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INVESTMENT AVENUES

Money market instruments: Definition: As per RBI definitions A market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market. Meaning: A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded.(less than one year) It does not actually deal in cash or money but deals with substitute of cash like trade bills, promissory notes etc which can be converted into cash without any loss at low transaction cost. Advantages / uses / features of money market instruments: They are very useful for over coming short term deficits. In case of an immediate cash crunch, a trader can make use of money market instruments to raise funds at short notice. These instruments are readily convertible into cash at short notice with very low transaction costs. To enable the Central Bank to influence and regulate liquidity in the economy through its intervention in this market. To provide a holding place to employ short term surplus funds. Short term surplus funds can be effectively employed in such a manner. These instruments have a very short maturity period and hence can be traded and liquidated whenever the need arises. Types of money market instruments : Traditional instruments: Treasury Bills Money at call and short notice Bankers acceptance Modern Instruments: Commercial Papers Repo Instruments Money Market Mutual Funds Inter-Corporate Deposits Euro Dollar

1. Treasury Bills : Treasury Bills are money market instruments to finance the short term requirements of the Government. These are discounted securities and thus are issued at a discount to face value. The return to the investor is the difference between the maturity value and issue price. Features: 1) No TDS: there is any tax deductible at source. The company doesnt pay tax before giving the returns to the investor. 2) Zero Default Risk: There is no risk of default as these instruments are backed by the Govt of India and hence the investor would always be assured of getting atleast the money he invested back. 3) Highly Liquid: These instruments can be quickly converted into cash with very low transaction costs and hence make for an excellent short term investment. 2 . Money at Call & short notice : Next in liquidity after cash, money at call is a loan that is repayable on demand, and money at short notice is repayable within 14 days of serving a notice. Features : 1) Interest Rates are charged as per Market Condition. 2) Involves Transaction Cost : At the time of liquidation; the investor has to pay a high amount as transaction cost. 3) Highly effective in Banking transactions. 3. Bankers Acceptance : It is like a post dated cheque. A banker's acceptance, or BA, is a negotiable instrument or time draft drawn on and accepted by a bank. The rates at which they trade are called bankers' acceptance rates

Features : 1) Maturity period is about 6 months. 2) Generally used in International Business. Modern Instruments : 1. Repo Instruments : A form of short-term borrowing for dealers in securities. The dealer sells the securities to investors, usually on an overnight basis, and buys them back on the agreed date. For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement. Features : 1) Helps in liquidity management and speculation 2) Involves bankers as middleman 3) Generally used by commercial banks. 2. Money Market Mutual Fund : An open-end mutual fund which invests only in money markets. These funds invest in short term (one day to one year) debt obligations such as Treasury bills, certificates of deposit, and commercial paper. The main goal is the preservation of principal, accompanied by modest dividends. Features : 1) It helps in capital preservation as the risk is shared by all. 2) Dividends received here are quite modest.

3. Inter corporate Deposits : An ICD is a loan extended by one corporate to another. ICDs are crucially dependent on personal contacts. Sec. 372A of Companies Act must be considered. Features : 1) These instruments involve high risk and consequently high rewards. 2) Meant for solving temporary capital crisis. 3) The period of such deposit is generally 3 months. 4. Euro Dollar : Contrary to the name, Eurodollars have very little to do with the euro or European countries. Eurodollars are U.S.-dollar denominated deposits at banks outside of the United States. This market evolved in Europe (specifically London), hence the name, but Eurodollars can be held anywhere outside the United States. Features: 1) Bankers Opt for this market to operate on narrow margin than their counterparts in US. 2) They are relatively safe since they are backed by US dollar denominated deposits. 3) Return on these instruments is about 2-3%.

Equity Investments: Stock: Original capital paid or invested into the business by its founders. Serves as security for creditors of the business Types: EQUITY OR COMMON STOCK PREFERRED STOCK OR PREFERENCE SHARES

Equity Capital: Risk: Since the investor has ownership rights; the risk faced by the investors is obviously high. No preferential rights: At the time of winding up of the company, the equity share holders are not given preferential rights for repayment of funds. Voting rights : They have voting rights. All major company decisions cannot be taken without the consent of the equity share holders. Tax treatment: Dividends are tax free in the hands of shareholders After October 1, 2004 equity share sold through a recognized stock exchange would be entitled for an exemption from the Long Term Capital Gains provided STT (Securities Transaction Tax)has been paid OPTIONS RELATED TO EQUITY SHARES 1. LIMITED PARTNERSHIP A limited partnership (LP) consists of two or more persons, with at least one general partner and one limited partner. It is a separate entity and files taxes as a separate entity. Created by statute (Revised Uniform Limited Partnership Act) General Partners pay the Limited Partners a return on their investment. Tax treatment: LPs and general partnerships have been accorded the same tax treatment. Taxation is in the hands of the entity, profit accruing is exempt from tax Remuneration of partners, taxed under income from business and profession Conversion from general to LLP- no tax obligation provided the rights & obligations remain same.

2. PRIVATE PLACEMENT Issue of shares or of convertible securities by a company to a select group of persons under Section 81 of the Companies Act, 1956 Types: Preferential allotment Qualified institutional placement 3. DIVIDEND REINVESTMENT PLAN (DRIP) Equity investment option offered directly from the underlying company. Returns from dividends immediately invested for the purpose of price appreciation No brokerage fees Tax treatment : No tax deductions or rebates given.

