AVENUES OF INVESTMENT

1 : I NT RO D UC T I O N

In today’s scenario there has been a major change i.e. economic prosperit y all
over. The entire world is talking about the robust growth rates in this part of the
world. Higher income levels and booming stock markets have led to more and
more numbers of high net wo rth investors (HNIs). This means the availability of
huge investible surplus. The investors with higher risk appetite want to
experiment and try new and exotic products in the name of diversification. This
has resulted in emergence of new options within th e same or fresh asset classes.
T h e r e a r e m o r e p r o d u c t s a v a i l a b l e w i t h i n e a c h a s s e t c l a s s b e i t E q u i t y, M u t u a l
Fund, Gold, Real Estate. The common perception of investors is to buy when the
market supports in uptrend and not to invest in the falling time. T hey wait for
the stabilization in the market; so in this research, we would like to draw a clear
picture on the trends of traders and investors. Markets have personalities because
investors have emotions. Markets are ultimately driven by people and stock
prices are what individuals make them out to be. People have a tendency to see
their own actions and decisions as totally rational, when the truth is they may
not be. Key points on investor behaviors:

 Investments are often thought of as pieces of paper rat her than part
o w n e r s h i p o f a c o m p a n y.

 Investors are often impatient to sell a good stock.

 Investors often make a distinction between money easily made from

investments, savings or tax refunds and hard -earned money – found money
is more readily spent or w asted.

 People tend to think in extremes – the highly probable news is considered

certain, while the improbable is considered impossible.

 Investors often take a short -term viewpoint. Recent market losses lead to
suspicion and caution, while recent gains lead to action.

 Investors may overestimate their skills; attributing success to abilit y they

don’t possess and seeing order in information or data where it doesn’t
exist.
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 Investors follow the crowd, and are heavil y influenced b y other investors
or compelling news; they fail to check out the real facts.

 Investors become obsessed with prices and trend -watching, rather than
solid information.

T a k e n a s a w h o l e , t h e s e p s yc h o l o g i e s r e a l l y h a v e o n l y o n e e f f e c t , t h a t i s - a
f i n a n c i a l d e c i s i o n i s t a k e n t h a t l a c k s a c c u r a c y. A n d t h e s e e r r o r s a r e s t r o n g e s t
w h e n u n c e r t a i n t y, i n e x p e r i e n c e , a t t i t u d e s a n d m a r k e t p r e s s u r e s c o m e t o g e t h e r t o
u n d e r m i n e d e c i s i o n - m a k i n g a b i l i t y.

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2 : W H A T I S I N VE S T ME NT ?

“The act of committing money or capital to an endeavor with the expectation of

obtaining an additional income or profit is investment .”

I t ’ s a c t u a l l y p r e t t y s i m p l e : i n v e s t i n g m e a n s p u t t i n g yo u r m o n e y t o w o r k f o r yo u .
T h e m o n e y yo u e a r n i s p a r t l y s p e n t a n d t h e r e s t s a v e d f o r m e e t i n g f u t u r e
e x p e n s e s . I n s t e a d o f k e e p i n g t h e s a v i n g s i d l e yo u m a y l i k e t o u s e s a v i n g s i n
order to get return on it in the future. This is called Investment.

Investment is a term, which is frequently used in the field of economics,

business management, finance and it means savings or savings made through
d e l a ye d c o n s u m p t i o n . I n v e s t m e n t c a n b e d i v i d e d i n t o d i f f e r e n t t yp e s a c c o r d i n g t o
various theories and principles. In general purview, investment is the application
o f m o n e y f o r e a r n i n g m o r e m o n e y. A p a r t i c u l a r a m o u n t o f m o n e y i s i n v e s t e d i n
the bank or an asset is bought in the anticipation that some return will be
received from the investment in the future. There can be a number of definitions
of Investment. While dealing with the various options of investment, the
definitional variations of investment need to be kept in mind.

What is investment in terms of Economics:

According to economic theories, investment is defined as the “per unit

production of goods, which have not been consumed, however, will be used for
t h e p u r p o s e o f f u t u r e p r o d u c t i o n . ” E x a m p l e s o f t h i s t yp e o f i n v e s t m e n t s a r e
tangible goods like construction of a factory or bridge and intangible goods like
6 months of on -job training. In terms of national production and income, Gross
Domestic Product (GDP) has an essential constituent, which is called as gross
investment.

What is investment in terms of Business Management:

According to business management theories, investment refers to tangible assets

like machinery and equipments and buildings and intangible assets like

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c o p yr i g h t s o r p a t e n t s a n d g o o d w i l l . T h e d e c i s i o n f o r i n v e s t m e n t i s a l s o k n o w n a s
capital budgeting decision, which is regarded as one of the key decisions.

What is investment in terms of Finance:

In finance, investment refers to purchasing securities or an y other financial

assets from the capital market or money market or purchasing real properties
with high market liquidity for example, gold, silver, real properties, and precious
items. These are called ‘investment vehicles’. Financial investments are
i n v e s t m e n t i n s t o c k s , b o n d s , c o m m o d i t i e s a n d m a n y o t h e r t yp e s o f s e c u r i t y
investments. Indirect financial investments can also be done with the help of
mediators or third parties, such as pension funds, mutual funds, commercial
banks, and insurance companies. According to personal finance theories, an
i n v e s t m e n t i s t h e i m p l e m e n t a t i o n o f m o n e y f o r b u yi n g s h a r e s o r m u t u a l f u n d s o r
purchasing an asset with the involvement of the factor of capital risk.

WHEN TO START INVESTING?

T h e s o o n e r o n e s t a r t s i n v e s t i n g t h e b e t t e r . B y i n v e s t i n g e a r l y yo u a l l o w yo u r
investments more time to grow, whereby the concept of compounding (as we
s h a l l s e e l a t e r ) i n c r e a s e s yo u r i n c o m e , b y a c c u m u l a t i n g t h e p r i n c i p a l a n d t h e
i n t e r e s t o r d i v i d e n d e a r n e d o n i t , ye a r a f t e r ye a r .

The three golden rules for all investors are:

 Invest early

 Invest regularly

 Invest for long term and not short term

WHAT CARE SHOULD ONE TAKE WHILE INVESTING?

Before making any investment, one must ensure to:

 1. Obtain written documents explaining the investment.

 2. Read and understand such documents.
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 3. Verify the legitimacy of the investment.

 4. Find out the costs and benefits associated with the investment.
 5. Assess the risk-return profile of the investment.
 6. Know the liquidity and safety aspects of the investment.
 7 . A s c e r t a i n i f i t i s a p p r o p r i a t e f o r yo u r s p e c i f i c g o a l s .
 8. Compare these details with other investment opportunities available.
 9 . E x a m i n e i f i t f i t s i n w i t h o t h e r i n v e s t m e n t s yo u a r e c o n s i d e r i n g o r yo u
have already made.
 1 0 . D e a l o n l y t h r o u g h a n a u t h o r i s e d i n t e r m e d i a r y.
 11. Seek all clarifications about the intermediary and the investment.
 12. Explore the options available to you if something were to go wrong,
and then, if satisfied, make the investment.

WHAT ARE VARIOUS OPTIONS AVAILABLE FOR INVESTMENT?

 P h y s i c a l a s s e t s l i k e r e a l e s t a t e , g o l d / j e w e l l e r y, c o m m o d i t i e s e t c . a n d / o r

 Financial assets such as fixed deposits with banks, small saving

instruments with post offices, insurance/provident/pension fund etc. or
securities market related instruments like shares, bonds, debentures etc.

What are various Financial options available for investment?

Short-term:-

Briefly speaking, savings bank account, money market/liquid funds and fixed
deposits with banks may be considered as short -term financial investment
options.
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Long-term:-

National Savings Certificate, Post Office Savings Schemes, Public Provident

Fund, Company Fixed Deposits, Bonds and Debentures, Mutual Funds, Insurance
etc., are long term financial investment options.

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3 : V ARI O U S A VE N UE S O F I NVE S T ME NT

BANK DEPOSITS

PRECIOUS
NSC
METALS

POST OFFICE
SHARE MARKET
DEPOSITS

VARIOUS
AVENUES OF
COMMODITIES
INVESTMENT PPF

BONDS &
DERIVATIVES
DEBENTURES

INSURANCE MUTUAL FUNDS

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3 .1 : B A NK S

i. Savings Account:-

A Saving Bank account (SB account) is meant to promote the habit of saving
a m o n g t h e p e o p l e . I t a l s o f a c i l i t a t e s s a f e k e e p i n g o f m o n e y. I n t h i s s c h e m e f u n d
is allowed to be withdrawn whenever required, without any condition. Hence a
s a v i n g s a c c o u n t i s a s a f e , c o n v e n i e n t a n d a f f o r d a b l e w a y t o s a v e yo u r m o n e y.
Bank deposits are fairly safe because banks are subject to c ontrol of the Reserve
Bank of India with regard to several policy and operational parameters. Bank
a l s o p a ys yo u a m i n i m a l i n t e r e s t f o r k e e p i n g yo u r m o n e y w i t h t h e m .

Savings account can be opened either individually or jointly with another

individual. In a joint account only the sign of one account holder is needed to
write a cheque. But at the time of closing an account, the sign of the both the
account holders are needed.

Return:
The interest rate of savings bank account in India varies between 5% and 7%. In
Savings Bank account, bank follows the simple interest method. The rate of
interest may change from time to time according to the rules of Reserve Bank of
India. One can withdr aw his/her money b y submitting a cheque in the bank and
details of the account, i.e. the Money deposited, withdrawn along with the dates
and the balance, is recorded in a passbook.

