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SASMIRAS INSTITUTE OF MANAGEMENT STUDIES & RESEARCH

A PROJECT REPORT
ON
DEBT INVESTMENT OPTION FROM INVESTORS PERSPECTIVE
A PROJECT SUBMITTED TO

SASMIRAS INSTITUTE OF MANAGEMENT STUDIES & RESEARCH,


SASMIRA MARG, WORLI, MUMBAI

BY
RUPALI N. SHEVATE
ACADEMIC YEAR: 2015-2017

IN PARTIAL FULFILLMENT OF THE COURSE OF


MASTER OF MANAGEMENT STUDIES (MMS)
30TH JULY, 2016

EXECUTIVE SUMMARY
In investing money, the amount of interest you want should depend on whether you
want to eat well or sleep well.

Saving is an important part of any economy of any nation with saving invested various option
available to people. An investment refers to the commitment of fund at present, in
anticipation of some positive rate of return in future today the spectrum of investment is
indeed wide.
The debt instruments that constitute the entire financial markets (including capital markets
and money markets) represents contracts whereby one party lends money to another party on
pre-determined terms with regard to rate of interest to be paid by the borrower to the lender,
the periodicity of such interest payment, and the repayment of the principal amount
borrowed. In the Indian securities markets, we use the term bonds for debt instruments
issued by central or state governments and public sector organizations and the term
debentures for the securities issued by the private corporate organizations.

This project finds out the various instruments being issued by the government viz., Bonds,
Treasury Bills, Call Money Markets, Repo Markets etc., in order to finance its fiscal deficit.
It tries to analyze the basic issuance process of these instruments and the participants those
are involved in various transactions in the Wholesale Debt Market.

The project takes help of various tables and graphs in order to easily analyze the various
parameters viz., Market-wise distribution of various instruments traded, participant- wise
distribution, concentration of participants in the wholesale debt market, etc.

The project also seeks to analyze how an investor can judge whether his/her money invested
is safe by analyzing the credit rating of various securities and also to find out at what rate will
the money grow within the tenure of investment

The Objectives of the Project Report: `


1. To Present the trends in the growth of Debt Fund
2. To appraise the performance of Selected Schemes on the basis of performance like
Investors measures to find out the risk adjusted returns.
3. To Compare the risk and returns of Debt fund for the Period of Short term and Long
term.
4. To find the relationship of age, qualification, gender, Occupation, Income and
Investment Status with the preferences of Debt fund
5. To know whether there is any association between the selected variables and Investors
perception of Debt fund.
6. To study the debt markets in Indiadifferent types of participants involved analysis of
bond yields and concept of Bond Pricing.
7. The study further tries to analyze the different types of securities being traded in the
debt markets in brief.
8. To Suggest suitable measures for strengthening of the Debt fund as investors
perspectives

The Scope of the Project Report


This analysis is a best upon investors pattern for investment preferences, awareness under
the debt fund.
This analysis would be focusing on the information from the DEBT INVESTMENT
OPTION FROM INVESTORS PRESPECTIVE about there knowledge, perception and
behavior on different financial product.

INDEX
Sr. No.
1

Contents

Page No.

CHAPTER 1(A) .INTRODUCTION TO DEBT


MARKET
1.1 Concept of Debt
1.2 Types of Debt Fund

8-9
10-14
15-28

1.3 Debt Market & Its Evaluation

29-31

1.4 Benefits of Investment in Debt Market


32-33
CHAPTER 1(B). COMPANY PROFILE
2
CHAPTER 3.MARKET STRUCTURE
2.1 Regulators

34-35

2.2 Debt Rating System of CRISIL

35-38

2.3 Participants

39-41

2.4 Taxation Under Debt fund

42-43

2.5 Debt Fund Work Better than FDS

44-46
47-48

2.6 Debt Liquid Fund


3
CHAPTER 3. RESEARCH METHODOLOGY
3.1 Data Sources
3.2 Limitation
3.3 literature review

49
50
51-52
53-66
4

3.4 (A)Data Analyses & Interpretation


67-69
(B) Questionnaire
70
3.5 Conclusion
71

3.6 Bibliography

CHAPTER 1(A). INTRODUCTION TO DEBT MARKET

1.1 CONCEPT OF DEBT


An

amount

of

money borrowed

by one

party from

another

party

Many

corporations/individuals use debt as a method for making large purchases that they could not
afford under normal circumstances. A debt arrangement gives the borrowing party permission
to borrow money under the condition that it is to be paid back at a later date, usually with
interest.
An amount owed to a person or organization for funds borrowed. Debt can be represented by
a loan note, bond, mortgage or other form stating repayment terms and, if applicable, interest
requirements. These different forms all imply intent to pay back an amount owed by a
specific date, which is set forth in the repayment terms.
A debt is an obligation owed by one party (the debtor) to a second party, the creditor; usually
this refers to assets granted by the creditor to the debtor, but the term can also be used
metaphorically to cover moral obligations and other interactions not based on economic
value.
A debt is created when a creditor agrees to lend a sum of assets to a debtor. Debt is usually
granted with expected repayment; in modern society, in most cases, this includes repayment
of the original sum, plus interest.
In finance, debt is a means of using anticipated future purchasing power in the present before
it has actually been earned. Some companies and corporations use debt as a part of their
overall corporate finance strategy.
Debt is as old as economy. Before a debt can be made, both the debtor and the creditor must
agree on the manner in which the debt will be repaid, known as the standard of deferred
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payment. This payment is usually denominated as a sum of money in units of currency, but
can sometimes be denominated in terms of goods or services. Payment can be made in
increments over a period of time, or all at once at the end of the loan agreement
Debt funds are preferred by individuals who are not willing to invest in a highly volatile
equity market. A debt fund provides a steady but low income relative to equity. It is
comparatively less volatile. A debt fund is an investment pool, such as a mutual fund or
exchange-traded fund, in which core holdings are fixed income investments. A debt fund may
invest in short-term or long-term bonds, securitized products, money market instruments or
floating rate debt. The fee ratios on debt funds are lower, on average, than equity funds
because the overall management costs are lower.
Debt funds also tend to perform better in periods of economic slowdown. Analysts believe
that debt should be looked upon as an effective hedge against equity market volatility, which
lends stability in terms of value and income to a portfolio. Some hybrid debt schemes take
exposure in equities allowing investors participate in the stock markets as well.
Debt funds have a fairly wide range of schemes offering something for all types of
investors. Liquid fund, Liquid plus funds, Short term income funds, GILT funds, income
funds and hybrid funds are some of the more popular categories.
Basic principle of sound investing postulates a diversified portfolio. Though debt funds
often may just be the difference between being able to retain the profits and loosing it all in
the next round of volatility. The main advantage of debt funds is relatively lower risk and
steady income additional to liquidity of investments, professional fund management
expertise at low costs besides diversification of portfolio to have a balanced risk return
profile.
More conservative funds generally hold out the prospect of reasonable returns and low
risk exposure, while aggressive funds seek to offer higher returns in return for accepting
higher risk exposure. As the relative risk profile of such securities is higher, investors in
such bonds expect higher income streams compared to higher-rated bonds.

1.2 TYPES OF DEBT FUNDS


A company uses various kinds of debt to finance its operations.