ADR, GDR and IDR : Negotiable certificates or financial instruments that provide investors ownership rights to stocks or bonds in a foreign country Foreign Venture Capital Investors (FVCIs) and Venture Capital funds (VCFs) would not be eligible to invest in IDRs. No tax exemption or rebate available for these instruments

PREFERRED STOCK They have a prior claim on the assets of the company in the event of liquidation Less risky Types: Cumulative or non- cumulative : The dividend if not paid in case of a cumulative preference shares accumulates and is paid at a later date. Redeemable or non- redeemable : irredeemable preference shares are no longer in existence. Participating or non-participating : this implies having voting right and not having them Convertible & Non convertible : into equity shares Tax treatment: Classified as franked investment income No standard rate tax to be paid on the income

HYBRID SECURITIES Combines the elements of the two broader groups of securities DEBT and EQUITY Predictable return until certain date Options available at maturity Examples: Preference shares Convertible/ exchangeable bond Warrants Options Tax treatment: Based on the different hybrid securities used

Miscellaneous Investment Options Characteristic Features of Real Estate Investments and Markets I. Capital appreciation Real estate appreciates in capital - particularly land and property.A key aspect of the capital appreciation is that, it can be realised only when it is sold. This has to be factored in before making an investment decision. The capital appreciation of the house can favorably be used in the form of a mortgage loan for business purpose or in the form of a reverse mortgage post retirement. II. Risk The risk with real estate is that it can go down sharply too. The current worldwide economic turmoil is because of real estate prices dropping more than the expectation. The other risk is related to its liquidity itself. Real estate prices in India do not have a formal/scientific basis for quoting. Brokers are the key pins holding the structure together.

III. Liquidity Real estate is probably the most illiquid of all common investment avenues. If there is an urgency to sell a property the value could drop drastically. Selling at 'Market Price' is counted in number of months not days. IV. Tax treatment Real estate attracts capital gains tax. The advantage is that we can use indexation benefits to our advantage. The indexation index is announced every year by the income tax department. This is a number, which links the inflation to property values. By using indexation, we can estimate the true appreciation of the real estate after adjusting for inflation. The tax on the sale of the only house or agricultural property can be brought down to zero by reinvesting the sale proceeds in a new house or agricultural property. The capital gains can also be invested in low interest yielding Capital Gains Bonds. V. Convenience Real estate has a low level of convenience. It requires a large corpus for investment leading most of the investors to take up loans. There are a few marketing companies that sell land in installments. However, the overall cost for such deals is very high compared to one-time payments. The decision after buying a property cannot be reversed quickly or economically. The cost for registration, brokerage charges and taxes prevent us from getting rid of a wrong purchase quickly.

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Antiques :

The market seeks the rare and one of a kind. Antiques offer a unique opportunity for investors because they can perform double duty as an investment and a home decoration. But when keeping investment grade antiques in the home, investors need to take some precautions. Special care and cleaning is likely to be required, and there are many books on these subjects that can be used for reference. Possibly the most important thing is insurance. Valuable antiques must be specifically insured, rather than simply included as

part of a general home insurance policy, if investors want to receive the items full value should the worst occur. Typically insurance companies will require appraisals of the items in question to confirm the value. A certified appraiser can provide the necessary legal documents. Antiques have the potential to provide impressive returns for those who truly love them and are willing to put in the time and effort required to learn the ins and outs of the market. Ultimately, antiques are a lifestyle investment. Authorities agree that art and antiques are vulnerable to fluctuations in public tastes and other factors. They can be high-risk speculative investments, if buyers expect too much return. 3. Wine Benefit to wine investment is there is less tax pay. Capital gains tax is not paid on wine, as it is classed as a 'wasting' asset. Nor is income derived from selling wine taxed as income. Also, as with art and antiques, wine is not for the short term. Investments are over the long term, with a very the minimum of three years,. Over the first seven years the wine matures, from ten to 15 years it is drinkable. However, wine investments are usually the last to suffer in recession and the first to recover despite fears a global economic downturn will sour the demand for wine right around the world. However, investors need to be aware the sector is not regulated by the financial services industry, and there are "ethically challenged" operators out their cold-calling investors selling wine at inflated prices, in some case double the true cost of the wine.

4. Coins : Apart from US, Canada and UK, where coin collecting is already matured, Coin collecting is growing fast in Australia and Europe. In fact, Europe has a huge potential with its fast growing economy and amazing history of coins. How an Investment in Rare Collectible Coins Offers Both Diversity and Profits Its a clear fact that the coin market moves in cycles. Both internal and external forces cause this cyclical behavior. Internal forces are constantly working within the rare coin investing market. Like all markets stocks, markets, commodities, currencies, commercial real estate and so on the coin investing market reacts to the price-driven, internal forces of the supply/demand equation. People buy coins until prices get way too high, and then they sell coins until prices get way too cheap. The market builds momentum going each way. The cycle repeats itself again and again. There are four major external forces that can apply pressure to the prices of rare collectible coins. In order of importance, they are: 1. Government coinage policies and promotions The governments coinage policies and promotions have a tremendous impact on peoples desire and ability to collect coins. 2. What Inflation Means for Your Coin Investment Rare coins are an excellent inflation hedge. In the past, the rare collectible coin market has always done very well in periods of increasing inflation.