Advantages:
I t ’ s m u c h s a f e r t o k e e p yo u r m o n e y a t a b a n k t h a n t o k e e p a l a r g e a m o u n t o f c a s h
i n yo u r h o m e . B a n k d e p o s i t s a r e f a i r l y s a f e b e c a u s e b a n k s a r e s u b j e c t t o c o n t r o l
of the Reserve Bank of India with regard to several policy and operational
p a r a m e t e r s . T h e f e d e r a l G o v e r n m e n t i n s u r e s yo u r m o n e y . S a v i n g B a n k a c c o u n t
does not have any fixed period for deposit. The depositor can take money from
his account by writing a cheque to somebody else or submitting a cheque
d i r e c t l y. N o w m o s t o f t h e b a n k s o f f e r v a r i o u s f a c i l i t i e s s u c h a s A T M c a r d , c r e d i t
card etc. Through debit/ATM c ard one can take money from any of the ATM
c e n t r e s o f t h e p a r t i c u l a r b a n k w h i c h w i l l b e o p e n 2 4 h o u r s a d a y. T h r o u g h c r e d i t
card one can avail shopping facilities from any shop which accept the credit

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card. And many of the banks also give internet banking facility through with one
do the transactions like withdrawals, deposits, statement of account etc.

ii. Fixed Deposits (FD's):

A fixed deposit is meant for those investors who want to deposit a lump sum of
m o n e y f o r a f i x e d p e r i o d ; s a y f o r a m i n i m u m p e r i o d o f 1 5 d a ys t o f i v e ye a r s a n d
above, thereby earning a higher rate of interest in return. Investor gets a lump
sum (principal + interest) at the maturity of the deposit.

Bank fixed deposits are one of the most common savings scheme open to an
average investor. Fixed deposits also give a higher rate of interest than a savings
bank account. The facilities vary from bank to bank. Some of the facilities
offered by banks are overdraft (loan) facility on the amount deposited, premature
withdrawal before maturit y period (which involves a loss of interest) etc. Bank
deposits are fairly safer because banks are subject to control of the Reserve Bank
of India.

Features:-
Bank deposits are fairly safe because banks are subject to control of the Reserve
Bank of India (RBI) with regard to several policy and operational parameters.
T h e b a n k s a r e f r e e t o o f f e r v a r yi n g i n t e r e s t s i n f i x e d d e p o s i t s o f d i f f e r e n t
maturities. Interes t is compounded once a quarter, leading to a somewhat higher
effective rate.

The minimum deposit amount varies with each bank. It can range from as low as
Rs. 100 to an unlimited amount with some banks. Deposits can be made in
multiples of Rs. 100/-

Before opening a FD account, try to check the rates of interest for different
banks for different periods. It is advisable to keep the amount in five or ten
small deposits instead of making one big deposit. In case of an y premature
withdrawal of partial amount, then only one or two deposit need be prematurely
uncashed. The loss sustained in interest will, thus, be less than if one big deposit
were to be encased. Check deposit receipts carefully to see that all particulars
have been properly and accurately fill ed in. The thing to consider before
investing in an FD is the rate of interest and the inflation rate. A high inflation
rate can simply chip away your real returns.
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Returns: -
The rate of interest for Bank Fixed Deposits varies between 4 and 11 per cent,
depending on the maturity period (duration) of the FD and the amount invested.
Interest rate also varies between each bank. A Bank FD does not provide regular
i n t e r e s t i n c o m e , b u t a l u m p - s u m a m o u n t o n i t s m a t u r i t y. S o m e b a n k s h a v e
facility to pay interest every quarter or every month, but the interest paid may be
at a discounted rate in case of monthly interest. T h e I n t e r e s t p a ya b l e o n F i x e d
Deposit can also be transferred to Savings Bank or Current Account of the
c u s t o m e r . T h e d e p o s i t p e r i o d c a n v a r y f r o m 1 5 , 3 0 o r 4 5 d a ys t o 3 , 6 m o n t h s , 1
y e a r a n d 1 . 5 ye a r s t o 1 0 ye a r s .

Duration

1 5 - 3 0 d a ys

3 0 - 4 5 d a ys

4 6 - 9 0 d a ys

9 1 - 1 8 0 d a ys

1 8 1 - 3 6 5 d a ys

1 - 2 ye a r s

2 - 3 ye a r s

3 - 5 ye a r s

INTREST VARIES FOR THE PERIOD OF INVESTMENT

Advantages: -

Bank deposits are the safest investment after Post office savings because all bank
deposits are insured under the Deposit Insurance & Credit Guarantee Scheme of
India. It is possible to get loans up to75 - 90% of the deposit amount from banks

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against fixed deposit receipts. The interest charged will be 2% more than the rate
of interest earned by the deposit.

3 .2 : L I Q UI D F UN D S

Liquid funds are used primaril y as an alternative to short -term fix deposits.
Liquid funds invest with minimal risk (like money market funds). Most funds
h a v e a l o c k - i n p e r i o d o f a m a x i m u m o f t h r e e d a ys t o p r o t e c t a g a i n s t p r o c e d u r a l
(primarily banking) glitches.

Liquid funds score over short term fix deposits. Banks give a fixed rate in the
r a n g e 5 % - 5 . 5 % p . a . f o r a t e r m o f 1 5 - 3 0 d a ys . R e t u r n s f r o m d e p o s i t s a r e t a x a b l e
depending on the tax bracket of the investor, which considerably pulls down the
actual return. Dividends from liquid funds are tax -free in the hands of investor,
which is why they are more attractive than deposits.

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3 .3 : N A T I O N A L S A VI NG S CE RT I FI C AT E S

What is National Savings Certificate?

National Savings Certificates (NSC) is certificates issued by Department of post,

G o v e r n m e n t o f I n d i a a n d i s a v a i l a b l e a t a l l p o s t o f f i c e c o u n t e r s i n t h e c o u n t r y. I t
is a long term safe savings option for the investor. The scheme combines growth
in money with reductions in tax liabilit y as per the provisions of the Income Tax
A c t , 1 9 6 1 . T h e d u r a t i o n o f a N S C s c h e m e i s 6 ye a r s .

Features:
NSCs are issued in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs
1 0 , 0 0 0 f o r a m a t u r i t y p e r i o d o f 6 ye a r s . T h e r e i s n o p r e s c r i b e d u p p e r l i m i t o n
investment. Individuals, singly or jointl y or on behalf of minors and trust can
p u r c h a s e a N S C b y a p p l yi n g t o t h e P o s t O f f i c e t h r o u g h a r e p r e s e n t a t i v e o r a n
agent. One person can be nominated for certificates of denomination of Rs. 100 -
and more than one per son can be nominated for higher denominations. The
certificates are easily transferable from one person to another through the post
office. There is a nominal fee for registering the transfer. They can also be
transferred from one post office to another.

One can take a loan against the NSC by pledging it to the RBI or a scheduled
b a n k o r a c o - o p e r a t i v e s o c i e t y, a c o r p o r a t i o n o r a g o v e r n m e n t c o m p a n y, a
housing finance company approved by the National Housing Bank etc with the
permission of the concerned pos t master. Though premature encashment is not
possible under normal course, under sub -rule (1) of rule 16 it is possible after
the expiry of three years from the date of purchase of certificate.

Tax benefits are available on amounts invested in NSC under s ection 88, and
exemption can be claimed under section 80L for interest accrued on the NSC.
Interest accrued for any year can be treated as fresh investment in NSC for that
year and tax benefits can be claimed under section 88.

Return:
I t i s h a v i n g a h i g h i n t e r e s t r a t e a t 8 % c o m p o u n d e d h a l f ye a r l y. P o s t m a t u r i t y

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 AVENUES OF INVESTMENT
interest will be paid for a maximum period of 24 months at the rate applicable to
individual savings account. A Rs1000 denomination certificate will increase to
R s . 1 6 0 1 o n c o m p l e t i o n o f 6 ye a r s .

Interest rates for the NSC Certificate of Rs 1000

Year Rate of Interest

1 ye a r Rs 81.60

2 ye a r Rs 88.30

3 ye a r Rs 95.50

4 ye a r s Rs103.30

5 ye a r s Rs 111.70

6 ye a r s Rs 120.80

Advantages:
Tax benefits are available on amounts invested in NSC under section 88, and
exemption can be claimed under section 80L for interest accrued on the NSC.
Interest accrued for any year can be treated as fresh investment in NSC for that
year and tax benefits can be claimed under section 88. NSCs can be transferred
f r o m o n e p e r s o n t o a n o t h e r t h r o u g h t h e p o s t o f f i c e o n t h e p a ym e n t o f a
prescribed fee. They can also be transferred from one post office to another. The
scheme has the backing of the Government of India so there are no risks
a s s o c i a t e d w i t h yo u r i n v e s t m e n t .

How to start?

A n y i n d i v i d u a l o r o n b e h a l f o f m i n o r s a n d t r u s t c a n p u r c h a s e a N S C b y a p p l yi n g
t o t h e P o s t O f f i c e t h r o u g h a r e p r e s e n t a t i v e o r a n a g e n t . P a ym e n t s c a n b e m a d e i n
cash, cheque or DD or by raising a debit in the savings account held by the
purchaser in the Post Office. The issue of certificate will be subject to the

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realization of the cheque s, pay order, DD. The date of the certificate will be the
date of realization or encashment of the cheque. If a certificate is lost,
d e s t r o ye d , s t o l e n o r m u t i l a t e d , a d u p l i c a t e c a n b e i s s u e d b y t h e p o s t - o f f i c e o n
p a ym e n t o f t h e p r e s c r i b e d f e e .

