BLACK BOOK

WHICH INVESTMENT IS THE BEST INVESTMENT AMONG DIFFERENT FINANCIAL MARKETS.

INDEX

CHAPTER 1- INTRODUCTION

TABLE OF CONTENTS

 What Are Financial Markets?

 Understanding Financial Markets
 Types of Financial Markets
 Financial Markets FAQs
 Investment Options Available in India


What Are Financial Markets?

Financial markets refer broadly to any marketplace where the trading of securities occurs,
including the stock market, bond market, forex market, and derivatives market, among
others. Financial markets are vital to the smooth operation of capitalist economies.

KEY TAKEAWAYS

 Financial markets refer broadly to any marketplace where the trading of securities
occurs.
 There are many kinds of financial markets, including (but not limited to) forex,
money, stock, and bond markets.
 These markets may include assets or securities that are either listed on regulated
exchanges or else trade over-the-counter (OTC).
 Financial markets trade in all types of securities and are critical to the smooth
operation of a capitalist society.
 When financial markets fail, economic disruption including recession and
unemployment can result.

Understanding the Financial Markets

Financial markets play a vital role in facilitating the smooth operation of capitalist
economies by allocating resources and creating liquidity for businesses and entrepreneurs.
The markets make it easy for buyers and sellers to trade their financial holdings. Financial
markets create securities products that provide a return for those who have excess
funds (Investors/lenders) and make these funds available to those who need additional
money (borrowers). 

The stock market is just one type of financial market. Financial markets are made by buying
and selling numerous types of financial instruments including equities, bonds, currencies,
and derivatives. Financial markets rely heavily on informational transparency to ensure that
the markets set prices that are efficient and appropriate. The market prices of securities may
not be indicative of their intrinsic value because of macroeconomic forces like taxes.

Some financial markets are small with little activity, and others, like the Bombay Stock
Exchange (BSE), trade trillions of dollars of securities daily. The equities (stock) market is a
financial market that enables investors to buy and sell shares of publicly traded companies.
The primary stock market is where new issues of stocks, called initial public
offerings (IPOs), are sold. Any subsequent trading of stocks occurs in the secondary market,
where investors buy and sell securities that they already own.

 
Prices of securities traded in the financial markets may not necessarily reflect their true
intrinsic value.

Types of Financial Markets

Stock Markets

Perhaps the most ubiquitous of financial markets are stock markets. These are venues where
companies list their shares and they are bought and sold by traders and investors. Stock
markets, or equities markets, are used by companies to raise capital via an initial public
offering (IPO), with shares subsequently traded among various buyers and sellers in what is
known as a secondary market.

Stocks may be traded on listed exchanges, such as the Bombay Stock Exchange (BSE) or
NSE, or else over-the-counter (OTC). Most trading in stocks is done via regulated
exchanges, and these play an important role in the economy as both a gauge of the overall
health in the economy as well as providing capital gains and dividend income to investors,
including those with retirement accounts such as IRAs and 401(k) plans.

Typical participants in a stock market include (both retail and institutional) investors and
traders, as well as market makers (MMs) and specialists who maintain liquidity and provide
two-sided markets. Brokers are third parties that facilitate trades between buyers and sellers
but who do not take an actual position in a stock.

Over-the-Counter Markets

An over-the-counter (OTC) market is a decentralized market—meaning it does not have

physical locations, and trading is conducted electronically—in which market participants
trade securities directly between two parties without a broker. While OTC markets may
handle trading in certain stocks (e.g., smaller or riskier companies that do not meet the
listing criteria of exchanges), most stock trading is done via exchanges. Certain derivatives
markets, however, are exclusively OTC, and so make up an important segment of the
financial markets. Broadly speaking, OTC markets and the transactions that occur on them
are far less regulated, less liquid, and more opaque.

Bond Markets

A bond is a security in which an investor loans money for a defined period at a pre-
established interest rate. You may think of a bond as an agreement between the lender and
borrower that contains the details of the loan and its payments. Bonds are issued by
corporations as well as by municipalities, states, and sovereign governments to finance
projects and operations. The bond market sells securities such as notes and bills issued by
the Government of India, for example. The bond market also is called the debt, credit, or
fixed-income market.

