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1.1 What is Investment/Investing?

The money we earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle we may like to use savings in order to get return on it in the future. Investment. Investment is a term frequently used in the fields of economics, business management and finance. It can mean savings alone, or savings made through delayed consumption. Investment can be divided into different types according to various theories and principles. “Investment is the investing of money or capital in order to gain Profitable returns, as interest, income, or appreciation in value.” When an asset is bought or a given amount of money is invested in the bank, there is anticipation that some return will be received from the investment in the future. There are a number of definitions of investment. While dealing with the various options of investment, the defining terms of investment need to be kept in mind. This is called


Investing is a very exhaustive subject. It means different things to different people. t some point of time we all are investing in something. It may be relationships! it may be marriage or a career. "ife is all about doing something to reap benefits in the future. #o all of us are in the investment game. $owever, it means different things to different people. %eople invest in& "arge families so that when they grow old, their children can take care of them.
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'ducation, to ensure job security and comfortable life. "and and crops, in order to fend for themselves and their families. #mall families, to provide a good standard of education and living for their child. Their health. (y exercising regularly and eating a balanced diet. )haritable works, to serve the needy and the poor, and 'xternal assets like real estate, shares in listed companies, gold, silver, etc., so that they can fall back upon them in tough times.

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Thus we have a lot of people doing things in the name of investing. This makes the subject of investment very complex.


1.2 Why Should One Invest? One needs to invest to: a. 'arn return on your idle resources b. *enerate a specified sum of money for a specific goal in life c. +ake a provision for an uncertain future ,ne of the important reasons why one needs to invest wisely is to meet the cost of Inflation. Inflation is the rate at which the cost of living increases. The cost of living is simply what it costs to buy the goods and services you need to live. Inflation causes money to lose value because it will not buy the same amount of a good or a service in the future as it does now or did in the past. -or example, if there was a ./ inflation rate for the next 01 years, a 2s. 311 purchase today would cost 2s. 403 in 01 years. This is why it is important to consider inflation as a factor in any long5term investment strategy. 2emember to look at an investment6s 6real6 rate of return, which is the return after inflation. The aim of investments should be to provide a return above the inflation rate to ensure that the investment does not decrease in value. -or example, if the annual inflation rate is ./, then the investment will need to earn more than ./ to ensure it increases in value. If the after5tax return on your investment is less than the inflation rate, then your assets have

actually decreased in value! that is, they won6t buy as much today as they did last year.

1.3 Investing Is a Plan It is not a product or a procedure. It is a very personal plan. n

individual has to decide what his goals are and how he can go from one level of comfort to another he would have certain resources coming to him and certain commitments to be fulfilled. person is able to earn when he is young. These earnings need to be invested wisely so that in old age when a person7s capacity to earn diminishes, he can fall back on his investments. Therefore, he needs to have a clear picture of his financials before making an investment plan. Example: Take the case of working couple, aged 41, with two school going children5a son and a daughter. t present they live a very comfortable life. (ut they need to plan for the future and a very comfortable life. (ut they need to plan for the future expenses. The children will want to go in for higher studies within next 8531 years. They will need to be married. The family might need a bigger house or there could be some major illness in the family. ll these expenses will have to be met. The needs will increase but the income may not keep the pace. If one does not plan for these expenses one may not be able to achieve the milestones as and when they come. #o this couple needs to estimate their income flow and visuali9e their

expenses. n investment plan will help to plan for eventualities in the future. If one is at comfort level : 7. -rom there one needs to go to a higher comfort level :(7. to do that one would need different types of investment vehicles like stocks, bonds, real estate, etc. one would choose the investment vehicles according to one7s needs. -igure explain this


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1.6 Facto s !""ecting Investment #ecisions


(efore you begin investing, it7s helpful to understand some of the factors that will affect your investment decisions, such as&

2isk "iquidity Time $ori9on Total 2eturn ;iversification Tax )onsequences 2upee )ost veraging

Ris ! 2isk in investments can take various forms. "i#uidity: <liquid< investment is one that can be readily turned into cash if you need the funds on short notice. Investments can vary greatly in their degree of liquidity. #hares can be traded on any business day at their current market value, which may be more than, equal to or less than the amount initially invested. $ime %ori&on!

;ifferent investors have different time frames in which to achieve their investment objectives. *enerally, young investors with long time hori9ons should be able to assume greater risks because they have more time to offset any losses with the higher return potential of investments with greater risk. ,lder investors, however, often choose to reduce risk because they have less time to recoup losses. $otal Return! ll investments provide one or a combination of two different types of returns to investors 5 income or growth. Income is the dividend earned from stocks. *rowth is the price appreciation of the security. The total return of an investment is the combination of income and growth reali9ed over a given time period. In selecting investments based upon their expected total return, you should understand which portion is generated from income and which from growth. =sually, the greater the reliance on income, the lower the market risk but the greater the long5term purchasing power >or inflationary? risk. 'iversification! (uilding a diversified portfolio with securities spread across different investment classes can help you avoid the risk of having all of your eggs in one basket. (y mixing industries and types of assets, you spread your risk. particular market condition may have less impact if your portfolio consists of a wide assortment of securities than if you purchase only one type of security. +ost beginning investors don6t

have sufficient capital to properly diversify their portfolio by purchasing individual securities. Investing in mutual funds allows you to buy a professionally managed, diversified portfolio with relatively small rupee amounts. In addition, many mutual funds allow you to take advantage of rupee cost averaging by investing at regular intervals. (ote! )utual fund investing involves ris . *our principal and investment return in a mutual fund +ill fluctuate in value. *our investment, +hen redeemed, may be +orth more or less than the original cost.

$ax ,onse#uences! @ot all investment returns are subject to the same taxation. #hort term and long term returns are taxed at different capital gains rates or even taxed as business income. The taxation policy should be kept in mind while deciding which investments to make. Rupee ,ost -veraging! 2upee cost averaging, the practice of committing a fixed amount of money to an investment program on a regular basis, is a popular practice with many long5term investors. (y investing a set amount regularly >usually monthly or quarterly?, investors are able to avoid the pitfalls of trying to time market peaks and valleys. lso, because

the amount of the investments is set, investors who practice rupee cost averaging buy more shares of a stock or mutual fund when they are less costly and fewer shares when they are more expensive. "ike any investment strategy, rupee cost averaging doesn6t guarantee a profit or protect against loss in a declining market. (ecause rupee cost averaging requires continuous investment regardless of fluctuating prices, you should consider your financial and emotional ability to continue the program through both rising and declining markets.

1./ What Investing Is $ot? Investing is @,T gambling. *ambling is putting money at risk by betting on an uncertain outcome with the hope that you

might win money. %art of the confusion between investing and gambling, however, may come from the way some people use investment vehicles. -or example, it could be argued that buying a stock based on a <hot tip< you heard at the water cooler is essentially the same as placing a bet at a casino. <real< investor does not simply throw his or her money at any random investment! he or she performs thorough analysis and commits capital only when there is a reasonable expectation of profit. Aes, there still is risk, and there are no guarantees, but investing is more than simply hoping lady luck is on your side

1.0 What ! e 1a ious O2tions !vaila3le Fo Investment?

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.ne may invest in!
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Physical assets like real estate, goldBjeweler, commodities etc. andBor Financial assets such as fixed deposits with banks, small saving instruments with post offices, insuranceBprovidentBpension fund etc. or securities market related instruments like shares, bonds, debentures etc.