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3 .4 : P O S T O F FI C E M O N T H L Y I NC O M E S C H E M E

T h e p o s t - o f f i c e m o n t h l y i n c o m e s c h e m e ( M I S ) p r o v i d e s f o r m o n t h l y p a ym e n t o f
interest income to investors. It is meant for investors who want to invest a sum
amount initially and earn interest on a monthly basis for their livelihood. The
M I S i s n o t s u i t a b l e f o r a n i n c r e a s e i n yo u r i n v e s t m e n t . I t i s m e a n t t o p r o v i d e a
source of regular income on a long term basis. The scheme is, therefore, more
beneficial for retired persons.

Features:
Only one deposit is available in an account. Only individuals can open the
account; either single or joint (two or three). Interest rounded off to nearest
rupee i.e., 50 paisa and above will be rounded off to next rupee. The minimum
investment in a Post -Office MIS is Rs 1,500 for both single and joint accounts.
The maximum investment for a single account is Rs 4.5 lakh and Rs 9 lakh for a
j o i n t a c c o u n t . T h e d u r a t i o n o f M I S i s s i x ye a r s .

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Returns:
T h e p o s t - o f f i c e M I S g i v e s a r e t u r n o f 8 % i n t e r e s t o n m a t u r i t y. T h e m i n i m u m
investment in a Post -Office MIS is Rs 1,000 for both single and joint accounts.

Deposit Rs Monthly Interest Amount returned on

maturity

5,000 33 5,000
10,000 66 10,000
50,000 333 50,000
1,00,000 667 1,00,000
2,00,000 1333 2,00,000
3,00,000 2000 3,00,000
6,00,000 4000 6,00,000

Advantages:

Premature closure of the account is permitted any time after the expiry of a
p e r i o d o f o n e ye a r o f o p e n i n g t h e a c c o u n t . D e d u c t i o n o f a n a m o u n t e q u a l t o 5 p e r
cent of the deposit is to be made when th e account is prematurely closed.
I n v e s t o r s c a n w i t h d r a w m o n e y b e f o r e t h r e e ye a r s , b u t a d i s c o u n t o f 5 % . C l o s i n g
o f a c c o u n t a f t e r t h r e e ye a r s w i l l n o t h a v e a n y d e d u c t i o n s . P o s t m a t u r i t y I n t e r e s t
at the rate applicable from time to time (at present 3.5%). Mo nthly interest can
be automatically credited to savings account provided both the accounts standing
at the same post office. Deposit in Monthly Income Scheme and invest interest in
Recurring Deposit to get 10.5% (approx) interest. The interest income accru ing
from a post -office MIS is ex empt from tax under Section 80L of the Income Tax
Act, 1961. Moreover, no TDS is deductible on the interest income. The balance is
exempt from Wealth Tax.

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3 .5 : P U B L I C P RO VI DE NT FU ND S

P P F i s a m o n g t h e m o s t p o p u l a r s m a l l s a v i n g s c h e m e s . C u r r e n t l y, t h i s s c h e m e
o f f e r s a r e t u r n o f 8 p e r c e n t a n d h a s a m a t u r i t y p e r i o d o f 1 5 ye a r s . I t p r o v i d e s
regular savings by ensuring that contributions (which can vary from Rs.500 to
R s . 7 0 , 0 0 0 p e r ye a r ) a r e m a d e e v e r y ye a r . F o r e f f i c i e n t “ t a x s a v i n g ” t h e r e i s
nothing better than PPF!

B u t f o r t h o s e w h o a r e l o o k i n g f o r l i q u i d i t y, P P F i s N O T a g o o d o p t i o n .
W i t h d r a w a l s a r e a l l o w e d o n l y a f t e r f i v e ye a r s f r o m t h e e n d o f t h e f i n a n c i a l ye a r
in which the “first deposit” is made. PPF does not provide a ny regular income
a n d o n l y p r o v i d e s f o r a c c u m u l a t i o n o f i n t e r e s t o v e r a 1 5 - ye a r p e r i o d , a n d t h e
l u m p - s u m a m o u n t ( p r i n c i p a l + i n t e r e s t ) i s p a ya b l e o n m a t u r i t y.

T h e l u m p - s u m a m o u n t t h a t yo u r e c e i v e o n m a t u r i t y ( a t t h e e n d o f 1 5 ye a r s ) i s
c o m p l e t e l y t a x - f r e e ! ! O n e c a n d e p o s i t u p - t o R s 7 0 , 0 0 0 p e r ye a r i n t h e P P F
a c c o u n t a n d t h i s m o n e y w i l l a l s o n o t b e t a x e d a n d b e r e m o v e d f r o m yo u r t a x a b l e
income.

I f yo u a r e r e l a t i v e l y yo u n g a n d h a v e t i m e o n yo u r s i d e , t h e n P P F i s f o r yo u .

How to invest in PPF?

A PPF account can be opened with a minimum deposit of Rs.100 at any branch of
the State Bank of India (SBI) or branches of its associated banks like the State
B a n k o f M ys o r e o r H yd e r a b a d . T h e a c c o u n t c a n a l s o b e o p e n e d a t t h e b r a n c h e s o f
a few nationalized banks, like the Bank of India, Central Bank of India and Bank
of Baroda, and at any head post office or general post office. After opening an
a c c o u n t yo u g e t a p a s s b o o k , w h i c h w i l l b e u s e d a s a r e c o r d f o r a l l yo u r d e p o s i t s ,
interest accruals, withdrawals and loans.

H o w e v e r , b e w a r n e d : yo u c a n h a v e o n l y o n e P P F a c c o u n t i n yo u r n a m e . I f a t a n y
p o i n t i t i s d e t e c t e d t h a t yo u h a v e t w o a c c o u n t s , t h e s e c o n d a c c o u n t t h a t yo u h a v e
o p e n e d w i l l b e c l o s e d , a n d yo u w i l l b e r e f u n d e d o n l y t h e p r i n c i p a l , n o t t h e
interest. Again, two adults cannot open a joint account. The account will have to
be opened in only one person’s name. Of course, the person who opens an
account is free to appoint nominees.

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3 .6 : C O M P A NY F I X E D DE PO S I T

Company Fixed Deposit is the deposit placed by investors with companies for a
f i x e d t e r m c a r r yi n g a p r e s c r i b e d r a t e o f i n t e r e s t . C o m p a n y F i x e d D e p o s i t h a v e
a l w a ys o f f e r e d i n t e r e s t w h i c h i s 2 - 3 % h i g h e r t h a n B a n k D e p o s i t r a t e , b e c a u s e
t h e y h a v e t o p a y h i g h e r i n t e r e s t t o b a n k s f o r b o r r o w i n g m o n e y. I n t e r e s t i s p a i d
o n m o n t h l y/ q u a r t e r l y/ h a l f ye a r l y/ y e a r l y o r o n m a t u r i t y b a s i s a n d i s s e n t e i t h e r
t h r o u g h c h e q u e o r E C S f a c i l i t y. T D S i s d e d u c t e d i f t h e i n t e r e s t o n f i x e d d e p o s i t
e x c e e d s R s . 5 0 0 0 / - i n a f i n a n c i a l ye a r . A t t h e e n d o f d e p o s i t p e r i o d p r i n c i p a l i s
returned to the deposit holder.

How to choose a good company deposit scheme?

» Ignore the unrated Compan y Deposit Schemes. Ignore deposit schemes of little
known manufacturing companies. For NBFC’s, RBI has made it mandatory to
have an ‘A’ rating to be eligible to accept public deposits, one should go further
and look at only AA or AAA schemes.

» Within a given rating grade, choose the company with a better reputation.
» Once you decide on a company, next choose the schemes that have given a better
return. Unless you need income regularly, you should prefer cumulative to regular
income option since the interest earned automatically gets reinvested at the same
coupon rate giving upon better yields. It a lso gives you a lump-sum amount at one go.
» It is better to make shorter deposit of around 1 year to 3 years. This way you not
only can keep a watch on the company’s rating and servicing but can also plan to have
your money back in case of emergency.

» C h e c k o n t h e s e r v i c i n g s t a n d a r d s o f t h e c o m p a n y. You should not oblige

companies that care little about investor services like promptly sending interest
warrants or the principal cheque.

» I n v o l v e yo u r r e p u t e d F i n a n c i a l p l a n n e r / I n v e s t m e n t A d v i s o r l i k e u s f o r a d v i c e
i n a l l yo u r t r a n s a c t i o n s . D o n o t b yp a s s a n d i n v e s t d i r e c t l y j u s t t o e a r n a n e x t r a
incentive.
» F o r i n v e s t o r s l i v i n g i n o u t s t a t i o n c i t y, c h e c k w h e t h e r t h e c o m p a n y a c c e p t s
o u t s t a t i o n c h e q u e s a n d m a k e p a ym e n t t h r o u g h a t p a r c h e q u e s .

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Which companies can accept Deposit?

Companies registered under Companies Act 1956, such as:

» Manufacturing Companies.

» Non-Banking Finance Companies,

» Housing Finance Companies.

» Financial Institutions.

» Government Companies.

Up to what limits can a company accept deposit?

A N o n - B a n k i n g N o n - F i n a n c e C o m p a n y ( M a n u f a c t u r i n g C o m p a n y) c a n a c c e p t
deposit subject to following limits.

» Up to 10% of aggregate of paid -up share capital and free reserves if the
deposits are from shareholders or guaranteed by directors.

» Otherwise up to 25% of aggregate of paid -up share capital and free reserves.

A Non-Banking Finance Company can accept deposits up to following limits:

» Equipment Leasing Company can accept four times of its net owned fund.

»Loan or Investment Compan y ca n accept deposit upto one and half time of its
net owned funds.

What is the period of the deposit?