Money Markets

Typically the money markets trade in products with highly liquid short-term maturities (of
less than one year) and are characterized by a high degree of safety and a relatively low
return in interest. At the wholesale level, the money markets involve large-volume trades
between institutions and traders. At the retail level, they include money market mutual funds
bought by individual investors and money market accounts opened by bank customers.
Individuals may also invest in the money markets by buying short-term certificates of
deposit (CDs), municipal notes, or Government Treasury bills, among other examples.

Derivatives Markets

A derivative is a contract between two or more parties whose value is based on an agreed-
upon underlying financial asset (like a security) or set of assets (like an index). Derivatives
are secondary securities whose value is solely derived from the value of the primary security
that they are linked to. In and of itself a derivative is worthless. Rather than trading stocks
directly, a derivatives market trades in futures and options contracts, and other advanced
financial products, that derive their value from underlying instruments like bonds,
commodities, currencies, interest rates, market indexes, and stocks. 

Futures markets are where futures contracts are listed and traded. Unlike forwards, which
trade OTC, futures markets utilize standardized contract specifications, are well-regulated,
and utilize clearinghouses to settle and confirm trades. Options markets, such as the Chicago
Board Options Exchange (CBOE), similarly list and regulate options contracts. Both futures
and options exchanges may list contracts on various asset classes, such as equities, fixed-
income securities, commodities, and so on.

Forex Market

The forex (foreign exchange) market is the market in which participants can buy, sell,
hedge, and speculate on the exchange rates between currency pairs. The forex market is the
most liquid market in the world, as cash is the most liquid of assets. The currency market
handles more than $5 trillion in daily transactions, which is more than the futures and equity
markets combined. As with the OTC markets, the forex market is also decentralized and
consists of a global network of computers and brokers from around the
world. The forex market is made up of banks, commercial companies, central
banks, investment management firms, hedge funds, and retail forex brokers and investors. 

Commodities Markets

Commodities markets are venues where producers and consumers meet to exchange physical
commodities such as agricultural products (e.g., corn, livestock, soybeans), energy products
(oil, gas, carbon credits), precious metals (gold, silver, platinum), or "soft"
commodities (such as cotton, coffee, and sugar). These are known as spot
commodity markets, where physical goods are exchanged for money.

The bulk of trading in these commodities, however, takes place on derivatives markets that
utilize spot commodities as the underlying assets. Forwards, futures, and options on
commodities are exchanged both OTC and on listed exchanges around the world such as
the Chicago Mercantile Exchange  (CME) and the Intercontinental Exchange (ICE).

Cryptocurrency Markets

The past several years have seen the introduction and rise of cryptocurrencies such
as Bitcoin and Ethereum, decentralized digital assets that are based
on blockchain technology. Today, hundreds of cryptocurrency tokens are available and trade
globally across a patchwork of independent online crypto exchanges. These exchanges host
digital wallets for traders to swap one cryptocurrency for another, or for fiat monies such as
dollars or euros.

Because the majority of crypto exchanges are centralized platforms, users are susceptible to

hacks or fraud. Decentralized exchanges are also available that operate without any central
authority. These exchanges allow direct peer-to-peer (P2P) trading of digital currencies
without the need for an actual exchange authority to facilitate the transactions. Futures and
options trading are also available on major cryptocurrencies.

Financial Markets FAQs

What Are the Different Types of Financial Markets?

Some examples of financial markets and their roles include the stock market, the bond
market, forex, commodities, and the real estate market, among several others. Financial
markets can also be broken down into capital markets, money markets, primary vs.
secondary markets, and listed vs. OTC markets.

How Do Financial Markets Work?

Despite covering many different asset classes and having various structures and regulations,
all financial markets work essentially by bringing together buyers and sellers in some asset
or contract and allowing them to trade with one another. This is often done through an
auction or price-discovery mechanism.
What Are the Main Functions of Financial Markets?

Financial markets exist for several reasons, but the most fundamental function is to allow for
the efficient allocation of capital and assets in a financial economy. By allowing a free
market for the flow of capital, financial obligations, and money the financial markets make
the global economy run more smoothly while also allowing investors to participate in capital
gains over time.