Debt funds can be

categorized on the basis of the type of debt securities they invest in. The distinction can be
primarily on the basis of the tenor of the securities: short term or long term, and the issuer:
government, corporate, PSUs and others. The risk and return of the securities will vary based
on the tenor and issuer. The strategy adopted by the fund manager to create and manage the
portfolio can also be a factor for categorizing debt funds.

TO
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1. On the basis of Issuer


A. Gilt funds
Gilt funds invest in only treasury bills and government securities, which do not have a credit
risk (i.e. the risk that the issuer of the security defaults). Long-term gilt funds invest in
government securities of medium and long-term maturities. There is no risk of default and
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liquidity is considerably higher in case of government securities. However, prices of longterm government securities are very sensitive to interest rate changes.
B. Corporate bond funds
Corporate bond funds invest in debt securities issued by companies, including PSUs. There
is a credit risk associated with the issuer that is denoted by the credit rating assigned to the
security. Such bonds pay a higher coupon income to compensate for the credit risk associated
with them.
2. On the basis of Tenor
A. Liquid schemes
Liquid schemes or money market schemes are a variant of debt schemes that invest only in
short term debt securities. They can invest in debt securities of upto 91 days maturity.
However, securities in the portfolio having maturity more than 60-days need to be valued at
market prices [marked to market (MTM)]. Since MTM contributes to volatility of NAV,
fund managers of liquid schemes prefer to keep most of their portfolio in debt securities of
less than 60-day maturity. As will be seen later in this Work Book, this helps in positioning
liquid schemes as the lowest in price risk among all kinds of mutual fund schemes. Therefore,
these schemes are ideal for investors seeking high liquidity with safety of capital.
B. Short term debt schemes
Short term debt schemes invest in securities with short tenors that have low interest rate risk
of significant changes in the value of the securities. Ultra-short term debt funds, short-term
debt funds, short-term gilt funds are some of the funds in this category. The contribution of
interest income and the gain/loss in the value of the securities and the volatility in the returns
from the fund will vary depending upon the tenor of the securities included in the portfolio
C. Ultra short-term plans
Ultra short-term plans are also known as treasury management funds, or cash management
funds. They invest in money market and other short term securities of maturity up to 365

days. The objective is to generate a steady return, mostly coming from accrual of interest
income, with minimal NAV volatility.
D. Short Term Plans
Short Term Plans combines short term debt securities with a small allocation to longer term
debt securities. Short term plans earn interest from short term securities and interest and
capital gains from long term securities. Fund managers take a call on the exposure to long
term securities based on their view for interest rate movements. If interest rates are expected
to go down, these funds increase their exposure to long term securities to benefit from the
resultant increase in prices. The volatility in returns will depend upon the extent of long-term
debt securities in the portfolio.
3. On the basis of Investment Strategy

A. Diversified debt funds or Income fund


Diversified debt funds or Income fund, invest in a mix of government and non-government
debt securities such as corporate bonds, debentures and commercial paper. The corporate
bonds earn higher coupon income on account of the credit risks associated with them. The
government securities are held to meet liquidity needs and to exploit opportunities to capital
gains arising from interest rate movements.
B. Junk bond schemes
Junk bond schemes or high yield bond schemes invest in securities that have a lower credit
rating indicating poor credit quality. Such schemes operate on the premise that the attractive
returns offered by the investee companies makes up for the losses arising out of a few
companies defaulting.
C. Dynamic debt funds
Dynamic debt funds are flexible in terms of the type of debt securities held and their tenors.
They do not focus on long or short term securities or any particular category of issuer but
look for opportunities to earn income and capital gains across segments of the debt market.
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Duration of these portfolios are not fixed, but are dynamically managed. If the manager
believes that interest rates could move up, the duration of the portfolio is reduced and vice
versa.
D. Fixed maturity plans
Fixed maturity plans are a kind of debt fund where the investment portfolio is closely aligned
to the maturity of the scheme. AMCs tend to structure the scheme around pre-identified
investments. Further, being close-ended schemes, they do not accept moneys post-NFO.
Thanks to these characteristics, the fund manager has little ongoing role in deciding on the
investment options.
As will be seen in Chapter8, such a portfolio construction gives more clarity to investors on
the likely returns if they stay invested in the scheme until its maturity (though there can be no
guarantee or assurance of such returns). This helps them compare the returns with alternative
investments like bank deposits.
E. Floating rate funds
Floating rate funds invest largely in floating rate debt securities i.e. debt securities where the
interest rate payable by the issuer changes in line with the market. For example, a debt
security where interest payable is described as5-year Government Security yield plus 1%,
will pay interest rate of 7%, when the 5-year Government Security yield is 6%; if 5-year
Government Security yield goes down to 3%, then only 4% interest will be payable on that
debt security. The NAVs of such schemes fluctuate lesser than other debt funds that invest
more in debt securities offering a fixed rate of interest.

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1.3 DEBT MARKET AND ITS EVOLUTION

A. Money Market :

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It is a market to issue and trade securities with short term maturity or quasi-money
instruments. Instruments like treasury bills, certificates of deposits, commercial papers, bills
of exchange etc are traded in the money market. The money market offers an alternative to
these higher-risk investments.
The money market is better known as a place for large institutions and government to manage
their short-term cash needs. However, individual investors have access to the market through
a variety of different securities.
The money market is a subsection of the fixed income market. In reality, a bond is just one
type of fixed income security. The difference between the money market and the bond market
is that the money market specializes in very short-term debt securities (debt that matures in
less than one year). Money market investments are also called cash investments because of
their short maturities.
There are several different instruments in the money market, offering different returns and
different risks. In the following sections.
The major money market instruments
1). Treasury Bills
Treasury Bills are the most marketable money market security. Their popularity is mainly due
to their simplicity.
T-bills are short-term securities that mature in one year or less from their issue date. They are
issued with three-month, six-month and one-year maturities. T-bills are purchased for a price
that is less than their par (face) value; when they mature, the government pays the holder the
full par value. Effectively, your interest is the difference between the purchase price of the
security and what you get at maturity. For example, if you bought a 90-day T-bill at $9,800
and held it until maturity, you would earn $200 on your investment. This differs from coupon
bonds, which pay interest semi-annually. Treasury bills (as well as notes and bonds) are
issued through a competitive bidding process at auctions.
2). Certificate of Deposit
(CD) is a time deposit with a bank. CDs are generally issued by commercial banks but they
can be bought through brokerages. They bear a specific maturity date (from three months to
five years), a specified interest rate, and can be issued in any denomination, much like bonds.
Like all time deposits, the funds may not be withdrawn on demand like those in a checking
account.
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CDs offer a slightly higher yield than T-Bills because of the slightly higher default risk for a
bank but, overall, the likelihood that a large bank will go broke is pretty slim. Of course, the
amount of interest you earn depends on a number of other factors such as the current interest
rate environment, how much money you invest, the length of time and the particular bank
you choose. While nearly every bank offers CDs, the rates are rarely competitive, so it's
important to shop around.
3).Commercial Paper
For many corporations, borrowing short-term money from banks is often a laborious and
annoying task. The desire to avoid banks as much as possible has led to the widespread
popularity of commercial paper.
Commercial paper is an unsecured, short-term loan issued by a corporation, typically for
financing accounts receivable and inventories. It is usually issued at a discount, reflecting
current market interest rates. Maturities on commercial paper are usually no longer than nine
months, with maturities of between one and two months being the average.
For the most part, commercial paper is a very safe investment because the financial situation
of a company can easily be predicted over a few months. Furthermore, typically only
companies with high credit ratings and credit worthiness issue commercial paper. Over the
past 40 years, there have only been a handful of cases where corporations have defaulted on
their commercial paper repayment.
Commercial paper is usually issued in denominations of $100,000 or more. Therefore,
smaller investors can only invest in commercial paper indirectly through money market
funds.
4).Bankers acceptance
A bankers' acceptance (BA) is a short-term credit investment created by a non-financial firm
and guaranteed by a bank to make payment. Acceptances are traded at discounts from face
value in the secondary market.
For corporations, a BA acts as a negotiable time draft for financing imports, exports or other
transactions in goods. This is especially useful when the creditworthiness of a foreign trade
partner is unknown.
Acceptances sell at a discount from the face value:

13

Face Value of Banker's Acceptance


Minus 2% Per Annum Commission for One Year
Amount Received by Exporter in One Year

$1,000,000
-$20,000
$980,000

B. Government Securities :
A government security is a bond or other type of debt obligation that is issued by a
government with a promise of repayment upon the security's maturity date. Government
securities are usually considered low-risk investments because they are backed by the taxing
power of a government.
A Government security is a tradable instrument issued by the Central Government or the
State Governments. It acknowledges the Governments debt obligation. Such securities are
short term (usually called treasury bills, with original maturities of less than one year) or long
term (usually called Government bonds or dated securities with original maturity of one year
or more).
In India, the Central Government issues both, treasury bills and bonds or dated securities
while the State Governments issue only bonds or dated securities, which are called the State
Development Loans (SDLs).
Government securities carry practically no risk of default and, hence, are called risk-free giltedged instruments. Government of India also issues savings instruments (Savings Bonds,
National Saving Certificates (NSCs), etc.) or special securities (oil bonds, Food Corporation
of India bonds, fertilizer bonds, power bonds, etc.). They are, usually not fully tradable and
are, therefore, not eligible to be SLR securities.

The Government Securities are divided into two parts :


Central Government
State Government
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C. Bond

Bond is a debt security, in which the authorized issuer owes the holders a debt and, depending
on the terms of the bond, is obliged to pay interest (the coupon) to use and/or to repay the
principal at a later date, termed maturity. A bond is a formal contract to repay borrowed
money with interest at fixed intervals (ex semiannual, annual, and sometimes monthly).
Bonds provide the borrower with external funds to finance long-term investments, or, in the
case of government bonds, to finance current expenditure. Bonds and stocks are both
securities, but the major difference between the two is that (capital) stockholders have an
equity stake in the company (i.e., they are owners), whereas bondholders have a creditor
stake in the company (i.e., they are lenders). Another difference is that bonds usually have a
defined term, or maturity, after which the bond is redeemed, whereas stocks may be
outstanding indefinitely.
BOND MARKET PARTICIPANTS
Bond market participants are similar to participants in most financial markets and are
essentially either buyers (debt issuer) of funds or sellers (institution) of funds and often both.
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Participants include:

Institutional investors

Governments

Traders

Individuals

TYPES OF BONDS
1) Government Bonds
In general, fixed-income securities are classified according to the length of time before
maturity. These are the three main categories:
Bills - debt securities maturing in less than one year.
Notes - debt securities maturing in one to 10 years
Bonds - debt securities maturing in more than 10 years
Marketable securities from the U.S. government - known collectively as Treasuries - follow
this guideline and are issued as Treasury bonds, Treasury notes and Treasury bills (T-bills).
Technically speaking, T-bills aren't bonds because of their short maturity. (You can read more
about T-bills in our Money Market tutorial.) All debt issued by Uncle Sam is regarded as
extremely safe, as is the debt of any stable country. The debt of many developing countries,
however, does carry substantial risk. Like companies, countries can default on payments.
2) Municipal Bonds
Municipal bonds, known as "munis", are the next progression in terms of risk. Cities don't go
bankrupt that often, but it can happen. The major advantage to Municipal Bond is that the
returns are free from federal tax. Furthermore, local governments will sometimes make their
debt non-taxable for residents, thus making some municipal bonds completely tax free.
Because of these tax savings, the yield on Municipal Bond is usually lower than that of a
taxable bond. Depending on your personal situation Municipal Bond can be a great
investment on an after-tax basis.
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3) Corporate Bonds
A company can issue bonds just as it can issue stock. Large corporations have a lot of
flexibility as to how much debt they can issue: the limit is whatever the market will bear.
Generally, a short-term corporate bond is less than five years; intermediate is five to 12 years,
and long term is over 12 years.
Corporate bonds are characterized by higher yields because there is a higher risk of a
company defaulting than a government. The upside is that they can also be the most
rewarding fixed-income investments because of the risk the investor must take on. The
company's credit quality is very important: the higher the quality, the lower the interest rate
the investor receives. Other variations on corporate bonds include convertible bonds, which
the holder can convert into stock, and callable bonds, which allow the company to redeem an
issue prior to maturity.

4) Zero-Coupon Bonds
This is a type of bond that makes no coupon payments but instead is issued at a considerable
discount to par value. For example, let's say a zero-coupon bond with a $1,000 par value and
10 years to maturity is trading at $600; you'd be paying $600 today for a bond that will be
worth $1,000 in 10 years.
Zero Coupon Bonds are issued at a discount to their face value and at the time of maturity,
the principal/face value is repaid to the holders. No interest (coupon) is paid to the holders
and hence, there are no cash inflows in zero coupon bonds. The difference between issue
price (discounted price) and redeemable price (face value) itself acts as interest to holders.
The issue price of Zero Coupon Bonds is inversely related to their maturity period, i.e. longer
the maturity period lesser would be the issue price and vice-versa. These types of bonds are
also known as Deep Discount Bonds.
5) Floating Rate Bonds
In some bonds, fixed coupon rate to be provided to the holders is not specified. Instead, the
coupon rate keeps fluctuating from time to time, with reference to a benchmark rate. Such
types of bonds are referred to as Floating Rate Bonds.
6) Convertible Bonds
The holder of a convertible bond has the option to convert the bond into equity (in the same
value as of the bond) of the issuing firm (borrowing firm) on pre-specified terms. This results
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in an automatic redemption of the bond before the maturity date. The conversion ratio
(number of equity of shares in lieu of a convertible bond) and the conversion price
(determined at the time of conversion) are pre-specified at the time of bonds issue.
Convertible bonds may be fully or partly convertible. For the part of the convertible bond
which is redeemed, the investor receives equity shares and the non-converted part remains as
a bond.
RISK OF INVESTING IN BONDS
Interest rate risk: The bond trading prices are inversely related to the interest rates. When
interest rates rise, bond prices decline. If you need to sell you bond in a high interest rate
environment, you may get less than you paid for it. The risk from fluctuations in interest rate
declines the closer the instrument is to maturity.