4. Gold and silver prices The fluctuations in gold and silver prices have had a clear impact on the rare collectible coin market. Investing in coins can also bode well even without huge moves in gold and silver. Five Important Advantages of Rare Collectible Coin Investments 1. Liquidity Rare coins are the most liquid of all collectibles. When the time comes to sell your coins, you can expect and receive immediate payment 2. Diminishing Supply This is a subtle yet very important coin investment advantage. The supply of rare coins is diminishing daily. This is a sharp contrast to other investments First, any increase in demand makes price increases inevitable. The supply of coins cannot be increased to meet the new demand. The only way new demand can be satisfied is with higher prices. Second, a limited supply reduces the downside risk. As prices come down, production gluts (as in the oil market) do not depress prices further and hinder a price recovery. In fact, in the rare coin investment market, low prices tend to drive coins off the market. 3. Affordability A painting can cost lakhs of rupees or more. But rare collectible coins seldom cost more than a few lakhs. 4. Favorable Tax Treatment This is a seldom talked about (but significant) advantage of coin investing, offered by the rare collectible coin market. You do not have to pay taxes on your rare coin profits until you actually sell the coins

5. Gold : Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a hedge or safe haven against any economic, political, social or currencybased crises. These crises include investment market declines, burgeoning national debt, currency failure, inflation, war and social unrest. Investors also buy gold early in a bull market and sell it before a bear market begins, in an attempt to gain financially. Commodities like gold are a hedge against inflation. This is mainly because the factors that affect the prices of gold are different from those that impact the prices of other assets like equities for instance. Gold is a storehouse of value. When uncertainty afflicts global markets, investors prefer to take refuge in gold because in times of inflation (i.e. fall in purchasing power), gold prevents erosion in the value of the purchasing power. Forms of Gold investments 1. Biscuits and Bars 2. Exchange-traded funds 3. Certificates A certificate of ownership can be held by gold investors, instead of storing the actual gold bullion. 4. Accounts Most Swiss banks offer gold accounts where gold can be instantly bought or sold just like any foreign currency. 5. Derivatives Derivatives, such as gold forwards, futures and options, currently trade on various exchanges around the world and over-the-counter (OTC) directly in the private market. 6. Jewellery: The most traditional and the dominant form of buying gold in India Polished and rough diamonds lack some of the desirable attributes of investment vehicles, including liquidity, homogeneity and fungibility. Grading and certification by recognised laboratories goes some way to redressing this.

However diamonds can never be commoditized sufficiently to allow efficient and sufficiently liquid markets. This does not mean, however, that diamonds can never be used or considered as investments. The very lack of liquidity itself could be used by a speculator who was prepared to make a market in diamonds. Any such investor would need to ensure that he maintained sufficient personal liquidity to avoid distress selling, except by others. Such an investor would need to expend effort to market his stock, and to advertise his readiness to buy and would effectively become a trader rather than investor. 6. Arts & Paintings : There is a long history of individuals and retailers actively trading old master paintings, classical sculptures, ceramics, coins, drawings, antique furniture and other upmarket collectibles. Traditionally, however, there has been little interest in operation of a commercial fund that invested in art works rather than in shares, bonds or real estate and that provided superior financial rewards for investors by trading those works. Provident Fund : This is covered under the Employees Provident Fund and Miscellaneous Provisions Act of 1952. Types of Provident Fund : Statutory provident fund Recognized provident fund Unrecognized provident fund Public provident fund

Applicability All the establishments employing 20 or more persons (5 or more incase of Cinema Theatres) have to provide for contributions to the above mentioned Provident Funds or one can opt for it voluntarily also. Provident fund as an investment option It is an investment option that can be very useful in the long run. Benefits : Since the amount is automatically deducted from salary, it is a sort of forced saving imposed on employees. The employees automatically save money which will come in handy for them in times of need. It is a simple and sturdy investment. Many people use this money to set up a life after retirement. The EPF scheme also takes care of housing, education of children, financing of insurance policies and medical care. Decent return of 8 to 12% on investment is another advantage and also the risk involved is quite minimum. EPF & PPF schemes offer the highest risk-adjusted returns among all fixedincome instruments. It is gilt-edged, meaning it is backed by the government, hence the money invested is safe.

Disadvantages The rate of return is not as high as what you would get from high-risk investments such as shares and mutual funds Withdrawals in PPF are allowed only after the completion of four years of the account. However, liquidity in this instrument is poor as it is difficult to get the withdrawals done The biggest drawback is that individuals get the option of withdrawing the whole amount in EPF account on termination of or resignation from a job. In an era when highly-skilled employees like to hop, this can turn out to be a disaster. Withdrawals at each job switch may not allow a corpus to be built and the power of compounding to work. Taxability The withdrawals are exempt from tax if the concerned employee has rendered continuous service of more than 5 years. Otherwise, it would be taxable at the applicable slab rates. Mutual Funds : Investors purchase mutual fund shares from the fund itself. The price that investors pay for mutual fund shares is the fund's per share net asset value (NAV). Mutual fund shares are redeemable There is an opportunity to create and sell new shares to accommodate new investors.

mutual funds typically are managed by separate entities known as "investment advisers"

Advantages : Diversification : There is an opportunity to invest in a number of blue chip comoanies which would ensure a fairy good and dependable rate of return. Cost advantages : The risk is split between all. Hence it works out advantageous for the investors. Managerial expertise : The presence of expertise in deciding which fund to invest in is another very useful aspect of the same as an investment avenue. Types : Open end funds - purchase and sell any time Close ended funds - no repurchase by funds Exchange traded funds mimic indexes Hedge funds large investment outlay

Returns to investors is in the form of : 1. Dividends/ coupon payments 2. Capital gains from sale of securities within the fund. 3. Mutual Fund share price appreciation.

