banks’ investments have grown faster than their loans. As a result.0 percent to 42.
The Securitisation Act. so that banks and financial institutions found it extremely difficult to recover non-performing assets. it would discourage banks’ tendency to misallocate resources in favor of government securities.structure were implemented in India. This further reinforced bankers’ aversion towards medium to high-risk commercial debt. 23 . the sharp decline in interest rates has helped banks make substantial gains from the sale of investments in securities. Banks investments have delivered good returns. . but a large proportion of banks’ investment portfolio is illiquid Over the last few years. Inadequate laws to tackle NPA recovery: Till recently. 2002 aims to rectify this problem by allowing lenders to dispose of a defaulting borrower’s asset within 60 days of having sent a notice. foreclosure laws in India favored borrowers.
24 . Now a public provident fund is one that is taken to be a savings cum a tax saving instrument. The account can be transferred at the request of the subscriber from one Post office to another. an additional account can be opened on behalf of a minor of whom he is the guardian or a Hindu undivided family by the Karta of which he is a member or on behalf of an association of persons or a body of individuals. including Bank to Post Office and vice-versa. It is like a account in which a certain amount has to deposited on an yearly basis and a certain amount of interest is paid on the amount deposited.PUBLIC PROVIDENT FUND. FEATURES OF PPF A PPF account can be opened by an individual in his own name or on behalf of a minor of whom he is the guardian or by the Karta of Hindu undivided family of which he is a member or behalf of an association of persons or a body of individuals consisting only husband and wife governed by the system of community of property in force . Contributions paid into the fund by both the employees and the employers are invested in accordance with the pre-determined condition of amount and risks. A person having a GPF account can open a PPF account The account can be opened in the Head Post Office or in the branches of SBI or its subsidiaries or in the Nationalized Banks. However. An individual on his own behalf can open only one PPF account. A provident fund is a fund that pays benefits to the company employees who are fund members upon the termination of their employment.
in a year (financial year i. Only one withdrawal is permissible in a year. Minimum Amount Rs. 25 . Subscriber can continue to make deposit during this period Withdrawal can be made any time after expiry of 5 years from the end of the year in which the initial subscription was made. PPF account can be revived paying a fee of Rs.are made during a year – Excess amount will be treated as “Irregular subscription and will neither carry any interest nor this excess amount will be eligible for rebate under section 88 of I.70. Act. The first loan can be taken in the third financial year from the financial year in which the account was opened up to 25% of the amount at credit at the end of the first financial year. Subsequent loan can be taken when the earlier loan with interest has been fully repaid. Where a deposit is made by means of an outstation cheque or instrument.70. The amount of withdrawal should not exceed 50% of the balance at the end of 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower.T. 000/-. from 1st April to 31st March) Maximum Amount – in a year in Rs. Account under the Sub Head “0049”. collection charges at the prescribed rate shall be payable along with the deposit and the date of realization of the amount shall be the date of deposit.The default Fee must be credited to Govt. If contributions in excess of Rs.e.50 along with arrear of minimum subscription for each year of default before maturity . 000/. The subscriber can extend the account beyond 15 years for one or more block(s) of 5 years without any loss of benefits. This excess amount will be refunded without any interest.500/.
Such interest should be paid in not more than 2 monthly installments . One lac without production of the succession certificate after observing certain formalities Subscription to the PPF qualify for deduction from the taxable income of the subscriber for income tax purpose within the limits laid down under section 80-C of the income tax act. however. 26 . the amount standing to his credit can be repaid to his nominee or legal heir. No nomination can. The amount including the interest standing in the credit of the subscriber in the fund is also totally exempt from the wealth tax. Nomination may be cancelled or varied by a fresh nomination. even before the expiry of fifteen years. Nomination may also be made in respect of an account on behalf of a Hindu undivided family. as the case may be. Interest at the rate of 1% above would be charged if loan is repaid in 36 month. The interest credited to the funds is not counted as income for the purpose of income tax.If the amount of loan is not repaid within 3 month. Legal heirs can claim the amount up to Rs. The loan is repayment either in lump sum or in convenient installments numbering not more then 36. interest on outstanding amount of loan would be charged at 6%. be made in respect of an account opened on behalf of a minor. In the event of the death of the subscriber. Calculation of interest from 1st day of the month following the month in which the loan is drawn up to the last day of the month in which the last installment of the loan is repaid A subscriber may nominate one or more person to receive the amount standing to his credit in the event of his death.
In case of death of the subscriber. Hence even the small investors have the chance to take the opportunity to invest. There are various reasons that lure the investors’ money towards this form of investment. So PPF is one of the most attractive options of investment for the small investors. the nominee cannot continue the account of the deceased subscriber A female subscriber can change her name in the PPF account in the event of her marriage.which is an affordable amount for even the small investors.500/. Other than the factor of safety other factors that attract investors are: Fixed Return: This type of investment pays a fixed amount of return @8% per annum. Both the recurring return as well as the capital of the investor is safe. PPF account is not transferable from one person to another. Generally the investors who have a conservative attitude prefer this type of investment. 27 . There is hardly any type of risk in investing in PPF. This leads to sense of security to the investor as he is assured the return. The reason is that they do not want to take nay risk and desire some amount of income of investment. The minimum annual amount is only Rs. We find a lot of investors who select PPF as major component of their portfolio. So all these make PPF a very popular investment option among the investors. Generally the risk perception towards PPF is very liberal. Small Investors Choice: The minimum amount of investment needed in case of PPF is very small.
70000/. Loan Facility: One has an added facility in case he holds a PPF account that is the loan facility. The principal has to be paid within 3 years. And even investment up to Rs. So all the factors make PPF a competitive area for investment. as this would keep their principal safe and give them small & regular returns.helps to get a rebate in income tax. The investor can take a loan after one year of opening of the PPF account. It is advisable for the people in the later stage of the life cycle to maintain a PPF account. So this ensures some amount of liquidity in the fund. All interest received under the fund are tax-free. So the main motive of most of PPF account holders is to enjoy the tax benefit. One can take a loan in case of need of money. The only problem with PPF is that of liquidity. But here there are some restrictions regarding the re-payment of the loan. But still in case of need an investor can use this option. Tax Benefits: The main advantage of PPF is of tax benefits. 28 . Withdrawals are allowed only after the fifth year of opening of the account and that too only 50% of the amount at the credit of the account at the fourth year of the drawl.
These securities are a part of the money market and have a high degree of liquidity. GOI Bonds are sovereign i.e. They include the bonds that are issued by the Government of India from time to time and the treasury bills. from short dated (less than one year) to long dated (upto twenty years). The reason is that the investor is completely assured of the returns as well as the liquidity of the investment being made. High liquidity-securities can be sold in the secondary market at prevailing rates Available in physical form or in demat -maintained in Constituents Subsidiary General Ledger (CSGL) a/c with any bank Securities held in CSGL a/c will have the convenience of automatic credit of half yearly interest and the redemption proceeds on due date Reasonably good returns 29 . Securities are available in wide range of maturity dates. The investors who have a conservative attitude generally go in for this form of investment. Securities are available in primary and secondary market. credit risk-free coupon bearing instruments which are issued by the Government of India. The basic features of these bonds are: These securities have a fixed coupon that is paid on specific dates on half-yearly basis. The two basic features that these bonds have is that they are totally risk free and that have a very high degree of liquidity.GOI SECURITIES.
This ensures some amount of tax benefit as well. The degree of liquidity is very high and returns are very attractive. Convenience of CSGL a/c as in case of Central Govt securities such as automatic credit of redemption money.Treasury Bills are discounted instruments issued by the Central Government. The basic features of these bills are as follows: Sovereign zero risk instruments. They are available by way of auction every week and also in the secondary markets as per availability.. No Tax Deduction at Source (TDS). Issued at a discount to face value i.100. discounted Instruments with a maximum tenor of 364 days. This makes them more popular among the different forms of investment. Hence there is no risk at all of any kind involved in this form of investment. These are also one of the most preferred forms of investment that the conservative investors select as a part of their portfolio.100 and on maturity the investor receives the face value of Rs. investors will buy the T-bill at discount to face value of Rs. They are generally short term.e. 30 . Available in primary and secondary market. This leads to its increasing popularity among the investors. The Reserve Bank of India auctions 91 day T-Bills every week and 364 day T-Bill every alternate week.