/hat are various 0hort1term financial options available for investment2 (roadly speaking, savings bank account, money marketBliquid funds and fixed deposits with banks may be considered as short5term financial investment options& 0avings 3an -ccount #avings (ank ccount is often the first banking product people use, which offers low interest >C/ 5 D/ p.a.?, making them only marginally better than fixed deposits. )oney )ar et or "i#uid Funds +oney +arket or "iquid -unds are a speciali9ed form of mutual funds that invest in extremely short5term fixed income instruments and thereby provide easy liquidity. =nlike most mutual funds, money market funds are primarily oriented towards protecting your capital and then, aim to maximi9e returns. +oney market funds usually yield better returns than savings accounts, but lower than bank fixed deposits.
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Fixed 'eposits +ith 3an s -ixed ;eposits with (anks are also referred to as term deposits and minimum investment period for bank -;s is 41 days. -ixed ;eposits with banks are for investors with low risk appetite, and may be considered for .530 months investment period as normally interest on less than . months bank -;s is likely to be lower than money market fund returns. /hat are various "ong1term financial options available for investment2 %ost ,ffice #avings #chemes, %ublic %rovident -und, )ompany -ixed ;eposits, (onds and ;ebentures, +utual -unds etc. Post .ffice 0avings! %ost ,ffice +onthly Income #cheme is a low risk saving instrument, which can be availed through any post office. It provides an interest rate of E/ per annum, which is paid monthly. +inimum amount, which can be invested, is 2s. 3,111B5 and additional investment in multiples of 3,111B5. +aximum amount is 2s. 4, 11,111B5 >if #ingle? or 2s.., 11,111B5 >if held jointly? during a year. It has a maturity period of . years. %remature withdrawal is permitted if deposit is more than one year old. deduction of D/ is levied from the principal amount if withdrawn prematurely. Public Provident Fund!
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long term savings instrument with a maturity of 3D years and interest payable at E/ per annum compounded annually. %%- account can be opened through a nationali9ed bank at anytime during the year and is open all through the year for depositing money. Tax benefits can be availed for the amount invested and interest accrued is tax5free. withdrawal is permissible every year from the seventh financial year of the date of opening of the account and the amount of withdrawal will be limited to D1/ of the balance at credit at the end of the Cth year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower the amount of loan if any. ,ompany Fixed 'eposits! These are short5term >six months? to medium5term >three to five years? borrowings by companies at a fixed rate of interest which is payable monthly, quarterly, semi5annually or annually. They can also be cumulative fixed deposits where the entire principal along with the interest is paid at the end of the loan period. The rate of interest varies between .5F/ per annum for company -;s. The interest received is after deduction of taxes. (onds& It is a fixed income >debt? instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. the +aturity ;ate.
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bond is generally a promise to repay the

principal along with a fixed rate of interest on a specified date, called

)utual Funds! These are funds operated by an investment company which raises money from the public and invests in a group of assets >shares, debentures etc.?, in accordance with a stated set of objectives. It is a substitute for those who are unable to invest directly in equities or debt because of resource, time or knowledge constraints. (enefits include professional money management, buying in small amounts and diversification. +utual fund units are issued and redeemed by the -und +anagement )ompany based on the fund6s net asset value >@ G?, which is determined at the end of each trading session. @ G is calculated as the value of all the shares held by the fund, minus expenses, divided by the number of units issued. +utual -unds are usually long term investment vehicle though there some categories of mutual funds, such as money market mutual funds which are short term instruments. 3ond! (ond is a negotiable certificate evidencing indebtedness. It is normally unsecured. debt security is generally issued by a company, bond investor lends money to the municipality or government agency.

issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder
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periodic interest payments over the life of the loan. The various types of (onds are as follows& 7e o 'ou2on -ond: (ond issued at a discount and repaid at a face value. @o periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond. 'onve ti3le -ond: bond giving the investor the option to

convert the bond into equity at a fixed conversion price. + easu y -ills: #hort5term >up to one year? bearer discount security issued by government as a means of financing their cash requirements.

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E#uities....$oday4s home for tomorro+4s money 2.1 What ! e Sha e / Stoc8 / (9uity? share is one of a finite number of equal portions in the capital of a company, mutual fund or limited partnership, entitling the owner to a proportion of distributed, non5reinvested profits known as dividends and to a portion of the value of the company in case of liquidation. ;ividends are not guaranteed. They may be increased if the company performs well, but they may also be reduced or eliminated if the company performs poorly. #o when you purchase shares, you become part owner of a company. policy. 2.2 Why Should One Invest In (9uities? lthough past performance cannot guarantee future market results, #tocks, historically have outperformed all other long5term financial assets. They are the only the financial asset that has significantly outpaced inflation over time. Investors buy stock to potentially increase their return on investment in one or both of two ways& s an owner, you are usually entitled to voting rights on the board of directors and corporate

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'ividend Payments - +any companies pay portions of their annual profits to stockholders in the form of dividends. #tocks with consistent track record of paying attractive dividends are known as income stocks because investors often buy these stocks to receive the income by way of dividends in addition to being invested in the company6s future growth prospects. 3y 0elling the stoc for more than they originally paid 5

#ome companies reinvest most of their profits back into the business in order to expand. #tocks of companies with sales and earnings that are expanding faster than the general economy and faster than the average company are called growth stocks because investors expect the company to grow and expect the stock price to grow with it. When such increase in the stock price is witnessed, investors can sell their shares for an amount greater than their purchase price, thus pocketing the difference as profit. 2.3 4o: One 'an ,a8e P o"its -y Investing (9uities? 'very year, when the company draws up its accounts, the company profit for the year will become apparent. The directors of the company will decide how much of the profit to plough back into the company, and how much to distribute to the owners of the equity 5 i.e. the shareholders. The profit is then distributed as an amount per share 5 called a dividend. )ompanies like to increase their dividend year on year.
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s well as the profit from the dividends, equity share owners will also benefit if the share price rises. This means that the shareholders can sell their equity shares at a higher price than they were bought originally. #o the investment return from equity shares comes from two sources& 5 the dividends paid from the profits of the company, and the rise in the equity share price. This return, combining these two sources of profit, has comfortably exceeded the rate of inflation in the pas 2./ +y2es o" (9uity There are a number of types of equity, each with different characteristics. ,ommon stoc or ordinary shares )ommon stock, as it is known in the =nited #tates, or ordinary shares, according to (ritish terminology, is the most important form of equity investment. n owner of common stock is part owner of the enterprise and is entitled to vote on certain important matters, including the selection of directors. )ommon stock holders benefit most from improvement in the firm6s business prospects. (ut they have a claim on the firm6s income and assets only after all creditors and all preferred stock holders receive payment. #ome firms have more than one class of common stock, in which case the stock of one class may be entitled to greater voting rights, or to larger dividends, than stock of another class.
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This is often the case with family owned firms which sell stock to the public in a way that enables the family to maintain control through its ownership of stock with superior voting rights. Preferred stoc lso called preference shares, preferred stock is more akin to bonds than to common stock. "ike bonds, preferred stock offers specified payments on specified dates. %referred stock appeals to issuers because the dividend remains constant for as long as the stock is outstanding, which may be in perpetuity. #ome investors favour preferred stock over bonds because the periodic payments are formally considered dividends rather than interest payments, and may therefore offer tax advantages. The issuer is obliged to pay dividends to preferred stock holders before paying dividends to common shareholders. If the preferred stock is cumulative, unpaid dividends may accrue until preferred stock holders have received full payment. In the case of non cumulative preferred stock, preferred stock holders may be able to impose significant restrictions on the firm in the event of a missed dividend. ,onvertible preferred stoc This may be converted into common stock under certain conditions, usually at a predetermined price or within a predetermined time period. )onversion is always at the owner6s option and cannot be required by the issuer. )onvertible preferred stock is similar to convertible bonds. /arrants
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Warrants offer the holder the opportunity to purchase a firm6s common stock during a specified time period in future, at a predetermined price, known as the exercise price or strike price. The tangible value of a warrant is the market price of the stock less the strike price. If the tangible value when the warrants are exercisable is 9ero or less the warrants have no value, as the stock can be acquired more cheaply in the open market. firm may sell warrants directly, but more often they are incorporated into other securities, such as preferred stock or bonds. Warrants are created and sold by the firm that issues the underlying stock. In a rights offering, warrants are allotted to existing stock holders in proportion to their current holdings. If all shareholders subscribe to the offering the firm6s total capital will increase, but each stock holder6s proportionate ownership will not change. The stock holder is free not to subscribe to the offering or to pass the rights to others. In the =H a stock holder chooses not to subscribe by filing a letter of renunciation with the issuer. Issuing shares -ew businesses begin with freely traded shares. +ost are initially owned by an individual, a small group of investors >such as partners or venture capitalists? or an established firm which has created a new subsidiary. In most countries, a firm may not sell shares to the public until it has been in operation for a specified period. #ome countries bar firms from selling shares until their business is profitable, a requirement that can make it difficult for young firms to raise capital.
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Flotation -lotation, also known as an initial public offering >ipo?, is the process by which a firm sells its shares to the public. This may occur for a number of reasons. The firm may require additional capital to take advantage of new opportunities. #ome of the firm6s original investors may want it to buy them out so they can put their money to work elsewhere. The firm may also wish to use shares to compensate employees, and a public share listing makes this easier as the value of the shares is freely established in the market place. The flotation need not involve all or even the majority of the firm6s shares. Private offering 2ather than selling its shares to the public, a firm may raise equity through a private offering. ,nly sophisticated investors, such as money management firms and wealthy individuals, are normally allowed to purchase shares in a private offering, as disclosures about the risks involved are fewer than in a public offering. #hares purchased in a private offering are common equity and are therefore entitled to vote on corporate matters and to receive a dividend, but they usually cannot be resold in the public markets for a specified period of time. 0econdary offering secondary offering occurs when a firm whose shares are already traded publicly sells additional shares to the public called a follow on offering in the =H or when one or more investors holding a large
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proportion of a firm6s shares offers those shares for sale to the public. -irms that already have publicly traded shares may float additional shares to increase their total capital. If this leaves existing shareholders owning smaller proportions of the firm than they owned previously, it is said to dilute their holdings. If the secondary offering involves shares owned by investors, the proceeds of a secondary offering go to the investors whose shares are sold, not to the issuer.

