Chapter I

INTRODUCTION

Savings form an important part of the economy of any nation. With the savings invested in various
options available to the people, the money acts as the driver for growth of the country. Indian financial
scene too presents a plethora of avenues to the investors. Though certainly not the best or deepest of
markets in the world, it has reasonable options for an ordinary man to invest his savings.

One needs to invest and earn return on their idle resources and generate a specified sum of money for a
specific goal in life and make a provision for an uncertain future. One 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 cost 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 service in the future as it does
now or did in the past. The sooner one starts investing the better. By investing early you allow your
investments more time to grow, whereby the concept of compounding increases your income, by
accumulating the principal and the interest or dividend earned on it, year after year.

The three golden rules for all investors are:

 Invest early
 Invest regularly
 Invest for long term and not for short term

Investors are the backbone of capital market. A developing economy, like India, needs a growing amount
of savings to flow to corporate enterprises. The level of equity market participation of the retail investors
has been increasing over the past few years. Investment is the flow of capital which is used for productive
purposes. There is a great emphasis on investment for being the primary instrument of economic growth
and development for a country. There are a large number of investment instruments available today.
Some of them are marketable and liquid while others are non-marketable and illiquid. There are
instruments which are highly risky while others are almost riskless.

The investors choose avenues, depending upon their specific need, risk appetite, and return expected.
Investment avenues can broadly be categorized into two spheres, namely, economic investment and
financial investment. Purchasing of a physical asset such as a building or equipment is an economic
investment. Economic investments contribute to the net additions to the capital stock of a society.
Financial investments, on the other hand, refer to investment in financial instruments like shares,
debentures, insurance policies, mutual fund units etc. Financial investments help in creating the capital
stock of the country.

In the long term, investment is important for improving productivity and increasing the competitiveness
of an economy. Without investment, an economy could enjoy high levels of consumption, but this creates
an unbalanced economy. The states having more commitments to investment are more progressive. In
India, few states have created a niche for economic development, the main reason being that they
attracted large investments. As investments have a ‘multiplier’ effect, they generate income and
employment and create demand and consumption. This study has been done to know the impact of
Demographic Factors, Awareness and Perceived Risk Attitude on Investment Attitude in stock market
and the study is made in the context of individual investors of different areas in Chennai.
 Need for the study

Stock market has been subjected to speculations and inefficiencies, which are beached to the
rationality of the investor. Traditional finance theory is based on the two assumptions. Firstly, investors’
make rational decisions; and secondly investors are unbiased in their predictions about future returns of
the stock. However financial economist have now realized that the long held assumptions of traditional
finance theory are wrong and found that investors can be irrational and make predictable errors about the
return on investment on their investments.

This analysis on Individual Investors’ attitude is an attempt to know the profile of the investor
and also know the characteristics of the investors so as to know their preference with respect to their
investments. The study also tries to unravel the influence of demographic factors like age on risk
tolerance level of the investor.

Indian economy is growing significantly. It has various investment options. The study has been
undertaken to analyze whether the investment avenues have gained importance among the people (or) not.
Against this back drop of the research, the researcher tries to find out the investment preference of the
respondent
 Scope of the study

 The study is confined to the factors considered by the investors while making their investment.
 Their level of awareness about the various aspects of investment avenues available in the study
area is considered.

Statement of problem

Investments are acknowledged as powerful tools in the alleviation of poverty. Investing even a small
amount can produce considerable rewards over the long-term. But we need to make the decision of how
much to invest and where to invest. To choose wisely, we need to know the investment options
thoroughly. But there will be confusion among the people for the selection of best investment avenues
and this is the major problem of the investors. While investing money, the investors are having a lack of
awareness of investment alternatives.

When they take investment decisions they have to pay more attention to safety, liquidity, returns, risks,
tax benefits and so on in addition to the investments option. The above factors will confuse the investors
while investing the money.

The investor should be careful in selecting the investment avenue. He should exercise his skill,
knowledge and experience in choosing the investment opportunity. In this context, the present study
becomes highly essential.
 Objective of study

“The main objective of the project is to find out the needs of the current and future investors.”

For this analysis, customer perception and awareness level will be measured in important areas such as:

Primary objectives:

 To find out the investor awareness about various investment avenues.

 To know the satisfaction level of investors regarding return of different investment avenues.

Secondary objectives:

 To find out how investors get information about the various financial instruments.
 To find the factors that investors consider before investing.
 To analysis the investor’s preference various investment avenues in terms of money, duration,
risk tolerance level and so on.
 To identify the Investment objective of an investor.
 Limitation of the study

This analysis is based upon investors’ attitude for investment preferences during normal time vis-
à-vis recessionary period. This analysis would be focusing on the information from the investors about
their knowledge, perception and attitude on different financial products.

The various limitations of the study are:

 The total number of financial instruments in the market is so large that it needs a lot of resources
to analyze them all. There are various companies providing these financial instruments to the
public. Handling and analyzing such a varied and diversified data needs a lot of time and
resources.
 As the analysis is based on primary as well as secondary data, possibility of unauthorized
information cannot be avoided.
 Reluctance of the people to provide complete information about them can affect the validity of
the responses.
 The lack of knowledge of customers about the financial instruments can be a major limitation.
 The information can be biased due to use of questionnaire.
 Chapter II

Background of the study

Industry profile
Indian financial industry is considered as one of the strongest financial sectors among the world markets.
Many industry experts may give various reasons for such Indian financial industry reputation, but there is
only one answer which no one can deny, is the effective control and governance of the country’s supreme
monetary authority the “RESERVE BANK OF INDIA” (RBI).

Financial sector in India has experienced a better environment to grow with the presence of
higher competition. The financial system in India is regulated by independent regulators in the field of
banking, insurance, and mortgage and capital market. Government of India plays a significant role in
controlling the financial market in India.