Post Office Savings Account This scheme helps individuals, house-wives, minors and others in inculcating a habit of thrift in themselves. The salient features of Post Offices Savings accounts are as under: Who can open? Any resident adult individual singly or jointly with one or two other adults. Minor's accounts can be opened through guardians. A minor, who has attained 10 years age, can also open the account. Minimum amount Rs. 50/- in case of account without cheque book facility. Rs. 500/- in case of account with cheque book facility. Maximum amount Rs. 1,00,000/- in case of a single account. Rs. 2,00,000/- in case of joint accounts Interest Rate Current Interest Rate for the Post Office Savings Bank Account is 3.5 per cent. The interest for a month is calculated on the lowest balance at credit of an account between the close of the tenth day and end of the month. Such interest is calculated and credited in the account at the end of each year. Nomination facility There is nomination facility available. Transferability Transferablity is possible.

Interest Taxability The interest earned is exempt under section 10(15)(i). Other Features : Only one single and one joint account can be opened at one post office. No interest is payable for the balance less than Rs.50 in any particular month and for the balance more than Rs.1,00,000/- in a single account and Rs.200,000 in a joint account in a year.

Post Office Recurring Deposit Scheme Post Office Recurring Deposit Scheme provides the facility of saving small sums of money every month to meet future financial goals and earn relatively higher risk free returns. The salient features of the scheme are : Who can open? Any resident adult individual singly or jointly with one or two other adults. Minor's accounts can be opened through guardians. A minor, who has attained 10 years age, can also open the account. Minimum amount Monthly Rs. 10/Maximum amount Any amount in multiples of Rs. 5/Interest Rate: The interest paid varies as declared by the Directorate, Small Savings from time to time. Interest Taxability The interest received is taxable. Other Features : The amount of deposit made at the time of opening of the account cannot be varied. The Recurring Deposit Account matures on the date on which it is opened after the end of the term. In case the date of maturity falls on Sunday or postal holiday, the payment becomes due on the business day immediately preceding the date of maturity. The holder of an account may prematurely close the account after 3 years of date of opening of the account. Interest at the rate applicable from time to time to Post Office Savings Account shall be payable on such premature closure of account.

Post Office Senior Citizens Savings Scheme Post Office Senior Citizens Savings Scheme has been notified with effect from August 2, 2004. The Scheme is for the benefit of senior citizens. The salient features of the scheme are as under: Who can open? Any citizen, whose age is 60 years or above. A depositor may open the account in his individual capacity or jointly with spouse.Citizens who have retired under a voluntary or a special voluntary retirement scheme and have attained the age of 55 years are also eligible, subject to specified conditions.Non-residents and HUFs are ineligible to open the account under the scheme. Minimum amount Rs. 1,000/Maximum amount Rs. 15,00,000/- (Rs. fifteen lacs) Interest Rate: 9% per annum. Interest is payable quarterly on 31st March, 30th June, 30th September and 31st December If the interest payable every quarter is not claimed by a depositor, such interest do not earn additional interest. Premature withdrawal In case the account is closed after expiry of one year but before expiry of two years from the date of opening of the account, an amount equal to 1.5% of the deposit shall be deducted and the balance paid to the depositor. In case the account is closed on or after the expiry of two years from the date of opening of the account, an amount equal to 1% of the deposit shall be deducted and the balance paid to the depositor. No deduction shall be made in case of premature closure of an account at any time due to death of a depositor.

Deduction u/s 80C Available w.e.f. Financial Year 2007-08 i.e. Assessment Year 2008-09 Post Office Time Deposit Scheme Post Office Time Deposit Scheme offers the facility of investing surplus funds at relatively higher rates of interest. The deposits made under this scheme for a period of 5 years are also eligible for tax bebefits under section 80C of Income Tax Act. The salient features of the scheme are as under: Who can open? Any individual singly or jointly with another adult. An adult individual on behalf of a minor. Maximum amount In multiples of Rs. 50/-. No upper limit. Minimum amount Rs. 200/Interest Rate: One Year Two years Three years Five Years 6.25% 6.5% 7.25% 7.5%

The interest on deposits is calculated on quarterly compounding basis and is payable annually. Premature withdrawal No interest is paid for the deposit withdrawn prematurely after six months but before the expiry of one year. In case of deposits for two, three or five years withdrawn prematurely after the expiry of one year from the date of deposit, interest is payable for the completed years and months at 2% lower rate than specified for the completed period.