2.0 !dvantages O" Investing In (9uity Funds: The main advantages o e!"it# sha$es a$e: •

Investment! The funding is committed to your business and your intended projects. Investors only reali9e their investment if the business is doing well, E.g. through flotation or a sale to new investors.

Resources! 2esources for your business. The right business angels and venture capitalists can bring valuable skills, contacts and experience to your business and can assist with strategy and key decision making.

3usiness 0uccess! In common with you, investors have a vested interest in the business6
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success, i.e. its growth, profitability and increase in value. Investors are often prepared to provide follow5up funding as the business grows.

2.6 #isadvantages O" Investing In (9uity Funds: The %$in&i%a' disadvantages o e!"it# sha$es a$e: •

Raising E#uity Finance! 2aising equity finance is demanding, costly and time5consuming. Aour business may suffer as you devote time to the deal. %otential investors will seek background information on you and your business 5 they will closely scrutini9e past results and forecasts and will probe the management team. $owever, many businesses find this discipline useful regardless of any funding.

'epending .n the Investors! ;epending on the investor, you will be subject to varying degrees of influence over the management of your business and making of major decisions.

)anagement $ime! Aou will have to invest management time to provide regular information for the investor to monitor.

'iluted: Aour share in the business will be diluted. $owever, your share may

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be of a much larger business because of the funding.

"egal and Regulatory Issues! There can be legal and regulatory issues to comply with when raising finance, e.g. when promoting investments.

2.; &is8 !ssociated With (9uity ,a 8et Ris( in investments &an )e o the o''o*ing t#%es: )ar et Ris the or 5olatility& This refers in the value of of to


investments due to changes in the price the stocks included in an investor7s portfolio which could be caused by a variety of factors such as performance the company, policy announcements, political factors etc. 'ven a portfolio well5diversified assets cannot escape all risk.

of of

Inflationary ris & lso known as purchasing power risk, this is the decline in the purchasing power of money over time, so that even the <safest< investments can leave investors with substantially less purchasing power. -or example, assuming an inflation rate of C/ for the next 31 years, if you have 2s.311 today, 31 years from now inflation will have
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eroded that 2s.311 so that it is worth only 2s..E. Investment or credit ris & This is the possibility that a company in which an investor is invested in may not be sufficiently profitable to remain in business.

2.< &etu ns !ssociated With (9uity ,a 8et #ince 3FF1 till date, Indian stock market has returned about 38/ to investors on an average in terms of increase in share prices or capital appreciation annually. (esides that on average stocks have paid 3.D/ dividend annually. ;ividend is a percentage of the face value of a share that a company returns to its shareholders from its annual profits. )ompared to most other forms of investments, investing in equity shares offers the highest rate of return, if invested over a longer duration. 3.1 What Is ,utual Fund? mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager
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who is responsible for investing the gathered money into specific securities >stocks or bonds?. When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. +utual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. (ut the biggest advantage to mutual funds is diversification, by minimi9ing risk I maximi9ing returns. There are various investment avenues available to an investor such as real5estate, bank deposits, post office deposits, shares, debentures, bonds etc. mutual fund is one more type of Investment venue available to investors. There are many reasons why investors prefer mutual funds. (uying shares directly from the market is one way of investing. (ut this requires spending time to find out the performance of the company whose share is being purchased, understanding the future business prospects of the company, finding out the track record of the promoters and the dividend, bonus issue history of the company etc. n informed investor needs to do research before investing. $owever, many investors find it cumbersome and time consuming to pore over so much of information, get access to so much of details before investing in the shares. Investors therefore prefer the mutual fund route. They invest in a mutual fund scheme which in turn takes the responsibility of investing in stocks and shares after due analysis and research. The
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investor need not bother with researching hundreds of stocks. It leaves it to the mutual fund and its professional fund management team. nother reason why investors prefer mutual funds is because mutual funds offer diversification. n investor7s money is invested by the mutual fund in a variety of shares, bonds and other securities thus diversifying the investor7s portfolio across different companies and sectors. This diversification helps in reducing the overall risk of the portfolio. It is also less expensive to invest in a mutual fund since the minimum investment amount in mutual fund units is fairly low >2s. D11 or so?. With 2s. D11 an investor may be able to buy only a few stocks and not get the desired diversification. These are some of the reasons why mutual funds have gained in popularity over the years. 'iversification .f Funds ;iversification is nothing but spreading out your money across available or different types of investments. (y choosing to diversify respective investment holdings reduces risk tremendously up to certain extent. The most basic level of diversification is to buy multiple stocks rather than just one stock. +utual funds are set up to buy many stocks. (eyond that, you can diversify even more by purchasing different kinds of stocks, then adding bonds, then international, and so on. It could take you weeks to buy all these investments, but if you purchased a few mutual funds you could be done in a few hours because mutual funds automatically diversify in a predetermined category of investments >i.e. 5 growth companies, emerging or mid si9e companies, low5grade corporate bonds, etc?.
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3.2 Who ,anages Investo =s ,oney? This is the role of the Trustees appoint the investor7s money. The sset +anagement )ompany >the Third tier?. +) in return charges a fee for the services

sset +anagement )ompany > +)?, to manage

provided and this fee is borne by the investors as it is deducted from the money collected from them. The +)7s (oard of ;irectors must have at least D1/ of ;irectors who are independent directors. The +) has to be approved by #'(I. The +) functions under the supervision of its (oard of ;irectors, and also under the direction of the Trustees and #'(I. It is the +), which in the name of the Trust, floats new schemes and manages these schemes by buying and selling securities. In order to do this the +) needs to follow all rules and E regulations prescribed by #'(I and as per the Investment +anagement greement it signs with the Trustees. If any fund manager, analyst intends to buyB sell some securities, the permission of the )ompliance ,fficer is a must. one of the most important persons in the compliance ,fficer is +). Whenever the fund

intends to launch a new scheme, the +) has to submit a ;raft ,ffer ;ocument to #'(I. This draft offer document, after getting #'(I approval becomes the offer document of the scheme. The ,ffer ;ocument >,;? is a legal document and investors rely upon the information provided in the ,; for investing in the mutual fund scheme.
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The )ompliance ,fficer has to sign the ;ue ;iligence )ertificate in the ,;. This certificate says that all the information provided inside the ,; is true and correct. This ensures that there is accountability and somebody is responsible for the ,;. In case there is no compliance officer, then senior executives like )',, )hairman of the +) has to sign the due diligence certificate. The certificate ensures that the +) takes responsibility of the ,; and its contents.