Ministry of Finance, Government of India controls the financial sector in India. Every year the
finance ministry presents the annual budget on 28th February. The Reserve Bank of India is an apex
institution in controlling banking system in the country. Its monetary policy acts as a major weapon in
India's financial market.

Various governing bodies in financial sector

RBI - Reserve Bank of India is the supreme authority and regulatory body for all the monetary
transactions in India. RBI is the regulatory body for various Banking and Non Banking financial
institutions in India. The Reserve Bank of India (RBI) is India’s central bank, also known as the banker’s
bank. The RBI controls monetary and other banking policies of the Indian government. The Reserve Bank
of India (RBI) was established on April 1, 1935, in accordance with the Reserve Bank of India Act, 1934.
The Reserve Bank is permanently situated in Mumbai since 1937.

The Reserve Bank is fully owned and operated by the Government of India.

The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as:

Establishment of Reserve Bank of India

 Regulating the issue of Banknotes

 Securing monetary stability in India
 Modernizing the monetary policy framework to meet economic challenges
The Reserve Bank’s operations are governed by a central board of directors; RBI is on the whole operated
with a 21-member central board of directors appointed by the Government of India in accordance with the
Reserve Bank of India Act.

The Central board of directors comprise of:

 Official Directors – The governor who is appointed/nominated for a period of four years along
with four Deputy Governors
 Non-Official Directors – Ten Directors from various fields and two government Official

SEBI - Securities and Exchange Board of India is one of the regulatory authorities for India's capital
market. The Securities and Exchange Board of India (SEBI), in its endeavor to protect the interests of
investors in general, has formulated the SEBI (Prohibition of Insider Trading) Regulations, 2015 under
the powers conferred on it under the SEBI Act, 1992. These regulations were notified on 15th January,
2015 and shall come into force with effect from 120th Day from the date of its notification i.e. w.e.f. from
15th May, 2015. These regulations shall be applicable to all companies whose shares were listed on
recognized stock exchanges in India. It is mandatory in terms of the Regulations for every listed company
to formulate a Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive
Information.

In order to comply with the mandatory requirement of the Regulations, it was necessary to formulate a
specific Code of Fair Disclosure for Goldstone Technologies Limited (hereinafter referred to as ‘the
Company’) for use by its Promoters, Directors, Officers, Employees, and Connected Persons. This
document embodies the Code of Practices and Procedures for Fair Disclosure of Unpublished Price
Sensitive Information to be adopted by the Company and followed by its Directors, Officers, Employees
and Connected Persons. The Code seeks to ensure timely, fair and adequate disclosure of price sensitive
information to the investor community by the Company to enable them to take informed investment
decisions with regard to the Company’s Securities.
IRDA – Insurance regulatory and development authority in India regulates all the insurance companies
in India. IRDA Act was passed by parliament in December’1999 and it received president approval in
January’2000. The main aim of the authority is “to protect the interest of holders of Insurance policies to
regulate, promote and ensure orderly growth of Insurance industry & for matters connected therewith or
incidental thereto.” Under this Act, Controller of Insurance under Insurance Act 1398 was replaced by
newly established authority called Insurance Regulatory and Development Authority (IRDA).

Features of Authority:

 The authority will consists of chairman, whole time members & part time members and they will
act as a group of members and will work jointly not individually like Controller of Insurance.
 In case if any member resign or die, the authority will still continue to work.
 A common seal with power to enter into a contract by affixing a stamp on the documents.
 Sue or be sued means the Authority can file a case against any person or organization and vice
versa.

Duties, Powers & Functions of Authority (Section 14):

Duties: – The duty of the authority is to control, promote and safeguard orderly growth of the insurance
industry and reinsurance business subject to the provisions of any other provisions of the act.

AMFI – Association of mutual funds in India regulates all the mutual fund companies in India.

Association of Mutual Funds in India (AMFI) is a trade body of Asset Management Companies (AMCs)
of all SEBI registered mutual funds in India.

• AMFI was established on August 22, 1995 as a non-profit organization formed under sec. 25 of the
Companies Act, 1956.

• AMFI is dedicated to developing the Indian Mutual Fund Industry on professional, healthy and ethical
lines and to enhance and maintain standards in all areas with a view to protecting and promoting the
interests of mutual funds and their unit holders
AMFI’s Objectives:

• To define and maintain high professional and ethical standards in all areas of operation of mutual fund
industry.

• To recommend and promote best business practices and code of conduct to be followed by members and
others engaged in the activities of mutual fund and asset management including agencies connected or
involved in the field of capital markets and financial services.

• To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all
matters concerning the mutual fund industry.

• To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the
Mutual Fund Industry.

• To develop a cadre of well trained Agent distributors and to implement a programme of training and
certification for all intermediaries and others engaged in the industry.

• To undertake nationwide investor awareness programme so as to promote proper understanding of the

concept and working of mutual funds.

• To disseminate information on Mutual Fund Industry and to undertake studies and research directly
and/or in association with other bodies.

• To take regulate conduct of distributors including disciplinary actions (cancellation of ARN) for
violations of Code of Conduct.

• To protect the interest of investors/unit holders.

FIPB – Foreign investments promotion board regulates all the foreign direct investments made in India. It
has been set up by the government of India in order to increase the flow of foreign direct investments into
the country. By doing this, Foreign Investment Promotion Board (FIPB) has been able to give a major
boost to the Indian economy.
 Setting up of Foreign Investment Promotion Board (FIPB):

The Indian government has set up Foreign Investment Promotion Board (FIPB). FIPB is the only agency
in the country that deals with foreign direct investments and investments into India.

The main objective of Foreign Investment Promotion Board (FIPB) is to encourage foreign direct
investment into the country by taking up activities that promote investment. The chairman of Foreign
Investment Promotion Board (FIPB) is the Secretary Industry of the Department of Industrial Promotion
and Policy, government of India.