31 . Rates on debt instruments can be obtained from banks that are active in trading these instruments.These days transactions in these forms of securities have been made quite simple as well as paperless. A Constituent SGL account is very much like a depository account by means of which a person can engage in paperless transaction in GOI Securities and Treasury Bills. Brokers who deal in debt instruments can also provide these rates. But the rates are not very accurate as the trading is not very regular. The investor can easily know the present value of the investment. The most convenient mode of transacting in GOI Securities or Treasury Bills is by opening Constituent SGL account with a Bank or NSDL. The interest accruals and Redemption proceeds for Gsecs and T-Bills will be credited directly to the savings / current account of the SGL account holder. The security bought can be held to maturity giving interest inflows on the respective interest payment dates and redemption proceeds on maturity.
30 95.000 and other denominations as may be notified by the Central Government.60 88.1.NATIONAL SAVING CETIFICATES.30 111. 1000/. Rs. Rs.5. The minimum amount of investment to be made is of Rs.10. The certificates are issued in the denomination of Rs. To main motive that the investors have behind investing in NSC’s is to save tax. 100 and for the maximum there is no limit. The reason is that the degree of liquidity is very less in case of NSC.50 103. or NSC’s. as they are more popularly known.000. Rs.70 120.100.500. So the interest paid on a Rs. Rs. are a time-tested tax-saving instrument that combines adequate returns with high safety. And the maturity period is six years.000. A lump sum payment has to be made at the time of investment.80 32 .certificate for the various periods of time would be: PERIOD First Year Second Year Third Year Fourth Year Fifth Year Sixth Year INTEREST 81. National Saving Certificates. The interest is compounded half yearly @ 8%.
Easy Transferability: A NSC held in the name of one person can be easily transferred in the name of another person and also from one post office to another on payment of the prescribed fees. Easy to Invest: The eligibility criterion for investing in an NSC is quite simple. by a minor. This is the real motive that attracts the investors towards making investment in NSC’s. So not much of legal formalities are needed to purchase an NSC. But this facility can be availed only after the completion of one year from the date of purchase of the NSC. Negligible Risk: The degree of risk involved in investing in NSC is absolutely nil.BENEFITS TO THE INVESTOR Tax Rebate: Deduction in income upto an amount of Rs. Also these certificates are available at post offices and they can be paid for either in cash or by local cheque. Loan Facility: The banks provide loans to the investors against the certificates. There is no TDS applicable on the interest paid on NSC. So the investor can enjoy a deduction in the gross income on which he is suppose to pay tax.100000/. The return is completely risk free and so is the principal 33 . This helps the investors to enjoy certain amount of liquidity. a registered charitable trust and also a Hindu undivided family.is allowed on the investment made in national saving certificates. An individual can purchase it singly or jointly. But during that duration the certificates cannot be encashed. So here it becomes quite similar to the public provident fund.
TRENDS IN NSC INVESTMENTS There has been a lot of change in the tax act as result NSC investments have been affected to a large extent. exempt the contributions from tax. in case this regime comes into effect. that is. As per the act earlier the NSC investments were eligible for a rebate in income tax upto an amount of Rs. 100000/-. 34 . the difference here is that now there is no tax rebate rather a deduction in the gross income allowed upto an extent of Rs. and exempt accumulations from tax and tax the withdrawals. So all this has helped to boom up the investment in these types of securities. This will mean that investors may be taxed when they withdraw the amounts from these schemes. But now all the items that came under this section and section 80 (ccc) have been consolidated under a single section 80 c. Also the rate of interest has been sustained at 8%.70000/.amount. The only dampener in this regard is the declared intention of the Government to migrate to an EET regime. Only loss may take place in case of premature encashment of the certificate.u/s 88 of the Income Tax Act.
This gives the advantage of current earnings to the investors. The interest that is paid can either be withdrawn on monthly basis or it can be directly credited to ones savings account directly.while the maximum amount is Rs. As a part of the study only two schemes have been considered. 1000/. The time deposit schemes as well as the recurring deposit schemes are quite similar to what are available with the banks.in case of a joint deposit. A monthly income scheme (MIS) provides for monthly payment of interest income to investors. Post offices have been one of the major areas where we find a large number of investors in India. The minimum amount of deposit is of Rs. The rest of the schemes have been left. Interest is paid at the rate of 8% p.600000/. The account can also be on the behalf of a minor. 35 . Post offices offer a variety of schemes and hence an investor has a large number of choices to invest. MONTHLY INCOME SCHEME(MIS). But the interest can be withdrawn every month. A single individual can open the account or it can be a joint account. Kisan Vikas Patra.POST OFFICE. Monthly Income Scheme.a. Here a lump sum amount has to invest initially and then the interest is paid on a monthly basis. plus a bonus of 10% bonus on the maturity after 6 years. as they are quite similar to the schemes in the banks.in case of single deposit and it is Rs.300000/.
Unlike many of the other PO scheme. Generally this type of investment is considered to be risk free by the investors. 36 .5% of the principal. RISK ANALYSIS OF MIS The degree of risk involved in a MIS is nil. And the interest rate is 8. as well the principal amount is totally safe. No such deduction is made if account if the account is closed after 3 years but no bonus is paid in case of premature closure if the account. This is a good option of investment for the retired people since they do not have a taxable income and neither have very high liquidity needs. There is hardly any specific risk that is there in form of investment. the Kisan Vikas Patra does not provide any tax relief to the investor. Under this scheme the principal doubles in 8yrs and 7 months. KISAN VIKAS PATRA. This scheme is taken to be a boon for the retired persons because it gives the benefits of a regular income. These are also certificates that are purchased by the investors that are available in different denominations. The Kisan Vikas Patra provides interest income similar to bonds and provides better liquidity by virtue of the exit option after two and half years from the date of allotment.Premature encashment is allowed after one year after deduction of 3.5% that is compounded annually. The instrument suits those looking for a safe investment without the need for a regular income. Also in the post maturity period the interest paid is that according to the savings bank interest rate upto a period of two years for the completed month. The only risk that is there includes the market risk.
It also gives an assurance of life during the period that has been decided. But due to the recent changes in the tax regime now these mutual funds are in direct combat with these unit linked insurance plans. 37 . In case of ULIP the premium that is paid by the investor is used to purchase the unit of a mutual fund. Life insurance is also considered as one of the avenues of investment. called premiums. Insurance is protection against loss or damage in which a number of individuals agree to transfer risk by paying specified amounts of money. illness. And the life cover is given for the period. These premiums create a pool of money that guarantees the individuals will be compensated for losses caused by occurrences such as fire.INSURANCE. In case of life insurance the subject matter of insurance is life. Also certain tax leverages are also given on the premium paid for such policies that are taken by the investors. accident. or death. So these policies are not as risky as mutual funds rather they cover some amount of the investors risk. Here for the first few years the investor is suppose to pay an amount as premium. If during the period of the contract there is no death then the entire amount is paid based upon the NAV of the fund. This premium is used to purchase the units of a mutual fund. So the investor has the benefit of a mutual fund as well as insurance. But now what is more popular amongst the investors is ULIP (Unit Linked insurance Plan). The reason is that in case of life insurance the claim is paid on death or maturity whichever is earlier.