3.3 Who Is ! 'ustodian? custodian7s role is safe keeping of physical securities and also keeping a tab on the corporate actions like rights, bonus and dividends declared by the companies in which the fund has invested. The )ustodian is appointed by the (oard of Trustees. The custodian also participates in a clearing and settlement system through approved depository companies on behalf of mutual funds, in case of demateriali9ed securities. In India today, securities >and units of mutual funds? are no longer held in physical form but mostly in demateriali9ed form with the ;epositories. The holdings are held in the ;epository through ;epository %articipants >;%s?. ,nly the physical securities are held by the )ustodian. The deliveries and receipt of units of a mutual fund are done by the custodian or a depository participant at the instruction of the +) and under the overall direction and
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responsibility of the Trustees. 2egulations provide that the #ponsor and the )ustodian must be separate entities. 3./ What Is +he &ole O" +he !,'? The role of the +) is to manage investor7s money on a day to day basis. Thus it is imperative that people with the highest integrity are involved with this activity. The +) cannot deal with a single broker beyond a certain limit of transactions. The +) cannot act as a Trustee for some other +utual -und. The responsibility of preparing the ,; lies with the +). ppointments of intermediaries like independent financial advisors >I- s?, national and regional distributors, banks, etc. is also done by the +). -inally, it is the +) which is responsible for the acts of its employees and service providers. s can be seen, it is the +) that does all the operations. ll activities by the +) are done under the name of the Trust, i.e. the mutual fund. The +) charges a fee for providing its services. #'(I has prescribed limits for this. This fee is borne by the investor as the fee is charged to the scheme, in fact, the fee is charged as a percentage of the scheme7s net assets. n important point to note here is that this fee is included in the overall expenses permitted by #'(I. There is a maximum limit to the amount that can be charged as expense to the scheme, and this fee has to be within that limit. Thus regulations ensure that beyond a certain limit, investor7s money is not used for meeting expenses. /or ing of )utual Fund
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Regulatory -uthorities To protect the interest of the investors, #'(I formulates policies and regulates the mutual funds. It notified regulations in 3FF4 >fully revised in 3FF.? and issues guidelines from time to time. +- either promoted by public or by private sector entities including one promoted by foreign entities is governed by these 2egulations. #'(I approved sset +anagement )ompany > +)? manages the funds by making investments in various types of securities. )ustodian, registered with #'(I, holds the securities of various schemes of the fund in its custody. ccording to #'(I 2egulations, two thirds of the directors of Trustee )ompany or board of trustees must be independent. The ssociation of +utual -unds in India > +-I? reassures the investors in
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units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry. +-I also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc. 3.0 !lte native Way +o Investment In ,utual Funds > SIP #I% is a way of investing in +utual -unds where you pay a fixed amount each month for a fixed tenure. "ike If you take an #I% of D,111 for 3 year on Jan 3, 011E, you will be paying 2s D,111 per month for next 30 months. %lease understand that it7s not a financial instrument, but a way of investing in mutual funds, some people confuse #I% with %%-, @#), and mutual funds, they think they can invest in K#I%L, it7s just a mode of investment. /hen to invest in mutual funds through 0IP2 Investment through #I% must be done only when markets are uncertain or very volatile, when you don7t know which side they are headed to. #I% will be beneficial only if markets really are volatile or going down after you invested. If it happens that markets turns bullish and starts going up, in that case #I% will not be beneficial and will give less return compared to lump sum investment in start.
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-'5-($-6E0 +akes you a disciplined Investor The other advantage of #I% is that it makes you a disciplined investor. ,nce you start #I%, each month you have to contribute certain money in mutual fund and that habit is cultivated. 'I0-'5-($-6E0 : 5 It will not work in bullish markets or when market goes up over time When market goes up and keeps growing over time , the units bought every time will be at high price then the previous one, which will ultimately bring the average cost up , compared to the lump sum investment at the start. 1 In case of tax saving fund, the loc in period gets extended for every investment. Tax saver mutual funds lock your money for 4 yrs, When you invest through #I%, each of your investment is locked separately for 4 yrs from the date of investment. #o if you pay your first installment on Jan 0118 , it will locked till Jan 3 0131 , then the installment paid on -eb 3 , 0118 will be locked till -eb 3 , 0131 and like this each installment will be locked with the gap of 3 month
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3.6 +y2es O" ,utual Funds Schemes In India

Wide variety of +utual -und #chemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. thus mutual funds has Gariety of flavors, (eing a collection of many stocks, an investors can go for picking a mutual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below. ,verview of existing schemes existed in mutual fund category& (A #T2=)T=2'

.pen 1 Ended 0chemes! n open5end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at @et sset Galue ><@ G<? related prices. The key feature of open5end schemes is liquidity. ,lose 1 Ended 0chemes! These schemes have a pre5specified maturity period. ,ne can invest directly in the scheme at the time of the initial issue. ;epending on the structure of the scheme there are two exit options available to an investor after the initial offer period closes. Investors can transact >buy or sell? the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchanges could vary from
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the net asset value >@ G? of the scheme on account of demand and supply situation, expectations of unit holder and other market factors. lternatively some close5ended schemes provide an additional option of selling the units directly to the +utual -und through periodic repurchase at the schemes @ G! however one cannot buy units and can only sell units during the liquidity window. #'(I 2egulations ensure that at least one of the two exit routes is provided to the investor.

Interval 0chemes! Interval #chemes are that scheme, which combines the features of open5ended and close5ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre5 determined intervals at @ G related prices.

Thus investors choose mutual funds as their primary means of investing, as +utual funds provide professional management, diversification, convenience and liquidity. That doesn7t mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can expect higher returns. $edge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile. .vervie+ of existing schemes existed in mutual fund category! 3* (-$7RE

E#uity fund!
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These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund manager7s outlook on different stocks. The 'quity -unds are sub5 classified depending upon their investment objective, as follows&
• • • •

;iversified 'quity -unds +id5)ap -unds #ector #pecific -unds Tax #avings -unds >'"##?

'quity investments are meant for a longer time hori9on, thus 'quity funds rank high on the risk5return matrix.
• 'ebt


The objective of these -unds is to invest in debt papers. *overnment authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. (y investing in debt instruments, these funds ensure low risk and provide stable income to the investors. ;ebt funds are further classified as&

6ilt Funds! Invest their corpus in securities issued by *overnment, popularly known as *overnment of India debt papers. These -unds carry 9ero ;efault risk but are associated with Interest 2ate risk. These schemes are safer as they invest in papers backed by *overnment. Income Funds! Invest a major portion into various debt instruments such as bonds, corporate debentures and *overnment securities. )IPs: Invests maximum of their total corpus in debt instruments
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while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk5

return matrix when compared with other debt schemes. 0hort $erm Plans 80$Ps9! +eant for investment hori9on for three to six months. These funds primarily invest in short term papers like )ertificate of ;eposits >);s? and )ommercial %apers >)%s?. #ome portion of the corpus is also invested in corporate debentures. "i#uid Funds: lso known as +oney +arket #chemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short5term instruments like Treasury (ills, inter5bank call money market, )%s and );s. These funds are meant for short5term cash management of corporate houses and are meant for an investment hori9on of 3day to 4 months. These schemes rank low on risk5return matrix and are considered to be the safest amongst all categories of mutual funds. 3alanced funds!

s the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre5defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. 'quity part provides growth and the debt part provides stability in returns. -urther the mutual funds can be broadly classified on the basis of investment parameter vi9! 'ach category of funds is backed by an investment philosophy, which is pre5defined in the objectives of the fund. The investor can align his own investment needs with the funds objective
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and invest accordingly. 3y investment ob:ective!