Functions of Foreign Investment Promotion Board (FIPB)

 To quickly approve the foreign investment proposals.

 To review the foreign direct investment polices and to communicate with other agencies such as the
Administrative Ministries in order to set up guidelines that are transparent and which encourage FDI into
the various sectors of the country.
 To look over the implementation of the various proposals that has been approved by it.
 To take up such activities that encourages FDI into the country such as establishing contact with
international companies and also inviting them to invest in India.
 To communicate with government, non- government and Industry Bodies in order to increase the flow of
foreign direct investment into the country.
 To communicate with the Foreign Investment Promotion Council that has been set up in the Industry
Ministry.
 To identify the various sectors that requires foreign direct investment.
 To take up all other activities that help in increasing the flow of foreign direct investment into the
country.

Ministry of housing is planning to establish a real estate regulatory and governing body by the end of
financial year.

Ministry of Finance, Government of India has a control over all the financial bodies in India.

Government securities, Public Provident Fund (PPF), National Savings Certificate (NSC), and Post Office
Savings are all under the control of the central government.
Investment are normally categorized using the risk involved in it, risk is dependent on various factors like
the past performance, its governing body, involvement of the government etc., in this scenario Indian
investments are classified in to 4 categories based on risk. They are

 Low Risk/ No Risk Investments.

 Medium Risk Investments.
 High Risk Investments.
 Traditional investment avenues.

Product profile

Various Investment avenues available in India

Safe/Low Risk Avenues:

 Savings Account
 Bank Fixed Deposits.
 Public Provident fund.
 National savings certificates.
 Post office savings.
 Government Securities.

Moderate Risk Avenues:

 Mutual Funds.
 Life Insurance.
 Debentures.
 Bonds.

High Risk Avenues:

 Equity Share Market.

 Commodity Market.
 FOREX Market.

Traditional Avenues:

 Real Estate (property).

 Gold/Silver.
 Chit Funds.
DESCRIPTION ON VARIOUS INVESTMENT AVENUES

SAVINGS ACCOUNT

As the name denotes, this account is perfect for parking your temporary savings. These accounts

are one of the most popular deposits for individual accounts. These accounts provide cheque facility and a

lot of flexibility for deposits and withdrawal of funds from the account. Most of the banks have rules for

the maximum number of withdrawals in a period and the maximum amount of withdrawal, but no bank

enforces these. However, banks have every right to enforce such boundaries if it is felt that the account is

being misused as a current account. At present the interest on these accounts is regulated by Reserve

Bank of India. Presently Indian banks are offering 3.50% p.a. interest rate on such deposits.

This account gives the customer a nominal rate of interest and he can withdraw money as and

when the need arises. The position of account is depicted in a small book known as 'Pass Book'. Such

accounts should be treated as a temporary parking area because the rate of interest is much less than Fixed

Deposits. As soon as one’s savings accumulate to an amount which he can spare for a certain period of

time, shift this money to Fixed Deposit. The returns on the money kept in Savings Bank account will be

less but the freedom to withdraw is the highest.

FIXED DEPOSITS/ TERM DEPOSITS

The term "fixed" in Fixed Deposits denotes the period of maturity or tenor. Fixed Deposit, therefore, pre

plans a length of time for which the depositor decides to keep the money with the Bank and the rate of

interest payable to the depositor is decided by this tenure. Rate of interest differs from Bank to Bank.

Normally, the rate is highest for deposits for 3-5 years. This, however, does not mean that the depositor

loses all his rights over the money for the duration of the tenor decided. Deposits can be withdrawn before

the period is over. However, the amount of interest payable to the depositor, in such cases goes down.

Every Banks offer fixed deposits schemes with a wide range of tenures for periods from 7 days to

10 years. Therefore, the depositors are supposed to continue such Fixed Deposits for the duration of time

for which the depositor decides to keep the money with the bank. However, in case of need, the
 depositor can ask for closing the fixed deposit in advance by paying a penalty. Soon some banks

have even introduced variable interest fixed deposits. The rate of interest in such deposits will

keep on varying with the prevalent market rates i.e. it will go up if market interest rate goes and it will

come down if the market rates fall.

Tax deduction: Banks should deduct tax at source on interest paid in excess of Rs. 5000 per annum to

any depositor. This is not per deposit but per individual. Therefore if an individual has 5 deposits and the

aggregate interest earned on these is Rs. 7000 though in each individual deposit, interest should not

exceed Rs. 2000, tax must be deducted at source.

PUBLIC PROVIDENT FUND

Public Provident Fund (PPF) scheme is a popular long term investment option backed by Government of
India which offers safety with attractive interest rate and returns that are fully exempted from Tax
.Investors can invest minimum Rs. 500 to maximum Rs. 1,50,000 in one financial year and can get the
facilities such as loan, withdrawal and extension of account.

 Interest rates: Interest rates are announced by the central government periodically, usually annually.
Interest earned is compounded yearly. (The current rate of interest on a PPF account is fixed at 7.6%
p.a.)
 Tenure: 15 years; account continuance is allowed beyond maturity for 5 years at every renewal, with or
without making additional deposits.
 Initial investment/deposit: Rs.100 to open the account but a minimum amount of Rs.500 in a financial
year.
 Annual Deposit amount: Rs.500 - Rs.1.5 lakhs per year (can be revised as per government directive)
 Deposit frequency: A deposit has to be made every year, for 15 years, to keep the account active.
Failure to make the minimum annual investment will render the account inactive.
 Deposit modes: Via cash, cheque, PO, DD, online funds transfer; as a one-time deposit or up to 12
installments in a financial year.
 Withdrawals: Partial premature PPF withdrawals can be made every year from year 7; withdrawals are
subject to conditions. Complete withdrawal of funds can be made only at maturity.
 Tax advantages: Interests are tax-free and deposited amounts are eligible for tax exemption under
Section 80C of the Income Tax Act. Withdrawals are exempt from wealth tax.
 Nomination: Allowed; on opening the account or after.
 Fund transfer: Funds/accounts cannot be transferred between people but can be easily transferred
between bank branches or post offices for free.
 Loan facility: Loan facility can be availed against funds held in the PPF account from the third financial
year.
 Renewal: Renewal or extension of the scheme is allowed, for a period of 5 years at a time and can be
extended within 1 year of maturity.
 Joint accounts: Not allowed.