Credit risk: If the issuer faces a financial crunch or bankruptcy, it may default on payments
towards the instrument.
Liquidity risk: If the coupon rate is lower than prevailing interest rates in the market, then an
investor may find it difficult to sell the instrument before maturity. Debt instruments are
generally more liquid during the initial period after they are issued.

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Call risk or reinvestment risk: For a bond with a call option, the issuer may redeem the
instrument prior to maturity as per the predetermined dates and prices for such a trade. Issuers
normally redeem such bonds when the interest rates are falling, and as a result investors have
to reinvest their funds at a lower rate

BOND PRICING

2. Maturity

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D. Debenture

A Debenture is a debt security issued by a company (called the Issuer), which offers to pay
interest in lieu of the money borrowed for a certain period. In essence it represents a loan
taken by the issuer who pays an agreed rate of interest during the lifetime of the instrument
and repays the principal normally, unless otherwise agreed, on maturity.
These are long-term debt instruments issued by private sector companies. These are issued in
denominations as low as Rs 1000 and have maturities ranging between one and ten years.
Long maturity debentures are rarely issued, as investors are not comfortable with such
maturities. Debentures enable investors to reap the dual benefits of adequate security and

20

good returns. Unlike other fixed income instruments such as Fixed Deposits, Bank Deposits
they can be transferred from one party to another by using transfer from
Debentures can be of following types:
Redeemable and Irredeemable Debentures
Redeemable debentures are those which can be redeemed or paid back at the end of a
specified period mentioned on the debentures or within a specified period at the
option of the company by giving notice to the debenture holders or by instalments as
per terms of issue.
Irredeemable debentures are those which are repayable at any time by the company
during its existence. No date of redemption is specified. The debenture holders cannot
claim their redemption. However, they are due for redemption if the company fails to
pay interest on such debentures or on winding up of the company. They are also called
perpetual debentures.
Secured and Unsecured Debentures
Secured or mortgaged debentures carry either a fixed charge on the particular asset of
the company or floating charge on all the assets of the company.
Unsecured debentures, on the other hand, have no such charge on the assets of the
company. They are also known as simple or naked debentures.

Registered and Bearer Debentures


Registered debentures are registered with the company. Name, address and particulars
of holdings of every debenture holders are recorded on the debenture certificate and in
the books of the company. Bearers debentures on the other hand, are transferred by
more delivery without any notice to the company. Company keeps no record for such
debentures. Debentures-coupons are attached with the debentures-certificate and
interest can be claimed by the coupon-holder.

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Convertible and Non-convertible Debentures


Convertible debentures are those which can be converted by the holders of such
debentures into equity shares or preference shares, cannot be converted into shares.
Now, a company can also issue partially convertible debentures under which only a
part of the debenture amount can be converted into equity shares.

1.4 Benefits of Investing in a Debt Market

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Safety:
The Zero Default Risk is the greatest attraction for investments in Government
Securities. It enjoys the greatest amount of security possible, as the Government of
India issues it. Hence they are also known as Gilt-Edged Securities or 'Gilts'.

Fixed Income:
During the term of the security there is likely to be fluctuations in the Government
Security prices and thus there exists a price risk associated with investment in
Government Security. However, the return on the holding of investment is fixed if the
security is held till maturity and the effective yield at the time of purchase is known
and certain. In other words the investment becomes a fixed income investment if the
buyer holds the security till maturity.

Convenience:
Government Securities do not attract deduction of tax at source (TDS) and hence the
investor having a non-taxable gross income need not file a return only to obtain a
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TDS refund.

Simplicity:
To buy and sell Government Securities all an individual has to do is call his / her
Broker and place an order. If an individual does not trade in the Equity markets, he /
she has to open a demat account and then can commence trading through any broker.

Liquidity:
Government Security when actively traded on exchanges will be highly liquid, since a
national trading platform is available to the investors.

Diversification:
Government Securities are available with a tenor of a few months up to 30 years. An
investor then has a wide time horizon, thus providing greater diversification
opportunities.

Tax rules have changed :


In this year's Budget, the tax rules for Debt funds were changed. The minimum tenure
for long-term capital gains was extended from one to three years. This means that
investors will have to remain invested for at least three years if they want the benefit
of lower tax on long-term capital gains. If redeemed within three years, the gains will
be added to the person's income and taxed as per the applicable income tax slab.
However, if the investor can hold for more than three years, a debt fund will be far
more tax-efficient than a fixed deposit.
In a fixed deposit, the entire interest earned is taxed at the rate applicable to the
investor. The long-term capital gains from debt funds are taxed at 20% after
indexation.
Indexation takes into account inflation during the period that the investment is held
by investor and accordingly adjusts the buying price. This can lower the capital gains
tax significantly
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No tax deduction at source

Another tax-friendly feature of debt funds is that there is no tax deduction at source (TDS) on
the gains. In fixed deposits, if your interest income exceeds Rs 10,000 a year, the bank will
deduct 10.3% from this income. If you are not liable to pay tax, you will have to submit
either Form 15H or 15G to escape TDS. The other problem is that the income from fixed
deposits is taxed on an annual basis.
You will get the money once the deposit matures, but the income is taxed every year. In debt
funds, the tax is deferred indefinitely till the investor redeems his units. What's more, the
gains from a debt fund can be set off against short-term and long-term capital losses you may
have suffered in other investments.

CHAPTER 1(B). COMPANY PROFILE

Company Name : MONETONIC FINANCIAL SERVICES PVT.LTD.

25

A HEALTHY WAY TO FAMILY WEALTH

Monetonic Financial Services Pvt. Ltd. is an investment consulting firm established with an
objective of helping investors reach their destination of goals and aspirations by leveraging
on financial acumen.
They have experts in varied area of finance with experience of over 20 years and they strive
to help investors achieve their dreams by inculcating disciplined investing to achieve multi
fold growth. They have acquired the goodwill of a ever-growing number of investors. A
company asset allocation recommendation is based only on what company believe suits the
customer and is in their best interest.
Objective of MONETONIC
Company provide truly unbiased investment advice.

Company provide paths to achieve investors multiple life goals and provide
personalized asset allocation created by companies financial experts

Company cover the entire gamut of financial asset and liability classes from
investment, insurance to loans.

There corporate culture is on building lifelong relationships and barometer of success


is achievements of investors goals.

26

Vision
Monetonic's vision is to be acknowledged as a leading finance firm that is a 'One Stop For
All' solution provider that caters all the financial needs of individuals and corporates.
Mission
Monetonic strives to keep the financial health of all its customers in top shape and thriving.
Management

Anil Mhatre- Managing Director

Anil's strength lies in sales and marketing and is primarily responsible for the sound
relationships we share with associates. He is the driving force behind our sales team
dynamism and drive to excel.

Suhas Rajderkar CEO


Mr. Suhas Rajderkar as a CEO, is responsible for overall smooth functioning of all segments
in Monetonic. He is MBA, LLB and has over 30 Years of experience in Capital Markets
particularly Mutual Fund Industry. He brings to us his strong Managerial capacities gained in
previous companies like UTI AMC, UTI Securities, Sahara India Financial Corporation Ltd.
and SBI Mutual Fund. HNI and Corporate investment divisions thrive under his active
guidance.