And in order to get a good benefit out of the ULIP one has to maintain the investment in the same for a longer duration. Only the tax saving mutual funds has a lock in period of three years.30% of the premium paid in the first year. UNIT LINKED INSURANCE PLANS.MUTUAL FUNDS Vs. But still we find that most of the investors do not prefer investing through ULIP 38 . So the mutual funds are more effective in the short run while the ULIP’s have an upper hand in the long term.25% for the debt plans. So all this makes ULIP’s a better option in the long run. But the problem lies that in the initial stages the cost insurance companies incur to get business is as high as 20% . And this cost structure is maintained throughout the period of investment. Mutual funds are better as the money withdrawal is allowed at any point of time. While mutual funds have a regulation that their charges cannot be cannot exceed 2. But once these charges are recovered the management expense amounts to only 1%. In case of ULIP’s part of the premium goes into risk cover for insurance and the rest into investments. The price of life cover in ULIP is higher as compared to that in conventional insurance. But in case of ULIP’s the lock in can be of more than three years also. Mutual funds look good in the short run even the money withdrawal quick. These linked insurance plans also have a certain degree of flexibility they offer the alteration in the distribution of premium between risk cover and investment.5% for the equity plans and 2.
A mutual fund is an investment that pools the money from an unlimited number of other investors. And then the returns of the fund are accordingly shared among the investors. In return. But in order to earn high returns he needs to take a lot of risk and also adequately diversify his portfolio. So the mutual funds work in the following way: INVESTORS POOL IN MONEY IN FORM OF PURCHASE OF ITS OF THE MUTUAL FUND RETURNS ARE DISTRIBUTED AMONG THE INVESTORS. the investors each own shares of the fund. INVETSMENT IS MADE IN THE PORTFOLIO AND RETURNS ARE GENERATED 39 . So now we have a lot of mutual fund companies that are entering the market and they are channelising the small investments into the stock market and hence help even the small investors to enjoy the returns of the stock market. THE FUND MANAGER DECIDES UPON THE PORTFOLIO OF THE FUND. In reality an individual is not capable of analyzing all the risk factors and make wise investment decision. The fund's assets are invested according to an investment objective into the fund's portfolio of investments.MUTUAL FUNDS When any investment is made the investor desires returns to be adequate.
Higher the number of securities in which the investment is made lower is the amount of risk.A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. the value of the overall portfolio should gradually increase over time. debentures and other securities. economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. The money thus collected is then invested in capital market instruments such as shares. It wouldn't be possible for an investor to build this kind of a portfolio with a small amount of money. One rule of investing that both large and small investors should follow is asset diversification. Large mutual funds typically own hundreds of different stocks in many different industries. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. Used to manage risk. For example. If we analyze the advantages that a mutual fund offers the investors it can be stated as follows: Diversification: By owning shares in a mutual fund instead of owning individual stocks or bonds. Other securities in the portfolio will respond to the same economic conditions by increasing in value. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. professionally managed basket of securities at a relatively low cost. the risk is spread out. When a portfolio is balanced in this way. even if some securities lose value. by choosing to buy stocks in the retail sector and offsetting them with stocks in the industrial sector. The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified. the 40 . diversification involves the mixing of investments within a portfolio.
By purchasing mutual funds. They have small amounts available with them that are not enough to buy shares in the open market. but if energy prices fall. investors get the benefit of a professional money manager looking after their money. Here we have the example of Reliance Mutual Fund that has a number of funds like the Banking Sector Fund. an individual may have to buy stocks with different capitalization’s from different industries and bonds having varying maturities from different issuers. So. These managers decide what securities the fund will buy and sell. Professional Management: When investment is made in a mutual fund. Power Sector Fund. Divisibility: Many investors don't have the exact sums of money to buy round lots of securities. Most mutual funds pay topflight professionals to manage their investments. But simply purchasing one mutual fund might not give adequate diversification – it should be seen that whether the fund is sector or industry specific. the portfolio shall suffer. To achieve a truly diversified portfolio. one can enter the market with the aid of mutual funds. This manager will use the money to buy and sell stocks that he or she has carefully researched. investors are provided with the immediate benefit of instant diversification and asset allocation without the large amounts of cash needed to create individual portfolios. Investments in mutual funds 41 . And for an individual investor this can be quite costly and difficult. So now the investor does not have to bother about what to sell and what to buy this shall be done by a mutual fund's money manager. For example. an oil and energy mutual fund has a portfolio that includes investments made in the oil and energy sector. instead of waiting until one has enough money to buy higher-cost investments.impact of the performance of any one security in the portfolio can be reduced.
Low Costs: The cost of investment in mutual funds is comparatively low as compared to what is incurred in investments made directly into the market. Instead. Both the liquidity and smaller denominations of mutual funds provide mutual fund investors the ability to make periodic investments through monthly purchase plans while taking advantage of money-cost averaging.5 percent of the investment. This prevents the commission charges from eating up a good chunk of the savings. At the time of mutual fund IPO’s and in case of SIP’s the entry load is always nil. Mutual fund expenses are often no more than 1. Expenses for Index Funds are less than that. So it is not necessary to have huge sums of money to invest. Other than this entry load and exit load is also nominal. Also the investor does not have to pay if he changes his portfolio composition. In reality when a mutual fund is bought.are made generally in small amounts that range from Rs. Liquidity: Another advantage of mutual funds is the ability to get in and out with relative ease. because index funds are not actively managed. the diversification takes place without the numerous commission charges. they automatically buy stock in companies that are listed on a specific index. the transaction fees will be relatively large. Mutual funds are able to take advantage of their buying and selling size and thereby reduce transaction costs for investors. It is very easy to exit from a mutual fund one has to simply apply for redemption. The investor can sell mutual funds at any time. Here the investor enjoys economies of sale purchase and sale of securities. as they are as liquid as regular stocks. If only one security is bought at a time.500/. In most of the cases either of them is nil.5000/-. 42 .to Rs. Mutual funds are able to make transactions on a much larger scale that makes them cheaper.
An investor can easily switch from one option to the other depending upon the changing requirements of the investor. Transparency: Mutual fund companies maintain a lot of transparency. The company shall pay at least some dividend to the investor because the fund shall earn some amount of profit and even if dividend is not paid the asset value appreciation shall add to the capital of the investor. Other Benefits: Mutual funds offer a large amount of flexibility to the investors. Also generally mutual fund companies have a number of schemes running an investor can easily choose out of the schemes of his choice. 43 . These schemes vary from sector specific schemes to simply diversified portfolio. Return Potential: The return potential is very high in case of mutual funds due to the diversification of the investment that is made. The dividend history and the returns that are earned are also clearly stated in the fact sheets of the mutual funds. They give a complete list of the portfolio in which they shall invest. And these have varying return prospects and an investor can select the scheme according to his requirement and risk appetite. So the investor has dual benefit of both recurring returns and capital earnings as well. Also these mutual funds are well regulated by a lot of government regulations and efforts are being made to formulate more regulations to protect the interest of the investors. So an investor is made well aware about where his money is being invested and the real value of his investment.
in January 2005 and by August 2005 the value of the investment rises to Rs. Longterm capital gains are those that are for more than one year. The amount of short-term gain would be Rs. The capital gains part is further taxed in two parts long-term capital gains and short-term capital gains. As far as the income from mutual funds is considered they are in two parts: First includes the income from dividends and the second is income in form of capital appreciation of the investment made. An example of the tax treatment is as follows: Suppose an investment of Rs.TAX CONSIDERATIONS IN MUTUAL FUNDS. These types of funds generally give an assured to the investors.10000/. While short term capital gains are taxed to the extent of 10% of the gain. In case of debt based fund dividend distribution tax has to be paid. Long-term capital gains tax is that of 10% of the gain or 44 .5000/-. This is a tax paid by the debt-oriented funds before they distribute dividends to the unit holders. These types of capital gains are now totally tax-free earlier it was 20%. A debt-based fund is one that invests the amount in debt and government securities. An equity-based mutual fund is that mutual fund in which more than 50%of the investment is made in the equity market. Also in case of taxation of capital gains in case of debt funds both long term and short-term capital gains are taxable. Tax treatment is different in case of equity funds and debt funds. Presently dividend distribution tax is 13.06%. This type of capital gain was earlier taxable to the extent of 30%of the gain. Tax= 10%of 5000 and hence the net gain would be 5000-500=Rs.4500. In case of equity based mutual fund dividend in the hands of the investor is tax free and even the company is not liable to pay any dividend distribution tax.15000/-.