Company Fixed Deposits can be accepted by a Manufacturing Company having

d u r a t i o n f r o m 6 m o n t h s t o 3 ye a r s . Non-Banking Finance Company can accept
d e p o s i t f r o m 1 ye a r t o 5 ye a r s p e r i o d . A Housing Finance Company can accept
d e p o s i t f r o m 1 ye a r t o 7 ye a r s .

Where not to invest?

» Companies which offer interest higher than 15%.

» C o m p a n i e s w h i c h a r e n o t p a yi n g r e g u l a r d i v i d e n d s t o t h e s h a r e h o l d e r .

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» Companies whose Balance Sheet shows losses.

» Companies which are below investment grade A or under rating.

There is an old saying “DON’T PUT All YOUR EGGS IN ONE BASKET”.

The company deposits should be spread over a large number of companies. This
will help the investor to diversify his risk among various companies/industries.
Investors should not put more than 10% of their total Investible funds in one
c o m p a n y.

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3 .7 : B O N DS AND D E B E NT U RE S

Debt instruments can be further classified into the following categories based on
the different characteristics with which they are floated in the market:

 Debentures

 Bonds

Debentures
Main characteristics

 T h e y a r e f i x e d i n t e r e s t d e b t i n s t r u m e n t s w i t h v a r yi n g p e r i o d o f m a t u r i t y.

 Can either be placed privately or offered for subscription.

 May or may not be listed on the stock exchange.

 If listed on the stock exchanges, they should be rated prior to the lis ting by
an y of the credit rating agencies designated b y SEBI.

 When offered for subscription a debenture redemption reserve has to be

maintained.

 T h e p e r i o d o f m a t u r i t y n o r m a l l y v a r i e s f r o m 3 t o 1 0 ye a r s a n d m a y a l s o b e
more for projects with a high gestation period.

Types of debentures:

There are different kinds of debentures, which can be offered. They are as
follows:

 Non convertible debentures (NCD)

 Partially convertible debentures (PCD)

 Fully convertible debentures (FCD)

The difference in the above instruments is regarding the redeem ability of the
instrument:

 In case of NCDs, the total amount of the instrument is redeemed by the

issuer,

 In case of PCDs, part of the instrument is redeemed and part of it is

c o n v e r t e d i n t o e q u i t y,

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 In case of FCDs, the whole value of the instrument is converted into
e q u i t y. T h e c o n v e r s i o n p r i c e i s s t a t e d w h e n t h e i n s t r u m e n t i s i s s u e d .

Debentures might be either callable or putt-able:-

Callable debenture is a debenture in which the issuing company has the option
of redeeming the security before the specified redemption date at a pre -
determined price.

Similarly, a putt-able security is a security where the holder of the instrument

h a s t h e o p t i o n o f g e t t i n g i t r e d e e m e d b e f o r e m a t u r i t y.

Bonds

B o n d s m a y b e o f m a n y t yp e s - t h e y m a y b e r e g u l a r i n c o m e , i n f r a s t r u c t u r e , t a x
saving or deep discount bonds. These are financial instruments with a fixed
coupon rate and a definite period after which these are redeemed. The
fundamental difference between debent ures and bonds is that the former is
normally secured whereas the latter is not. Hence in general bonds are issued at a
higher interest rate than debentures. This avenue of financing is mainl y availed
by highly reputed corporate concerns and financial inst itutions.

The three main kinds of instruments in this category are as follows:

 Fixed rate

 Floating rate

 Discount bonds

The bonds may also be regular income with the coupons being paid at fixed
intervals or cumulative in which the interest is paid o n redemption.

• Unlike debentures, bonds can be floated with a fixed interest or floating

interest rate. They can also be floated without interest and are called
discount bonds, they are issued at a discount to the face value and an
investor is paid the f ace value on redemption, and if offered for longer
terms are known as deep discount bonds

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 The main advantage with interest bearing bonds is the floating interest
rate, which is stipulated based on certain mark -up over stock market index
or some such index.

 F r o m t h e p o i n t o f v i e w o f t h e i n v e s t o r b o n d s a r e i n s t r u m e n t s c a r r yi n g
higher risk and higher returns as compared to debentures.

 This has to be kept in mind while floating bond issues for financing
purposes. With the current b u o ya n c y in capital markets for equity
instruments the demand for corporate bonds is low.

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3 .8 : M UT U AL FU N D S

A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is then invested in
capital market instruments such as shares, debentures and other securities. The
income earned through these investments and the capital appreciation realized is
shared by its unit holders in proportion to the number of units owned by them.
Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed basket of
securities at a relatively low cost. The flow chart below describes broadly the
working of a mutual fund:

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ORGANIZATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the
organisational set up of a mutual fund:

ADVANTAGES OF MUTUAL FUNDS:

The advantages of investing in a Mutual Fund are:

 Professional Management

 Diversification

 Convenient Administration

 Return Potential
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 Low Costs

 Liquidit y

 Transparency

 Flexibility

 Choice of schemes

 Tax benefits

 Well regulated

TYPES OF MUTUAL FUND SCHEMES:

Wide variety of Mutual Fund Schemes exists to cater to the needs such as
financial position, risk tolerance and return expectations etc. The table below
g i v e s a n o v e r v i e w i n t o t h e e x i s t i n g t yp e s o f s c h e m e s i n t h e I n d u s t r y.

BY STRUCTURE:

 Open - Ended Schemes

 Close - Ended Schemes

 Interval Schemes

BY INVESTMENT OBJECTIVE:

 Growth Schemes

 Income Schemes

 Balanced Schemes

 Money Market Schemes

OTHER SCHEMES

 Tax Saving Schemes

 Special Schemes

 Index Schemes

 Sector Specific Schemes

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FREQUENTLY USED TERMS:

Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the scheme minus its
liabilities. The per unit NAV is the net asset value of the scheme divided by the
number of units outstanding on the Valuation Date.

Sale Price

I s t h e p r i c e yo u p a y w h e n yo u i n v e s t i n a s c h e m e . I t ’ s a l s o c a l l e d O f f e r P r i c e . I t
may include a sales load.

Repurchase Price

Is the price at which a close -ended scheme repurchases its units and it may
include a back-end load. This is also called Bid Price.

Redemption Price

Is the price at whi ch open -ended schemes repurchase their units and close -ended
schemes redeem their units on maturity. Such prices are NAV related.

Sales Load

Is a charge collected b y a scheme when it sells the units. Also called, ‘Front -
end’s load. Schemes that do not charge a load are called ‘No Load’ schemes.

Repurchase or ‘Back -end’ Load

I t i s a c h a r g e c o l l e c t e d b y a s c h e m e w h e n i t b u ys b a c k t h e u n i t s f r o m t h e u n i t
holders.

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3 .9 : I N S UR A N CE

L i f e i n s u r a n c e i n I n d i a m a d e i t s d e b u t w e l l o v e r 1 0 0 ye a r s a g o .
I n o u r c o u n t r y, w h i c h i s o n e o f t h e m o s t p o p u l a t e d i n t h e w o r l d , t h e p r o m i n e n c e
of insurance is not as widely understood, as it ought to be. What follows is an
attempt to acquaint readers with some of the concepts of life insurance, with
special reference to

LIC. It should, however, be clearly understood that the following content is b y

no means an exhaustive description of the terms and conditions of an LIC policy
or its benefits or privileges.
For more details, please contact our branch o r divisional office. Any LIC Agent
w i l l b e g l a d t o h e l p yo u c h o o s e t h e l i f e i n s u r a n c e p l a n t o m e e t yo u r n e e d s a n d
render policy servicing.

What Is Life Insurance?

L i f e i n s u r a n c e i s a c o n t r a c t t h a t p l e d g e s p a ym e n t o f a n a m o u n t t o t h e p e r s o n
assured (or his nominee) on the happening of the event insured against.
T h e c o n t r a c t i s v a l i d f o r p a ym e n t o f t h e i n s u r e d a m o u n t d u r i n g :

T h e d a t e o f m a t u r i t y, o r S p e c i f i e d d a t e s a t p e r i o d i c i n t e r v a l s , o r U n f o r t u n a t e
death, if it occurs earlier. Among other things, the contract also provides for the
p a ym e n t o f p r e m i u m p e r i o d i c a l l y t o t h e C o r p o r a t i o n b y t h e p o l i c yh o l d e r . L i f e
insurance is universally acknowledged to be an institution, which eliminates
‘risk’, substituting certainty for uncertainty and comes to the timely aid of the
family in the unfortunate event of death of the breadwinner. By and large, life
insurance is civilisation’s partial solution to the problems caused by death. Life
insurance, in short, is concerned with two hazards that stand across the life -path
o f e v e r y p e r s o n . T h a t o f d yi n g p r e m a t u r e l y i s l e a v i n g a d e p e n d e n t f a m i l y t o f e n d
for itself. That of living till old age without visible means of support.

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LIFE INSURANCE VS. OTHER SAVINGS

Contract of Insurance:

A contract of insurance is a contract of utmost good faith technically known as

uberrima fides. The doctrine of disclosing all material facts is embodied in this
important principle, which applies to all forms of insurance.

A t t h e t i m e o f t a k i n g a p o l i c y, p o l i c y h o l d e r s h o u l d e n s u r e t h a t a l l q u e s t i o n s i n
the proposal form are correctly answered. Any misrepresentation, non -disclosure
or fraud in any document leading to the acceptance of the risk would render the
insurance contract null and void.

Protection:
Savings through life insurance guara ntee full protection against risk of death of
t h e s a v e r . A l s o , i n c a s e o f d e m i s e , l i f e i n s u r a n c e a s s u r e s p a ym e n t o f t h e e n t i r e
amount assured (with bonuses wherever applicable) whereas in other savings
s c h e m e s , o n l y t h e a m o u n t s a v e d ( w i t h i n t e r e s t ) i s p a ya b l e .