 Intermediary functions: The intermediary functions of financial markets include the

following:
o Transfer of resources: Financial markets facilitate the transfer of real
economic resources from lenders to ultimate borrowers.
o Enhancing income: Financial markets allow lenders to earn interest or
dividend on their surplus invisible funds, thus contributing to the
enhancement of the individual and the national income.
o Productive usage: Financial markets allow for the productive use of the
funds borrowed. The enhancing the income and the gross national
production.
o Capital formation: Financial markets provide a channel through which new
savings flow to aid capital formation of a country.
o Price determination: Financial markets allow for the determination of price
of the traded financial assets through the interaction of buyers and sellers.
They provide a sign for the allocation of funds in the economy based on the
demand and to the supply through the mechanism called price
discovery process.
o Sale mechanism: Financial markets provide a mechanism for selling of a
financial asset by an investor so as to offer the benefit of marketability and
liquidity of such assets.
o Information: The activities of the participants in the financial market result
in the generation and the consequent dissemination of information to the
various segments of the market. So as to reduce the cost of transaction of
financial assets.
 Financial Functions
o Providing the borrower with funds so as to enable them to carry out their
investment plans.
o Providing the lenders with earning assets so as to enable them to earn wealth
by deploying the assets in production debentures.
o Providing liquidity in the market so as to facilitate trading of funds.
o Providing liquidity to commercial bank
o Facilitating credit creation
o Promoting savings
o Promoting investment
o Facilitating balanced economic growth
o Improving trading floors

Why Are Financial Markets Important?

Without financial markets, capital could not be allocated efficiently, and economic activity such as
commerce & trade, investment, and growth opportunities would be greatly diminished.
How are Financial Securities Issued?
Retail investors are familiar with the process of trading financial securities. However, they do not
know much about how these securities come into existence. In order to explain how securities
come into existence, we need to explain what a primary market is.

A primary market is a market where transactions happen between the issuing corporations and
investors. Let’s understand this with the help of an example. If corporation A wants to raise
money by selling stock, they create new securities that represent a claim on their assets. These
securities are then sold to retail or institutional investors. The key point to be noted is that the
money from the sale of securities goes to the company issuing the securities. Therefore,
markets, where securities are created and sold for the first time, are called primary markets.
Retail investors seldom participate in primary markets. Earlier, most of these securities would be
purchased by investment banks and financial institutions behind closed doors. However, now
these securities are sold to the larger group of people via initial public offers.

Once the investor has security, they need not hold it till maturity. In the case of equity stocks,
there is no maturity at all! Therefore, the market also allows one investor to sell a security to
another investor. In this case, the sale proceeds do not go to the company. Instead, they go to
the investor that sold the security. Most retail investors are familiar with the process of
transacting in secondary markets. Investment banks are not involved in the functioning of the
secondary markets. Instead, brokers and dealers intermediate in this kind of market. The
difference between brokers and dealers has been explained in a subsequent article.

Who Are the Main Participants in Financial Markets?

Firms use stock and bond markets to raise capital from investors; speculators look to various asset
classes to make directional bets on future prices; hedgers use derivatives markets to mitigate various
risks, and arbitrageurs seek to take advantage of mispricings or anomalies observed across various
markets. Brokers often act as mediators that bring buyers and sellers together, earning a commission
or fee for their services.

1. Banks:

Banks participate in the capital market and money market. Within the capital market, banks take

active part in bond markets. Banks may invest in equity and mutual funds as a part of their fund

management. Banks take active trading interest in the bond market and have certain exposures to the

equity market also. Banks also participate in the market as clearing houses.

2. Primary Dealers (PDs):

PDs deal in government securities both in primary and secondary markets. Their basic responsibility

is to provide two-way quotes and act as market makers for government securities and strengthen the

government securities market.

3. Financial Institutions (FIs):

FIs provide/lend long term funds for industry and agriculture. FIs raise their resources through long-

term bonds from financial system and borrowings from international financial institutions like

International Finance Corporation (IFC), Asian Development Bank (ADB) International Development

Association (IDA), International Bank for Reconstruction and Development (IBRD), etc.