27

CHAPTER 2. MARKET STRUCTURE


2.1 REGULATORS
The Securities Contracts Regulation Act (SCRA) defines the regulatory role of various
regulators in the securities market. Accordingly, with its powers to regulate the money and
Government securities market, the RBI regulates the money market segment of the debt
products (CPs, CDs) and the Government securities market.
The non Government bond market is regulated by the SEBI. The SEBI also regulates the
stock exchanges and hence the regulatory overlap in regulating transactions in Government
securities on stock exchanges have to be dealt with by both the regulators (RBI and SEBI)
through mutual cooperation. In any case, High Level Co-ordination Committee on Financial
and Capital Markets (HLCCFCM), constituted in 1999 with the Governor of the RBI as
Chairman, and the Chiefs of the securities market and insurance regulators, and the Secretary
of the Finance Ministry as the members, is addressing regulatory gaps and overlaps.

There is no single location or exchange where debt market participants interact for common
business. Participants talk to each other, conclude deals, send confirmations etc. on the
telephone, with clerical staff doing the running around for settling trades. In that sense, the
wholesale debt market is a virtual market.
In order to understand the entirety of the debt market we have looked at it through a
framework based on its main elements. The market is best understood by understanding these
elements and their mutual interaction. These elements are as follows:

Instruments - the instruments that are being traded in the debt market.
Issuers - entity which issue these instruments
28

Investors - entities which invest in these instruments or trade in these instruments

2.2 DEBT RATING SYSTEM OF CRISIL(CREDIT RATING INFORMATION


SERVICE OF INDIA LIMITED)
CRISIL Ratings is India's leading rating agency. It refers to the concept of credit rating in
India in 1987. With a tradition of independence, analytical and innovation.
CRISIL Ratings are a full-service rating agency. CRISIL rate the entire range of debt
instruments: bank loans, certificates of deposit, commercial paper, non-convertible

29

debentures, bank hybrid capital instruments, asset-backed securities, mortgage-backed


securities, perpetual bonds, and partial guarantees.
CRISIL sets the standards in every aspect of the credit rating business.
CRISIL Ratings serves lenders, investors, issuers, market intermediaries and regulators by
improving information availability and providing benchmarks. CRISIL rate most of India's
largest companies and several of the smallest. CRISIL's ratings assist issuers and borrowers
in enhancing their access to funding, widening the range of funding alternatives, and
optimizing the cost of funds. Investors and lenders use our ratings to supplement their
internal evaluation process and to benchmark credit quality across investment option.
For the markets at large, CRISIL ratings act as a market benchmark for pricing and trading of
debt instruments.
Rating scale for Long-Term Instruments
CRISIL AAA
(Highest Safety)

CRISIL BB
(Moderate Risk)
CRISIL B
(High Risk)
CRISIL C
(Very High Risk)

Instruments with this rating are considered to have the highest degree
of safety regarding timely servicing of financial obligations. Such
instruments carry lowest credit risk.
Instruments with this rating are considered to have high degree of
safety regarding timely servicing of financial obligations. Such
instruments carry very low credit risk.
Instruments with this rating are considered to have adequate degree
of safety regarding timely servicing of financial obligations. Such
instruments carry low credit risk.
Instruments with this rating are considered to have moderate degree
of safety regarding timely servicing of financial obligations. Such
instruments carry moderate credit risk.
Instruments with this rating are considered to have moderate risk of
default regarding timely servicing of financial obligations.
Instruments with this rating are considered to have high risk of
default regarding timely servicing of financial obligations.
Instruments with this rating are considered to have very high risk of
default regarding timely servicing of financial obligations.

CRISIL D
Default

Instruments with this rating are in default or are expected to be in


default soon.

CRISIL AA
(High Safety)
CRISIL A
(Adequate Safety)
CRISIL BBB
(Moderate Safety)

30

Rating Scale for Short-Term Instruments


CRISIL A1
CRISIL A2
CRISIL A3
CRISIL A4
CRISIL D
Rating Scale For Fixed Deposits
FAAA
("F Triple A")
Highest Safety
FAA
("F Double A")
High Safety
FA
Adequate Safety
FB
Inadequate Safety

FC
High Risk

FD
Default
NM
Not Meaningful

This rating indicates that the degree of safety regarding timely


payment of interest and principal is very strong.
This rating indicates that the degree of safety regarding timely
payment of interest and principal is strong. However, the relative
degree of safety is not as high as for fixed deposits with 'FAAA'
ratings.
This rating indicates that the degree of safety regarding timely
payment of interest and principal is satisfactory. Changes in
circumstances can affect such issues more than those in the higher
rated categories.
This rating indicates inadequate safety of timely payment of interest
and principal. Such issues are less susceptible to default than fixed
deposits rated below this category, but the uncertainties that the issuer
faces could lead to inadequate capacity to make timely interest and
principal payments.
This rating indicates that the degree of safety regarding timely
payment of interest and principal is doubtful. Such issues have
factors present that make them vulnerable to default; adverse
business or economic conditions would lead to lack of ability or
willingness to pay interest or principal.
This rating indicates that the fixed deposits are either in default or are
expected to be in default upon maturity.
Instruments rated 'NM' have factors present in them, which render the
outstanding rating meaningless. These include reorganization or
liquidation of the issuer, and the obligation being under dispute in a
court of law or before a statutory authority.

2.3 PARTICIPANTS
Debt markets are pre-dominantly wholesale markets, with dominant institutional investor
participation. The investors in the debt markets concentrate in banks, financial institutions,
mutual funds, provident funds, insurance companies and corporate. Many of these
31

participants are also issuers of debt instruments. The smaller number of large players has
resulted in the debt markets being fairly concentrated, and evolving into a wholesale
negotiated dealings market. Most debt issues are privately placed or auctioned to the
participants. Secondary market dealings are mostly done on telephone, through negotiations.
In some segments such as the government securities market, market makers in the form of
primary dealers have emerged, who enable a broader holding of treasury securities. Debt
funds of the mutual fund industry, comprising of liquid funds, bond funds and gilt funds,
represent a recent mode of intermediation of retail investments into the debt markets, apart
from banks, insurance, provident funds and financial institutions, who have traditionally been
major intermediaries of retail funds into debt market products.
The market participants in the debt market are:
1. Central Governments, raising money through bond issuances, to fund budgetary deficits
and other short and long term funding requirements.
2. Reserve Bank of India, as investment banker to the government, raises funds for the
government through bond and t-bill issues, and also participates in the market through openmarket operations, in the course of conduct of monetary policy. The RBI regulates the bank
rates and repo rates and uses these rates as tools of its monetary policy. Changes in These
benchmark rates directly impact debt markets and all participants in the market.
3. Primary dealers, who are market intermediaries appointed by the Reserve Bank of India
who underwrite and make market in government securities, and have access to the call
markets and repo markets for funds.
4. State Governments, municipalities and local bodies, which issue securities in the debt
markets to fund their developmental projects, as well as to finance their budgetary deficits.
5. Public sector units are large issuers of debt securities, for raising funds to meet the long
term and working capital needs. These corporations are also investors in bonds issued in the
debt markets.
6. Corporate treasuries issue short and long term paper to meet the financial requirements of
the corporate sector. They are also investors in debt securities issued in the market.
32