6ro+th 0chemes! *rowth #chemes 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 short5term decline in value for possible future appreciation.

Income 0chemes! Income #chemes 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. )apital appreciation in such schemes may be limited. 3alanced 0chemes! (alanced #chemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents >normally D1&D1?. )oney )ar et 0chemes! +oney +arket #chemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short5term instruments, such as treasury bills, certificates of deposit, commercial paper and inter5

bank call money. .ther schemes $ax 0aving 0chemes! Tax5saving schemes offer tax rebates to the investors under tax laws

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prescribed from time to time. =nder #ec.EE of the Income Tax eligible for rebate.


contributions made to any 'quity "inked #avings #cheme >'"##? are Index 0chemes! Index schemes attempt to replicate the performance of a particular index

such as the (#' #ensex or the @#' D1. 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. nd hence, the returns from such schemes would be more or less equivalent to those of the Index. 0ector 0pecific 0chemes! These are the fundsBschemes which invest in the securities of only those

sectors or industries as specified in the offer documents. '.g. %harmaceuticals, #oftware, -ast +oving )onsumer *oods >-+)*?, %etroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectorsBindustries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectorsBindustries and must exit at an appropriate time. Pros ; cons of investing in mutual funds! -or investments in mutual fund, one must keep in mind about the %ros and cons of investments in mutual fund. 3.; !dvantages O" Investing ,utual Funds:

Professional )anagement > The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors
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purchase funds because they do not have the time or the expertise to manage their own portfolio.

mutual fund is considered to be

relatively less expensive way to make and monitor their investments. 'iversification > %urchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimi9ed up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimi9ed by gains in others.

Economies of 0cale > +utual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors.

"i#uidity 1 Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want. 0implicity > Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. +ost +) also have automatic purchase plans whereby as little as 2s. 0111, where #I% start with just 2s.D1 per month basis.

3.< #isadvantages O" Investing ,utual Funds:

Professional )anagement- #ome funds don7t perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so5called professionals are any better than mutual fund or investor himself, for picking up stocks.
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,osts M The biggest source of +) income is generally from the entry I exit load which they charge from investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.

'ilution - (ecause funds have small holdings across different companies, high returns from a few investments often don6t make much difference on the overall return. ;ilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.

$axes - when making decisions about your money, fund managers don6t consider your personal tax situation. -or example, when a fund manager sells a security, a capital5gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

3.? +he +y2es O" &is8s !ssociated With ,utual Funds: 2isk is an inherent aspect of every form of investment. -or mutual fund investments, risks would include variability, or period5by5period fluctuations in total return. The value of the scheme6s investments may be affected by factors affecting capital markets such as price and volume volatility in the stock markets, interest rates, currency exchange rates, foreign investment, changes in government policy, political, economic or other developments.

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)ar et Ris & t times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both an outstanding, highly profitable company and a fledgling corporation may be affected. This change in price is due to <market risk<. Inflation Ris & Sometimes $e e$$ed to as +'oss o %"$&hasing %o*e$.+ ,heneve$ the $ate o in 'ation e-&eeds the ea$nings on #o"$ investment. #o" $"n the $is( that #o"/'' a&t"a''# )e a)'e to )"# 'ess. not mo$e. ,redit Ris & In short, how stable is the company or entity to which you lend your money when you investN $ow certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment maturesN Interest Rate Ris : )hanging interest rates affect both equities and bonds in many ways. (ond prices are influenced by movements in the interest rates in the financial system. *enerally, when interest rates rise, prices of the securities fall and when interest rates drop, the prices increase. Interest rate movements in the Indian debt markets can be volatile leading to the possibility of large price movements up or down in debt and money market securities and thereby to possibly large movements in the @ G.
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Investment Ris s! In the sect oral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. ccordingly, the @ G of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities. "i#uidity Ris : Thinly traded securities carry the danger of not being easily saleable at or near their real values. The fund manager may therefore be unable to quickly sell an illiquid bond and this might affect the price of the fund unfavorably. "iquidity risk is characteristic of the Indian fixed income market. ,hanges in the 6overnment Policy: )hanges in *overnment policy especially in regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund.

3.1@ &etu ns " om ,utual Funds: *enerally, +utual -unds do not offer guaranteed returns to investors. lthough, #'(I regulations allow +utual -unds to offer guaranteed returns subject to the -und meeting certain conditions, most -unds do not offer such guarantees. In case of a guaranteed return scheme, the sponsor or the +), guarantees a minimum level of return and makes good the difference if the actual returns are less than the guaranteed
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minimum. The name of the guarantor and the manner in which the guarantee shall be met must be disclosed in the offer document by the +utual -und. Investments in mutual funds are not guaranteed by the *overnment of India, the 2eserve (ank of India or any other government bodies. $here are three +ays, +here the total returns provided by mutual funds can be en:oyed by investors! • Income is earned from dividends on stocks and interest on bonds. fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. • If the fund sells securities that have increased in price, the fund has a capital gain. +ost funds also pass on these gains to investors in a distribution. • If fund holdings increase in price but are not sold by the fund manager, the fund6s shares increase in price. Aou can then sell your mutual fund shares for a profit. -unds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

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FI<E' 'EP.0I$0 /.1 Int oduction +o FiAed #e2osits -ixed deposits are loan arrangements where a specific amount of funds is placed on deposit under the name of the account holder. The money placed on deposit 'arn. fixed rate conditions that of interest the

according to the terms and govern account. The actual amount of the fixed rate can be influenced by such factors at the type of currency involved in the deposit, the duration set in place for the deposit, and the location where the deposit is made.
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The most unusual characteristic of a fixed deposit is that the funds cannot be withdrawn for a specified period of time. In most cases, fixed deposits carry duration of five years. ;uring that time, the money remains in the account and cannot be withdrawn for any reason. Individuals, corporate entities, and even non5profit organi9ations that wish to set aside funds and limit their access to the funds for a period of time often find that fixed deposits are a simple way to accomplish this goal. s an added benefit, the monies in the account will earn a fixed rate of interest regardless of any fluctuations in interest rates that apply to other types of accounts. $owever, both these benefits can also turn into disadvantages under certain circumstances. (ecause the money cannot be withdrawn until the duration is complete, the funds cannot be used even in emergency situations. )hanges in the going interest rate may also rise to a point above and beyond the interest rate applied to existing deposits. This means account holders are actually earning less interest with fixed deposits than with other types of loans and accounts. While the interest rate on fixed deposits cannot be changed, there is sometimes a way to work around the issue of obtaining use of funds in an emergency situation. t times, the lending institution where the fixed deposit is placed may be willing to extend a separate loan to the account holder, using the fixed account as collateral. While not ideal, this can at least make it possible to deal with the current financial crunch.
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-ixed deposits are a credible way to make a return on investment that is somewhat higher than a standard savings account. The use of fixed deposits can also be helpful when working with various types of currency. (y establishing what is known as a -oreign )urrency -ixed ;eposit or -)-;, it is possible to choose the type of currency involved in the deposit and lock in a rate of interest. If the choice of currency is a good one, this means the investor can enjoy a healthy fixed deposit currency rate for the duration of the deposit and earn more than with a standard fixed deposit strategy. $owever, going with an -)-; does contain a slightly higher amount of risk, since the funds deposited must be converted to the currency of choice and then converted back when the deposit is fulfilled. If the currency did not fare well in the interim, there is some chance of obtaining a loss, due to the changes in the rate of exchange from the time the fixed deposit was activated until the time the deposit is considered complete. /.2 !dvantages O" FiAed #e2osits:

0afety -;s have conventionally been the premier choice for investors with a low risk appetite! assured returns is the key factor which attracts investors towards deposits. #tick to -;s of the highest credit rating i.e. those with a K L rating even if their rates seem modest vis5O5 vis those offered by company deposits.
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)ompany deposits are unsecured in nature and investing in them would imply taking on disproportionately higher risk. If as an investor you are open to investing in instruments involving higher risk levels, market linked instruments like mutual funds may not be a bad deal.

