A FINAL RESEARCH PROJECT ON ³BEST INVETMENT COMPARISION BETWEEN GOLD AND EQUITY INVESTMENT´

SUBMITTED IN PARTIAL FULFILLMENT FOR THE REQUIREMENT FOR AWARD OF THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION (2008-10)

SUBMITTED TO:
MS. MAMTA SAHARAN MMIM

SUBMITTED BY:
CHIRAG AGARWAL MBA- FINAL SEM ROLL NO-1208952

MAHARISHI MARKANDESHWAR UNIVERSITY MULLANA, AMBALA

DECLARATION

I CHIRAG AGARWAL, hereby declare that, the project report entitled "Comparative study of investment in gold and stock: A customer perspective´ submitted by me in the partial fulfillment of the requirement for the degree of Master of Business Administration to M M INSTITUTE OF

MANAGEMENT, is original work conducted by me and all data & facts contained in this report are original to the best of my knowledge.

I have not submitted this report to any other institute for award of any degree or diploma.

CHIRAG AGARWAL MBA Final

CERTIFICATE

This

is

to

c e r t i fy

t ha t

Mr.

CHIRAG

AGARWAL

has

p ro c e e d e d u n d e r b y s u p e r v i s i o n h i s / he r re s e a rc h p r o j e c t re p o r t o n ³ C o mp a ra t i v e A n a l ys i s o n G o l d o r E q u i t y I n v e s t me n t ´ i n t h e s p e c ia l i z a t i o n a re a fi n a n c e .

T he w o rk e mb o d i e d i n t h i s re p o r t is o r i g i n a l a n d is o f t h e s t a nd a r d e xp e c t e d o f a n M B A s t u d e nt a n d h a s no t b e e n s u b mi t t e d i n p a rt o r fu l l t o t h i s o r a n y o t he r u n i v e rs i t y fo r t he a w a r d o f a n y d e g re e or d i p l o ma . He ha s c o mp l e t e d all re q u i r e me n ts of

g u i d e l i n e s fo r re s e a rc h p ro j e c t r e p o rt a n d t h e w o rk is fi t fo r e va l u a t i o n.

Date: Place:

Name of Research Guide Ms. MAMTA SAHARAN Lecturer

PREFACE

In order to achieve positive and concrete result with theoretical concept the exposure to real life situation existing in corporate world is very much needed. In today¶s scenario the practical knowledge in education especially in professional courses is very essential.

Final Project in MBA Course and study content of such as practical knowledge it makes the student confident and introduce them about their ability.

I was interested in marketing so I have done my final project on the topic comparative study on ³WHICH INVESTMENT IS BETTER - GOLD OR STOCK´

ACKNOWLEDGEMENT

This study is gained to many people who is in a formal review or in formal conversation. It has made a significant contribution to its development completing a project like this one takes the effort and co-operation of many others. Although this report is being brought in my name, it bears an imprint of guidance and cooperation of many individuals. I am unable express my words for thanking these people for their contribution in completing of my project. Firstly, I feel privileged in expressing my deep gratitude and thanks to Ms. Mamta Saharan faculty of MMIM institute for his valuable guidance, keen interest, efficient supervision and co-ordination all along the preparation of this report. In last but not least, I would like to thanks my parents and all my friends for their active co-operation which was of great help during the course of my project work.

EXCEUTIVE SUMMARY

This project report is conducted with the objective to study the role of stock exchange and gold investment and to identify the best option of investment from stock or the gold in India, after identifying the investment stage of different income group of the country.

This research has used both data primary and secondary for the purpose of collection of data. For primary data number of respondents are 100 and they are from social groups and on the basis of data collected, it is found that: I found that the gold investment is better than the stock. In India mostly income groups invested their money in the gold for the long-term investment. Out of all investment the 10% investment in doing only in the gold. Due to less risk, more return and the knowledge related to gold the all income groups invested their investment in the gold. Due to less knowledge of stocks the income groups invested their money in gold investment for long time period.