Aid to Thrift:

Life insurance encourages ‘thrift’. It allows long -term savings since payments
can be made effortlessly because of the ‘easy installment’ facility built into the
s c h e m e . ( P r e m i u m p a ym e n t f o r i n s u r a n c e i s m o n t h l y , q u a r t e r l y, h a l f ye a r l y o r
yearly).
For example: The Salary Saving Scheme popularly known as SSS provides a
c o n v e n i e n t m e t h o d o f p a yi n g p r e m i u m e a c h m o n t h b y d e d u c t i o n f r o m o n e ’ s
s a l a r y. I n t h i s c a s e t h e e m p l o ye r d i r e c t l y p a ys t h e d e d u c t e d p r e m i u m t o L I C . T h e
Salary Saving Scheme is ideal for any institution or establishment subject to
specified terms and conditions .

Liquidity:
In case of insurance, it is easy to acquire loans on the sole securit y of any policy
that has acquired loan value. Besides, a life insurance policy is also generally
accepted as security, even for a commercial loan.
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Tax Relief:

Life Insurance is the best way to enjo y tax deductions on income tax and wealth
tax. This is available for amounts paid by way of premium for life insur ance
subject to income tax rates in force. Assessee can also avail of provisions in the
law for tax relief. In such cases the assured in effect pays a lower premium for
insurance than otherwise.

Money When You Need It:

A policy that has a suitable insuran ce plan or a combination of different plans

can be effectively used to meet certain monetary needs that may arise from time -
to-time. Children’s education, start -in-life or marriage provision or even
periodical needs for cash over a stretch of time can be less stressful with the
help. Alternatively, policy money can be made available at the time of one’s
retirement from service and used for any specific purpose, such as, purchase of a
h o u s e o r f o r o t h e r i n v e s t m e n t s . A l s o , l o a n s a r e g r a n t e d t o p o l i c yh o l d e r s f o r
house building or for purchase of flats (subject to certain conditions).

Who Can Buy A Policy?

Any person who has attained majority and is eligible to enter into a valid
contract can insure himself/herself and those in whom he/she has insurable
interest. Policies can also be taken, subject to certain conditions, on the life of
one’s spouse or children. While underwriting proposals, certain factors such as
t h e p o l i c yh o l d e r ’ s s t a t e o f h e a l t h , t h e p r o p o n e n t ’ s i n c o m e a n d o t h e r r e l e v a n t
factors are considered by the Corporation.

Insurance for Women:

Prior to nationalization (1956), many private insurance companies would offer

insurance to female lives with some extra premium or on restrictive conditions.
However, after nationalizat ion of life insurance, the terms under which life
insurance is granted to female lives have been reviewed from time -to-time. At
present, women who work and earn an income are treated at par with men. In

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other cases, a restrictive clause is imposed, only if the age of the female is up to
3 0 ye a r s a n d i f s h e d o e s n o t h a v e a n i n c o m e a t t r a c t i n g I n c o m e T a x .

Medical and Non-Medical Schemes

Life insurance is normall y offered after a medical examination of the life to be

assured. However, to facilitate greater spr ead of insurance and also to avoid
inconvenience, LIC has been extending insurance cover without any medical
examination, subject to certain conditions.

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With Profit and Without Profit Plans

An insurance policy can be ‘with’ or ‘without’ profit. In the former, bonuses

d i s c l o s e d , i f a n y, a f t e r p e r i o d i c a l v a l u a t i o n s a r e a l l o t t e d t o t h e p o l i c y a n d a r e
p a ya b l e a l o n g w i t h t h e c o n t r a c t e d a m o u n t .

In ‘without’ profit plan the contracted amount is paid without any addition. The
premium rate charged for a ‘with’ profit policy is therefore higher than for a
‘ w i t h o u t ’ p r o f i t p o l i c y.

Key Man Insurance:

K e y M a n i n s u r a n c e i s t a k e n b y a b u s i n e s s f i r m o n t h e l i f e o f k e y e m p l o ye e ( s ) t o
protect the firm against financial losses, which may occur due to the premature
demise of the Key Man.

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3 .1 0 : D E RI V AT I V E S

Types of Derivatives

Forwards: A forward contract is a customized contract between two entities,

w h e r e s e t t l e m e n t t a k e s p l a c e o n a s p e c i f i c d a t e i n t h e f u t u r e a t t o d a y’ s p r e -
agreed price.

Futures: A futures contract is an agreement between two parties to buy or sell an

asset at a certain time in the future at a certain price. Futures contracts are
s p e c i a l t yp e s o f f o r w a r d c o n t r a c t s i n t h e s e n s e t h a t t h e f o r m e r a r e s t a n d a r d i z e d
exchange-traded contracts, such as futures of the Nifty index. Options: An Option
is a contract which gives the right, but not an obligation, to buy or sell the
u n d e r l yi n g a t a s t a t e d d a t e a n d a t a s t a t e d p r i c e . W h i l e a b u ye r o f a n o p t i o n p a ys
t h e p r e m i u m a n d b u ys t h e r i g h t t o e x e r c i s e h i s o p t i o n , t h e w r i t e r o f a n o p t i o n i s
the one who receives the option premium and therefore obliged to sell/buy the
a s s e t i f t h e b u ye r e x e r c i s e s i t o n h i m .

O p t i o n s a r e o f t w o t yp e s - C a l l s a n d P u t s o p t i o n s :

‘Calls’ give the buyer the right but not the obligation to buy a given quantity of
t h e u n d e r l yi n g a s s e t , a t a g i v e n p r i c e o n o r b e f o r e a g i v e n f u t u r e d a t e s .

‘Puts’ give the buyer the right, but not the obligation to sell a given quantity of
u n d e r l yi n g a s s e t a t a g i v e n p r i c e o n o r b e f o r e a g i v e n f u t u r e d a t e .

P r e s e n t l y, a t N S E f u t u r e s a n d o p t i o n s a r e t r a d e d o n t h e N i f t y, C N X I T , B A N K
Nifty and 116 single stocks.

W a r r a n t s : O p t i o n s g e n e r a l l y h a v e l i v e s o f u p t o o n e ye a r . T h e m a j o r i t y o f
options traded on exchanges have maximum maturity of nine months. Longer
dated options are called Warrants and are generally traded over -the counter.

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What is an ‘Option Premium’?

A t t h e t i m e o f b u y i n g a n o p t i o n c o n t r a c t , t h e b u ye r h a s t o p a y p r e m i u m . T h e
premium is the price for acquiring the right to bu y or sell. It is price paid b y the
o p t i o n b u ye r t o t h e o p t i o n s e l l e r f o r a c q u i r i n g t h e r i g h t t o b u y o r s e l l . O p t i o n
premiums are always paid up front.

What is ‘Commodity Exchange’?

A Commodity Exchange is an association, or a company of any other body

corporat e organizing futures trading in commodities. In a wider sense, it is taken
to include any organized market place where trade is routed through one
mechanism, allowing effective competition among buyers and among sellers –
t h i s w o u l d i n c l u d e a u c t i o n - t yp e e x c h a n g e s , b u t n o t w h o l e s a l e m a r k e t s , w h e r e
trade is localized, but effectively takes place through many non -related
i n d i v i d u a l t r a n s a c t i o n s b e t w e e n d i f f e r e n t p e r m u t a t i o n s o f b u ye r s a n d s e l l e r s .

What is meant by ‘Commodity’?

FCRA Forward Contracts (Regulati on) Act, 1952 defines “goods” as “every kind
of movable property other than actionable claims, money and securities”.
Futures’ trading is organized in such goods or commodities as are permitted by
the Central Government. At present, all goods and products of agricultural
(including plantation), mineral and fossil origin are allowed for futures trading
under the auspices of the commodity exchanges recognized under the FCRA.

What is Commodity derivatives market?

C o m m o d i t y d e r i v a t i v e s m a r k e t t r a d e c o n t r a c t s f o r w h i c h t h e u n d e r l yi n g a s s e t i s
c o m m o d i t y. I t c a n b e a n a g r i c u l t u r a l c o m m o d i t y l i k e w h e a t , s o yb e a n s , r a p e s e e d ,
cotton, etc or precious metals like gold, silver, etc.

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Difference between Commodity and Financial derivatives

The basic concept of a derivative contract remains the same whether the
u n d e r l yi n g h a p p e n s t o b e a c o m m o d i t y o r a f i n a n c i a l a s s e t . H o w e v e r t h e r e a r e
some features which are very peculiar to commodity derivative markets. In the
case of financial derivatives, most of these contrac ts are cash settled. Even in
t h e c a s e o f p h ys i c a l s e t t l e m e n t , f i n a n c i a l a s s e t s a r e n o t b u l k y a n d d o n o t n e e d
s p e c i a l f a c i l i t y f o r s t o r a g e . D u e t o t h e b u l k y n a t u r e o f t h e u n d e r l yi n g a s s e t s ,
p h ys i c a l s e t t l e m e n t i n c o m m o d i t y d e r i v a t i v e s c r e a t e s t h e n e e d f o r w a r e h o u s i n g .
S i m i l a r l y, t h e c o n c e p t o f v a r yi n g q u a l i t y o f a s s e t d o e s n o t r e a l l y e x i s t a s f a r a s
f i n a n c i a l u n d e r l yi n g a r e c o n c e r n e d . H o w e v e r i n t h e c a s e o f c o m m o d i t i e s , t h e
q u a l i t y o f t h e a s s e t u n d e r l yi n g a c o n t r a c t c a n v a r y a t t i m e s .