7. Public sector financial institutions regularly access debt markets with bonds for funding
their financing requirements and working capital needs. They also invest in bonds issued by
other entities in the debt markets.
8. Banks are the largest investors in the debt markets, particularly the Treasury bond and bill
markets. They have a statutory requirement to hold a certain percentage of their deposits
(currently the mandatory requirement is 25% of deposits) in approved securities (all
government bonds qualify) to satisfy the statutory liquidity requirements. Banks are very
large participants in the call money and overnight markets. They are arrangers of commercial
paper issues of corporate. They are also active in the inter-bank term markets and repo
markets for their short term funding requirements. Banks also issue CDs and bonds in the
debt markets.
9. Mutual funds have emerged as another important player in the debt markets, owing
primarily to the growing number of bond funds that have mobilized significant amounts from
the investors. Most mutual funds also have specialized bond funds such as gilt funds and
liquid funds. Mutual funds are not permitted to borrow funds, except for very short-term
liquidity requirements. Therefore, they participate in the debt markets pre-dominantly as
investors, and trade on their portfolios quite regularly.
10. Foreign Institutional Investors are permitted to invest in Dated Government Securities
and Treasury Bills within certain specified limits.
11. Provident funds are large investors in the bond markets, as the prudential regulations
governing the deployment of the funds they mobilize, mandate investments pre-dominantly in
treasury and PSU bonds. They are, however, not very active traders in their portfolio, as they
are not permitted to sell their holdings, unless they have a funding requirement that cannot be
met through regular accruals and contributions.
12. Charitable Institutions, Trusts and Societies are also large investors in the debt markets.
They are, however, governed by their rules and byelaws with respect to the kind of bonds
they can buy and the manner in which they can trade on their debt portfolios.
The matrix of issuers, investors, instruments in the debt market and their maturities are
presented in Following Table.

33

2.4 Taxation under debt funds/ bonds/ debentures


Computation with examples

34

With debt funds, bonds and debentures getting popular among the investors , and investors
starting to shift from fixed deposits to debt funds , tax on debt funds/ bonds and debentures is
something that needs to be understood before making investments in a debt fund.
COMPUTATION OF TAX ON DEBT FUNDS
TAX on bonds/ debentures/ debt funds is computed in a different manner for short term and
long term investment. The investment in debt fund is classified as short term / long term on
the following basis:
Debt fund held for less than 3 years: short term investment
Debt fund held for more than 3 years: long term investment
In case of short term investments, tax on debt funds would be levied at the time of sale as per
the income tax slab rates in force.
In case of long term investments, as per section 112 the tax would be levied @20% of profit
earned at the time of sale.
The duration for which these funds were required to be held to be classified as long term was
earlier 1 year but this has been increased to 3 years in budget 2014. Earlier the rate of tax on
long term gains was also 10% which has now been increased to 20%.
It is important to note here that no STT(securities transaction tax) is paid on the sale of debt
funds/ bonds/ debentures where as STT is paid on the sale of mutual funds. And therefore, no
tax is levied on the sale of mutual funds in case of period of holding is long term whereas tax
on sale of debt funds is liable to be paid.
Tax on interest on debt funds: interest received on debt funds is tax free in the hands of the
investors.

35

Example showing computation of tax on debt funds/ bonds/ debentures:


1000 units purchased @ Rs. 12 = Rs. 12000
1000 units sold @ Rs. 18 = Rs. 18000
Profit on sale = 18000-12000 = 6000
Now if this investment was short term, tax would be levied as per the existing income tax
slab rates.
However, if this income was long term , tax would be levied either at flat 20% which would
be 20% of 6000 = rs.1200
Or in case the investor wants to make use of the cost inflation index, he shall use the
following formula for the computation of profit:
Profit=sale price- indexed cost of acquisition
Indexed cost of acquisition = purchase price *

cost inflation index of the year

Cost inflation index of the year of purchase


Tax on bond/ debt fund/ debenture in this case would be 20% of the profit amount as
computed using the above formula.

36

2.5 Why debt funds work better than FDs


If you are worrying about falling interest rates leaving you with no fixed income options, you
are right if your only fixed income option is bank Fixed Deposits (FDs). But that falling
interest rates can actually be a great opportunity in the debt market.
You may have often heard analysts say that there is an inverse correlation between bond
prices and interest rates movement. Yes, that is where the opportunity lies. But first let us see
what this relationship is all about.

Let us assume that you had invested Rs. 100 in a 5-year bank Fixed Deposit at the interest
rate of 10 per cent (annual interest payout) a year ago. You have received Rs. 10 as the first
years interest payment. If the interest rate in the country fell by 1 per cent now, you will earn
1 per cent more than the market for the next four years. Now, your friend too wishes to get a
10 per cent interest, or Rs. 10 interest income on an FD; however, she cannot do that as the
current rates are 9 per cent. But if she is willing to pay a price to generate a regular 10 per
cent income for herself, she might want to buy it from you to secure her annual income.
Bank FDs cannot be transferred by you. But just for the sake of this example, let us assume
that it is transferable. If your friend is keen to generate Rs. 10 as income today, she will have
to invest at least Rs. 103 to generate Rs. 10 every year. Now that is the value of your Rs. 100
deposit today.
But if the deposit market is not very liquid, and not easily available in the market for sale,
then Rs. 103 could be trading at an even slightly higher price as a result of demand. That
means, if you sell it today, you get a capital gain (Rs. 3), over and above the Rs. 10 interest.

37

Bank FDs are not tradable in real life situations; hence, you cant gain from it by selling it
before the maturity. However, government bonds, Public Sector Unit (PSU) bonds, corporate
bonds, and bank certificates of deposits are tradable instruments. As a retail investor, you
cant buy them in small quantities. You need to open an account with a primary dealer to buy
and sell these bonds in large quantities. Besides, would you know when is the right time to
buy or sell them? Also for every such sale after buying, you would have a tax impact,
especially if you actively churn your portfolio.
As highlighted in the below chart, risk increases with the tenure of investment instruments.
When there is a fall in the markets interest rates, fixed income instruments with the longest
tenure will gain more compared to the shortest tenure instruments. Hence, funds such as
dynamic bond funds, long term income funds, and gilt funds are best placed to gain from the
falling interest rate scenario as when rates fall, the price of their underlying instruments rise.

In terms of taxation, debt funds score better than Bank FDs. If you hold your investments for
more than three years, you just need to pay only 20 per cent capital gains tax (with indexation
benefits). Since you take indexation benefits (that means adjusting the cost of your
investment for inflation), your real tax outgo will be far lower than the 20 per cent. Be it in
terms of liquidity, superior returns or tax benefits, debt mutual funds score over passive bank
deposits. Diversify your traditional debt holding with these schemes, based on your time
frame of investment to take advantage of them.
38

2.6 DEBT LIQUID FUND


Liquid fund is a category of mutual fund which invests primarily in money market
instruments like certificate of deposits, treasury bills, commercial papers and term deposits.
Lower maturity period of these underlying assets helps a fund manager in meeting the
redemption demand from investors.
Benefits of Debt liquid funds
These Debt liquid funds have no lock-in period.
Withdrawals from liquid funds are processed within 24 hours on business days. The cut-off
time on withdrawal is generally 2 p.m. on business days. It means if you place a redemption
request by 2 p.m. on a business day, then the funds will be credited to your bank account on
the next business day by 10 a.m.
Liquid funds have the lowest interest rate risk among debt funds as they primarily invest in
fixed income securities with short maturity.
Liquid funds have no entry load and exit loads.
Returns from Debt liquid funds
Liquid funds are among the best investment options for the short term during a high inflation
environment. During high inflationary period, the Reserve Bank typically keeps interest rates
high and tightens liquidity, helping liquid funds to earn good returns.
How to choose a Debt liquid fund
The returns from liquid funds don't vary much as they invest in similar underlying securities.
However, when looking for a liquid fund, the past return should not be the only factor for
consideration. Other factors like size of the fund, credit quality of underlying securities and
track record of the fund house should also be kept in mind.