Post Office Monthly Income Scheme Post Office Monthly Income Scheme (MIS) is meant for investors who want to invest a sum amount initially and earn interest on a monthly basis for their livelihood. The scheme is, therefore, more beneficial for retired persons. The salient features of the scheme are as under: Who can open? Any individual singly or jointly with other one or two adults. A guardian on behalf of minor or a person of unsound mind.A minor who has attained the age of 10 years. Interest Rate: 8 per cent per annum payable monthly. Additionally bonus of 10 per cent of the deposit amount on maturity after six years. Premature withdrawal An amount equal to 5 per cent of the initial investment amount is deducted from the payment, if the account is closed before three years from the date of the opening of the account. No amount is deducted for the withdrawal after three years. However, no bonus is applicable to any premature closure of the Account Other features Deposits are exempt from Wealth Tax. Non-Resident Indians and HUFs are ineligible to open the account.Facility of automatic credit of monthly interest to saving account if accounts are at the same post office.Interest not withdrawn do not earn any interest. Minors have a separate limit of investment of Rs. 3 lakhs and the same is not clubbed with the limit of guardian. National Savings Certificate (NSC) (VIII Issue) National Savings Certificates (NSCs) are popular as Tax Saving instruments. NSCs are a long term tax saving option for investors. The salient features of NSCs are as under: Who can purchase Any individual singly or jointly with other adult. A guardian on behalf of a minor. Minimum amount Rs. 100/

Maximum amount No maximum limit Interest Rate 8 per cent per annum compounded half yearly. Transferability Transferable from one Post Office to another. The certificate can also be transferred from one person to another with the previous consent of the Postmaster or the Head Postmaster. The transfer can be made after expiry of a period of at least one year from the date of the certificate. Encashment The Certificates can be encashed after Six years. The Certificate can be encashed at the Post Office at which it stands registered or it at any other Post Office subject to satisfactory verification of the identity of the presenter. Interest Taxability Taxable. Interest accruing annually is automatically reinvested, and such re-invested interest qualify for tax rebate under section 80C of the Income Tax Act. No tax deduction at source. Deduction u/s 80C Available


Kharhyal

REPORT ON INVESTMENT AVENUES PRESENTED BY: Arnav

INTRODUCTION

INVESTMENT HAS DIFFERENT MEANINGS IN FINANCE AND ECONOMICS. FINANCE INVESTMENT IS PUTTING MONEY INTO SOMETHING WITH THE EXPECTATION OF GAIN, THAT UPON THOROUGH ANALYSIS, HAS A HIGH DEGREE OF SECURITY FOR THE PRINCIPAL AMOUNT, AS WELL AS SECURITY OF RETURN, WITHIN AN EXPECTED PERIOD OF TIME.

IN CONTRAST PUTTING MONEY INTO SOMETHING WITH AN EXPECTATION OF GAIN WITHOUT THOROUGH ANALYSIS, WITHOUT SECURITY OF PRINCIPAL, AND WITHOUT SECURITY OF RETURN IS SPECULATION OR GAMBLING .

INVESTMENT IS RELATED TO SAVING OR DEFERRING CONSUMPTION . INVESTMENT IS INVOLVED IN MANY AREAS OF THE ECONOMY , SUCH AS BUSINESS MANAGEMENT AND FINANCE WHETHER FOR HOUSEHOLDS, FIRMS, OR GOVERNMENTS. INVESTMENT

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INVESTMENT AVENUES FINANCIAL ASSETS DEBT (BANK DEPOSITS, FIXED DEPOSITS, POST OFFICE SCHEMES, DEBEBTURES,BOND, DEBT, MFS)

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MFS)

EQUITY( SHARES, EQUITY

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NON FINANCIAL ASSETS REAL ESTATE GOLD

1. FINANCIAL SECURITIES 2. NON-SECURITIZED FINANCIAL SECURITIES

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Types

3. MUTUAL FUND SCHEMES 4. REAL ASSETS

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THESE INVESTMENT INSTRUMENTS ARE FREELY TRADABLE AND NEGOTIABLE. THESE WOULD INCLUDE:

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DEBENTURES,

EQUITY SHARES, PREFERENCE SHARES, CONVERTIBLE DEBENTURES, NON-CONVERTIBLE

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SECURITIES.

PUBLIC SECTOR BONDS, SAVINGS CERTIFICATES, MONEY MARKET

Financial securities

MARKET DEBT EQUITY FINANCIAL SECURITIES DIFFERENCES

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fixed.

DEBT Tenure of investment is always

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fixed.

Quantum of returns is always

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variables.

Coupon rate & YTM are always

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called Interest.

Frequency of return is possible. Nomenclature for the return is

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Dividend.

EQUITY Not applicable. Not applicable. Not applicable. Not applicable. The return in equity is called

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A BOND IS A LONG-TERM LOAN ISSUED IN THE FORM OF A NEGOTIABLE SECURITY BY A CORPORATION,

GOVERNMENT, OR GOVERNMENT AGENCY.

BONDS ARE LOANS FROM THE BONDHOLDER (BUYER) TO THE ISSUER (SELLER).

A BOND IS A PROMISE BY THE ISSUER TO PAY BACK THE AMOUNT LOANED TO IT (CALLED PRINCIPAL) PLUS AN

AGREED TO AMOUNT OF INTEREST ON OR BEFORE A STATED DATE.

THE INTEREST MAY BE PAID PERIODICALLY DURING THE LIFE OF THE LOAN OR ALL AT ONCE WHEN THE LOAN IS PAID BACK.

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FIXED INCOME

BONDS ARE ALSO CALLED

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DEBT(BONDS)

INSTRUMENTS.

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BONDS . BEARER AND REGISTERED

GENERAL OBLIGATION AND REVENUE BONDS.

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BONDS.

TREASURY/GOVERNMENT

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NOTES.

TREASURY/GOVERNMENT

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BILLS .

TREASURY/GOVERNMENT

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Types

PARTICIPATING BONDS. CONVERTIBLE BONDS. ZERO COUPON BONDS. HIGH YIELD (JUNK) BONDS.