$enure #hort tenured fixed deposits continue to be your best bet. With interest rates on the ascent, a further hike in rates offered by fixed deposits cannot be ruled out. "ocking your investments in longer tenured instruments may lead to an opportunity loss. 'ven if a 45Ar -; looks like a lucrative proposition as compared to one which runs over a year or so, pick the short tenured one. In a rising rate scenario, you could be more than compensated for the lower returns at present.

"i#uidity -ind out how your -; fares on the pre5mature encashment front i.e. how easily can your investment be liquidated. lso enquire about the penalty clauses, e.g. do you suffer a loss of interest andBor principal amount. )ompare how various -;s rank on this parameter and pick the best deal! thereby try to minimi9e the impact
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of illiquidity which is typically associated with -;s.

Flexible investment periods! To suit your personal needs, you can choose from an investment period of between 3 and .1 months for fixed deposit, or between 3 week to 30 months for foreign currencies deposit. If you need your deposit to mature on a specific date

-ccessibility! (anks offer you access to a wide range of the world7s major currencies to help you achieve your investment goals. Aou can even switch from one currency to another by simply giving us your instructions. Aour deposit can also be remitted either by draft or telegraphic transfer.

-utomatic rene+als! To ensure continued growth, your matured deposit will automatically be renewed for the same period of time at the bank7s prevailing rate. This allows you to enjoy uninterrupted interest earnings on your principal amount invested. Aou will also have the choice of issuing specific standing instruction regarding the renewal of your deposit and the disposal of interest earned. In the event that you decide to change your renewal instruction, you will need to inform us at least 0 working days before maturity.
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Early payment of interest! If you place your savings in -ixed ;eposit account for at least 0C months, you can enjoy early interest payments. ,n receipt of your instructions, the interest will be credited to your operating account on a yearly basis.

Pre1approved overdraft! To ensure that your investment continues to grow, whilst giving you the flexibility to satisfy any unexpected financial needs, (anks offer you a pre5approved overdraft worth up to F1/or 311/ ;eposit value.

,redit ,ard! 'njoy the benefits of recognition, payment flexibility, attractive reward points, worldwide accessibility to cash at over .11,111 T+s and many more simply by carrying a credit card. To qualify, all you need is to maintain at least (PD,111 in your -ixed ;eposit ccount over a 4 months period.

/.3 #isadvantages O" Investing O" FiAed #e2osits:>

person can withdraw money only when hisBher maturity period is over. person suffers a loss if heBshe try to withdraw money before maturity period
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s compared to other investment instruments percentage of return is less.

Ris and returns /./ $o &is8 ,eans FiAed Inst uments If you want to begin investing but are not ready to take any risk, you still have plenty of choices available in the market. -rom your traditional bank fixed deposit, to fixed maturity plans >-+%s? of mutual funds there are a number of instruments to choose from. #ince these instruments offer a fixed return on your investment, they are known as fixed income instruments. #ome traditional fixed income assets are bank fixed deposits, money5back, whole5life and endowment policies of life insurance companies, post office saving schemes, government endorsed saving schemes like Hisan Gikas %atra and -+%s. -ixed income assets broadly offer an annual return of eight to nine percent on your investment. 'xcept public provident fund >%%-?, returns from all other instruments are subject to tax that reduces the returns of these instruments and if you take inflation into consideration, your returns come down even further. That is why, when compared to equity, fixed income assets are not considered a wealth5building tool but their strength lies in the safety of your money. 'xperts advise that if you are looking at generating regular
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and fixed income on your investment, these assets are best suited for you. These funds are particularly well suited for senior citi9ens, retired people and people without a regular source of income. Though bank fixed deposits are widely considered a safe option, however, there have been instances when depositors have lost their savings. This is why one must look for a bank7s track record and credibility before investing. In case a bank goes bust, depositors can claim a maximum compensation of 2s. 3"akh irrespective of their actual deposits. -ixed income assets could be used to balance your portfolio as well. If you invest a part of your funds in these instruments, you can reduce the overall risk on your portfolio substantially. With a prudent mix of fixed income assets and equity, you can create a robust portfolio that enhances your wealth significantly.

/.0 &etu ns !ssociated With FiAed #e2osits (anks are luring customers to park their excess funds with the banks6 fixed deposits by offering striking interest rates. $owever they are emphasi9ing on fixed deposits with short term maturities in order to escape from giving high interest rates in future when low interest regime is expected to prevail. -or now the banks are offering high interest rates on short term
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deposits as compared to their long term deposits and this factor is attracting customers to park their excess cash in short term deposits. -or instance a 3,1115day fixed deposit with #tate (ank of India would earn 31/ and a three5year fixed deposit which is only FD days more in maturity would fetch only F/. This might look strange but banks are following an accurate policy considering the further cuts in policy rates to be announced by the 2(I soon. 2eserve (ank of India is likely is cut the key policy rates in the coming few days.

RE-" E0$-$E

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0.1 Int oduction to &eal (state 2eal 'state +arket Investment involves the buying and selling of 2eal 'state for sheer profit. %rofits are piled up slowly by renting out 2eal 'state %roperties in a cash flow method or are generally improved upon and resold for a financial gain. 2eal 'state +arket Investment makers can also wholesale properties in order to make profits. =sually real estate market has a 6laggard effect6 to the equity markets. What it means is a few monthsByear after equity markets have rallied the real estate markets also start moving up. The %roperty +arket in India has shown a substantial development in the last few years and is bustling with many investors looking forward to gain more from this apparently risk free sector. If we compare 2eal 'state to other types of investment like mutual funds and equities, then it definitely emerges as a safer option. The chief reason for generation of such interest from buyers is due to the several measures taken by the government to expand 2ealty +arket and make it attractive for buyers from India as well as the world. Investors sell their stocks at a profit in equity markets and invest the
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money into real estate. (ut before making investments an investor should analy9e the market thoroughly.

$he factors an investor should loo into before investing are!
• • •

The current demand of the 2eal 'state +arket. The future trend of the 2eal 'state +arket. It is also important to know whether the demand is increasing, decreasing or remaining constant.

2eal 'state +arket Investment has advantages and disadvantages at the same time. Though it looks like the advantages are more in numbers but the disadvantages if not taken care of can prove to be fatal. 0.2 +y2es O" &eal (state:

Residential real estate

The most common form of real estate investment as it includes the property purchased as other people6s houses. In many cases the (uyer does not have the full purchase price for a property and must engage a lender such as a (ank, -inance company or %rivate "ender. $erein the lender is the investor as only the lender stands to gain returns from it. ;ifferent countries have their individual normal lending levels, but usually they will fall into the range of 815F1/ of the purchase price. gainst other types of
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real estate, residential real estate is the least risky.