SIP is a valuable tool of financial planning. This helps as it buys less units when the market moves up and more units when the market moves down.69 9 21.59 14.33 13.11 The above table shows how the averaging factor works in case of SIP.72 16.17 1000 65.37 8 18.28 17.56 1000 73. MONTH NAV ON THE DATE INVESTMENT UNITS ALLOTED 1 13.48 11 25.02 2 13.74 1000 56.33 1000 75.15 13.98 1000 71.28 16. Systematic Investment Plan (SIP) A systematic investment plan is just like a recurring deposit account with a mutual fund.25 13.85 18. This helps to avoid risk of timing the market wrongly since investments are spread over time at various NAV levels.23 1000 36. Of Months. Another advantage is that there is no entry load in case of SIP so the entire money invested is used for purchasing the units of the funds.75 5 13.65 13.20% of the gain after taking benefit of indexation.13 15.62 4 13.37 13.15 13.92 7 17.72 AVERAGE COST AVERAGE PRICE 13.28 12 27.26 13.4 13.11 1000 41.61 16. The calculations are made in the following way: Average Cost= Total Money Invested/No.72 1000 78. Average Price(NAV)= Sum of all the NAV’s / No. Units are purchased on a given date every month.57 3 12.46 1000 39.27 14.41 1000 74.98 1000 52.57 1000 46.7 14.46 16. 45 . A monthly contribution is made in the mutual fund. Short-term capital gains are taxable in the similar way as they are in case of equity funds.12 14.53 6 15.86 15.37 13.36 10 24. Hence it averages the cost of investment.33 13. Of Units.39 13.
AVERAGING OF COST AND PRICE IN SIP 30 25 VALUE 20 15 10 5 0 1 2 3 4 5 6 7 8 9 10 11 12 MONTHS NAV ON THE DATE AVERAGE COST AVERAGE PRICE Another option that is quite similar to SIP is that Systematic Withdrawal Plan. New players have come in. This type of an investment keeps an investor from any botherations of the fluctuations in the market. But the mutual fund companies do not generally offer this type of a scheme. TRENDS IN MUTUAL FUNDS Last six years have been the most turbulent as well as exiting ones for the industry. hence it is one of the good options for the people who have a fixed income need. while others have decided to close shop by either selling off or merging with others. Under this option an investor is allowed to withdraw a fixed amount each month and the units are adjusted according to the prevailing NAV on the date of the withdrawal. Those directly associated with the fund management industry like distributors. Product innovation is now passé with the game shifting to performance delivery in fund management as well as service.So we see that the average cost is low in case an investor opts for SIP. 46 . In case of SWP there is no exit load.
An investor should understand his life cycle and wealth management stage. A large number of schemes are being launched to lure the investors. investor should look for consistent long-term results. 47 . a system of risk-reward has been created where the corporate sector is more transparent then before. Presently the mutual fund companies are in the boom phase. Nowadays most of the mutual funds are equity based as returns are quite high in this area. Lot of companies are entering the mutual fund market. Mutual fund companies have been playing a major role in the stock market in providing capital to the corporate. Hence he should have a clear picture of financial goals current wealth level future income and savings risk appetite time horizon and tax situation. A very high portfolio-churning ratio may also prove harmful for the investor. But the investors need to very careful about their selection of the mutual funds. the new generation of private funds which have gained substantial mass are now seen flexing their muscles. The portfolio should be true to its label. by their selection criteria for stocks have forced corporate governance on the industry. Fund managers. The industry is also having a profound impact on financial markets.registrars and transfer agents. By rewarding honest and transparent management with higher valuations. While UTI has always been a dominant player on the bourses as well as the debt markets. and even the regulators have become more mature and responsible. It has been predicted that investors can expect 15% returns from diversified equity mutual funds over next 10 years.
46 9568.89 36663.42 34059.11 14520.84 20276.65 -2766.54 17375.59 35355.72 13512. April 2002-March 2003 April 2003-March 2004 April 2004-March 2005 April 2005.95 7000.Trends in Transactions on Stock Exchanges by Mutual Funds Equity (Rs in Crores) Net Gross Gross Purchase/ Purchase Sales Sales Jan 2000-March 2000.29 8488.86 4417. It would be a better option for the person to opt for SIP so that he can take the benefit of small savings as well as 48 .78 4705. July 2005 (as on 13th) Total (April '05 July '05) 11070.63 2648.58 45045.02 1464.25 4347.43 3597. Mutual funds provide market-linked returns that help the investor to build a large corpus that would be ideal for a retired life.76 15893.90 10686.37 1746.08 2128. These help the investor to give an equity flavor to their portfolio without actually investing directly in the equity market.93 62186.22 900.70 1307.43 5023.04 3660.42 22700.88 -2066.29 5034.79 -860.19 20142.47 7089.54 15084. June 2005.91 3340.17 33583.18 45199.67 44597.15 Debt (Rs in Crores) Net Gross Gross Purchase/ Purchase Sales Sales 2764.68 22624.31 11492.49 2670.80 17705.12 The table above shows that how active the mutual funds have been in transacting in the stock exchange.99 16587.78 12098.16 -421.20 10687. April 2000 March 2001.11 -1816. Hence it is advisable for the investors to use this opportunity and earn better returns out of the investment they make.88 15577.75 16987. Mutual funds are in individual investors way to enter the equity market.17 4533. April 2001-March 2002.98 -3795.41 40469.38 35360.83 63169.22 12604. If investment is made carefully in funds that have given a good result then the investor is sure to benefit in the long run.34 1864.91 448. May 2005.64 46663.84 1788.72 4567.23 2883.42 5982.49 10959. ROLE OF MUTUAL FUNDS IN AN INVESTORS PORTFOLIO.61 6384.
Funds that have occupied top slots in the past need not remain to be so in the future as well. In context of mutual funds it is very important to understand that past performance is not the only indicator for the future performance.19. Investing in the mutual fund IPO’s is though an option that attracts the investors but here the investor needs to careful in studying the stocks in which the fund shall be invested. With the inflation hovering around 5% . 49 . which offer breakeven returns.enjoying the market returns. Thus introspection of oneself and a close analysis of the fund are necessary to build a winning portfolio and not exclusive reliance on the past. Investment in equity either directly or through the mutual fund route provides an effective hedge mechanism against such a potent threat. This option actually averages the cost of investment. these include the portfolio of the fund the investment manager and the strategy of the fund. A recent example is that of SBI Contra Fund that paid a dividend of 102% when it had an NAV of near about Rs. Balancer funds are those funds that invest partly in equity and partly in the debt so their return is also moderate and quite beneficial. So it is necessary to understand the basics of the fund before investment is made. exposes the portfolio to inflation risk. The dividend paid by the mutual funds is also not very regular but at times it is quite high. risk return profile and the financial goals that need to be achieved in the long run. The performance of a fund is highly unpredictable rather random. And the most important thing is one’s own financial requirements.6% poised for great heights investing in avenues. Even if the market is falling the mutual fund holders have an advantage as at that point of time they can purchase more units of the fund.
Today the stock market is the most happening place in the Indian economy. A sudden rise in the index has attracted a lot of investors in to try their destiny in the stock market. This avenue of investment is one of the most risky of all the options available. In this market an investor may have to face extreme situations that is he may earn a large amount in one go and may loose the same in another moment. This depends a lot on the type of stocks that are held by the individual. Some stocks are very aggressive; their response to the market fluctuations is always greater than the change in the market.
Equities have the potential to increase in value over time and can provide the portfolio with the growth necessary to reach long-term investment goals. Equities are known to have outperformed all other forms of investments in the long-term. The rationale for investing in equity markets has never been clearer. Investors must look to maximize their returns over the long term and equity markets have traditionally been the best place to maximize wealth over the long term. If the corporate governance practices improve, then the interest of the entrepreneur and investor are aligned which leads to long-term wealth creation.