CONTENTS TITLE NO. Declaration Certificate Acknowledgement Preface Executive summary 1. Introduction  Introduction to Stock  Introduction to Gold 2. Literature Review 3. Research Methodology  Type of research  Objective of study  Research plan  Sources of data  Methods of data collection  Limitations of study 4. Data Analysis and Interpretation 5. Findings and Conclusion 6. Suggestion Annexure Questionnaire Bibliography 1- 55 2- 22 23- 55 57- 62 64- 67 65 65 65 66 66 67 69- 83 85- 87 89-90 92- 96 92- 95 96 PAGE

CHAPTER ± 1

INTRODUCTION

INTRODUCTION

STOCK MARKET

The market for the long-term securities like bond, equity stock and preferred stock is divided into primary market and secondary market. The primary deals with the new issue of securities. Outstanding securities are traded in the secondary market, which is commonly known as stock market or stock exchange. In secondary market, the investor can sell or buy securities. Stock markets predominantly deal in the equity shares. Dept instrument like bond and debenture are also traded in the stock market. The growth of primary market is totally depending on the stock market. The health of the economy is reflected by the growth of the stock market.

Stock Exchange is the market place where industrial securities like equity shares, preference shares, debentures and bonds of listed public limited companies and the Government securities are traded. Under section 2(3) of the securities contract (Regulation) Act 1956 as ³any body of individuals¶ whether incorporated or not; constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities.´ The securities which are traded in the stock market are defined under section 2(b) of the act as:y Shares, Scrip¶s, Stock, Bonds, Debentures, Debentures stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; y Government securities; and y Rights or interest in securities.

The main function of the stock exchange is to provide the mechanism for the exchange of securities, which already existed at price that are ³fair and equitable.´

REGULATION OF STOCK EXCHANGE Stock Exchange is governed by the Securities Contracts (Regulation) Act, 1956. Only recognized exchanges can operate legally. Stock exchange is give monopoly in certain areas under section 19 of the Act.

RECOGNITION The Central Government may grant recognition to stock exchange if it is satisfied after making necessary enquires and obtained such further information, if any, as it may require:y That the rule and bye-law of stock exchange are in conformity with such condition as may be prescribed with a view to ensure fair dealing and to protect investors; the conditions which the government may, inter alia relate to 1. The qualification for the membership; 2. The manner in which shall be entered into and enforced as between members; 3. The representation of the Central Government on each of the stock exchange by such number of person not exceeding three as the Central Government may nominate in the behalf; and 4. The maintenance of account of members and their audit by chartered accountants where ever such audit is required by central government no rules of the stock exchange to any of these matters shall be amended except with the approval of the central government

y That the stock exchange is willing to complete with another condition which the central government after consultation with the governing body of the stock exchange. y That is would be in the interest of trades and also in the public interest grand recognition to stock exchange. The recognition granted to the stock exchange should be in form B appended to the rules. The recognition shall be either on permanent basis or for such period not less than one year as may be prescribed in the recognition. Every recognized stock exchange shall furnish to the Central government a copy of the annual report, and such as annual report shall contain such particulars as may be prescribed. No application for grant of recognition shall be refused except after giving an opportunity to the stock exchange concerned to be heard in the matter; the reasons for such refusal shall be communicated to the stock to the stock exchange in writing.

FUNCTION OF STOCK EXCHANGE

y MAINTAINS ACTIVE TRADING Share is traded on the stock exchanges, enabling the investors to buy and sell securities. The prices may vary from transaction to transaction. A continuous trading increases the liquidity or marketability of the shares on the stock exchanges. y FIXATION OF PRICE Price is determined by the transactions that flow from investors¶ demand and supplier¶s preferences. Usually the traded prices are made known to the public. This helps the investors to make better decision.