PPF Scheme Account Rules & Regulations

There are a number of rules and regulations governing the Public Provident Fund Scheme, 1968. These
pertain to eligibility and documentation requirements, opening, maintenance and operation of a PPF
account including loan facilities, withdrawals, closure and extension of accounts, among other things.
Key rules have been discussed in detail below.

Eligibility Criteria
Only one PPF account can be opened per person. Resident Indians, 18 years or older, can open a Public
Provident Fund Account. There is no upper age limit for opening this account.

Accounts can be opened for minors. Minors are those below the age of 18 years. However, the maximum
limit of Rs.1.5 lakhs per year applies to deposits made in the minor and the major’s/guardian’s account,
collectively. Grandparents cannot open an account in the names of their minor grandchildren.

Non-resident Indians (NRIs) cannot open a PPF account. However, account-holders who leave the
country and obtain non-resident status after having opened a PPF account can continue to maintain their
accounts until it matures i.e. until the end of the account’s 15 year term. NRIs are restricted from
extending account tenures at maturity.

HUFs cannot open a PPF account, effective 2005. Those accounts opened by HUFs before May 13, 2005
can be continued until maturity without further extensions. An individual cannot open an account for an
HUF (Hindu Undivided Family).

Foreigners cannot open a PPF account.

How to open a PPF Account?

PPF accounts can be opened either by visiting a post office or bank-branch or online via internet banking.
Operating accounts online is gaining increasing popularity among the masses owing to the convenience it
offers. An account can be opened for Rs.100 but the total deposit for the year should be a minimum of
Rs.500.

 At a post office or bank

 Accounts can be opened by visiting a post office or branch of a bank that has been authorized for this
purpose. The required forms can be obtained, filled in and submitted along with the required documents
(mentioned above). An initial deposit has to be made to open the account. Banks and post offices act as
agents for the government under whose purview the PPF scheme falls.

 Online
Accounts can also be opened online by visiting a bank’s official website or through third-party financial
services providers’ sites that provide such services. Opening accounts online with a bank is primarily
subject to the terms and conditions laid down by the bank. By opening an account online, users save
time, effort and travel costs. Many banks offer additional facilities such as linking savings accounts,
viewing online account statements and online fund transfers.

Traditionally, accounts were opened primarily through post offices but with online banking gaining
popularity, more investors are opting to open accounts with banks which try to woo customers with
value added services such as instant account balances and mobile updates.

Public Provident Fund is a 15-year scheme that is popular among those who wish to take advantage of the
tax-free returns and guaranteed interest earnings. As PPF falls under the debt-oriented asset class, there is
no exposure to risk based on the performance of equities on the stock market. As the tax filing season is
coming up, there are many who would like to open a PPF account. Did you know that anyone can open a
PPF account, even those who already have an EPF account? Let’s find out how to open a PPF account.

 Bank or post office: It can be opened in an authorized bank branch or a post office. A PPF account can
be transferred from a bank to a post office and vice versa.
 Investor/account holder: An individual can open a PPF account for oneself or on the behalf of a minor
as the legal guardian.
 Deposit limit: The minimum amount one can deposit in order to keep the account active is Rs.500 and
the maximum deposit limit in a year is Rs.1.5 lakh. A maximum of 12 deposits can be made in a year.
The deposits have to be made before the 5th of every month in order to obtain interest for the whole of
the month.
 Tax savings: The combined maximum limit of self and minor accounts is Rs.1.5 lakh per year. If the
deposit exceeds the set limit then the excess sum will not be eligible for tax deduction or interest
earnings. The excess sum of money will be refunded to the investor without interest.

 Account limit: The maximum number of PPF accounts allowed per person is one. An individual cannot
open a PPF account in the post office and another in the bank. If a person holds 2 PPF accounts, then he
or she can combine it to make one account or else the extra account will not carry any interest. To
 combine two PPF accounts under one name, the investor has to get the approval of the Department of
Economic Affairs under the Ministry of Finance.

 Interest: The interest is calculated on the lowest available balance in the account at the end of the 5th
day of the month and the end of the month. The interest rate on PPF is fixed by the government
depending on the return of the government securities. It is advisable to deposit a lump-sum amount at
the start of a financial year.

 Premature closure: A PPF account can be closed prematurely after the completion of 5 financial years.
The premature closure is subject to certain conditions like the financial need of the investor or his
dependents as a result of a serious ailment. The investor/account holder has to furnish documents to
support the diagnosis and treatment of the serious ailment. The same applies if the account holder wants
to withdraw the proceeds and close his/her account prematurely for the purpose of higher education.

 PPF tenure and extension: This 15-year scheme can be extended for however long one wants but only
in 5-year blocks.

 Loans and partial withdrawals: Investors can also use their PPF accounts to get loans or make partial
withdrawals.

 Nomination: The investor, at the time of opening a PPF account can nominate a dependent by filling
out Form-E along with Form-A which is the PPF application form.

 Court attachment: The court cannot order a person's PPF account to be used to claim outstanding dues
by the debtors. However, income tax authorities can order such an attachment.