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3 .1 1 : C O M MO DI T I E S M A RK E T

Commodity markets are markets where raw or primary products are exchanged.
These raw commodities are traded on regulated commodities exchanges, in which
they are bought and sold in standardized contracts.

India Commodity Market

The vast geographical extent of India and her huge population is aptly
complemented by the size of her market. The broadest classification of the
Indian Market can be made in terms of the commodity market and the bond
market. Here, we shall deal with the former in a little detail.

The commodity market in India comprises of all palpable markets that we come
across in our daily lives. Such market share social institutions that facilitate
e x c h a n g e o f g o o d s f o r m o n e y. T h e c o s t o f g o o d s i s e s t i m a t e d i n t e r m s o f
domestic currency.

Indian Commodity Market can be subdivided into the following two categories:

 Wholesale Market

 Retail Market

Let us now take a look at what the present scenario of each of the above markets
is like.

The traditional wholesale market in India dealt with whole sellers who bought
goods from the farmers and manufacturers and then sold them to the retailers
after making a profit in the process. It was the retailers who finall y sold the
goods to the consumers. With the passage of time the importance of whole sellers
began to fade out for the following reasons:

 The whole sellers in most situations, acted as mere parasites that did not
add any value to the product but raised its price which was eventually
faced by the consumers.

 The improvement in transport facilities made the retailers directly interact

with the producers and hence the need for whole sellers was not felt.
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I n r e c e n t ye a r s , t h e e x t e n t o f t h e r e t a i l m a r k e t ( b o t h o r g a n i z e d a n d u n o r g a n i z e d )
has evolved in leaps and bounds. In fact, the s uccess stories of the commodity
m a r k e t o f I n d i a i n r e c e n t ye a r s h a v e m a i n l y c e n t r e d o n t h e g r o w t h g e n e r a t e d b y
the Retail Sector. Almost every commodity under the sun both agricultural and
industrial is now being provided at well distributed retail outlets throughout the
c o u n t r y.

Moreover, the retail outlets belong to both the organized as well as the
u n o r g a n i z e d s e c t o r . T h e u n o r g a n i z e d r e t a i l o u t l e t s o f t h e ye s t e r ye a r s c o n s i s t o f
small shop owners who are price takers where consumers face a highly
competitive price structure. The organized sector on the other hand is owned by
various business houses like Pantaloons, Reliance, Tata and others. Such markets
are usually sell a wide range of articles both a gricultural and manufactured,
edible and inedible, perishable and durable. Modern marketing strategies and
other techniques of sales promotion enable such markets to draw customers from
e v e r y s e c t i o n o f t h e s o c i e t y. H o w e v e r t h e g r o w t h o f s u c h m a r k e t s h a s s t i l l
centred on the urban areas primarily due to infrastructural limitations.

Considering the present growth rate, the total valuation of the Indian Retail
M a r k e t i s e s t i m a t e d t o c r o s s R s . 1 0 , 0 0 0 b i l l i o n b y t h e ye a r 2 0 1 0 . D e m a n d f o r
commodities is likely to become four times by 2010 than what it presently is.

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3 .1 2 : R E A L E S T A T E

Indian Real Estate: “Undeniably tremendous!”

And, that is the undeniable verdict of a Price Waterhouse Coopers study

conducted on the investment environment in terms of Indian real estate. Ever
since the Government of India gave its stamp of approval to 100% foreign direct
investment (FDI) in housing and real estate, NRIs, overseas real estate
developers, hoteliers, and others have been tracking a path to the sub -continent.
Sensing the business potential for developing serviced plots, constructing
residential / commercial complexes, business centres / offices, mini-
townships, investments in infrastructure facilities e.g. roads, bridges,
manufacture of building materials , etc., FDI is flooding in to take advantage of
the tremendous real estate opportunities.

Indian Real Estate: Growing Potential

The increasing demand for Indian real estate has not only generated emplo yment,
it has also been instrumental in the growth of steel, cement, bricks and other
related industries. Estimated to be in the region of US $12 -billion, real estate
d e v e l o p m e n t i n I n d i a i s g r o w i n g b y a s m u c h a s 3 0 % e a c h ye a r . A l r e a d y, e i g h t y
percent of Indian real estate has been developed for residential space, and 20%
comprises of shopping malls, office space, hospitals and hotels. Fuelled largely
due to off-shoring / outsourcing of BPOs , call centers, high-end technology
consulting and software development and programming firms, real estate growth
in India has great investment prospective.

Indian Real Estate: Investment Opportunities

Tax reform measures in the last few years have ensure d real estate in India is one
of the most productive investment sectors, with money invested in real estate
offering regular returns on investment including appreciating in value. And, the
Government of India b y opening up 100% foreign direct investment, a nd fiscal

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reforms like stamp duty and property tax reductions, setting up real estate mutual
funds has turned real estate into a promising investment option.

A l r e a d y, i t h a s a p p r o v e d t h e f i r s t R s . 1 0 0 - c r o r e F D I p r o j e c t i n G u r g a o n . W i t h
urban populations ex pected to grow from 290 -million to 600-million by 2021,
housing requirements are expected to top 68 -million by 2021, which means
India’s urban housing sector could do with an investment of US $25 -billion over
a 5 - ye a r p e r i o d . P o i s e d f o r r a p i d u r b a n i z a t i o n , 3 o u t o f 1 0 o f t h e w o r l d ’ s l a r g e s t
cities are in India. An influx of jobs due to off -shoring / outsourcing has resulted
in rising disposable incomes, increased consumerism, factors responsible for
changing the face of residential and commercial real estat e in India. Wishing to
take advantage of real estate investment opportunities, banks and housing
finance companies are falling over themselves to tie -up with developers or offer
project loans at competitive rates.

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3 .1 3 : S H A RE MA R K E T

The Stock Market is a market which deals in stocks of companies belonging to

both the public sector as well as private. The Indian Stock Market is mostl y
referred to as the Share Market because it deals primarily with shares of various
companies listed in for trading. The stock market is a viable investment option at
hands for investors in India. Since Indian Stocks market is showing strength and
m a k i n g s t e a d y g a i n s o v e r l a s t f e w ye a r s b a r r i n g f e w l o w e b b s i t i s w i s e t o p r e f e r
stock market as reliable mode of investment than other investment options.

INVESTING IN STOCKS

Many of us would like to try our luck in the Stock markets. Yes, why not ?
T r a d i n g s t o c k s i s o n e o f t h e m o s t l u c r a t i v e m e t h o d s o f m a k i n g m o n e y.

Here’s why:

1 . Y o u d o n o t n e e d a l o t o f m o n e y t o s t a r t m a k i n g m o n e y , u n l i k e b u yi n g p r o p e r t y
a n d p a yi n g a m o n t h l y m o r t g a g e .

2. It requires very minimal time to trade - unlike building a conventional

business.

3. Its ‘fast’ cash and allows for quick liquidation (You can convert it to cash
e a s i l y, u n l i k e s e l l i n g a p r o p e r t y o r a b u s i n e s s ) .

4. it’s easy to learn how to profit from the stock market.

B u t yo u n e e d t o h a v e yo u r b a s i c s c l e a r . U n l e s s yo u d o … . yo u w i l l b e w a s t i n g
y o u r t i m e a n d l o s i n g m o n e y. Y o u n e e d t o b e c r y s t a l c l e a r o f e a c h a n d e v e r y
a s p e c t o f I n v e s t m e n t s , s t o c k o p t i o n s , S t o c k T r a d i n g , C o m p a n y, S h a r e s , D i v i d e n d
& T yp e s o f S h a r e s , D e b e n t u r e s , S e c u r i t i e s , M u t u a l F u n d s , I P O , F u t u r e s &
Options, What does the Share Market con sist of? Exchanges, Indices, SEBI ,
A n a l ys i s o f S t o c k s – H o w t o

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c h e c k o n w h a t t o b u y? , T r a d i n g T e r m s ( L i m i t O r d e r , S t o p L o s s , P u t , C a l l ,
Booking Profit & Loss, Short & Long), Trading Options – Brokerage Houses etc.

You must have heard stories of the fabulous returns made in the stock markets in
r e c e n t m o n t h s . A n d yo u l o n g e d w i s h f u l l y f o r a p i e c e o f t h e a c t i o n . B u t yo u c o u l d
also have heard horror stories of how a friend lost his shirt in the stock market.
A n d w e r e p r o m p t l y t h a n k f u l t h a t yo u d i d n ’ t l o s e yo u r s .

Wisely chosen (those are the key words), stocks are a must for any serious
investor.

T h e y a d d t h a t e x t r a z i n g t o yo u r c o l l e c t i o n o f i n v e s t m e n t s .

Study after study has revealed that over the long term, stocks outperform all
o t h e r a s s e t s . T h a t m e a n s yo u c a n e x p e c t t o e a r n m o r e f r o m s h a r e s t h a n f r o m
bonds, fixed deposits or gold. No doubt the risk is higher with shares. But if you
a r e i n f o r t h e l o n g h a u l , s o a r e t h e p o t e n t i a l r e t u r n s . B u t b e f o r e yo u t a k e t h e
p l u n g e a n d i n v e s t i n t h e s t o c k m a r k e t , g e t yo u r b a s i c s r i g h t .