SELECTING A STOCK. There are many theories and techniques about how to choose a winner, how to separate the wheat from the chaff. There are three basic factors to look for while picking a stock: The company itself Its external environment The behaviour of its stock
What happens to the company affects the price of its shares on the stock market and, hence, the investment. An investor should never invest in the stock of the company whose business he does not understand. So, knowing about companies is the first essential step in investment. One needs to know the business a company is in, and how is it doing both in absolute terms and in comparison to other companies in the same business. To do that, it is required to look at the financial performance of companies and pick up the star performers. As investors there always is a need to have hope of growth in future. We also need to look at the performance of the entire sector. The reason being that the entire sector performance also affects the performance of an individual stock. We’re putting our money in companies and we can get to know them by looking at their performance. And this monitoring of the performance of the stock has to be done on a regular basis. INITIALPUBLIC OFFER.
There is a category of investors who invest only in the initial public offers made by the companies. A corporate may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is the largest source of funds with long or indefinite maturity for the company. This category of investors forms a very small portion of the players in the stock market. As there has been a large number of IPO’s in the past few months under the book building process of many companies. And most of these issues were highly over subscribed. Some of the issues were that of Jindal Ploy Films Limited, Provogue (India) Limited, Yes Bank Limited, SPL Industries Limited, Syndicate Bank, Nectar Life Sciences Limited and many more. Since the stock market is doing well these days a lot of enthusiasm is seen amongst the investors to invest in shares and stocks.
Under the book building process the demand for the securities proposed to be issued by a corporate body is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document. Price at which securities will be allotted is not known in case of offer of shares through book building while in case of offer of shares through normal public issue, price is known in advance to investor. In case of Book Building, the demand can be known everyday as the book is built. But in case of the public issue the demand is known at the close of the issue.
Derivative is a product whose value is derived from the value of one or more basic variables. The underlying product can be equity, forex, commodity, or any other asset. A security derived from a debt instrument, share, and loan whether secured or unsecured, risk instrument or contract for difference or any other form of security is called a derivative. The most common types of derivatives are forwards, futures and options. Forwards are customized contracts between two entities, where settlement takes place on a specific date in the future at today’s price. 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. Futures contract are special types of forward contracts in the sense that the former are standardized exchange-traded contracts. Options are of two types calls and puts. Calls give the buyer a right but not the obligation to but a given quantity of the underlying asset at a given price on or before a given future date. Puts give the buyer a right but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date. So there a large number of investors who trade in the market on the daily basis. Such type of trading yields short-term earnings. Generally the investor aims at high return in the short term. But even the regular traders need to have an adequately diversified portfolio in the market. All the sectors need to be properly analyzed. 52
Trading in derivatives will no longer be treated as speculative transactions for the purposes of income-tax. These stocks have been the best performing stocks in the market but investing completely in these stocks can be a threat. The IT sector has been leading the rally in the stock market. So an equity portfolio needs to be designed with adequate prudence. If all the stocks in the portfolio are aggressive then any negative change in the market can cause huge losses to the investor. An investor should maintain certain moderate stocks in his portfolio so as to control the effect of fluctuations in the market. One of the best examples to quote here is the case of Reliance Industries Limited. It is hoped that this will lead to a new breed of advisors which will ultimately be beneficial to the investors. As soon as the there was a change in the structure of Reliance the prices of its stocks boomed up. SEBI has been accorded the approval to set up the National Institute of Securities Markets. However.The various sectors need to be studied and then adequate diversification needs to be made in the various sectors. The impact of this increment is going to be minimal. Amendment to the Securities Contract Regulation Act to include trading in securitised debt (including mortgage-backed debt). Now this year a boom in the banking stocks was expected and so we see the banking index rising to a large extent.020 per cent against the existing 0. a 53 . So now the investor has to decide that how does he wish to have his portfolio diversified.015 per cent. this move will lead to a lot of funds being made available to housing finance institutions and enable faster rollover of funds. TAX IMPLICATIONS OF INVESTING IN THE STOCK MARKET There have been no changes on the dividend and capital gains front. Other than these the banks also have been performing well. This will enable more tax effective hedging of open positions. Considering the exponential growth of mortgages in the country during the past two years. The Securities Transaction Tax for day traders in the stock market has been increased to 0.
holistic approach in advising incorporating all types of financial products viz., insurance, mutual funds, and so on, needs to be encouraged. Withdrawal of tax benefit under Section 80 L. This will hasten the migration of investors from bank accounts and fixed deposits to liquid funds and short-term funds as bank interest will be taxable but not dividends from liquid funds. A pragmatic approach on the fringe benefit tax is the need of the hour. The imposition of the above tax will certainly be passed back to the individuals as most of the establishments work on a cost-to-company (CTC) concept. Hence, all the tax benefits stated earlier stand collapsed on account of this one provision.
The aim of the study is to find out how an investor actually plans his portfolio the various risks that are associated with investment and an analysis of the risk perceptions of an investor. Hence in order to derive certain substantial results from the study it is necessary to have direct contact with the investor to that the actual position of and investors mind can be derived.
The study in the initial part of the study was quite exploratory in nature; the reason is that there was a need to find out on the parameters upon which the investment attitude of the investors had to be evaluated. This part of the study was conducted mainly aiming to find out that what investment avenues to be selected and the target group of investors whose attitude shall be analyzed during the course of the study. After the parameters were finalized and the target segments decided the research became more descriptive. In order to actually meet the objectives of the study an analysis had to be made to draw results about the investment attitude of the various categories of the investors taken in the sample. The study was inductive in nature whereby the results were drawn from sample and generalized to the universe. So the requirement of the study was to use primary data gathered from the investors and then derive the results that would give a very clear picture about the investment attitude and the various preferences that the an investor has for the various avenues of investment.
The study has been based on both primary as well as secondary data.
The primary data source has been in form of questionnaires and interviews with the investors who maintain a portfolio. A sample of 50 has been taken and thereby the aim has been find out what are the different kinds of investment pattern that people have, the difference being based on the income level and other demographic factors. Other than questionnaires certain inferences have
also been derived from personal interviews and general chitchat with the clients.
Analysis of the primary data would help to give an insight in the minds of the investor and thereby find out the different types of investors that are there. It would also help to analyze the preference for return that an investor has.
The secondary data include data derived from newspapers business magazines publications by various organizations like SEBI, NSDL. The brochures of various Mutual Funds, their fact sheets have also been used as a source of data for further analysis of the portfolio of an investor. The secondary data analysis describes the actual returns that an investor would get by investing in a certain security. Also it would help to study the actual risk associated with the various avenues of investment. The secondary data would also serve the need to find out that how rational an investor is in his portfolio decisions. And would also help to recommend that how an investor should plan his portfolio so that he may get the maximum return and such that it serves his requirement of liquidity as well.
So the study has been primarily based on the data derived from the survey that has been conducted. And the results derived thereby have been used to find out that what is the investment pattern that people have.
2. Each category has been analyzed separately and then a complete analysis of the sample has been made. The parameters are: Main motive of investment.5 lacs. Returns desired. The analysis has been done based on the parameters stated in the questionnaires. Desirable lock in period.2. Rs.5 lacs. The basic classes and their weightage in the sample are: Service . Reason to have a portfolio.THE SURVEY. Awareness about the market.5 lacs. The income levels that have been considered are: Less than Rs.5 lacs.20 Businesspersons – 13. Portfolio composition. The sample has the following specifications. The basis of categorization of the investors for the purpose of the study has been the occupation and their income level. More than Rs.5 lacs – Rs. 57 . Professionals – 8.7. 7.5 lacs – Rs. Risk perception. Retired Persons – 9. SAMPLE SIZE: 50 A sample of 50 investors has been taken for the purpose of the study. Rs.
This category mainly includes the people in the service sector. The respondents fall in the age bracket of 30 – 55 years. – 15 (75%). The respondents include people involved in government jobs as well as working in the private sector.5 lacs – Rs. This forms the major part of the sample having the highest number in the sample.5 lacs.5 lacs. CATEGORY –1.4.5 lacs . 58 . 2.5 lacs 2. And the number of dependents ranges from 2 .5 lacs. INCOME LEVEL DISTRIBUTION <2.FINDINGS. Rs. – 5 (5%). Income Distribution: Less Than Rs.2.