NATIONAL SAVINGS CERTIFICATE (NSC)

National Savings Certificate (NSC) is a fixed interest, long term instrument for investment. NSCs
are issued by the Department of Post, Government of India. Since they are backed by the Government of
India, NSCs are a practically risk free avenue of investment. They can be bought from authorized post
offices. NSCs have a maturity of 6 years. They offer a rate of return of 8% per annum. This interest is
calculated every six months, and is merged with the principal. That is, the interest is reinvested, and is
paid along with the principal at the time of maturity. For every Rs. 100 invested, you receive Rs. 160.10
at maturity.

NSCs qualify for investment under Section 80C of the Income Tax Act (IT Act). Even the interest
earned every year qualifies under Sec 80C. This means that investments in NSCs and the interest earned
on it every year, up to Rs. 1 Lakh, are deductible from the income of the investor. There is no tax
deducted at source (TDS).

Features of NSC

• Minimum investment Rs. 500/- No maximum limit.

• Rate of interest 8% compounded half yearly.

• Rs. 1000/- grow to Rs. 1601/- in six years.

• Two adults, Individuals, and minor through guardian can purchase.

• Companies, Trusts, Societies and any other Institutions not eligible to purchase.

• Non-resident Indian/HUF cannot purchase.

• No pre-mature encashment.

POST OFFICE SAVINGS

There are various investment schemes available in post offices, like KVP (Kisan Vikas Patra),

MIS (Monthly Income Scheme) and various others. All these schemes are completely risk-free, and you

do not need to have large sum of money to start investing in these post office schemes. Some schemes

offer Tax-saving benefits and some gives tax-free returns. So you need to find out some scheme as per

your requirements.

These are some of the safe and secure investments that you can opt for. Though the interest rates are not

so high, but still you must invest some part of your money into any of these investment instruments. It is

your hard-earned money, so better play safe and invests some part in secure funds also.

GOVERNMENT SECURITIES (G-secs)

Government securities (G-secs) are supreme securities which are issued by the Reserve

Bank of India on behalf of Government of India in lieu of the Central Government's market

borrowing program.

The term Government Securities includes:

 • Central Government Securities.

• State Government Securities

• Treasury bills

The Central Government borrows funds to finance its 'fiscal deficit'. The market

borrowing of the Central Government is increased through the issue of dated securities and 364

days treasury bills either by auction or by floatation of loans. In addition to the above, treasury

bills of 91 days are issued for managing the temporary cash mismatches of the Government.

These do not form part of the borrowing program of the Central Government.

Features

• Issued at face value

• No default risk as the securities carry sovereign guarantee.

• Ample liquidity as the investor can sell the security in the secondary market

• Interest payment on a half yearly basis on face value

• No tax deducted at source

• Can be held in Demat form.

• Redeemed at face value on maturity

• Maturity ranges from of 2-30 years.

• Securities qualify as SLR investments (unless otherwise stated).

Benefits of Investing in Government Securities

• No tax deducted at source

• Additional Income Tax benefit u/s 80L of the Income Tax Act for Individuals

• Qualifies for SLR purpose

• Zero default risk being sovereign paper

• Highly liquid.

• Transparency in transactions and simplified settlement procedures through

CSGL/NSDL.
MUTUAL FUNDS

A mutual fund is a professionally-managed firm of collective investments that pools

money from many investors and invests it in stocks, bonds, short-term money market

instruments, and/or other securities. In a mutual fund, the fund manager, who is also known as

the portfolio manager, trades the fund's underlying securities, realizing capital gains or losses,

and collects the dividend or interest income. The investment proceeds are then passed along to

the individual investors. The value of a share of the mutual fund, known as the net asset value

per share (NAV), is calculated daily based on the total value of the fund divided by the number

of shares currently issued and outstanding.

Advantages of Mutual Funds

1. Diversification
2. Professional Management
3. Regulatory oversight
4. Liquidity
5. Convenience
6. Transparency
7. Flexibility
8. Choice of schemes
9. Tax benefits
10. Well regulated
11. Drawbacks of Mutual Funds
Following are the few drawbacks of Mutual Funds:

 No Guarantees
 Fees and commissions
 Taxes
 Management risk

LIFE INSURANCE

Life insurance is a contract between the policy owner and the insurer, where the insurer

agrees to pay an amount of money upon the happening of the insured individual's or individuals'

death or other event, like terminal illness, critical illness. In return, the policy owner agrees to

pay a fixed amount called a premium at regular intervals or in bulge sum.

Like other insurance policies, life insurance is also a contract between the insurer and the

policy owner whereby a benefit is paid to the nominated beneficiaries if an insured event occurs

which is covered by the policy. The assessment for the policyholder is derived not from an actual

claim event. But to a certain extent it is the value derived from the 'peace of mind' experienced

by the policyholder, because of the negating of adverse financial consequences caused by the

death of the Life Assured. To be a life policy the insured event must be based upon the lives of

the people named in the policy.

Advantages of a Life Insurance Policy

1. Financial Security

2. Helps to diverts States Resources for Other Purpose

3. Facilitates Economic Movements

 4. Helps to Avail Tax Exemptions

BONDS & DEBENTURES

Bonds & Debentures, these two words can be used interchangeably. In Indian markets,

we use the word bonds to indicate debt securities issued by government, semi-government

bodies and public sector financial institutions and companies. We use the word debenture to refer

to the debt securities issued by private sector companies.

Bonds - Debt securities issued by Govt. or Public sector companies

Debentures - Debt securities issued by private sector companies

In other words we can tell that a bond is a debt security, similar to an I.O.U. When you purchase

a bond, you are lending money to a government, municipality, corporation, or Public entity

known as the issuer. The issuer promises to pay you a specified rate of interest during the life of

the bond, in return for the loan. They also promises to repay the face value of the bond (the

principal) when it “matures.”