,ommercial real estate

)ommercial real estate is the owning of a small building or large warehouse a company rents from so that it can conduct its business. ;ue to the higher risk of )ommercial real estate, lending rates of banks and other lenders are lower and often fall in the range of D1 0.3 !dvantages O" Investing In &eal (state: The real advantage in the Real Estate )ar et Investment is that theoretically this business has an ever growing tendency because of the growing population and the demand for 2eal estate7s both for residential and office usages. s all the things in this field are very expensive and every time one sells it the profit becomes more. The ability to borrow based on the value of the 2eal estate %roperty, is another advantage. It is easier to finance 2eal 'state than any other product. While investing other pluses requires the buyer to have the entire buying price available for the pluses. (ut in Real Estate )ar et Investment, one just needs to have a fraction of the buying price available as the down payment. That is why, 2eal 'state, in spite of being extremely expensive, is much easier to buy than a piece of industrial instrument of the very same price.
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0./ #isadvantages O" Investing In &eal (state 2eal 'state +arket Investment is something that needs to be maintained and taxes to be submitted from time to time. procedure can bring a major loss to the investor. ;uring the real estate booms, investors can be attracted to buy 2eal 'state properties without calculating the expenditures attached in the purchase and for the existing expenditures of the property. The 2eal 'state +arket can then suddenly flow against them instead of flowing for them making the investor face a major loss. 0.0 &is8 !ssociated With &eal (state 2eal 'state Investment is now treated as a major case of capital budgeting by using state5of5the5art investment analysis which incorporates the future stream of income it may generate and the associated risk adjustments. It has been the highlight of the investment literature since the 3F817s when investment theorists extended techniques such as probability, time value of money and utility into its analysis. 2eal estate is basically defined as immovable property such as land and
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small mistake in this

everything permanently attached to it like buildings. 2eal property as opposed to personal or movable property is characteri9ed by the right to transfer the title to the land whereas title to personal property can be retained. The investment in real estate essentially depends on the risks associated with it, that is to say, even if the venture succeeds when the future stream of income will accrue to the investor and the alternative investment opportunities. 2eal estate investment can be attractive if viewed as a business opportunity! it can generate rental income, using it as collateral to secure a loan for a business venture, to offset otherwise taxable income through cash savings on tax5deductible interest rate losses, or simply from the profits garnered from its resale. @otable, in this context is the gains reaped by real estate speculators who trade in real estate futures >by buying and selling purchase options?. )ommon examples of real estate investment are individuals owning multiple pieces of real estate7s one of which is his primary residence and others are occupied by tenants from where the rental income accrues. 2eal estate investment is also associated with appreciation in the value of property thereby having the potential for capital gains. Tax implications differ for real estate investment and residential real estates. 2eal estate investment is long term in nature and investment professionals routinely maintain that one7s investment portfolio should have at least DIpercnt!5 01Ipercnt! invested in real estate. 0.6 &etu ns !ssociated With &eal (state
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2eal 'state Investment %roperty follows a business cycle like any investment business5it has its peaks and troughs. (ut as real estate investment property is defined as investment in properties, which even can be commercial in nature, real estate can make a fortune for many individuals giving them the license to permanently walk away from their jobs. )ommercial property may include apartments and multifamily units, offices, hotels, malls, retail stores, businesses and industrial property. )ommercial properties are acquired for reali9ing both capital gains and rental income %roperty investment can lead to diversification of one7s investment portfolio, as real estate investments can be profitable for many giving them financial freedom in the long run. The real property can be put to its best use if it produces the highest value for land, as if vacant. (ut as many real estate investment property analysts point out, it can go horribly wrong if not undertaken in a careful manner. Thus it is always advisable to conduct a thorough research before arriving at a decision. t present, terms such as Kforeclosure investingL and Kno money down real estate investingL have become associated with real estate property investment. While foreclosure investing means buying properties from owners who are in a financial distress, thus giving the opportunity to buy cheap, no money down real estate investing is an attractive service offered by many real estate agencies which helps people to invest in real estate without any credit check and employment verifications. &eal estate investment can 3e 2 o"ita3le i" one ta8es note o" the "ollo:ing:
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• • • • •

+aximi9ing return +inimi9ing risk )omparing investments #aving time, and, ,ptimi9ing the deal structure

In short, people investing in real estate should be able to study the market trend of rising and falling real estate prices and then arrive at a decision. This service is also offered by many real estate investing agencies that will provide investment analyses software and real estate software cash flow tool that will help the investors make the right decisions about real estate investment decisions. The return on investment on real estate should be considered when deciding to invest in real estate. 2eturn on investment can be calculated on past or current investment or on the estimated return on future investment. It does not indicate the period for which the investment is being made. 2ate of 2eturn, or 2eturn on Investment is essentially the future stream of income or a cash flow from an invested capital. This capital might be investing in real estate property or company shares and debentures. The future stream of income or cash flow might arise from interest, dividends or capital gains. accrued on the investment.
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capital gain occurs when the market value of

an investment rises or falls. It does not however, include the returns

2eal estate investment can be attractive if viewed as a business opportunity! it can generate rental income, using it as collateral to secure a loan for a business venture, to offset otherwise taxable income through cash savings on tax5deductible interest rate losses, or simply from the profits garnered from its resale. @otable, in this context is the gains reaped by real estate speculators who trade in real estate futures>by buying and selling purchase options? s per the commercial real investment property boom in many areas of the world, it has been ascribed to improvement of the economy and growth of business ventures in the country. (ut it should be noted that investment in commercial properties yield more returns and cash flow than investments in residential properties

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.ther Investment -venues 6.1 )old -or centuries gold has been the ultimate cushion against the dangers of stocks price falls, fluctuating rate changes, inflation, risingBfalling real estate prices, natural calamities, wars and more. *old has been the best way to safeguard your investments against unstable financial markets. Why Is )old Such ! )ood Investment? Whether or not gold is a good investment, is a question that does not have a simple answer. *old has appreciated substantially over the past couple of years. The growth rate of late has been much higher than the conventional rate of appreciation. $owever, if we look at the past 3D501 years record, it is seen that *old is a hedge against inflation. ,ver the last 01 years, the average return from *old has been around 8/. #o, if the past trend continues, one could expect around say .5F/ returns
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from gold in the long5term. lso, another aspect that we should look at is a weakening currency. @o matter which country you originate from, there is a chance that your country7s currency will suffer a downfall at a particular point of time. *old, on the other hand, retains its true value and can help you protect your riches because it does not rely on the state of the country7s economic, whether it is on the up or downtrend. Therefore, investing a small portion of one7s investment portfolio in gold would be a good idea.

4o: 'an One Invest In )old? *old can be bought in various forms and the decision should be based on the reason you need gold. If you see this purely as an investment, you can either buy it in the form of physical gold Q bars, biscuits and or coins or even in a demateriali9ed form. -or most Indians, gold purchases usually mean buying jewellery. $owever, the disadvantage of buying gold in the form of jewellery is that its resale is not always a profitable proposition. He$e a$e some othe$ *a#s o investing in go'd: 6."' Etfs Aou can invest in gold by buying *old 'xchange Traded -unds >'T-s?. (eing 'T-s, these funds are listed and traded on the stock exchange i.e.
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investors can buy and sell them like any other stock on the stock exchange, on a real5 time basis. ll you need is a demat account and a share trading account with a broker or sub5broker who deals in stocks. These are traded in units of one. That means you can buy one or more units at a time. 'ach unit represents approximately the market value of one gram of gold. *old 'T-s are traded close to real5time gold prices in the market, that is, 'T- prices move up and down with the market price of gold in the conventional marketplace. Aour expenses in an 'T- would be very low& you would pay securities transaction tax >#TT?, brokerage Bservice tax, and the like, which are unlikely to exceed around 3/ of market price. Aou7d hold gold in demat form in your demat account, just as you hold shares. If you decide to sell your 'T- units, you can do so through your stock broker or sub5broker and the charges would be the same as what you paid while buying the 'T-. Thus an 'T- is very convenient, and you need not worry about the purity of the gold, secure storage, insurance against theft, and so on Physical 6old This is the traditional way to invest in gold. Investors can buy gold and then store it in a bank7s locker. If you are one of those people who keep buying gold jewellery for a marriage of a daughter or son, a better option would be to buy gold 'T- units now at the current price of gold, hold them in your demat account, and sell them in the future, whenever you want,
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and use the money to buy jewellery then. In this way, you will be protecting yourself from rising gold prices, while also sparing yourself anxiety about the purity and safety of your gold. Aou can keep accumulating gold at a slow rate, perhaps even one gram at a time. It is evident that gold is an asset class that you can rarely go wrong with. Therefore, think seriously about investing in gold. 6.2 -onds: =nlike equities that represent a participation in a company, a bond is a debt security. When you purchase a bond, you lend money to the issuer of the bond. The issuer can be a government, a municipality, a federal agency, a corporation or another entity. interest payment. The stream of payments linked to a bond is known in advance >provided that the issuer can pay? but this stream depends of the bond. Aou have bonds that pay a fixed interest during the life of the paper >fixed rate bonds?! you have others that pay a revised interest rate >floating rate bonds? or even no interest at all >9ero coupon bonds?. The first thing that comes to most people6s minds when they think of investing is the stock market. fter all, stocks are exciting. The swings in the market are scrutini9ed in the newspapers and even covered by local
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bond has generally a maturity