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BONDS ARE ALSO IDENTIFIED BY THE WAY THEY ARE OWNED. BEARER BONDS, FOR EXAMPLE, BELONG TO

THE PERSON WHO HOLDS THEM AND OWNERSHIP IS NOT OTHERWISE RECORDED.

EUROBONDS ARE ISSUED IN THIS FORMAT. WHILE THIS FORM OF OWNERSHIP CARRIES THE RISK OF LOOSING THE CERTIFICATE, IT OFFERS THE HIGHEST DEGREE OF ANONYMITY AND THAT IS WHY IN SOME COUNTRIES, THE UNITED STATES FOR EXAMPLE, THEY ARE NO LONGER ALLOWED. Bearer and Registered Bonds

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GENERAL OBLIGATION BONDS USUALLY REFER TO GOVERNMENT BONDS AND ARE BACKED BY THE FULL FAITH AND CREDIT OF THE TAXING POWER (COUNTRY, MUNICIPALITY, ETC.) THAT ISSUES THEM.

REVENUE BONDS ARE PAYABLE ONLY FROM SOME SPECIFIC SOURCE OF TAXES (HIGHWAYS TOLLS, WATER BILLS, ETC.) AND ARE NOT SUBJECT TO THE GENERAL TAXING POWER OF THE ISSUER. General Obligation and Revenue Bonds

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A COUNTRYS LONG TERM FINANCING NEEDS ARE MET BY ISSUING BONDS THAT MATURE FROM ANYWHERE AFTER ONE YEAR UP TO ESSENTIALLY AS LONG AS A COUNTRY WANTS AND TO WHICH THE PUBLIC IS WILLING TO COMMIT ITS MONEY. AVERAGE LENGTHS RUN TO 20 OR 30 YEARS AND ARE CALLED LONG-TERM BONDS. THESE LONG-TERM BONDS ARE WATCHED CLOSELY BY THE MARKET AS AN INDICATION

OF WHERE LONG-TERM INTEREST RATES WILL BE HEADING. Treasury/Government Bonds

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NOTES USUALLY HAVE A MATURITY OF FROM 2 TO 10 YEARS AND ARE KNOWN AS INTERMEDIATE TERM INVESTMENT INSTRUMENTS. NOTES ARE NOT CALLABLE BEFORE THEIR MATURITY DATE. NOTES USUALLY PAY INTEREST SEMI ANNUALLY. Treasury/Government Notes

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T-BILLS, OR BILLS, ARE THE SHORTEST TERM TREASURY SECURITY AND USUALLY MATURE IN 3, 6, 9 OR 12 MONTHS. TBILLS CARRY NO COUPON RATE OF INTEREST BUT ARE SOLD AT A DISCOUNT FROM PAR.

PAR IS THE FACE AMOUNT OF THE BOND. THIS MEANS THAT THE PRICE PAID FOR A T-BILL IS LESS THAN ITS VALUE AT MATURITY. THUS A 12 MONTH T-BILL YIELDING 5% WOULD BE SOLD AT A 5% DISCOUNT FROM THE FACE VALUE OF THE BOND . Treasury/Government Bills

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THESE BONDS NOT ONLY BEAR A FIXED RATE OF INTEREST, BUT ALSO HAVE A PROFIT-SHARING FEATURE.

THE BONDHOLDER IS ENTITLED TO PARTICIPATE ALONG WITH SHAREHOLDERS IN EARNINGS OF THE CORPORATION TO THE EXTENT DESCRIBED IN THE BOND CONTRACT. THESE ARE USED WIDELY IN EUROPE AND ARE USUALLY

ISSUED BY WEAK COMPANIES AS AN ADDED INDUCEMENT TO ATTRACT BUYERS. Participating Bonds

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ZEROS, AS THEY ARE FREQUENTLY REFERRED TO, ARE ISSUED AT A DISCOUNT FROM THEIR PAR VALUE.

UNLIKE A CONVENTIONAL BOND, ZEROS PAY NO INTEREST BETWEEN ISSUANCE AND REDEMPTION BUT

ONLY AT MATURITY. ALTHOUGH THE BONDHOLDER FORFEITS IMMEDIATE INCOME FROM THE ZERO, THE

YIELD TO MATURITY IS COMPUTED ON THE

ASSUMPTION THAT THE COUPON INTEREST IS REINVESTED AT THE PREVAILING RATE WHEN RECEIVED. CONSEQUENTLY, AS INTEREST RATES FALL THE REINVESTMENT IS PRESUMED TO BE AT THE LOWER RATE, REDUCING THE YIELD BUT INCREASING THE PRICE OF THE BOND. Zero Coupon Bonds

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USUALLY ALL THAT THE BONDHOLDER IS PROMISED IS THE PRINCIPAL AND INTEREST. THERE IS AN

EXCEPTION TO THIS RULE AND IT IS CALLED A CONVERTIBLE BOND. THIS IS A BOND THAT AT ITS

MATURITY, OR SOME OTHER STATED DATE, MAY BE CONVERTED TO A STATED NUMBER OF COMMON

SHARES IN A CORPORATION. A NEW CORPORATION WITHOUT MUCH MONEY OR TRACK RECORD FOR

PAYING OFF BONDS OR A CORPORATION WITH A LOW CREDIT RATING MIGHT OFFER CONVERTIBLE BONDS BECAUSE THE BORROWING COSTS OF STRAIGHT BONDS WOULD BE PROHIBITIVE. CONVERTIBLE BONDS RANK BELOW CONVENTIONAL BONDS BUT AHEAD OF ANY EQUITY IN THEIR CLAIM ON THE ASSETS OF A COMPANY. Convertible Bonds

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THE TOP FOUR RANKINGS OF ANY RATING SERVICE ARE USUALLY KNOWN AS INVESTMENT GRADES.