y ENSURES SAFE AND FAIR DEALING The rules, regulation and by-laws of the stock exchange provide a measure of safety to the investors to get a fair deal. y AIDS IN FINANCING THE INDUSTRY A continuous market for shares provides a favorable climate for raising capital. The negotiability and transferability of the securities helps the companies to raise long-term funds. y DISSEMINATION OF INFORMATION Stock exchange provides information through their various publications. They publish the share price traded on daily basis along with the volume traded. Directory of corporate information is useful for the investor assessment regarding the corporate. y PERFORMATION INDUCER The price of stock reflects the performance of the traded companies. This makes the corporate more concerned with its public image and tries to maintain good performance. y LIQUIDITY AND PRICE CONTINUITY The stock exchange provides a liquid and continuous market where investors can convert their money into securities and securities into money quickly with little variation in current market price during the trading hours by making bids and offers, as it is an open action market where buyers and sellers compete among each other. The stock exchange provides liquidity and marketability to only listed stocks. Listing of securities means granting permission to a particular security for trading in the concerned stock exchange.

y SAFETY TO INVESTORS The transaction in the stock market is susceptible to fraud and manipulation by the speculators by the speculators and members. Under the securities contract (regulation) Act, 1956 and securities contract rules, 1957, the central government has wide powers to regulate and control the activities of the stock exchange and activities of the members. y MOBILISATION OF SAVING Another importance of the stock exchange is to mobilize the saving of individual¶s institutions and to direct its flows into the most productive channels so as to serve in the best possible manner the interest of investors and economy as a whole.

STOCK EXCHANGE IN INDIA MAP

BENEFITS OF STOCK EXCHANGE

Speaking in the Lok Sabha in connection with his motion for reference of the securities contracts bill to a joint committee of the Parliament in 1955, the then Finance Minister said: ³The economic service, which a well constituted and efficiently run securities market can render to a country with a large private sector, operating under the normal incentives and impulses of private enterprise, are considerable. In the first place, it is the only organized securities market, which can provide sufficient marketability and price continuity for shares, so necessary for the need of investors. Secondly, it is only such market that can provide a reasonable measure of fair dealing in the buying and selling of securities. Thirdly, through the interplay of demand for supply of securities, a properly organized stock exchange assists in a reasonably correct evaluation of securities in term of their real worth. The benefits of stock exchange are follows:-

BENEFITS TO COMMUNITY 1. A stock exchange encourages people to save and invest their shaving in shares and debentures. The recent boom in shares markets has created financial awareness among the middle class. The stock market has become a central factor in household financing planning. 2. By encouraging people to save and invest, the stock exchange change helps capital formation, which is an essential ingredient for quicker industrial development. 3. Through capital formation the stock exchange enables companies to undertake expansion and modernization schemes. Every company talks in

terms of hundreds of cores of rupees of investment in new projects these days. 4. Stock exchange encourages several closely held companies to go public. Encouraged by boom in the recent past more than 70,000 private companies are going public by offering shares to the public. 5. The stock exchange acts as a mirror through which the general economic condition is clearly reflected.

BENEFITS TO THE INVESTORS 1. With the help of stock exchange numbers of investors become rich due to investors their money the shares and debentures. 2. The stock exchange offers ready markets for buying and selling securities. The share bazaar is the busiest market with cores of rupees being stake. 3. The interest of investors is safeguarded by the strict enforcement of rules and regulations. Every share market has its own byelaws besides complying with provision of the securities contract Act, 1956. 4. More important is the fact the stock exchange is a powerful hedge against inflation.

BENEFITS TO THE COMPANIES 1. Stock exchange offers a wide market for shares and debentures. 2. The image of the company goes up once the shares are listed on a stock exchange. 3. Quicker response from investors to the listed securities. 4. The market rates of shares and debentures will be higher because of daily dealing on stock market.