1. Stocks are not only for the brilliant

S t o c k s a r e f a r f r o m b e i n g r o c k e t s c i e n c e . T h e s t r a t e g i e s yo u n e e d t o k n o w t o
m a x i m i s e yo u r w e a l t h a n d t h e p i t f a l l s yo u n e e d t o a v o i d a r e n o t b e yo n d
c o m p r e h e n s i o n . E v e n i f yo u f e e l t h a t yo u d o n ’ t h a v e t h e t i m e , a n d p r e f e r t o
e n t r u s t yo u r m o n e y t o a p o r t f o l i o m a n a g e r o r m u t u a l f u n d , t h e l e a s t yo u n e e d t o
k n o w i s w h i c h f u n d s a r e b e t t e r , h o w t o c h o o s e yo u r f u n d m a n a g e r , a n d k e e p a t a b
on his performance.

2. So what is a share?

A n y b u s i n e s s h a s a l o t o f a s s e t s : T h e m a c h i n e r y, b u i l d i n g s , f u r n i t u r e , s t o c k - i n -
trade, cash, etc. It will also have liabilities. This is what the compan y owes other
people. Bank loans, money owed to people from whom things have been bought
on credit, are examples of liabilities. Take away the liabilities from the total
a s s e t s , a n d yo u a r e l e f t w i t h t h e c a p i t a l . C a p i t a l i s t h e a m o u n t t h a t t h e o w n e r h a s
in the business. As the business grows and makes profits, it adds to its capital.
T h i s c a p i t a l i s s u b d i v i d e d i n t o s h a r e s ( o r s t o c k s ) . S o i f a c o m p a n y’ s c a p i t a l i s R s
10 crores (Rs 100 million), that could be divided into 1 crore (10 million) shares
of Rs 10 each. Part of this capital, or some of the shares, is held by the people

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who started the business, called the promoters. The other shares are held by
i n v e s t o r s . T h e s e i n v e s t o r s c o u l d b e p e o p l e l i k e yo u a n d m e o r m u t u a l f u n d s a n d
other institutional investors.

3. What does this mean for me?

You must have realised by now that owning a share means owning a share in the
b u s i n e s s . W h e n yo u i n v e s t i n s t o c k s , y o u d o n o t i n v e s t i n t h e m a r k e t . Y o u i n v e s t
i n t h e e q u i t y s h a r e s i n a c o m p a n y. T h a t m a k e s yo u a s h a r e h o l d e r o r p a r t o w n e r i n
t h e c o m p a n y. S i n c e yo u o w n p a r t o f t h e a s s e t s o f t h e c o m p a n y, yo u a r e e n t i t l e d
t o t h e p r o f i t s t h o s e a s s e t s g e n e r a t e . O r b e a r t h e l o s s . S o , i f yo u o w n 1 0 0 s h a r e s
o f G u j a r a t A m b u j a C e m e n t , f o r e x a m p l e , yo u o w n a v e r y s m a l l p a r t - - s i n c e
Gujarat Ambuja has millions of shares -- of the company. You own a share of its
assets, its liabilities, its profits, its losses, and s o on. Owning shares, therefore,
means having a share of a business without the headache of managing it. Your
Gujarat Ambuja shares, for instance, will rise in value if the company makes
good profits, or may do badly if people stop building houses and demand for
cement falls.

4. What do mean by rise in value?

If the company has divided its capital into shares of Rs 10 each, then Rs 10 is
called the face value of the share. When the share is traded in the stock market,
however, this value may go up or down depending on supply and demand for the
s t o c k . I f e v e r yo n e w a n t s t o b u y t h e s h a r e s , t h e p r i c e w i l l g o u p . I f n o b o d y w a n t s
to buy them, and many want to sell the shares, the price will fall. The value of a
share in the market at any point of time is called the price of the share or the
market value of a stock. So the share with a face value of Rs 10, may be quoted
at Rs 55 (higher than the face value), or even R s 9 (lower than the face value). If
the number of shares in a company is multiplied by its market value, the result
is market capitalisation . For instance, a company having 10 million shares of a
face value Rs 10 and a market value of Rs 30 as on November 1, 2004, will have
a market capitalisation of Rs 300 million as on November 1, 2004.

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5. So how does one buy shares?

A l r i g h t , yo u h a v e d e c i d e d yo u w a n t p a r t o f t h e a c t i o n . S h a r e s a r e b o u g h t a n d
sold on the stock exchanges -- the two main ones in India are the National Stock
Exchange (NSE), and the Bombay Stock Exchange (BSE).

Y o u c a n u s e t h r e e d i f f e r e n t r o u t e s t o b u y s h a r e s : T h r o u g h yo u r b r o k e r , t r a d e
directly online, or buy shares when a company comes out with a fresh issue of
shares. This is called an i nitial public offering (IPO).

Clear the jargon first!

If a brand new company or a company already in existence, but with no shares

listed on the stock exchange, decides to invite the public to buy shares, it is
called an Initial Public Offering (IPO).

I t i s t h e f i r s t t i m e t h a t i t i s a p p r o a c h i n g t h e p u b l i c f o r m o n e y. T h a t i s w h y t h e
company is also referred to as ‘going public’.

I f a c o m p a n y t h a t i s a l r e a d y l i s t e d ( h a s i t s s h a r e s f o r b u yi n g a n d s e l l i n g o n t h e
stock exchange) is coming out with a fresh tr anche of shares, it is called the new
issue (like the current Dena Bank issue).

Then, there are the disinvestments -- where the government sells its stakes in
public sector companies in the market. Although these are not technically new
issues, they too create a buzz in the market.

~ Every company needs money

A company needs money to grow and expand -- to purchase new machinery, land
or even repay its loans. To do that, one of the options it has is to ask the public
f o r m o n e y. I t c o m e s o u t w i t h a p u b l i c o r n e w i s s u e . T h e c o m p a n y o f f e r s s h a r e s
a n d t h e p u b l i c b u ys t h o s e s h a r e s . T h e s e s h a r e s a r e l i s t e d o n t h e S t o c k E x c h a n g e .

P e o p l e w h o i n v e s t i n t h e c o m p a n y g e t r e w a r d e d ( a s d i v i d e n d s ) b y t h e c o m p a n y,
or sell the shares as the share price rises.

~ How can I buy these shares?

T h e r e a r e t w o w a ys :
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 I f yo u w a n t t h e s h a r e s o f a c o m p a n y t h a t i s a l r e a d y l i s t e d , yo u c a n b u y
t h e m f r o m t h e S t o c k E x c h a n g e t h r o u g h b r o k e r s . T h i s i s c a l l e d b u yi n g f r o m
the secondary market.

 B u yi n g f r o m t h e p r i m a r y m a r k e t m e a n s t h a t yo u b u y t h e m d i r e c t l y f r o m
companies when they make new issues of shares or come out with IPOs.
You can also get rights issues and bonus shares, but more on that later.

W h y w o u l d yo u p i c k u p s h a r e s t h r o u g h I P O s , r a t h e r t h a n b u y t h e m f r o m t h e
market?

Because, often, companies issue their shares cheaply and, later, when these
shares are listed on the Stock Exchange, they list at a premium (higher than the
p r i c e a t w h i c h t h e y w e r e i s s u e d ) . S o yo u c o u l d m a k e a l o t o f m o n e y i f y o u s e l l
those shares.

What if you don’t want to sell the shares soon?

Sure. It also happens that companies who are going public or listing their shares
for the first time also usually offer their shares cheap, and could go on to
become very successful. IPOs thus offer investor s the chance to participate in
t h e i r p r o s p e r i t y c h e a p l y.

T h e s e l i s t i n g g a i n s a r e t h e c h i e f a t t r a c t i o n s o f b u yi n g i n t h e p r i m a r y m a r k e t .

~ So what’s the catch?

The trouble is, there are usuall y plenty of applicants for good IPOs. And they are
heavily oversubscribed (the demand for the number of shares is more than the
number being offered for sale). And although 25% of the issue has to be reserved
mandatorily for the retail inv estor (those who apply for shares of a value less
than Rs 50,000), even the retail portion is oversubscribed several times for good
issues. In this scenario, lots are drawn and onl y a few individuals are allotted
s h a r e s . H e n c e , yo u m a y n o t g e t t h e n u m b e r o f s h a r e s yo u a s k e d f o r . T h e r e i s a l s o
a c h a n c e t h a t yo u m a y a l s o n o t g e t a n a l l o t m e n t a t a l l , i n w h i c h c a s e yo u r m o n e y

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w i l l b e r e t u r n e d t o y o u . I f yo u d o n ’ t g e t a n y s h a r e s , yo u r m o n e y w i l l b e r e t u r n e d
t o yo u w i t h i n 2 1 d a y s . T h i s i s t r u e e v e n i f yo u g e t p a r t i a l a l l o t m e n t ( yo u g e t o n l y
s o m e o f t h e s h a r e s yo u a p p l i e d f o r ) , a n d t h e e x t r a m o n e y yo u h a v e p a i d i s
r e t u r n e d . I f yo u d o g e t a n a l l o t m e n t , yo u r d e m a t a c c o u n t w i l l b e c r e d i t e d w i t h
t h e s h a r e s . O n c e t h e s h a r e s a r e l i s t e d , yo u c a n s e l l t h e m i n t h e m a r k e t a n d p o c k e t
t h e g a i n s . O f c o u r s e , yo u c a n a l s o h o l d yo u r s h a r e s f o r t h e l o n g t e r m i f yo u w a n t ,
but most people opt out if the price on listing is well above the price at which
y o u w e r e a l l o t t e d t h e s t o c k s . R e m e m b e r , yo u n e e d t o h a v e a d e m a t a c c o u n t
b e f o r e a p p l yi n g f o r I P O s . E l s e yo u r f o r m w i l l b e r e j e c t e d .