MAIN MOTIVE OF INVESTMENT: Long Term Profit – 5 (25%). MOTIVES OF INVESTMENT 8 7 6 5 4 3 2 1 0 LONG TERM PROFIT TAX SAVINGS INSURANCE SHORT TERM EARNINGS As per results of the survey it is seen that most of the investment is made for the purpose of tax savings. Short Term Earnings – 6 (30%). Insurance – 2 (10%). The reason is that these type of people are not very willing to take a very high degree of risk so they make investments necessary only that would help them to save on the tax the similar attitude is reflected in their portfolio as well. Tax Savings – 7 (35%). 59 .
REASONS FOR A PORTFOLIO 10 9 8 7 6 5 4 3 2 1 0 RETURNS ARE HIGH RETURNS ARE STABLE RISK IS LESS NO NEED OF PORTFOLIO So under this category of investor the investment is made with the aim to stabilize the returns that would be earned by the investor. No portfolio needed: 0 (0%). The reason is that this category of investor is cautious about the returns that they get from their investment so they maintain a portfolio in order to avoid the fluctuations in the earnings from the investment. 60 . Returns are stable: 9 (45%). Risk is less: 7 (35%).REASON FOR A PORTFOLIO: Returns are high: 4 (20%).
PORTFOLIO COMPOSITION 18 16 14 12 10 8 6 4 2 0 ES NS C PP F BA N IT I KE T IC O FF FU N AL M UT U AR FS K E EC UR PO ST G O IS Since the main motive of investment for this category of investors is to save on the tax we see a major part of investment being made in instruments that help in saving the tax and also give quite assured and stable returns.PORTFOLIO COMPOSITION: Bank: 16 (80%). Equity Market: 13 (65%). 61 EQ UI TY M . NSC: 12 (60%). PPF: 15 (75%). Mutual Funds: 7 (35%). Post Office: 4 (20%). So under this category we do not find very enterprising investors rather most of them invest under the pressure to save tax. GOI Securities: 10 (50%).
As it seen later also that this category of investors do not have a big requirement of liquidity and they make some fixed kind of investments that do not have very high returns but are sure and hence the market study by this category is quite less. This is also clearly reflected in their investment pattern. 62 . RETURN PREFERNECES OF INVESTORS SMALL AND FREQUENT 45% 40% HIGH AND FREQUENT HIGH RETURN IN LONG TERM 15% Again it is seen that this category has preference for long-term profit and shortterm earnings are not desired. High and frequent: 3 (15%). Not much of liquidity is needed.RETURN PREFERENCE: Small and frequent: 8 (40%). High return in long term: 9 (45%).
Rarely: 5 (25%). 7 6 5 4 3 2 1 0 ALWAYS MOST OF THE TIMES SOMETIMES RARELY NEVER LIQUIDTY PREFRENCES: No lock in at all: 4 (20%). 15% 20% NO LOCK IN AT ALL 1-2 YEARS 30% 35% 3-4 YEARS >4 YEARS 63 .MARKET AWARENESS: Always: 6 (30%). 1-2 years: 7 (35%). Most of the times: 4 (20%). Sometimes: 1 (5%). Never: 4 (20%). >4 years: 3 (15%). 3-4 years: 6 (30%).
2.5 lacs – Rs. – 4 (31%).7. 5 lacs .5 lacs .5 lacs – Rs. The respondents include people who are self-employed and have a business of their own.4. INCOME LEVEL DISTRIUTION 38% 31% <2.5 lacs.5 lacs – 5 (38%). Rs.CATEGORY –2. The respondents fall in the age bracket of 35 – 55 years.75 lacs 31% 64 .5 lacs. And the number of dependents ranges from 0 . – 4 (31%). This category mainly includes the people involved in business. Income Distribution: Less Than Rs.2.5 lacs. Rs.5 lacs 2.
Tax Savings – 2 (15%). Short Term Earnings – 4 (31%). Tax savings as is seen is not as important for this category of investors. MOTIVES OF INVESTMENT 7 6 5 4 3 2 1 0 LONG TERM PROFIT TAX SAVINGS INSURANCE SHORT TERM EARNINGS As per results of the survey it is seen that most of the investment is made for the long-term gains.MAIN MOTIVE OF INVESTMENT: Long Term Profit – 6 (46%). The reason is that these types of people are ready to take a very high degree of risk so they make investments that would help them to earn very high returns even if they have to take a high degree of risk. Insurance – 1 (8%). 65 .
No portfolio needed: 0 (0%). REASONS FOR A PORTFOLIO 6 5 4 3 2 1 0 RETURNS ARE HIGH RETURNS ARE STABLE RISK IS LESS NO NEED OF PORTFOLIO So under this category of investors are almost indifferent about the various reasons of having a portfolio. Returns are stable: 5 (38%).REASON FOR A PORTFOLIO: Returns are high: 4 (31%). 66 . There is almost equal number of investors for each type of view but still to some extent we see a favor for stability of returns. Risk is less: 4 (31%).
PORTFOLIO COMPOSITION 12 10 8 6 4 2 0 ES NS C PP F BA N IT I KE T IC O FF FU N AL M UT U AR FS K E EC UR PO ST G O IS Since the main motive of investment for this category of investors is to earn high returns so we see a preference for the high return bearing securities in the portfolio. Also more preference is given to the investments that have a higher degree of liquidity. PPF: 7 (54%). 67 EQ UI TY M . Post Office: 4 (31%). GOI Securities: nil (0%).PORTFOLIO COMPOSITION: Bank: 5 (38%). Most of the investment is made in the equity market and even these investors have the capacity to take the risk. Equity Market: 11 (85%). NSC: 6 (46%). Mutual Funds: 9 (69%). A very minimal quantity of investment is made in the fixed income bearing securities.
RETURN PREFERENCE: Small and frequent: 4 (31%). They have more preference for the securities having a higher degree of liquidity. High return in long term: 3 (23%). High and frequent: 6 (46%). 68 . Due to this preference for liquidity we they avoid investing in securities that have a longer lock in period. RETURN PREFERNECES OF INVESTORS 23% 31% SMALL AND FREQUENT HIGH AND FREQUENT HIGH RETURN IN LONG TERM 46% This category has preference for high and frequent returns. As result they also have be more careful about the changes in the market because the securities in their portfolio are more market linked. This is also clearly reflected in their investment pattern.
5%). >4 years: nil(0%). Never: 2 (15. 0% 31% NO LOCK IN AT ALL 46% 1-2 YEARS 3-4 YEARS >4 YEARS 23% 69 . 1-2 years: 3 (23%). Sometimes: nil Rarely: 2 (15. 3-4 years: 4 (31%).MARKET AWARENESS: Always: 5 (38%). 6 5 4 3 2 1 0 ALWAYS MOST OF THE TIMES SOMETIMES RARELY NEVER LIQUIDTY PREFRENCES: No lock in at all: 6 (46%).5%). Most of the times: 4 (31%).
Income Distribution: Less Than Rs.5 lacs 2. chartered accountants. – 4 (5%). The respondents fall in the age bracket of 30 – 55 years.5 lacs. This category mainly includes the people involved in professions. INCOME LEVEL DISTRIBUTION <2. – 4 (75%).5 lacs . 2. and doctors.5 lacs. And the number of dependents ranges from 1 – 3. Rs.5 lacs – Rs.5 lacs. 70 .CATEGORY –3.2. As per the preliminary study it was found that this category is not very significant but still has been considered separately for the purpose of study. The respondents include people who are into professions like teaching.
5 0 LONG TERM PROFIT TAX SAVINGS INSURANCE SHORT TERM EARNINGS A majority of the investors in this category invest for the purpose of short-term earnings.5 2 1. The reason is that they do not have much desire for current earnings.5 3 2.5 4 3.5 1 0. Insurance – 2 (25%).MAIN MOTIVE OF INVESTMENT: Long Term Profit – 2 (25%). 71 . Short Term Earnings – 4 (50%). MOTIVES OF INVESTMENT 4. Tax Savings – nil (0%).