4. Stock Exchanges:

A Stock exchange is duly approved by the Regulators to provide sale and purchase of securities

by “open cry” or “on-line” on behalf of investors through brokers. The stock exchanges provide

clearing house facilities for netting of payments and securities delivery. Such clearing houses

guarantee all payments and deliveries. Securities traded in stock exchanges include equities, debt, and

derivatives.

Currently, in India, only dematerialized securities are allowed to be traded on the stock exchanges.

Settlement in securities account is made by depositories through participants’ accounts. It is essential

that stock exchanges are corporatised and de-mutualised so that there can be greater transparency in

the trades and better governance in markets.

5. Brokers:

Only brokers approved by Capital Market Regulator can operate on stock exchange. Brokers perform

the job of intermediating between buyers and seller of securities. They help build up order book, price

discovery, and are responsible for a contract being honoured. For their services brokers earn a fee

known as brokerage.

6. Investment Bankers (Merchant Bankers):

These are agencies/organisations regulated and licensed by SEBI, the Capital Markets Regulator.

They arrange raising of funds through equity and debt route and assist companies in completing

various formalities like filing of the prescribed document and other compliances with the Regulator

and Regulators.
They advise the issuing company on book building, pricing of issue, arranging registrars, bankers to

the issue and other support services. They can underwrite the issue and also function as issue

managers. They may also buy and sell on their account.

As per regulatory stipulations, such own account business should be separately booked and confined

to scrip’s where insider information is not available to the investment/merchant banker.

Investment/Merchant banking can be an exclusive business. A bank can also undertake these

activities.

7. Foreign Institutional Investors (FIIs):

FIIs are foreign based funds authorized by Capital Market Regulator to invest in countries’ equity and

debt market through stock exchanges. They are allowed to repatriate sale proceeds of their holdings,

provided sales have been made through an authorized stock exchange and taxes have been paid. FIIs

enjoy de-facto capital account convertibility.

ADVERTISEMENTS:

FII operations provide depth to equity and debt markets and result in increased turnover. In India,

these activities have brought in technological advancements and foreign funds in equity and debt

market.

8. Custodians:

Custodians are organizations which are allowed to hold securities on behalf of customers and carry

out operations on their behalf. They handle both funds and securities of Qualified Institutional

Borrowers (QIBs) including FIIs.

Custodians are supervised by the Capital Market Regulator. In view of their position and as they

handle the payment and settlements, banks are able to play the role of custodians effectively. Thus

most banks perform the role of custodians.

9. Depositories:
Depositories hold securities in demat (electronic) form, maintain accounts of depository participants

who, in turn, maintain accounts of their customers. On instructions of stock exchange clearing house,

supported by documentation, a depository transfers securities from buyers to sellers’ accounts in

electronic form.Depositories are important for ensuring efficiency in the market. They facilitate

lending against securities and ensure avoidance of settlement risk or bad delivery.

Stock Market
The stock market consists of exchanges or OTC markets in which shares and other financial securities
of publicly held companies are issued and traded.
Over-the-Counter (OTC)
Over-the-Counter (OTC) trades refer to securities transacted via a dealer network as opposed to on a
centralized exchange such as the Bombay Stock Exchange{BSE)
Forex Market Definition
The forex market is where banks, funds, and individuals can buy or sell currencies for hedging and
speculation. Read how to get started in the forex market.
Capital Markets: What You Should Know
Capital markets are venues where savings and investments are channeled between suppliers and those
in need of capital.

What Are Capital Markets?

Capital markets are where savings and investments are channeled between suppliers—people or
institutions with capital to lend or invest—and those in need. Suppliers typically include banks
and investors while those who seek capital are businesses, governments, and individuals.
Capital markets are composed of primary and secondary markets. The most common capital markets
are the stock market and the bond market.
Capital markets seek to improve transactional efficiencies. These markets bring suppliers together
with those seeking capital and provide a place where they can exchange securities.

 more
What Is a Derivative?
A derivative is a securitized contract whose value is dependent upon one or more underlying assets.
Its price is determined by fluctuations in that asset.
 more
Commodity Market
A commodity market is a physical or virtual marketplace for buying, selling, and trading
commodities. Discover how investors profit from the commodity market. 
Components of financial market
Based on market levels