Following are allowed to issue bonds

• Governments

• Municipalities
 • Variety of institutions

• Corporations

Buying and Holding of Bonds: Investors can subscribe to primary issues of Corporate and

Financial Institutions (FIs). It is common practice for FIs and Corporate to raise funds for asset

financing or capital expenditure through primary bond issues. Some bonds are also available in

the secondary market. The minimum investment for bonds can either be Rs 5,000 or Rs 10,000.

However, this amount varies from issue to issue. There is no prescribed upper limit to your

investment. The duration of a bond issue usually varies between 5 and 7 years.

Selling of Bonds: Selling bonds in the secondary market has its own drawbacks. First, there is a

liquidity problem which means that it is a tough job to find a buyer. Second, even if you find a

buyer, the prices may be at a sharp discount to its intrinsic value. Third, you are subject to

market forces and, hence, market risk. If interest rates are running high, bond prices will be

down and you may well end up incurring losses. On the other hand, Debentures are always

secured.

Debentures

A debenture is similar to a bond except the securitization conditions are different. A

debenture is generally unsecured in the sense that there are no liens or pledges on specific assets.

It is defined as a certificate of agreement of loans which is given under the company's stamp and

carries an undertaking that the debenture holder will get a fixed return (fixed on the basis of

interest rates) and the principal amount whenever the debenture matures.
Debentures vs. Bonds:

Debentures and bonds are similar except for one difference bonds are more secure than

debentures. In case of both, you are paid a guaranteed interest that does not change in value

irrespective of the fortunes of the company. However, bonds are more secure than debentures,

but carry a lower interest rate. The company provides collateral for the loan. Moreover, in case

of liquidation, bondholders will be paid off before debenture holders.

STOCK MARKET

The first step is to understand the stock market. A share of stock is the smallest unit of

ownership in a company. If you own a share of a company’s stock, you considered as the part

owner of the company.

Stock Market Trading

Stock market trading consists of buying and selling of company stocks and as well as

stock derivatives. This type of trading usually takes place in a stock exchange, in which

companies need to be listed in order for their shares to be bought and sold. This trading market

provides with substantial earnings potential and is one among the most popular investment

options.

Working of Stock Market

Stock market trading is normally done by brokers. As a result, the first step is to seek a

reliable investment broker. Stock market trading occurs at a physical stock exchange, where
buyers and sellers of company shares meet and agree on the price at which the transactions

would materialize.

Conventional stock trading entails an investor placing an order for a specific number of

shares of a company with his/her broker present in the physical stock market. The broker

forwards the order to the floor clerk, who then attempts to locate a trader desire to sell those

shares. Bids are then exchanged. The transaction closes only after the buyer agrees on the price

quoted by the seller. This technique is also called “open outcry,” because it involves traders

crying out their bids.

Stock market trading will also takes place online. This procedure is much quicker and

less complicated than trading in the physical stock market. Online stock market trading

engrosses the real time placement of buying and selling orders for stocks. The transaction is

accomplished when the trading system is capable to match bids and a confirmation is received.

Benefits of Stock Market Trading

1. It promotes economic growth.

2. It helps companies raise capital and handle financial issues.

3. It ensures that money is invested in businesses to enhance profit potential.

4. It helps investors realize substantial profits.

Drawbacks of Stock Market Trading:

1. It proposes lower leverage than other forms of trading, such as Forex trading.
2. The short selling of stocks is hard, because stock prices do not appreciate significantly in
a short span of time. Accordingly, there is a wait period before you can book healthy
profits.
3. It is traded for limited hours in a day.
COMMODITY TRADING

The terms “commodities” and “futures” are often used to depict commodity trading or

futures trading. It is similar to the way “stocks” and “equities” are used when investors talk about

the stock market. Commodities are the actual physical goods like gold, crude oil, corn, soybeans,

etc. Futures are contracts of commodities that are traded at a commodity exchange like MCX.

Apart from numerous regional exchanges, India has three national commodity exchanges

namely, Multi Commodity Exchange (MCX), National Commodity and Derivatives Exchange

(NCDEX) and National Multi-Commodity Exchange (NMCE). Forward Markets Commission

(FMC) is the regulatory body of commodity market.

It is one of a few investment areas where an individual with limited capital can make

extraordinary profits in a relatively short period of time. Many people have become very rich by

investing in commodity markets. Commodity trading has a bad name as being too risky for the

average individual. The fact is that commodity trading is only as risky as you want to make it.

Those who treat trading as a get-rich-quick scheme are likely to lose because they have to take

big risks. If you act carefully, treat your trading like a business and are willing to settle for a

reasonable return, the possibility of success is very high.

The course of trading commodities is also known as futures trading. Unlike other kinds of

investments, such as stocks and bonds, when you trade futures, you do not really buy anything or

own anything. You are speculating on the future direction of the price in the commodity you are

trading. This is like a bet on future price direction. The terms "buy" and "sell" merely indicate

the direction you expect future prices will move. If, for example, you were speculating in wheat,

you would buy a futures contract if you thought the price would be going up in the future. You
would sell a futures contract if you thought the price of wheat would go down. For every trade,

there is always a buyer and a seller. Neither person has to own any wheat to participate. But he

has to deposit sufficient capital with a brokerage firm to insure that he will be able to pay the

losses if his trades lose money.

Working of Commodity Market: Commodity Market works Just like stock futures.

When you buy Futures, you don't have to pay the entire amount, just a fixed percentage of the

cost. This is known as the margin. Let's say you are buying a Gold Futures contract. The

minimum contract size for a gold future is 100 Gms. 100 gms of gold may be worth Rs.

1,50,000. The margin for gold set by MCX is 3.5%. So you only end up paying Rs 5,250.

The low margin means that you can buy futures representing a large amount of gold by

paying only a fraction of the price. So you bought the Gold Futures contract when it was Rs.