39

Different plans
Debt Liquid funds come with different plans like growth plans, daily dividend plan, weekly
dividend plans and monthly dividend plans. Growth plans don't declare any dividend, and
appreciation of fund is reflected in higher unit value.
Investors can choose their plan as per their convenience and liquidity needs. Retail investors
can also invest in direct plans as they have a lower expense ratio which helps in getting a
higher return.
Taxation
Dividends received under liquid plans are not taxed at the hands of resident individual
investors but fund houses pay dividend distribution tax @28.325 per cent (including
surcharge and cess).
Individual investors who books gains before a year on their investment in liquid funds are
taxed at the same rate as per their income slabs. Interest earned from savings accounts are
also taxed at this same rate.
If investors redeem liquid fund units after a year, they have to pay a long-term capital gains
tax of 11.33 per cent (including cess and surcharge) or 22.66 per cent with indexation benefit,
whichever is lower. This helps in reducing tax outgo for those in higher income tax slabs.
Earnings from savings accounts or banks fixed deposits are clubbed to one's income and are
taxed at respective slabs.

40

CHAPTER 3. RESEARCH METHODOLOGY

A). PRIMARY DATA


For Studying the Preference of Debt Fund, Primary Data has been Collected with the help of
Questionnaire. Information has been gathered from investors visiting the local registrars and
AMC branches of Debt fund. The sample is a Convenience sample and Constitutes 20
respondents. People from Different groups are included in the sample and categorized into
male and female, different age group, different occupation viz, public sector and private
sector, businessmen, Self employed, Students and other professionals with different income
levels. The questionnaire is aimed to understand the investors preference of Debt Fund and
its relationship with the socio-economic profile of the respondents.
B). Secondary Data
The Study has included scheme wise performance appraisal of various debt fund. Data
pertaining to the performance of the fund were drawn from secondary sources through data
published by moneycontrol.com, valueresearch.com, BSE.com, Journal and website of other
debt fund .

3.2 LIMITATION
Some of the persons were not so responsive.
Possibility of error in data collection because many of investors may have not given
actual answers of my questionnaire
Sample size is limited to visitors

41

Some respondents were reluctant to divulge personal information which can affect the
validity of all responses.

The total number of debt financial instruments in the market is so large that it needs a
lot of time and resources to analyze them all.

As the analysis is based on primary and secondary data , possibility of unauthorized


information can not be avoidable

3.3

LITERATURE REVIEW

Liquidity and debt capacity


In the times that a firm experiences financial distress liquidation costs are realized, which
depend on the debt levels within a firm and the characteristics of the assets held (Alderson
and Betker, 1995). Having a significant amount of debt within a firm can give certain
benefits, such as increasing the shareholders return on their investments, but also bring risks,
such as not being able to repay debt which could lead to liquidation. Researchers who have
made comparisons between these benefits and costs were able to make a connection between
an assets characteristics and the capital structure of a firm (Myers, 1997; Williamson, 1988;
Harris and Raviv, 1990; and Shleifer and Vishny, 1992). With the models formed, they have
concluded that when assets are firm-specific or are traded in illiquid markets, that the amount
of leverage within a firm is low, thus illiquid assets discourage high leverage.

Negative effects of asset liquidity on debt capacity


Morellec (2001) and Myers and Rajan (1998) state that asset liquidity will not increase the
leverage level in a firm for several reasons. First, Morellec (2001) argues that there will only
be a positive relation between asset liquidity and leverage when assets are tied to debt
contracts to function as collateral, which prevents managers from selling these assets without
permission. When asset have higher liquidation values and low liquidation costs managers are

42

more likely to sell these assets, and consequently reduce the value of assets within the firm,
which is disadvantageous for debt holders.
Therefore, Venkiteshwaren (2010), Alderson and Betker (1995) and Sibilkov (2007) have
incorporated a difference between secured and unsecured debt in their research. Second,
assets with high liquidity have relatively low cost when being sold; as result, when mangers
have the power to liquidate the assets, investors will order management to liquidate the firm,
since this has a higher value. Consequently, this brings conflict between managers and
outside investors. By limiting a managers authority to liquidate assets this transformation
risk is eliminated.
Accordingly, Myers and Rajan (1998) conclude that there will be a curvilinear relation
between leverage and asset liquidity when managers have the power to transform assets.
Third, in some cases managers prefer to hold a lower level of debt, due to the agency
problems, risk aversion, and high performance level pressures that are associated with
holding a high amount of debt within a firm ( Berger, Ofek, and Yermack, 1997). This results
in a weak or insignificant relation between asset liquidity and leverage. Finally, when
adjusting the firms capital structure is associated with high costs and these costs are bigger
than the benefits of changing the capital structure, firms become reluctant to adjust their debt.

3.4 (A) DATA ANALYSES & INTERPRETATION


1) Age distribution of the Investors

Age Group
No. of Investors

Less then 30
5

31- 35
3

36 40
2

43

Age Group of Investors


6

4
Series 1

0
Less then 30

31- 35

36- 40

Interpretation :
According to this chart out of 10 Debt fund investors , 5 investors are in the age group of less
than 30, the second most investors are in the age group of 31-35 Yrs and least investors are in
the group of 36- 40.

2) Educational Qualification of investors


Education Qualification
Post Graduate
Graduate
Under Graduate
Total

No. of Investors
2
7
1
10

44

Education

Under Groduate; 10%


Post Graduate; 20%

Graduate; 70%

Interpretation
Out of 10 debt fund Investors 70% Investors are Graduate, 20% Investors are Post Graduate
and 10% Investors are Under Graduate

3) Occupation of the investors


Occupation
Student
Businessmen
Private Sector Employee
Public Sector Employee
Other

No. of Investors
1
9
-

45

Occupation
Student

Private Sector Employee

10%

90%

Interpretation:
In occupation group 90% Investors are in Private Sector Employee and 10% are student.

4) Income (per annually) of Investors


Income Group
Below 50000
50000 100000
100000- 300000
300000- 500000
500000 & Above

No. of Investors
2
1
5
1
-

46

Income Per Annually


6
5
4
3
No. of Investors

2
1
0

Interpretation:
In the above graphs it has to be seen that 10 out of 2 investors annual income is below 50000,
2 investor annual income is between 50000-100000 and 300000- 500000 , 5 Investors annual
income is between 100000-300000.