5 3 2.REASON FOR A PORTFOLIO: Returns are high: nil (0%).5 2 1. 72 .5 4 3.5 0 RETURNS ARE HIGH RETURNS ARE STABLE RISK IS LESS NO NEED OF PORTFOLIO Here again indifference is seen in the various reasons to maintain a portfolio. Returns are stable: 4 (50%). No portfolio needed: nil (0%).5 1 0. REASONS FOR A PORTFOLIO 4. Risk is less: 4 (50%). So the conclusion that can be drawn is that the main reasons that investors have to keep their investment diversified is to reduce the risk and have stable returns.
Equity Market: 5 (62.PORTFOLIO COMPOSITION: Bank: 8 (100%). PORTFOLIO COMPOSITION 9 8 7 6 5 4 3 2 1 0 ES NS C PP F BA N IT I KE T IC O FF FU N AL M UT U AR FS K E EC UR PO ST G O IS This category of investor is mainly desirous of earning a good return but still is not that aggressive in context of risk. 73 EQ UI TY M .5%).5%) Mutual Funds: 7 (87. Post Office: 2 (25%). PPF: 4 (50%). So the major part of the portfolio consists of bank deposits that pay fixed return in the long run. NSC: nil GOI Securities: 2 (25%).
High return in long term: 5 (62%). As it seen later also that this category of investors do not have a big requirement of liquidity and they make investments that do not have very high returns and are less affected by the fluctuations in the market.RETURN PREFERENCE: Small and frequent: 2 (25%). This is also clearly reflected in their investment pattern. 74 . Liquidity preference is low. RETURN PREFERNECES OF INVESTORS 25% SMALL AND FREQUENT HIGH AND FREQUENT 62% 13% HIGH RETURN IN LONG TERM Again it is seen that this category has preference for long-term profit. High and frequent: 1(13%).
5%).5 2 1. 0% 25% NO LOCK IN AT ALL 1-2 YEARS 3-4 YEARS >4 YEARS 75% 75 . Sometimes: nil (0%). Never: 1 (12.MARKET AWARENESS: Always: 1 (12.5 4 3. Most of the times: 4 (50%). 1-2 years: 6 (75%). >4 years: nil (0%).5%).5 1 0. Rarely: 2 (25%).5 0 ALWAYS MOST OF THE TIMES SOMETIMES RARELY NEVER LIQUIDTY PREFRENCES: No lock in at all: nil (0%).5 3 2. 4. 3-4 years: 2 (25%).
That is the annual income is below 2. Since they are retired from service they do not have any regular source of income. . And the number of dependents ranges from 0-1. This category mainly includes the people in the later stages of their lifecycle.5 lacs. Their liquidity needs are different and earning requirements are also varied.CATEGORY –4. The respondents fall in the age bracket of greater than 60 years. This forms the major part of the investors as these types of investors have very different needs. 76 . Income Distribution: The income of all the respondents is in the first group.
Insurance – nil (0%). MOTIVES OF INVESTMENT 7 6 5 4 3 2 1 0 LONG TERM PROFIT TAX SAVINGS INSURANCE SHORT TERM EARNINGS This category of investor has very negligible tax liability and neither insurance needs so the only two are needs why they make an investment. Tax Savings – nil (0%).MAIN MOTIVE OF INVESTMENT: Long Term Profit – 6 (67%). Short Term Earnings – 3 (33%). 77 . Even amongst the two long term profit is a preferred option.
5 0 RETURNS ARE HIGH RETURNS ARE STABLE RISK IS LESS NO NEED OF PORTFOLIO So under this category of investor the investment is made with the aim to reduce the risk of both current earnings as well as principal. Risk is less: 4 (45%). 78 .5 3 2. Returns are stable: 3 (33%).5 1 0. REASONS FOR A PORTFOLIO 4.5 4 3. The reason is that this category of investor has very sensitive needs so they need to maintain a portfolio that meet their varied needs and also keeps their money safe. No portfolio needed: nil (0%).5 2 1.REASON FOR A PORTFOLIO: Returns are high: 2 (22%).
79 EQ UI TY M . Most of the investment is made in banks and post office where the degree of risk is low the market related instruments are selected only to add on to the returns and enjoy some benefit of the fluctuations in the market and make short term earnings. Post Office: 9 (100%). Equity Market: 4 (44%). NSC: nil GOI Securities: 3 (33%). Mutual Funds: 6 (67%).PORTFOLIO COMPOSITION: Bank: 9 (100%). We see a low preference for the securities that are mainly meant for tax purposes and serve insurance needs. PORTFOLIO COMPOSITION 10 9 8 7 6 5 4 3 2 1 0 ES NS C PP F BA N IT I KE T IC O FF FU N AL M UT U AR FS K E EC UR PO ST G O IS The investors in this category need to be careful before they select any form of security for investment. PPF: 6 (67%).
Most of the investments are made in fixed form of investments. High return in long term: 3 (33%). since they do not have a regular source of income.RETURN PREFERENCE: Small and frequent: 5 (56%). 80 . This category of investor generally wants to ensure that the principal amount remains safe. Their liquidity needs are less on a daily basis but may arise any time. RETURN PREFERNECES OF INVESTORS 33% SMALL AND FREQUENT HIGH AND FREQUENT 56% HIGH RETURN IN LONG TERM 11% Again it is seen that this category has preference for small and frequent earnings amongst the investors. High and frequent: 1 (11%). This is also clearly reflected in their investment pattern.
>4 years: nil (0%).MARKET AWARENESS: Always: 2 (22%).5 2 1. 1-2 years: 4(45%).5 1 0. Rarely: nil Never: 3 (33%). Most of the times: nil Sometimes: 4 (45%).5 0 ALWAYS MOST OF THE TIMES SOMETIMES RARELY NEVER LIQUIDTY PREFRENCES: No lock in at all: 3 (33%). 4. 0% 22% 33% NO LOCK IN AT ALL 1-2 YEARS 3-4 YEARS >4 YEARS 45% 81 . 3-4 years: 2 (22%).5 4 3.5 3 2.
With the present boom in the stock market there is an inclination seen in the investors to enter the market and then gain from this sudden rise in the stock market. Investors who wish to take moderate risk prefer equity funds rather than any normal debt or balancer fund. Mutual funds have been the choice of the investors who are risk averse in nature. Such investors have a preference for debt based mutual funds rather than equity based. The investors who desire higher returns prefer investing directly in the equity market. 82 . Mutual funds are taken to be less risky than the investments made directly in the equity market. Risk prevails only in two forms of investment that are the equity market and the mutual funds. The other forms of investment like the NSC. post office and GOI securities are considered to be totally risk free by the investors. Investors still find mutual funds to be new concept and with the US –64 case taking place we find a large number of investors who are apprehensive about investing in mutual funds. They feel that mutual funds assure more returns as compared to equity market. as there are better chances to make short-term gains by playing to the fluctuations in the market. Mutual funds are also considered to be very risky by the investors who do not want to have any amount of risk in their portfolio.The risk perceptions that investors have about the various forms of investment have also been drawn with the help of the survey and the following findings were drawn.
83 . Balancer funds are the best funds as they are partly based on equity and partly on debt. MUTUAL FUND PREFERENCE AMONG THE INVESTORS 8% EQUITY FUND 36% 56% DEBT FUND BALANCER FUND Equity funds are the most preferred option since the rate of return is the highest it pays about a dividend of 50%-55% in a year. The only problem is that of the risk involved due to sudden changes in the stocks of the portfolio. Hence there is certain amount of return that is assured.Investors have different preferences for the various types of mutual funds and this preference can be well related to the investment attitude of the individual. Debt funds are the least preferred option as they pay only 6%-8% dividend in a year so it remains the choice of the extremely conservative investors who do not actually bother about the return rather lay more emphasis on its regularity and safety of the principal. These funds are best suited for the people who are looking for a mid way between high return and high risk. So the investors who desire complete assurance of return should not invest in this kind of portfolio. This faces both an systematic as well as unsystematic risk.