 Primary market: A primary market is a market for new issues or new financial claims.
Therefore, it is also called new issue market. The primary market deals with those
securities which are issued to the public for the first time.
 Secondary market: A market for secondary sale of securities. In other words, securities
which have already passed through the new issue market are traded in this market.
Generally, such securities are quoted in the stock exchange and it provides a continuous
and regular market for buying and selling of securities.
Simply put, primary market is the market where the newly started company issued shares to the public
for the first time through IPO (initial public offering). Secondary market is the market where the
second hand securities are sold (security Commodity Markets).
Based on security types

 Money market: Money market is a market for dealing with the financial assets and
securities which have a maturity period of up to one year. In other words, it's a market for
purely short-term funds.
 Capital market: A capital market is a market for financial assets that have a long or
indefinite maturity. Generally, it deals with long-term securities that have a maturity
period of above one year. The capital market may be further divided into (a) industrial
securities market (b) Govt. securities market and (c) long-term loans market.
o Equity markets: A market where ownership of securities are issued and
subscribed is known as equity market. An example of a secondary equity
market for shares is the New York (NYSE) stock exchange.
o Debt market: The market where funds are borrowed and lent is known as
debt market. Arrangements are made in such a way that the borrowers agree
to pay the lender the original amount of the loan plus some specified amount
of interest.
 Derivative markets: A market where financial instruments are derived and traded based
on an underlying asset such as commodities or stocks.
 Financial service market: A market that comprises participants such as commercial
banks that provide various financial services like ATM. Credit cards. Credit rating, stock
broking etc. is known as financial service market. Individuals and firms use financial
services markets, to purchase services that enhance the workings of debt and equity
markets.
 Depository markets: A depository market consists of depository institutions (such as
banks) that accept deposits from individuals and firms and uses these funds to participate
in the debt market, by giving loans or purchasing other debt instruments such as treasury
bills.
 Non-depository market: Non-depository market carry out various functions in financial
markets ranging from financial intermediary to selling, insurance etc. The various
constituencies in non-depositary markets are mutual funds, insurance companies, pension
funds, brokerage firms etc.
CHAPTER 2- RESEARCH METHODOLOGY
2.1 Objectives of the study(4-5)
2.2 Scope of the study( covered in topics)
2.3 Limitations of the study
2.4 sample size
2.5 data collection
2.6 hypothesis if any
2.7 significance

CHAPTER 3) REVIEW OF LITERATURE

3.1

CHAPTER 4) DATA ANALYSIS AND INTERPRETATION

4.1) PIE CHARTS

4.2 HISTOGRAM

4.3 CORRELATION

CHAPTER 5) FINDINGS CONCLUSIONS AND SUGGESTIONS

CHAPTER 6) BIBLIOGRAPHY REFERENCES // ANNXURE

6.1 Executive Summary

Primary Markets vs. Secondary

Markets
The buying and selling of financial securities is a complex process that has evolved over many
years. Each security represents a claim on the financial resources of a firm. The claim could be
an equity claim or a debt-related claim.

When a retail investor looks at the stock market, they see only the market where they transact
with other investors. However, a lot of investors do not know where the securities come from? In
this article, we will explain the concept of primary markets and the issuance of new securities.
We will also explain how each stock and bond market is actually intrinsically made up of two
markets viz. the primary market and the secondary market. The similarities and differences
between the markets have been explained in detail in the article below.

How are Financial Securities Issued?

Retail investors are familiar with the process of trading financial securities. However, they do not
know much about how these securities come into existence. In order to explain how securities
come into existence, we need to explain what a primary market is.

A primary market is a market where transactions happen between the issuing corporations and
investors. Let’s understand this with the help of an example. If corporation A wants to raise
money by selling stock, they create new securities that represent a claim on their assets. These
securities are then sold to retail or institutional investors. The key point to be noted is that the
money from the sale of securities goes to the company issuing the securities. Therefore,
markets, where securities are created and sold for the first time, are called primary markets.
Retail investors seldom participate in primary markets. Earlier, most of these securities would be
purchased by investment banks and financial institutions behind closed doors. However, now
these securities are sold to the larger group of people via initial public offers.
Once the investor has security, they need not hold it till maturity. In the case of equity stocks,
there is no maturity at all! Therefore, the market also allows one investor to sell a security to
another investor. In this case, the sale proceeds do not go to the company. Instead, they go to
the investor that sold the security. Most retail investors are familiar with the process of
transacting in secondary markets. Investment banks are not involved in the functioning of the
secondary markets. Instead, brokers and dealers intermediate in this kind of market. The
difference between brokers and dealers has been explained in a subsequent article.