GOLDEN INVESTMENT RULES

As the Indian stock markets move into uncharted waters, and stock prices move under a cloud of volatility, it is time for small investors to step back and take note of some of the key rules for safe and defensive investing. In these times, the rules spelt out by the legendary investor, Benjamin Graham, should come in handy for 'defensive' investors, or those who are risk-averse in their investing habits. A defensive investor is one who generally places high emphasis on the safety of his capital through avoiding serious mistakes while making investment decisions. Also, a defensive investor is one who aims at freedom from effort and the need for making frequent decisions. In these volatile times, thus, such an investor should keep some benchmarks for himself while selecting his portfolio of stocks. Only this would be of help in his need for making less frequent decisions. These are some of the characteristics that a defensive investor should look at in a company, or the potential investment target. 1. ADEQUATE SIZE OF THE ENTERPRISE This is one of the most important factors while selecting a company for investment. Investors should note that small companies or those that are in the nascent stages of their development are more likely to have a volatile future than bigger corporations. While an aggressive investor would have interests in such small yet growing companies, this should not be a defensive investor's cup of tea. He should be content in having large and strong companies in his portfolio.

2. SUFFICIENTLY STRONG AND STABLE FINANCIAL

CONDITION

A sufficiently strong financial condition of a company should be another top priority for defensive investors. They should make sure that their investment target (company) has a strong balance sheet and profit and loss account, and a very strong cash flow statement. This is because, more than book profits, it is the strong cash position that is of help for the company in times of pressure and uncertainty. Also, for a company to be a sound investment target, not only should it have a history of decent earnings growth, but also stability in the same. A company with a volatile earnings growth history is more likely to be a risky proposition. 3. DIVIDEND GROWTH A consistent dividend payment record is another indicator of the sound financial position of the company. While there when a growing company is ploughing back earnings towards future growth rather than paying large dividends, investors must see that there are no grave inconsistencies in dividend payments. 4. MODERATE P/E RATIO A moderate price-to-earnings ratio is a very useful indicator for a defensive investor. This is because a relatively lower P/E would save investors from

paying a very high price that does not justify the value of an investment. Also, a history of moderate or less-volatile P/E's also helps the investors' cause. 5. MANAGEMENT QUALITY Apart from these performance parameters, investors should also take note of the 'management quality', its vision and the past track record. 6. DO YOUR HOME WORK All said and done, while the rules mentioned above are benchmarks that every defensive investor needs to apply before making any investment decision, the fact that he should do his homework carefully should not lose relevance. This means that he should research well about the company's history, its business model and factors that are likely to affect its future performance. 7. LONG TERM VIEW Also, the investor should have a long-term (more than 3 years) investment horizon for this maximizes the chance of garnering adequate return on investments. RISK IN STOCKS Any rational investor, before investing his or her ingestible wealth in the stock, analyses the risk associated with the particular stock. The actual return he receives from a stock may vary from his expected return and the risk and the risk is expressed in the term of variability of return. The down side risk may be caused by the several factors, either common to all stock or specific to a particular stock. Investor in general would like to analyze the risk factor and a thorough knowledge of the risk helps him to plan his portfolio in such a manner so as to minimize the risk associated with the investment.

RISK DEFINED The dictionary meaning of the risk is the possibility of loss or injury, the degree or probability of such loss. In risk, the probable outcomes of all the possible events are listed. Once the events are listed subjectively, the derived probabilities can be assigned to the entire possible events. For example:- The investors can analyze and find out the possible range of the return from his investment. He can assign some subjective probability to his return, such as 50% of the time there is a likelihood of getting Rs. 2 per share as a dividend and 50% of the time the possible dividend may be Rs. 3 per share. The Risk consists of two components:y The systematic risk and y The unsystematic risk. THE SYSTEMATIC RISK The systematic risks affect the entire market. Often we read in the news papers that the stock market is in the bear hug in bull grip this indicates that the entire market is moving in a particular direction either downward or upward. The economic conditions, political situations and the sociological change affect the security markets. The 1998 recessions experienced by developed and developing countries have affected the stock market all over the world. The south East Asian crisis has affected the stock market worldwide. There factors are beyond the control of the corporate and the investor they cannot be entirely avoided by investors. It drives home the point that systematic risk is unavoidable.