BONDS IN THESE CATEGORIES MAY GENERALLY BE BOUGHT FOR FIDUCIARY ACCOUNTS UNLESS

SPECIFICALLY RESTRICTED. FIDUCIARY ACCOUNTS INCLUDE PENSION PLANS AND SOME BANK TRUST

ACCOUNTS. ANY BOND BELOW INVESTMENT GRADE IS REFERRED TO AS A JUNK BOND. BUT, IN THE

TERMS OF THE MARKET, IT IS CALLED A HIGH-YIELD BOND. IT IS CALLED JUNK, BECAUSE IT DESCRIBES

THE QUALITY OF THE BOND. High Yield (Junk) Bonds

Equity Investments

Equity Investment Instruments Common Stock is where the investor holds some shares of the company and earns money as dividends, which is not a guarantee.

Buying Preferred Stock is a more stable equity investment with no power in decision-making. Dividends are regular and independent of the market.

Warrants are unique such that common stock is available at a specific price during a stipulated time-period.

CONTD Convertible Debt is a bond without collateral that is exchanged for common stock. These debentures are priced at rates lower than stock-prices.

Equity line of credit is similar to bank line of credit. It is a commitment by the investor to purchase common stock over a period of time.

Sales of restricted shares refer to stock of the company that may be transferred to another person only after meeting certain criteria.

Private Equity Investments Types Private equity is any investment made in companies that will not trade it on a stock exchange. Companies utilize private equity investment funds for any of the following strategy.

WHAT IS RIGHT ISSUE?

Right issue is when a listed company which proposes to issue fresh securities to its existing share holders as on a record date.

The rights are normally offered in a particular ratio to the no. of securities held prior to the issues.

This is best suited foe companies who would like to rise the capital without diluting stake of its existing shareholders unless they do not intend to subscribe to their entitlements.

STOCK MARKET TOTAL 23 STOCK EXCHANGES IN INDIA NORTH ZONE EAST ZONE WEST ZONE SOUTH ZONE Kanpur Bhubaneswar Ahmedabad Bangalore Ludhiana Calcutta Baroda Chennai New Delhi Gauhati Indore Cochin Jaipur Patna Mumbai Coimbatore Pune Mangalore Inter connected National Stock Exch OTC Exchange of India

STOCK MARKET SECONDARY MARKET PRIMARY MARKET ( IPOs) Primary market Primary market is a market for new issues of securities such as IPOs

Part of the financial market where enterprises issue their new shares and bonds.

Securities are bought by the way of public issue directly from the company.

Secondary market The market where securities are traded after they are initially offered in the primary market .

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bought and sold.

Previously issued securities are

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investors.

Shares are traded between two

Most trading is done in the secondary market .

Examples- Bombay stock exchange , NYSE,NSE etc.

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THESE INVESTMENT INSTRUMENTS ARE NOT TRADABLE, TRANSFERABLE NOR NEGOTIABLE AND WOULD INCLUDE:

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SCHEMES AND

BANK DEPOSITS, POST OFFICE DEPOSITS, COMPANY FIXED DEPOSITS, PROVIDENT FUND SCHEMES, NATIONAL SAVINGS

LIFE INSURANCE Non-securitized financial securities


MUTUAL FUND IS MECHANISM OF POOLING RESOURCES(MONEY) FROM INVESTORS & INVEST IN SECURITIES( STOCKS & BONDS) WHICH WILL BE MANAGED BY PROFESSIONAL PEOPLE CALLED THE FUND MANAGERS ALSO KNOWN AS PORTFOLIO MANAGERS. THE INVESTMENT PROCEEDS( LOSS OR PROFIT) ARE THEN PASSED ON TO THE RESPECTIVE INDIVIDUAL. WHAT IS MUTUAL FUND?

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of a trust.

How is a mutual fund set up? Mutual fund is set up in the form

Which has sponsor, trustees, management company and a custodian.

The trust is established by a sponsor or more than 1 sponsor who is like promoter of a company.

The trustees of the mutual fund hold its property for the benefit of the unit holders.

Asset management co. approved by SEBI manages the funds by making investments in various types of securities.

CONTD Custodian, who is registered with SEBI holds the securities of various schemes of the fund in its custody.

The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI regulation by the mutual fund.

MUTUAL FUND OPERATION FLOW CHART INVESTORS POOL THEIR MONEY WITH FUND MANAGER.

FUND MANAGER INVEST HAS MONEY IN SECURITIES.

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RETURNS.

SECURITIES GENEARTES

RETURNS ARE THEN PASSED BACK TO INVESTORS.

MUTUAL FUND Open ended funds Close ended funds

Open ended

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stock exchange

Close ended Open for all the time NO Duration Repurchased all the time. As Repurchased so not listed

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Mutual funds

Switch over allowed Open for fixed period. Duration 3, 5 and 7 years. Repurchased fixed time. Listed at stock exchange.