>a date at which the issuer reimburse the amount borrowed? and an

evening newscasts. #tories of investors gaining great wealth in the stock market are common. (onds, on the other hand, don6t have the same sex appeal. %lus, bonds are much more boring 5 especially during raging bull markets, when they seem to offer an insignificant return compared to stocks. $owever, all it takes is a bear market to remind investors of the virtues of a bond6s safety and stability. In fact, for many investors it makes sense to have at least part of their portfolio invested in bonds. 6.3 'ommodities ,a 8et: - commodity may be defined as an article, a product or material that is bought and sold. It can be classified as every ind of movable property, except -ctionable ,laims, )oney ; 0ecurities . )ommodities actually offer immense potential to become a separate asset class for market5savvy investors, arbitrageurs and speculators. 2etail investors, who claim to understand the equity markets, may find commodities an unfathomable market. (ut commodities are easy to understand as far as fundamentals of demand and supply are concerned. 2etail investors should understand the risks and advantages of trading in commodities futures before taking a leap. $istorically, pricing in commodities futures has been less volatile compared with equity and bonds, thus providing an efficient portfolio diversification option. )ommodity market is an important constituent of the financial markets of
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any country. It is the market where a wide range of products, vi9., precious metals like *old, #ilver, base metals, crude oil, energy and soft commodities like palm oil, coffee etc. are traded. It is important to develop a vibrant, active and liquid commodity market. This would help investors hedge their commodity risk, take speculative positions in commodities and exploit arbitrage opportunities in the market. ;B Su vey Findings

-rom the total number of people surveyed, it was found that 01/ of people were having annual income of less than 3 lakh, 0D/ were having income of 3 lakh 54 lakh, C1/ were having income of 4 lakh5D lakh and 3D/ were having income of D lakh above.

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-rom the above survey, 0D/ of people surveyed were business class, CD/ were service class, 31/ were housewives and 01/ were students.

.1/ of people surveyed were married and remaining C1/ were single.

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4F/ of people preferred equity as a investment option,08/ preferred mutual funds,3C/ preferred fixed deposits,30/ were interested in real estate and remaining E/ preferred :others7 such as *old, (onds, )ommodities etc.

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-rom the above graph, it is understood that maximum numbers of people i.e. 4D/ believe to be the moderate risk bearers. The number of highest risk bearing capacity investors is hardly 3D/

+ost of the investors invest in equity due to one single reason and that is, just investing in one of the profitable instrument, which is represented by CE/ of the population surveyed. 41/ invest in equity because they believe in increase in value over the period of time. achieve their long term goals. nd the rest of the 00/ population invests in equity as it provides growth in their portfolio to

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D1/ of the population surveyed invests in mutual funds as we are capable of investing in small amounts in various segments with diversified risk which is followed by 0D/ of population investing due to wide spectrum of sectors available to invest and remaining 0D/ investing because expertise professionals are available to guide us and manage our surplus.

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8D/ of the population surveyed invests in fixed deposits with banks as provide us with fixed returns and the rest of the population i.e. 0D/ invest in it because they are safest investments

"arge %eople i.e. .D/ invest in real estate due to its multiple benefits like they can use it for investments, earnings by giving on rental basis or living
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in it following by 0D/ who invest due to its good long term benefit.and the rest of 31/due to its huge return earning feature. <B Su vey !nalysis !)( )&O%P 1<>2< 2<>3< 3<>/< /<>0< 0< O$W!&#S -(S+ I$1(S+,($+ I$S+&%,($+S E=7I$*, RE-" E0$-$E FI<E' 'EP.0I$0, 6."' )7$7-" F7('0 ; 3.('0 "IFE I(07R-(,E ; PE(0I.( P"-(0 8*IE"' RE$7R(0 FR.) -3.5E9

s per the survey conducted, 'R=ITA @; 2' " '#T T' are the most preferable options available for age group of 3E50E, because they can bare the risk associated with equity and they can recover the losses if any and as most of the people like to have their own dream house, so they invest in real estate. %eople at age group of 0E54E, invest in -IS'; ;'%,#IT# for fixed returns as they want to fulfill the demands of their children and plan for their future and they also start investing in gold mainly because money value keeps on rising day by day. *old can also be gifted to their children at the time of marriage. t the age group of 4E5CE, people start investing in mutual funds and bonds as they are less riskier than equity, person can get sufficient returns needed to secure his near future. t the age group of CE5DE, person is at the verge of retirement and he needs some income as a pension which can be fulfilled from different
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pension plans and needs to cover up his life under life insurance. t the age group of DE and above, person yield returns from all investment options !$$%!* I$'O,( *(SS +4!$ 1D@@D@@@ 1D@@D@@@ E 3D@@D@@@ 3D@@D@@@ E 0D@@D@@@ 0D@@D@@@ F !-O1( C OF I$1(S+,($+ !S P(& I$'O,( )I(I)7) I(5E0$)E($ .P$I.(0 -R.7(' >1?@A .F I(,.)E -R.7(' ?B1?CA .F I(,.)E -R.7(' ?D1B@A .F I(,.)E

-rom the above table we derive that investment options available for a lay man depends upon hisBher annual income. "ess is his income fewer are the investment options available and vice versa. !)( FO& I$1(S+,($+ 1<y s E 30y s 30y s E 0@y s 0@y s F !-O1( &(+%&$S !SSO'I!+(# )-<I)7) RE$7R(0 -5ER-6E RE$7R(0 )I(I)7) RE$7R(0

-rom the above table, we derive that if a person starts investing at a young age returns associated with it are maximum and vice versa.







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(G%I+5 ,%+%!* F%$#S -O$#S )O*# &(!* (S+!+( FI6(# #(POSI+

!SSO'I!+(# %I6%E0$ %I6% E )E'I7) )E'I7) E "./ "./ "E-0$ FI<E'

-rom the above table, We derive that the risk and returns associated lowers from top to bottom. #o returns associated with equity are maximum as well as risk is highest and returns and risk in -ixed ;eposit are fixedBnegligible. Ran in g 3 0 4 C D +utual funds 'quity funds 2eal 'state -ixed ;eposits ,thers 44/ 0./ 0D/ 34/ 4/ Investment avenues Preference rate

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?B 'onclusion %eople find mutual funds attractive but don6t invest in them due to the risk factorN It7s time to conclude that mutual funds are a lucrative investment, ensure higher returns, better tax benefits and carry minimalistic risk. -ixed +aturity %lans issued by mutual funds are much more profitable than fixed deposits offered by banks, post office savings or other investments. The fact is that according to the #'(I rules, mutual funds are not allowed to assure returns. The yield is indicated and not assured. $owever, for all practical purposes, the indicated yield is almost exactly what the investor gets at the time of maturity.

1@B -I-*IO)&!P45
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