Functions of the Security Market

The primary market has only one important function. It helps the firm selling securities to raise
cash. However, it would be impossible to sell securities in the primary market if the secondary
market did not exist. Some of the features of the secondary market have been explained
below.

 Liquidity: It is important to understand that people buy securities in the primary market
since they are sure that they will be able to sell these securities in the secondary market
whenever they want. The secondary market creates a system in which the original
company does not have to refund money if the investor wants to sell its security. Instead,
a different investor can pay the money to the first investor. This allows the first investor
to completely walk out of the transaction, leaving the new investor and the company as
the parties to the investor. This allows the company to keep the money indefinitely while
at the same time, the investor has the liquidity, which allows them to cash out on the
transaction.
 Price Discovery: The secondary markets aid the proper functioning of the primary
markets. This is because they allow the primary markets to price securities. The investors
who buy securities in the primary market only pay the price, which they think they can
obtain in the secondary market when they sell the security. Therefore, in the absence of
the secondary market, it would be difficult to ascertain what the price of the security
should be.
 Dynamic Pricing: Secondary markets also allow securities to be priced dynamically. This
means that the prices of securities go up and down depending upon the type of
information that the market has about the firm. The market price of the securities
fluctuates on a real-time basis. This allows investors to book profits and exit the
transactions if required. Also, it is this price in the secondary market, which is an
indicator that a company is actually doing well. The management of the company is
usually rewarded based on the price signals which the secondary market provides.
However, this creates a problem, as well. This is because the price variations in the short
run may not necessarily reflect what is best for the firm in the long run.

To sum it up, each securities market is required to have two subsections viz. the primary market
and the secondary market. No market can function if it has only one of these markets. Securities
markets require constant inflow of newer securities via the primary market and the provisions
for trading them via the security market.
Money Markets vs. Capital Markets
Financial markets are markets where financial instruments or securities are traded. Financial
markets can be classified based on various parameters. In order to understand the types of
financial markets, we need to first understand the broad categories in which it is subdivided.

The broadest classification divides financial markets into two types’ viz. money markets and
capital markets. In this article, we will understand what money markets and capital
markets are and the difference between the two.

Money Markets vs. Capital Markets

The difference between money markets and capital markets is actually quite simple. Money
markets transact in financial securities that have a maturity of less than one year. Commercial
paper, short term treasury notes, promissory notes, and bills of exchange are commonly traded
on the money market. Therefore, it can be said that money markets are used by firms who are
looking to borrow money for a very short period of time.

On the other hand, securities sold on the capital markets have maturities that are at least longer
than a year. Most financial instruments sold on these markets have extremely long term
maturities i.e., a decade or more. Also, a lot of equity stock is sold in the capital market, and
equities do not have any definite maturity! Preferred stock, common stock, bonds, gilts, and
debentures are the financial instruments that are commonly transacted in the capital market. All
stocks and bonds which retail investors commonly buy are said to be a part of the capital
markets. Therefore, it would be fair to say that companies use the capital market when they
want to raise money for the long term.