It is divided into three categoriesy y y MARKET RISK Jack Clark Francis has defined the market risk as that portion of total variability of return caused by the alternative forces of bull and bear markets. When security index moves upward haltingly for a significant period, it is known as bull market. In the bull market, the index moves from low level to the peak. Bear market is just a reverse to the bull market; the index declines haltingly from the peak to a market low point called trough for a significant period. During the bull and bear market more than 80% of the securities prices rise or fall along with the stock market indices. The forces that affect the stock market are tangible and intangible events. The tangible events are real events such as earthquake, war, and political uncertainty and fall in the value of the currency. The other example that can be cited is the Pokhran blast on May 13, 1998, and the fall of BSE Sensex by 162 points. Impending sanctions, dampened sentiments and FII selling of stock set a bear phase. Several examples like fall in the value of rupee and post-budget blue can be cited for triggering the bear phase. Intangible events are related to market psychology. The market psychology is affected by the real events. But reactions to the tangible events become over reactions and they push the market in a particular direction. The Bull Run in 1994 FII¶s investment and liberalization policies gave buoyancy to the market. The market psychology was positive. Small investors entered in the market and price of the stock without adequate supportive fundamental factors soared up. In 1996, the political turmoil and recession in the economy resulted in the fall of shares prices and the small investors lost faith in the Market Risk Interest Rate Risk Purchasing Power Risk

market. There was a rush to sell the shares and the stock that was floated in the primary market was not received well. Thus, any untoward political or economic event would lead to a fall in the price of the securities which would be further accentuated by overreaction and the herd like behavior of the investors. If some financial institutions start disposing the stock, the fear grips in and spreads to other investors.

INTEREST RATE RISK Interest rate risk is the variation in the single period rate caused by the fluctuations in the market interest rate. Most commonly interest rates risk affects the price of bonds, debenture and stocks. The fluctuation in the interest rates is caused by the changes in the Government monetary policy and the changes that occur in the interest rates of treasury bills and the government bond. The bond issued by the government and quasi-government are considered to be risk free. If higher interest rates are offered, investor would like to switch his investments from private sector bond to public sector bonds. If the government to tide over the deficit in the budget floats a few loan/bond of a higher rate of interest, there would be a definite shift in the funds from low yielding bonds and from stock to bonds. Likewise, if the stock market were in a depressed condition, investors would like to shift their money to the bond market, to have an assured rate of the return. The best example in the 1996, most of the initial public offering of the money companies remained undersubscribed but IDBI and IFC bonds was oversubscribed. The rise and the fall in the interest rate affect the cost of the borrowing. When the call money market rate changes, it affects the badla rate too. Most of the stock traders in the stock market are with the borrowed funds. The increases in the cost of margin affect the profitability of the traders. The fall in the demands of the securities would lead to a fall in the value of the stock index.

Through a series of credit policy announcements, interest rates have been gradually reduced from 12-13 per cent in 1998 to 7-8 percent today. What does this mean for you? If the rate cuts are responsible for the risk-averse investor¶s pet grouse of lower interest income from safe avenues, it has also meant that he can today borrow at far lower rates of interest. This is perhaps the single biggest reason why there is such a boom in retail housing and consumer spending. Today, your home loan costs you about 7.5 per cent; seven years ago, you would have paid 16 per cent. What this also means is low-cost funding for companies, which allows them to reduce their manufacturing overheads. And that means lower prices of goods. But, sure, a rate cut cuts both ways±the pain of lower deposit rates on the one hand and the gain of lower borrowing rates on the other. PURCHASING POWER RISK Variation in the return is caused also by the loss of purchasing power of currency. Inflation is the reason behind the loss of purchasing power. The level of inflation proceeds faster than the increase in capital value. Purchasing power risk is the probable loss in purchasing power of the return to be received. The rise in price penalizes the return to the investor, and every potential rise in price a risk to the investor. The inflation may be demand-pull and cost-push inflation. In the demandpull inflation the demand for goods and service are in excess of their supply. At full employment level of factors of production, the economy would not be able to supply more goods in the short run and demand for products pushes the price upward. The supply cannot be increase unless there is an expansion of labor force or machinery for production. The cost-push inflation as the name itself indicates that the inflation or the price is caused by the increase in the cost. The increase in the cost of raw material, labor and equipment market the cost of production high and ends in high price level.