5) Preference of Investors whether to invest in Debt fund


Response
Yes
No

No. of Respondents
6
4

47

No. of investors invest in debt fund

Yes

40%

No
60%

Interpretation :
In the above chart it has to be seen that 10 out of 60% investors are invest in debt fund and
other 40% investors not invest in debt fund.

6) Preference of Investors whether to invest in Debt Fund


Response
Yes
No

No. of Respondents
6
4

48

Respondents
Yes

No

40%
60%

Interpretation :
In the above diagram it has to be seen that 10 out of 60% investors are invested in debt funds
and other 40% are not invested in debt funds

7) Preferred Categories by the Investors under debt fund


Categories
Fixed Deposits
Liquid Funds
NCD ( Non- Convertible Debenture)

No. of Investors
2
5
49

Bond
Government Security

Categories

Fixed Deposits; 29%

Liquid Fund; 71%

Interpretation :
In the above diagram it has to be seen that 10 out of 29% Investors are invested in fixed
Deposits and 71% investors are invested in Liquid Fund.

8) Reasons for not invested in debt fund


Reason
Not aware of debt fund
Higher Risk
Not any specific reason

No. of Respondents
2
2

50

Reason to not invested in debt fund


Not aware of debt fund

Not any specific reason

50%

50%

Interpretation :
Out of 4 people , who have not invested in debt fund , 50% are not aware about debt fund and
50% do not have any specific reason.

9) Factor to Prefer investors while investing a money


Factor
Liquidity
Low Risk
High Returns
Company Reputation

No. of Respondents
2
0
5
3

51

No. of Respondents

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

Factors

Factors to prefer invetors while investing money

Interpretation:
Factor to prefer most while investing money 10 out of 2 investors factor is Liquidity, 5
investors factor is High Returns and 3 investors factor is Company Reputation

10) Kind of Investor under Debt Fund


Kind
Risk Averse
Moderate Risk Taker
High Risk Taker

No. of Respondents
7
3

52

Kind of Investor
High Risk Taker

Moderate Risk Taker

Kind of Investor

Interpretation :
10 out of 7 investors are Moderate Risk Taker and 4 investors are High Risk Taker.

11) Tenure of investors investment


Tenure ( Period)
Less than 1 year
1 year 3 year
3 year 5 year
Above 5 year

No. Of Respondents
2
4
3
1

53

Tenure of investment

Above 5 year

3 year- 5 year

1 year- 3 year

Less than 1 year

0.5

1.5

2.5

3.5

Interpretation :
Tenure of investment 10 out of 2 investors tenure are less than 1 year, 3 investors tenure are
3year-5year , 1 investor tenure are above 5 year and other 4 investors tenure are 1 year 3
year.

12) Expected Returns of Investors


Returns
Less than 10%
10% - 15%
15% - 20%
Above 20%

No. of Respondents
2
6
2
-

54

15% - 20%

Returns

10% - 15%
Returns

Less than 10%

No. of Respondents

Interpretation :
In the graph 10 out of 2 investors expected returns are less than 10% , 6 investors expected
returns are between 10% - 15% and other 2 investors expected returns are between 15% 20%.

13) Preference of investor whether to satisfied with Present Investment Structure


Response
Yes
No
No Response

No. of Respondents
6
2
2

55

Present Investment Structure

Yes
No
No Response

Interpretation :
10 out of 6 investors are satisfied with Present Investment Structure , 2 investors are not
satisfied with Present Investment Structure and other 2 investors are not response for both.

14) Objective of Investment


Objective
Capital Appreciation
Tax Saving
Liquidity
Monthly Income

No. of Response
4
3
2

56

Objective
4.5
4
3.5
3
2.5
No. of Response

2
1.5
1
0.5
0

Capital Appreciation

Liquidity

Monthly Income

Interpretation:
10 out of 4 investors objective are Capital Appreciation, 3 investors objective are Liquidity
and 2 investors objective are monthly income.

3.4 (B) QUESTIONNAIRE


SUMMER INTERNSHIP PROJECT
Dear Sir/Madam,
I am Rupali N. Shevate pursuing Master of Management Studies in Sasmiras Institute of
Management Studies and Research. I am doing Summer internship project on DEBT
INVESTMENT OPTION FROM INVESTORS PERSPECTIVE. Therefore I have prepared

57

Questionnaire as follows. Soliciting your opinion on the following aspects. Your help is
highly needed.
1).Name:

2).Age:

3).Qualification
A)Post Graduate

B) Graduate

C) Under Graduate

D) Other

4).Occupation
A)Student

B)Businessmen

C)Private Sector Employee

D) Public Sector Employee

E) Other

5).How much your total income per annually ?


A)Below 50000

B)50000-100000

C)100000-300000

D)300000-500000

E)500000 and above

6). Do you Invest in Debt Fund ?


A)Yes

B) No

7). If Yes Under Which Category do you Invest ?


A)Fixed Deposit B) Liquid Funds

C) NCD ( Non-Convertible Debenture)

D) Bonds

E)Government Security

8). If not invested in Debt Fund then why ?


A)Not aware of debt fund

B) Higher Risk

C) Not any specific reason

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9). While Investing your Money which factor you prefer most?
A)Liquidity

B) Low Risk

C)High Returns

D)Company Reputation

10).What Kind of Investor are you?


A)Risk Averse

B) Moderate Risk

C) Taker High Risk Taker

11). Tenure of your investment?


A) Less than 1 year

B) 1year-3year

C) 3year-5year

D) More than 5year

12).What is your Expected Returns?


A) Less than 10%

B) 10% - 15%

C) 15%-20%

D) Above 20%

13).Are you Satisfied with your Present Investment Structure?


A) Yes

B) No

14). Objective of your Investment?


A) Capital Appreciation

B) Tax Saving

C) Liquidity

D) Monthly Income

3.5 CONCLUSION
Debt funds are preferred by individuals who are not willing to invest in a highly volatile
equity market. A debt fund provides a steady but low income relative to equity. It is
comparatively less volatile. A debt fund is an investment pool, such as a mutual fund or
exchange-traded fund, in which core holdings are fixed income investments. A debt fund may
invest in short-term or long-term bonds, securitized products, money market instruments or
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floating rate debt. The fee ratios on debt funds are lower, on average, than equity funds
because the overall management costs are lower.
Debt funds also tend to perform better in periods of economic slowdown. Analysts believe
that debt should be looked upon as an effective hedge against equity market volatility, which
lends stability in terms of value and income to a portfolio. Some hybrid debt schemes take
exposure in equities allowing investors participate in the stock markets as well.
Debt funds have a fairly wide range of schemes offering something for all types of
investors. Liquid fund, Liquid plus funds, Short term income funds, GILT funds, income
funds and hybrid funds are some of the more popular categories.
This project finds out the various instruments being issued by the government viz., Bonds,
Treasury Bills, Call Money Markets, Repo Markets etc., in order to finance its fiscal deficit.
It tries to analyze the basic issuance process of these instruments and the participants those
are involved in various transactions in the Wholesale Debt Market as per investors
perspective.

3.6 BIBLIOGRAPHY

News Papers

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Television Channel (CNBC etc.)


Company Hand Book (Monetonic Financial Service Pvt. Ltd.)

www.moneycontrol.com
www.valuerearch.com
www.google.com
www.bseindia.com
www.investopedia.com

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