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IF AN INVESTOR DOES NOT DIRECTLY WANT TO INVEST IN THE MARKETS, HE/SHE COULD BUY UNITS/SHARES IN A MUTUAL FUND SCHEME. THESE SCHEMES ARE MAINLY GROWTH (OR EQUITY) ORIENTED, INCOME (OR DEBT) ORIENTED OR BALANCED (I.E. BOTH GROWTH AND DEBT) SCHEMES. Mutual fund schemes

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Types of Mutual Funds BY INVESTMENT OBJECTIVE Growth Schemes Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.

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Income Schemes Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.

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Index Schemes Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weight age. And hence, the returns from such schemes would be more or less equivalent to those of the Index.

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REAL ASSETS ARE PHYSICAL INVESTMENTS, WHICH WOULD INCLUDE :

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REAL ESTATE , GOLD & SILVER, PRECIOUS STONES, RARE COINS & STAMPS AND ART AND PASSION: WEALTHY INVESTORS ALSO HAVE THEIR INVESTMENT IN ART, WINE, ANTIQUES, AND COLLECTIBLES Real assets

TOP INVESTMENT OPTIONS WHILE SOME PLANS ACCRUE SHORT TERM PROFITS SOME ARE LONG TERM DEPOSITS. THE FIRST STEP TOWARDS INVESTING IN INDIAN MARKET IS TO EVALUATE INDIVIDUAL REQUIREMENTS FOR CASH, COMPETENCE TO UNDERTAKE INVOLVED RISKS AND THE AMOUNT OF RETURNS THAT THE INVESTOR IS EXPECTING. BELOW ARE TOP 10 INVESTMENT OPTIONS IN INDIA WHICH ASSURE SAFE AND SATISFACTORY RETURNS.(LAST UPDATED ON 12 TH MAY 2011) Current Investments Avenues in India

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1.Investments in Bank Fixed Deposits (FD) Fixed Deposit or FD is accrues 8.5% of yearly profits, depending on the bank's tenure and guidelines, which makes it's widely sought after and safe investment alternative. The minimum tenure of FD is 15 days and maximum tenure is 5 years and above. Senior citizens are entitled for exclusive rate of interest on Fixed Deposits.

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policies 2.Investments in Insurance

Some top Insurance firm in India under whom you can buy insurance scheme are LIC, SBI Life, ICICI Prudential, Bajaj Allianz, Birla Sunlife, HDFC Standard Life, Reliance Life, Max NewYork Life, Metlife, Tata AIG, Kotak Mahindra Life, ING Life Insurance, etc.

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3.Investments in National Saving Certificate (NSC) National Saving Certificate (NSC) is subsidized and supported by government of India

as is a secure investment technique with a lock in tenure of 6 years. There is no utmost limit in this investment option while the highest amount is estimated as ` 100. The investor is entitled for the calculated interest of 8% which is forfeited two times in a year

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4.Investments in Public Provident Fund (PPF) Like NSC, Public Provident Fund (PPF) is also supported by the Indian government. An investment of minimum ` 500 and maximum ` 70, 000 is required to be deposited in a fiscal year. The prospective investor can create it PPF account in a GPO or head post office or in any sub-divisions of the centralized bank

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5.Investments in Stock Market Investing in share market yields higher profits. Influenced by unanticipated turn of market events, stock market to some extent cannot be considered as the safest investment options. However, to accrue higher gains, an investor must update himself on the recent stock market news and event

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6.Investments in Mutual Funds Mutual Fund firms accumulate cash from willing investors and invest it in share market. Like stock market, mutual fund investment are also entitled for various market risks but with a fair share of profits.

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7.Investments in Gold Deposit Scheme Controlled by SBI, Gold Deposit Scheme was instigated in the year 1999. Investments in this scheme are open for trusts, firms and HUFs with no specific upper limit. The investor can deposit invest

minimum of 200 gm in exchange for gold bonds holding a tariff free rate of interest of 3% - 4% on the basis of the period of the bond varying with a lock in period of 3 to 7 year.

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8.Investments in Real Estate Indian real estate industry has huge prospects in sectors like commercial, housing, hospitality, retail, manufacturing, healthcare etc. Calculated realty demand for IT/ITES industry in 2010 is estimated at 150mn sq.ft. around the chief Indian cities. Termed as the "money making industry", realty sector of India promises annual profits of 30% to 100% through real estate investmen

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9.Investments in Equity Private Equity is expanding at a fast pace. India acquired US $13.5 billion in 2008 under equity shares and featured among the top 7 nations in the world. In 2010, the total equity investment is predicted to increase upto USD 20 billion. Indian equities promise satisfactory returns and have more than 365 equity investments firms functioning under it.

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10.Investments in Non Resident Ordinary (NRO) funds Investing in domestic (NRO) is one of the best investment alternatives for NRIs who wish to deposit their income accrued abroad and maintain it in Indian rupees.The interest returns accrued on in this account is entitled under IT Act and is subject to 30% tax reduction at source including the appropriate surcharge and education cess.

INVESTMENT SCENARIO

Investment has become one of the favorite investment destination for the foreign investors across the globe .

India is considered the 4 th biggest economy in the world.

Indian economy will grow to become 60% in the size of the economy of US so investment can be said to be the key player .

India is performing good in the 3 crore sectors of investment including education ,infrastructure and securities.

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Tips to smart investing Asset allocation Start early Stay invested Time reduce risk Diversity dont time the market Watch out inflation & taxes

THANK YOU..

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