Stock Market Indices:

A stock index represents the change in the value of a set of stocks, which
c o n s t i t u t e t h e i n d e x . M o r e p r e c i s e l y, a s t o c k i n d e x n u m b e r i s t h e c u r r e n t r e l a t i v e
value of the weighted average of the prices of a pre -defined group of stocks. For
example, if an index is assigned an arbitrary base value of 100 on a given date
with a certain number of stocks assigned to it, this date onwards, the change in
index would be measured in terms of changes that the base value of 100 acquires.
A good stock market index is o ne, which is well diversified and is adequately
liquid.

Some of the prominent indices in India are:

1. Sensex

2. Nifty

3. Nifty Junior

4. BSE 200

5. Nifty Bankex etc.

Among all these indices, BSE Sensex and Nifty deserve special mention. Brief
details about these indices are as follows:

1. BSE Sensex: The Bombay Stock Exchange is the oldest stock market of
India. “Sensex ” stands for sensitive index. It was created in 1978 -79 with a
base value of 100. It comprises of thirty stocks of leading Indian
companies and is well diversified with representation of almost all the
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s e c t o r s o f t h e e c o n o m y l i k e B a n k i n g , I n f o r m a t i o n T e c h n o l o g y, C e m e n t ,
Autos, Manufacturing, Capital Goods, etc. The Sensex is revised from time
to time to incorporate companies belonging to emerging sect ors of the
e c o n o m y. T h e m o v e m e n t i n S e n s e x v a l u e s o n w o r k i n g d a y s i s c o m p u t e d o n
a real time basis.

2. Nifty: Nifty is the stock market index of National Stock Ex change. It

comprises the stocks of 50 of the largest and the most liquid companies
from about 25 sectors in India. It was introduced in 1995 keeping in mind
that it would be used for modern applications such as index funds and
index derivatives, besides reflecting the stock market behaviour. NSE
maintained it till July 1998 and subsequently it has bee n managed b y IIS L
(India Index Services and Products Ltd.)

3. Sectoral Indices: Sectoral Indices are those indices, which represent a

specific industry sector. All stocks in a sectoral index belong to that sector
o n l y. H e n c e a n i n d e x l i k e t h e N S E B a n k e x i s m a d e o f B a n k i n g S t o c k s .
Sectoral Indices are very useful in tracking the movement and performance
of particular sector.

Simple tips for stock market investors:

1 . I n v e s t m e n t i s v e r y e a s y i f yo u a p p r o a c h s t o c k m a r k e t s w i t h a n o p e n m i n d .
D o n ’ t c l u t t e r yo u r m i n d w i t h n u m b e r s l i k e s u p p o r t , r e s i s t a n c e a n d v o l u m e s e t c .
Those are meant for traders. We are investors then why should we waste time in
thinking about them.

2. Invest in good companies with sound business prospects at reasonable

valuations and give management sufficient time. Treat every short term fall as an
i n v e s t m e n t o p p o r t u n i t y. S i n c e r e l y b e l i e v e i n f u n d a m e n t a l s .

3. Read every good article on businesses and companies. Listen to every expert.
A n a l ys e t h e m i n y o u r o w n w a y t h e n i n v e s t i n g o o d s t o c k s . D o n ’ t f o l l o w a n y o n e
b l i n d l y. I d a i l y s p e n d 6 - 8 h o u r s i n r e a d i n g a n d 1 - 2 h o u r s i n l i s t e n i n g a b o u t
stocks and companies. I am passionate about stocks and companies. So I enjoy
every moment of reading.
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4. Never follow herds and broker tips. Buy good compan ies when no one is
t a l k i n g a b o u t t h e m a n d s e l l t h e s c r i p w h e n a l l a r e b u yi n g i t . Q u a r t e r l y r e s u l t s a n d
b a l a n c e s h e e t s w i l l h e l p yo u i n p i c k i n g g o o d c o m p a n i e s . I b o u g h t m e t a l s t o c k s ,
Bartronics and Tanla Solutions in the last week in spite of steep fall as I believe
in their fundamentals and growth prospects.

5. Allocate 25% of money to buy emerging stocks and contra stocks. Those who
bought sugar stocks? (Select companies) in 2007 got more than 100% returns in
j u s t 1 0 m o n t h s . E m e r g i n g s t o c k s w i l l t a k e 3 - 5 ye a r s b u t s o m e t i m e s g i v e m o r e
than 500% returns.

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4 : C AS E S T UD Y

“Give me a stock clerk with a goal and I’II give you a man who will make
history. Give me a man with no goals and I’II give you a stock clerk.” -James
Cash.

“Great investment opportunities come around when excellent companies are

surrounded by unusual circumstances that cause the stock to be misappraisal.” -
Warren Buffet

 Wisely chosen (those are the key words), stocks are a must for any serious
investor.

 T h e y a d d t h a t e x t r a z i n g t o yo u r c o l l e c t i o n o f i n v e s t m e n t s .

 Study after study has revealed that over the long term, stocks outperform
a l l o t h e r a s s e t s . T h a t m e a n s yo u c a n e x p e c t t o e a r n m o r e f r o m s h a r e s t h a n
from bonds, fixed deposits or gold.

 N o d o u b t t h e r i s k i s h i g h e r w i t h s h a r e s . B u t i f yo u a r e i n f o r t h e l o n g h a u l ,
so are the potential returns.

Why do people buy shares against many other available investment options?

In a line: Because they can make big money on it.

T h e r e ’ s a h u g e d i f f e r e n c e b e t w e e n t h e g a i n s a n d l o s s e s yo u c a n m a k e b y
i n v e s t i n g i n t h e s t o c k m a r k e t a s c o m p a r e d t o yo u r r e t u r n s f r o m b a n k f i x e d
d e p o s i t s , i n s u r a n c e , m u t u a l f u n d s a n d o t h e r i n v e s t m e n t s . I n s t o c k s , yo u c a n m a k e
unbelievable money -- it’s not uncommon for people to have doubled their money
i n t h e l a s t o n e ye a r . O n t h e f l i p s i d e ( t h e r e i s a l w a ys o n e ) , w h e n t h e m a r k e t s
c r a s h e d i n M a y, m a n y p e o p l e l o s t m o r e t h a n a q u a r t e r o f t h e i r i n v e s t m e n t .
C o m p a r e t h i s w i t h y o u r b a n k f i x e d d e p o s i t . Y o u r F D w i l l o n l y f e t c h yo u a r o u n d
f i v e t o s i x p e r c e n t p e r a n n u m , b u t yo u c a n b e s u r e o f g e t t i n g yo u r m o n e y b a c k .
W h e n yo u p u t yo u r m o n e y i n a b a n k d e p o s i t , yo u l o a n t h e m o n e y t o a b a n k f o r a

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f i x e d r e t u r n ( r a t e o f i n t e r e s t ) a n d a f i x e d t e n u r e ( n u m b e r o f m o n t h s o r ye a r s ) . A t
t h e e n d , yo u g e t b a c k yo u r o r i g i n a l a m o u n t a n d yo u a r e p a i d i n t e r e s t o n t h e s a m e .
W h e n yo u i n v e s t i n s t o c k s , yo u d o n o t i n v e s t i n t h e m a r k e t ( d e s p i t e w h a t yo u
t h i n k ) . Y o u i n v e s t i n t h e e q u i t y s h a r e s o f a c o m p a n y. T h a t m a k e s y o u a
s h a r e h o l d e r o r p a r t - o w n e r i n t h e c o m p a n y. T h e g o o d n e w s i s t h a t s i n c e yo u o w n a
p a r t o f t h e a s s e t s o f t h e c o m p a n y, yo u a r e e n t i t l e d t o a s h a r e i n t h e p r o f i t s t h o s e
assets generate. The bad news is that you are also expected to bear the losses, if
a n y. N o w , i f yo u a r e a s h a r e h o l d e r , t h e r e a r e t w o w a ys y o u c a n b e n e f i t f r o m t h e
p r o f i t s o f t h e c o m p a n y: c a p i t a l a p p r e c i a t i o n o r d i v i d e n d .

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5 : CO N CL US I O N

The size of the market has grown and the size of the insurable population in
I n d i a i s i n d e e d v a s t a n d t h e e x i s t i n g p l a ye r h a s m a n a g e d t o c o v e r a b o u t o n e -
f o u r t h o f i t . T h e o p p o r t u n i t i e s b e f o r e t h e p l a ye r s a r e t h e r e f o r e a p l e n t y i n t e r m s
of target audience. The falling interest rates, the collapse of many small -time
financial institutions, the scope for entering related areas like banking and
p e n s i o n s i n a b i d f o r s yn e r g y a n d t h e p r o m i s e o f e - c o m m e r c e a r e s o m e o f t h e
other opportunities knocking at the doors of the insurance majors.

From the investor point of view ULIP is very good option for investing as
compared to other instrumen ts. ULIP has all the features of bank like safety and
i t h a s a l s o a l l t h e a d v a n t a g e s o f m u t u a l f u n d l i k e h i g h r e t u r n a n d f l e x i b i l i t y.
Basicall y ULIP is a long term investment so it is more beneficial for the event
like child’s education or his marriage.

There are many private companies who consistently given very good returns to
investor. They are designing life insurance product as effective financial tool
that will enable consumer to plan and fulfill t heir financial goals -saving for their
child’s education or marriage, wealth creation or even creating a retirement
k i t t y.
For Indian investor whose primary concern about investing is safet y can be
fulfill in ULIP Also it is great platform for them to invest and get high return
Insurance has today become a ma instay of an y market economy since it offers
plenty of scope for garnering large sums of money for long periods of time. A
well-regulated life insurance industry which moves with the times by offering its
customers tailor -made products to satisfy their fin ancial needs is, therefore,
essential if we desire to progress towards a worry -free future. Life insurance is a
long term service and innovations will benefit the customer immensely and allow
him to participate in countries economic growth.

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