1,50,000 per 100 gms. The next day, the price of gold rose to Rs 1,60,000 per 100 gms. Rs

10,000 (Rs 1,60,000 - Rs 1,50,000) will be credited to your account. The following day, the price

dips to Rs 1, 55,000. Rs 5000 will get debited from your account (Rs 1, 60,000 - Rs 1, 55,000).

FOREX MARKET

Forex trading is the immediate trade of one currency and the selling of another.

Currencies are traded through an agent or dealer and are traded in pairs. For example Euro

(EUR), US dollar (USD), British pound (GBP) or Japanese Yen (JPY).

Here you are not buying anything physical; this type of trading is confused. Think of

buying a currency as buying a share of a particular country. When you purchase say Japanese

Yen, you are in effect buying a share in the Japanese financial system, as the price of the

currency is a direct reflection of what the market thinks about the current and future health of the

Japanese economy. In common, the exchange rate of a currency versus other currencies is a
reflection of the condition of that country's financial system compared to the other countries

financial system.

Unlike other financial markets like the New York Stock Exchange, the Forex spot market

has neither a physical location nor a central exchange. The Forex market is measured an Over-

the-Counter (OTC) or Interbank market, due to the fact that the entire market is run

electronically within a network of banks continuously over a 24-hour period.

Until the late 1990's only the big guys could play this game. The first requirement was

that you could trade only if you had about ten to fifty million bucks to start with Forex. Forex

was initially intended to be used by bankers and large institutions and not by small guys.

However because of the rise of the Internet, online Forex trading firms are now able to offer

trading accounts to 'retail' traders. All you need to get started is a computer, a high-speed Internet

connection, and the information.

The foreign exchange market is exclusive because of the following reasons;

• Its trading volumes.

• The tremendous liquidity of the market.

• Its geographical dispersion.

• Its long trading hours.

• The variety of factors that affect exchange rates.

• The low limits of profit compared with other markets of fixed income but profits

Can be high due to very great trading volumes.

• The use of leverage.

Benefits of Forex Trading

1. Forex is the largest market.

 2. No Bulls or Bears!

3. Forex trading online offers great leverage

4. Forex prices are predictable.

5. Forex trading online is commission free

6. Forex trading online is instant.

REAL ESTATE AS AN INVESTMENT OPTION

The growth curve of Indian economy is at an all time high and contributing to the

upswing is the real estate sector in particular. Investments in Indian real estate have been

strongly taking up over other options for domestic as well as foreign investors.

The boom in the sector has been so appealing that real estate has turned out to be a

convincing investment as compared to other investment vehicles such as capital and debt

markets and bullion market. It is attracting investors by offering a possibility of stable income

yields, moderate capital appreciations, tax structuring benefits and higher security in comparison

to other investment options.

A survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) and

Ernst & Young has predicted that Indian real estate industry is poised to emerge as one of the

most preferred investment destinations for global realty and investment firms in the next few

years. The potential of India's property market has a revolutionizing effect on the overall

economy of India as it transforms the skyline of the Indian cities mobilizing investments

segments ranging from commercial, residential, retail, industrial, hospitality, healthcare etc. But

maximum growth is attributed to its growth from the booming IT sector, since an estimated 70

per cent of the new construction is for the IT sector.

Real estate industry research has also thrown light on investment opportunities in the

commercial office segment in India. The demand for office space is expected to increase
significantly in the next few years, primarily driven by the IT and ITES industry that requires an

projected office space of more than 367 million sq ft.

INVESTMENT IN GOLD

Gold has got lot of emotional value than monetary value in India. India is the largest

consumer of gold in the world. In western countries, you can find most of their gold in their

central banks. But in India, we use gold mainly as jewels. If you look at gold in a business sense,

you will understand that gold is one of the all time best investment tool. My dear readers, today I

would like to discuss on investments in gold and its potential.

Indian Gold Market Current Scenario:

 Size of the Gold Economy: more than Rs. 30,000 crores

 Number of gold jewelry manufacturing units: 1,00,000

 Number of people employed: 5,00,000

 Gems & Jewellery constitute 25% of India exports about 10% of our import bill

constitute gold import.

 Number of banks allowed importing gold: 15 (While recently this has been liberalized,

detailed notification is awaited)

 Official estimates of the stock of gold in India: 9,000 tons

 Unofficial estimates of the stock of gold in India: 12,000 to 14,000 tons

 Gold held by the Reserve Bank of India: 358 tons

 Gold production in India: 2 tons per annum.

Demand for gold in the Indian Market:

 India has the highest demand for gold in the world and more than 90% of this gold is

acquired in the form of jewellery. Following are the factors influencing the demand for gold. The

movement of gold prices is one of the important variables determining demand for gold. The

increase in the irrigation, technological change in agriculture (through mechanization and high

yielding varieties), have generated large marketable surplus and a highly skewed rural income

distribution is another factors contributing to additional demand for gold.

Supply of Gold: The main economic effects that arise from the changes in the supply of gold

can be seen against the quantum of gold that is already in existence in the economy. The supply

of gold is not up to the requirements as the production of gold is also coming down and demand

for gold is going up very sharply.

Theory related to topic

What is Investment?

Investment is the employment of funds with the aim of achieving additional income or growth in
value. The essential quality of an investment is that it involves ‘waiting’ for a reward. It involves
the commitment of resources, which have been saved or put away from current consumption in
the hope that some benefits will accrue in future. The term investment does not appear to be as
simple as it has been defined. Investment has been further categorized by financial experts and
economists. It has also often been confused with the term Speculation.