There are websites that provide information about the latest trends in the stock market. The investors just need to put in the data regarding his portfolio composition and the risk appetite and the return shall be calculated at the click of the mouse. On an intensive study of the various study made it was seen that there area number of facilities that are these days available on the web that the investors can avail in order to keep their portfolio update according to the changes in the market. So when an analysis is made of the total sample it is seen that in an overall situation an investor realizes that there is a need of a portfolio as there area lot of risks that are reduced. The investor can use all these so that he may not loose out on information. Portfolio managers or rather the companies that offer portfolio services need to make an intensive need analysis of the requirement of the investor.ANALYSIS AND RECOMMENDATIONS. Even these accelerators 84 . Such investors need to realize that they should make their money work in such a way that that it pays them regularly. The most common motive that investors have to maintain a portfolio is to stabilize their returns and so that they can have a certain degree of assurance of returns from their investment. Most of the websites of investment managers offer financial planning tools to the investors. If the person has no regular income then investment should be made in at least some of those securities that yield a regular source of earning. These accelerators shall include investments in areas like equity and mutual funds. But generally the regular yielding areas of investments pay low so in order to boost up their returns to some extent it is necessary that certain accelerators be added to the portfolio. The Association of Mutual Funds of India provides daily update of the NAV of the mutual funds. It can be said that information technology has played a major role in information visibility in the field of finance.
Their sole aim is to save on the tax they pay. They should maintain the investment in avenues where their capital is safe. The selection has to be made quite carefully. They have a regular source of income and hence they have a higher risk bearing capacity and hence can boost up the returns they draw from their investment. This includes the service class and the professionals to some extent. Next are the people who have a regular source of income. Such investors fail to take the complete perspective of the market. They need to have adequate safety of capital. So even they need to 85 .cannot be selected at random. They have a very restricted perspective towards the investment they make. They should invest in equity as well as mutual funds so that they can enjoy an appreciation in the capital as well. Regular watch of the market shall help in better stock selection and proper portfolio churning could be done. They should make more of bank investments post office schemes and Goi securities. This fixed income should be used as an advantage. So this category of investor is quite conservative and has as similar pattern of investment. This group has very sensitive needs. This group generally does not have much tax liability or insurance needs. Now this does not give them the adequate return that they should. But he also needs to be careful about the factor of inflation and in order to overcome the loses made due to inflation. So it is the duty of the portfolio managers to make the investors realize the growth potential he has regarding the return. They are able to earn only 8% -10% return on the money invested while they have a capacity to earn a lot more than this amount. Also since they have a regular flow of money their investment need not be directed towards the fixed income bearing sources of investment. They have a high-risk appetite as far as recurring returns are concerned. As per the study made this category is least bothered about the profits they make from the investments made. So stock selection needs to be done carefully. liquidity and regularity of return. The last category of investors is the retired people. Investing the entire amount in a single sector can also prove harmful.
Hence this crucial decision of investment needs to be taken very carefully such that the investor meets the primary as well as the secondary motive of investment. Also they should promote the use of the online services provided by them to the investors. There are risk quotient calculators available on the web that would at least provide some information to the investor regarding the profitability of his investment. Generally the mutual funds are promoted when the record date of the dividend is near so that the investor feels that he derives the return immediately. This will help them also provide fast and prompt services to their clients. But they fail to understand that as soon as the dividend is declared the NAV of the fund falls to the extent of the amount of dividend declared and the benefit derived is neutralized by the fall in capital value. Karvy Stock Broking Limited offers online trading services to their clients sitting in front of their systems.maintain a certain component of market linked investments in their portfolio so as to prevent inflation from eating up the capital. As far as the companies are concerned who act as intermediaries since they are in direct contact with the market they should see that their clients are getting the adequate return. With the advent of NEAT at NSE and BOLT at BSE working in the stock market has become more easy and comfortable. 86 . It is also recommended that the investors should also use the Information Technology in order to boost the returns from the investment they are making.
87 .LIMITATIONS. Another limitation of the study is that the data is totally based on the information provide by the investors hence the validity of the data depends upon the trust with which the data has been provided. The study has been totally based on the sample of investors that has been taken. It cannot be totally generalized for the entire universe of investors. Since the sample has most of the investors who were the regular clients of Karvy Consultants Limited there may be a certain amount of bias for particular form of investments. The limitation of the research is that the sample represents the investment behaviour of the investors of Agra.
But there can be rule defined for how to select a security for an individual. A conservative investment attitude is most of the times harmful for an investor. The primary factors that need to be considered include the income level of the investor and his risk appetite. Another rule that we feel can be generalized is that of high-risk leads to high gain. There is need of regular monitoring of the market else there shall be losses due to irregular fluctuations in the market. If the investor is well aware about the information technology tools available to make the best out of their money. But there needs to be some amount of conservatism adopted some category of investors. But this again may not stand true in all cases especially in the short term.CONCLUSION. This attitude leads to loss of potential returns that an investor can earn. The decisions that need to be made relate to deciding upon the various investment avenues. This is a highly personalized exercise. SPREAD IT OR IT SMELLS…” 88 . But in the long term this rule stands quite valid. the quantum that needs to be invested and the duration for which the investment shall be made. So an investor needs to take into consideration all the micro as well as macro factors and giving adequate weightage to each factor. Hence all investors should design their portfolio according to the needs and preferences. At times even when an individual may not have the risk bearing capacity but may still have that appetite to take risk and earn high risk. So after the analysis made it can be derived that personal financial planning is a continuous process of assessing an individual’s profile. The simple principle that follows: “MONEY IS LIKE MANURE. All should have an adequately diversified portfolio. They may use all the facilities that are being provided by the consultancy firms and maximize their returns on their portfolio.
5lacs 2.5 lacs >7.5 lacs 5) Number of dependents: 0 1 2 3 4 >4 6) What is your main motive of investment? Long-term profit. Tax saving. Short-term earnings.5 lacs-5 lacs 5 lacs –7. 7) Why do you feel that investments should be done in a number of securities rather than one? Returns are high. QUESTIONNAIRE. Risk is less.APPENDIX. Returns are stable. Insurance. Investments should be done in only one security. 8) How do you plan your portfolio? Financial advisor Any other please specify: Self 89 . 1) Name 2) Age 3) Occupation : : : 4) Annual Income : <2.
9) Your portfolio includes: (Kindly tick the appropriate boxes and state the percentage of each in your portfolio.) Bank Post Office NSC GOI Securities Equity Market PPF Mutual Funds 10) What do you feel about each of the following: NSC & GOI Securities: very risky somewhat risky low risk very low risk no risk at all somewhat risky very low risk low risk no risk at all low risk no risk at all low risk no risk at all low risk no risk at all PPF: very risky Post Office Savings: very risky somewhat risky very low risk very risky somewhat risky very low risk Mutual Funds: Equity Market: very risky somewhat risky very low risk 11) What type of return do you prefer from your portfolio? Small and frequent High and Frequent High return in long term 12) What type of a mutual fund would your prefer? Equity Fund Debt Fund Balancer Fund (partly equity and partly debt) 13) On an average what is the lock in period do you prefer for the securities in your portfolio? No lock in at all 1-2 years 3-4 years more than 4 years 14) How often do you base your portfolio decisions on the changes in the stock market? Always Most of the times Sometimes Rarely Never 90 .
moneycontrol. Prudential ICICI Mutual Fund.nseindia.economictimes. -Fischer and Jordan.com www. FACTSHEETS AND BROCHURES: Kotak Mutual Fund.com www. Financial Management. Tata Mutual Fund.com www. BOOKS: Security Analysis and Portfolio Management. -Khan and Jain.com www.com Also the websites of various mutual fund companies. SBI Mutual Fund.com www.karvy.amfiindia. 91 .com www. Reliance Mutual Fund.BIBLIOGRAPHY. WEBSITES: www.indiainfoline. Standard Chartered Mutual Fund.bseindia.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.