Differences between Money Market and Capital Markets

 Funds raised from the money market are used to meet the working capital needs of the
firm. As a result, each firm only borrows a small amount of money relative to its total
asset base. On the other hand, funds raised from the capital market form the entire
asset base of the company.
 The primary function of the money markets is to provide short term liquidity to the
economy. On the other hand, the primary function of the capital markets is to channelize
the savings of the economy in a meaningful way to aid growth and development.
 Most transactions that happen on the capital market are routed via exchanges. There are
dealers who specialize in making markets in every security which is sold on the
exchange. On the other hand, most securities sold in the money market are sold over the
counter. There are no market makers, but there are brokers who help parties find
counterparties.
 Money markets are more liquid as compared to capital markets. This may be
counterintuitive given the fact that money markets don’t have market makers and capital
markets do. However, since the maturity of money markets is smaller, a lot more
investors are willing to deploy their funds in these short term funds.
 Money market instruments have a short term maturity. Hence, the funds raised from
these securities are not deployed in risky projects. As a result, money market
instruments are known for having a lower risk. On the other hand, capital markets
deploy money in complex projects because of the long term nature of these funds. As a
result, capital market instruments are believed to be riskier. Once again, this is
 counterintuitive given the fact that in capital markets, the exchange acts as a
counterparty to all transactions. Hence, the risk should ideally be low. In most
circumstances, money markets are considered to be absolutely safe. However, in some
cases, they end up giving negative returns as well. Therefore, investors need to be careful
while selecting money market funds, as well.
 The returns obtained from the money market are equivalent to the cost of capital i.e., the
interest rate in the economy. It is unusual for investors to earn significantly more than
the interest rate. On the other hand, the potential returns in capital markets are almost
unlimited. This can be attributed to the higher duration as well as a higher risk, which is
undertaken by the investors.
 The most active participants in money markets are banks and other financial institutions.
Banks frequently want to raise short term funds since they have to show that they have
the reserves necessary to make the loans. Also, other financial institutions like mutual
funds and pension funds are required to keep some amount of liquid cash on hand. This
is because they need to pay back investors who want to redeem their investments.
However, cash does not provide any return. Money markets are the next best alternative.
They are so liquid and risk-free that they can almost be considered equivalent to cash.
Most investors know that they can easily redeem their money market funds to cash
without any loss of value.

The bottom line is that capital markets and money markets both serve different but
complementary needs. Hence, both the markets complete the financial system of any country.

List of Best Investment Options in India

We (Indians) always try to maintain a reasonably very high savings rate (the national saving rate is about 30
per cent of GDP). Even a daily wage laborer who earns say Rs 300 per day will try to save some money for the
future. But are we investing these savings in the right and best Investment Options (financial products) is a
billion dollar question.

Unfortunately, in India a major portion of these savings gets invested in unproductive assets like Gold or low-
yielding bank fixed deposits or traditional life insurance policies.

Investments in Land (property) & gold together can easily make up around 70% of all household assets.
Investments in property & gold are perceived as ‘safe bets’ in India.  Its allure is amplified by the attraction of
being safe conduits (avenues) to stash away black money as well as avoid taxes.

We seem to be entrapped in a low-level equilibrium. The distribution of savings among various asset classes is
rarely seen with most of the households.
Problems of access to various investment options (financial instruments) and ignorance about the available
investment avenues can be attributed as the main reasons for this in-equilibrium.

But things are changing for the better. The gap between financial savings and Physical assets is slowly
shrinking, which is a very good sign. Financial inclusion is taking the centre stage. More no of bank accounts
are being opened and operated.

The young population wants to invest in new-age financial products and not just in fixed deposits. The Assets
Under Management (AUM) of mutual fund houses have been steadily increasing in the last 4 to 5 years.

In this post, let us list out the possible Investment options that are available in India. Let’s discuss, what are the
best possible investment options for short-term? What are the best investment Schemes for long-term goals?
What are the best tax saving investment options? 

List of Investment Options in India 2020-21

As discussed earlier, the major portion of Indian household savings are being invested in the below investment
options;

 Fixed deposits
 Gold
 Land & property
 Chit Funds

So, do we really have only these investment options to invest our savings? Let’s list out all the possible
investment options that are available in India;

 Post office Schemes

o Monthly Income Scheme (MIS)

o Senior Citizens Savings Scheme (SrCSS)
o Term Deposits
o Recurring Deposits
 o Sukanya Samriddhi Savings Deposit Scheme
o Public Provident Fund (PPF)
o Kisan Vikas Patra (KVP)
o National Savings Certificate (NSC)
 Bank
o Bank Fixed Deposits (FDs)
o Recurring Deposits (RDs)
o Public Provident Fund (PPF)
o Sukanya Savings Deposit Scheme
o PPF
 National Pension System
 Atal Pension Yojna
 Employees Provident Fund
 Company Fixed Deposits offered by NBFCs
 Tax Free Bonds
 Non-Convertible Debentures
 Chit Funds
 Mutual Funds
o Equity oriented Mutual Fund Schemes
o Debt oriented Mutual Fund Schemes
 Stocks (Direct equities)
o IPOs (Initial Public Offers)
o Secondary Markets
 Real estate
o Residential Property
o Commercial Property
o Agriculture Land
o Bonds u/s 54EC
o Real Estate Investments Trusts (REITS – soon to be launched)
o Reverse Mortgage
 Gold, Silver & other valuable
o Jewelry
o Gold bars & Coins
o Gold Exchange Traded Funds (ETFs)
o Sovereign Gold Bonds
o Gold Deposit Scheme
 Life Insurance
o Unit Linked Insurance Plans
o Pension Plans
o Money-back Plans
o Endowment Plans