Financial & Economic Meaning of Investment

Investment is the allocation of monetary resources to assets that are expected to yield some gain
or positive return over a given period of time. These assets range from safe investments to risky
investments. Investments in this form are also called “Financial Investments”. From the point of
view of people who invest their funds, they are the suppliers of ‘Capital’ and in their view,
investment is a commitment of a person’s funds to derive future income in the form of interest,
dividends, rent, premiums, pension benefits or the appreciation of the value of their principal
capital. To the financial investor, it is not important whether money is invested for a productive
use or for the purchase of second hand instruments such as existing shares and stocks listed on
the stock exchanges. Most investments are considered transfers of financial assets from one-
person to another. The nature of investment in the financial sense differs from its use in the
economic sense. To the economist, ‘Investment’ means the net additions to the economy’s
capital stock which consists of goods & service that are used in the production of other goods &
services. In this context, the term investment, therefore, implies the formation of new and
productive capital in the form of new construction, new producer’s durable equipment such as
plant and equipment. Inventories & human capital are included in the

Economist’s definition of investment:

The financial & economic meanings of investment are related to each other because investment
is a part of savings of individuals which flow into the capital market either directly or through
institutions, divided in ‘new’ and secondhand capital financing. Investors as ‘suppliers’ and
investor as ‘user’ of long term funds find a meeting place in the market.
Why investments are important?

Investments are both important and useful in the context of present-day conditions. Some factors
that have made investment decisions increasingly important are:

Longer life expectancy or planning for retirement Investment decisions have become significant
as people retire between the age of 55 and 60. Also, the trend shows longer life expectancy. The
earnings should, therefore be calculated in such a manner that a portion should be put away as
savings. Savings by themselves do not increase wealth; these must be invested in such a way that
the principal and income will be adequate for a greater number of retirement years. The
importance of investments decisions is further enhanced by the fact that there is increasing
number of women working in organizations. These women will be responsible for planning their
own investments during their working life so that after retirement they are able to have a stable
income.

Increasing Rates of Taxation

Taxation is one of crucial factors in any country, which introduces an element of compulsion in a
person’s savings. There are various forms of savings outlets in our country in the form of
investments which help in bringing down the tax level by offering deductions in personal
income.

Interest Rates

Another aspect which is necessary for a sound investment plan is the level of interest rates.
Interest rates vary between one investment and another. These may vary between risky and safe
investments; they may also differ due to different benefit schemes offered by the investments.
These aspects must be considered before actually allocating any amount. A high rate of interest
may not be the only factor favoring the outlet for investment. The investor has to include in his
portfolio several kinds of investments. Stability of interest is as important as receiving a high rate
of interest.

Inflation
Inflation has become a continuous problem since the last decade. In these years of rising prices,
several problems are associated coupled with a falling standard of living. Before funds are
invested erosion of the resources will have to carefully considered in order to make the right
choice of investments. The investor will try to search an outlet, which will give him a high rate
of return in the form of interest to cover an decrease due to inflation. He will also have to judge
whether the interest or return will be continuous or there’s a likelihood of irregularity. Coupled
with high rates of interest he will have to find an outlet which will ensure safety of principal.
Besides high rate of interest & safety of principal, an investor also has to always bear in mind the
taxation angel. The interest earned through investment should not unduly increase his taxation
burden.

Income

Another reason why investment decisions have assumed importance is the general increase in the
employment opportunities. The employment opportunities gave rise to both male and female
working force. More incomes and more avenues of investment have led to the ability and
willingness of working people to save and invest their funds.

Investment Channels

The investor in his choice of investment will have to try to achieve a proper mix between high
rate of return and stability of return to reap the benefits of both. Some of the instruments
available are Corporate Stock, Provident Fund, Life Insurance, Fixed Deposits in the Corporate
Sector, Unit Trust Schemes and so on.
Elements of Investment

The study of investments is concerned with the purchase and sale of financial assets and the
attempt of the investor to make logical decisions about the various alternatives in order to earn
returns of them. The returns are further dependent on the varying degrees of risk. A functional
definition as defined by Amling is, “Investment maybe defined as the purchase by an individual
or institutional investor of a financial or real asset that produces a return proportional to the risk
assumed over some future investment period.

These definitions of investments bring froth three elements of investment, categorized as:

a. Return

b. Risk

c. Relationship of risk & return

d. Time factor

Return

Investors may buy and sell financial assets in order to earn returns on them. The returns, better
known as reward from investments, include both current income and capital gains or losses
which arise by the increase or decrease of the security prices. The capital gains or the income
earned are then treated as a percentage of the beginning investment. Returns, therefore, may be
expressed as the total annual income and capital gain as a percentage if investment. Satisfactory
returns are different for different people. Two rational investors may be satisfied by different
levels of anticipated return and estimated risk. Rational investors like returns but are risk averse.
They try to maximize their utility by buying, holding, or adjusting their portfolio to achieve
“maximum utility”.
Risk

Risk and uncertainty are an integral part of an investment decision. Risk is composed of the
demands that bring in variations in return of income. The main forces contributing to risk are
price and interest. Risk is also influenced by external and internal considerations. External risks
are uncontrollable and broadly affect investments. These external risks are called systematic risk.
Risk due to internal environment of a firm or those affecting a particular industry are referred to
as unsystematic risk.

Relationship of Risk & Return

Risk and return are inseparable. To ignore risk and only expect return is an outdated approach to
investments. The investment process must be considered in terms of both aspects – risk and
return. Return is a precise statistical term; it is not a simple expectation of investor’s return but is
measurable also. Risk is not a precise statistical term but we use statistical terms to quantify it.
The investor should keep the risk associated with the return proportional as risk is directly
correlated with return. It is generally believed that higher the risk, the greater the reward but
seeking excessive risk does not ensure excessive return. At a given level of return, each security
has a different degree of risk. The entire process of estimating return and risk for individual
securities is called security analysis.

Time

Time is an important factor in investments. Time offers several different courses of action. It
may involve from trading to buying and selling at major turning points in the market. It may also
consider the time period of investment such as long term, intermediate or short term. Time
period depends on the attitude of the investor. As investments are examined over the time period,
expected risk and return are measured. The investor usually selects a time period and return that
meet expectations of return and risk.

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