How to shortlist or select best investment options for 2020 & beyond?

Before selecting any financial product, kindly set your Financial goal(s). Your goals should be realistic,
measurable, clear and attainable. You can then shortlist the right investment options by considering the below
factors; (Factors to consider before investing….)

Financial Product side factors:

 The features, rules, guidelines, terms & conditions of a financial product (an investment
option) should be simple, clear& easy to understand.
 The expenses, fees, loads and investment charges should be reasonable.
 It should be reasonably liquid & flexible.
 It’s great if it is a tax efficient investment option.
Investor side factors:

 Your age & financial profile.

 The time-frame (investment horizon) – Short, medium and long-term.
 Your investment objective(s) & financial goal(s).
 Your expected rate of return (Kindly give importance to  real rate of return).
 Type of investor : Do-It-Yourself or depend on intermediaries (agent/advisor) 
Best Saving options to accumulate Emergency Fund 2020-21

 Bank Fixed Deposits (preferably eFDs / online FDs)

 Sweep-in Savings Bank Accounts (Auto-sweep accounts)
 Liquid Debt Mutual Fund Schemes
 Arbitrage Mutual Funds

 Cash-in-hand   

Best Investment or Saving Options for short-term in 2020-21

 Short-term Debt Mutual Fund Schemes

 Bank Fixed Deposits
 Recurring Deposits 

Best Investment options for Long-term Goals  2020 & beyond

 Shares (direct Equity)
 Equity oriented Mutual Funds
 Public Provident Fund
 Sukanya Samriddhi Deposit Scheme
 Real-Estate investments 

Best Investment options for Medium-term Goals in 2020-21

 Balanced Equity oriented Mutual Funds

 Secured Non-Convertible Debentures – Cumulative option
 Mutual Fund MIPs – Growth options 

Best Investment options to get periodic fixed income from 2020 & beyond

 Tax Free Bonds

 Post Office Monthly Income Scheme (Maximum investment limit is INR 4.5 lakhs in single
account and INR 9 lakhs in joint account)
 Post Office Senior Citizens Savings Scheme (if you are above 60 years. Maximum investment
limit is Rs 15 Lakh. Interest amount paid quarterly.)
 Bank or Post office Fixed Deposits.
 Debt Mutual Funds – Dividend option
 Monthly Income Plans (MIPs) of Mutual Fund Schemes – Dividend option (beneficial if you
are in 30% tax slab)
 Rental income from Real estate property investments
 Secured Non-Convertible Debentures (NCD – Payment option) (debentures can be best suited
for low tax bracket individuals) 

Best tax saving Investment options for long-term 2020-21

 Equity Linked Savings Schemes (tax saving schemes) of Mutual Funds.

 Provident Funds 
 Sukanya Samriddhi Deposit Scheme
Our culture and tradition encourages us to save more. We generally tend to save more for goals such as Kid’s
education or a home purchase and less for retirement, may be because we are more likely to expect our
retirement years to be financed by income of other family members (children).

We are also extremely risk averse and generally place greater importance on safety than rate of return on
investments. I do not believe in classifying investors as conservative, moderate & aggressive. If you would like
to accumulate sufficient corpus for a long-term goal, you may have to take calculated risk and invest in right
financial product(s) which can beat inflation & give better tax-adjusted returns. If your investment horizon is
short, kindly give high priority to safety & liquidity and do not chase returns aggressively.

Your investment portfolio should have a fair mix of both conservative as well as aggressive investment options.
Kindly try to maintain an ideal asset allocation.