The change in the price level is measured by the consumer price index for industrial workers. This index uses a basket of goods used by the industrial labors in different parts of India. Wholesale price index is also used to measure the inflation. The annual rate of inflation in the term of consumer price index of industrial workers and wholesale price index are give below:

The main inflation indicators Years CPI 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 Sources of data: - RBI Bulletin 2003 The real return of any investment could be calculated by using the following equation: Real future value = Nominal future value/10+ Inflation Rate (IR) 4.4- 6.8 5.9- 13.1 3.3- 3.4 7.2- 3.8 3.6- 4.3 3.4- 4.0 WPI

UNSYSTEMATIC RISK As already mentioned, unsystematic risk is unique and peculiar to a firm on a industry. Unsystematic risk stems from managerial inefficiency, technological change in the production process, availability of raw material, change in the consumer preference, and labor problems. The nature and magnitude of the above mentioned factors differ from industry, and company to company. They have to be analyzed separately for each industry and firm. The change in the consumer

preference affects the consumer products like T.V. sets, washing machines, refrigerators etc. more than affect the iron and steel industry. Technological change affects the information technology industry more than that of consumer product industry. Thus it differs from industry to industry. Unsystematic risk can be classified into: y Business risk y Financial risk BUSINESS RISK Business risk is that portion of the systematic risk caused by the operating environment of the business. Business risk arises from the inability of the firm to maintain its competitive edge and the growth or stability of the earning. Variation that occurs in the operating environment is reflected on the operating income and expected dividends. The variation in the expected operating income indicates the business risk. For example: Take Anu and Vinu companies. In Anu company operating income could grow as much as 15% and as low as 7%. In Vinu 3 Company operating income can be either 12% or 9%. When both the companies are compared, Anu Company¶s business risk is higher because of its high variability in operating income compared to Vinu Company. Business risk can be divided in to the internal and external risk. A. INTERNAL BUSINESS RISK Internal business risk is associated with the operational efficiency of the firm. The operational efficiency differs from company to company. The efficiency of operation is reflected on the company¶s achievement of its pre-set goals and fulfillment of the promises to its investors.

Fluctuations in the sales. The sales level has to be maintained. It is common in business to lose customers abruptly because of competition. Loss of customers will lead to a loss in operational income. The company has to build a wide customer base through various distribution channels. Research and development. Sometime the product may go out of style or become obsolescent. It is management who has to overcome the problem of obsolescence by concentrating on the in-house research and development program. Personnel management. The personnel management of the company also contributes to the operational efficiency of the firm. Frequent strikes and lock outs result in loss of production and high fixed capital cost. The labor productivity also would suffer. The risk of the labor management is present in all the firms. It is up to the company to solve the problems at the table level and provide adequate incentive to encourage the increase in labor productivity. Fixed cost. The cost components also generate internal risk if the fixed cost is higher in the cost component. During the period of recession or low demand for product the company cannot reduce the fixed cost. At the same time in the boom period, also the fixed factors cannot vary immediately. Single product. The internal business risk is higher in the case of firm producing a single product. The fall in the demand for a single product would be fatal for the firm

B.

EXTERNAL RISK

External risk is the result of operating condition imposed on the firm by circumstance beyond its control. The external environment in which it operates exerts some pressure on the firm. The external factors are social and regulatory factors, monetary and fiscal policies of the government, business cycle and general economic environment within which a firm or industry operates.

Social and regulatory factors. Harsh regulatory climate and legislation against the environmental degradation may impair the profitability of the industry. Price control, volume control, import/export control and environment control reduce the profitability of the firm. This risk is more in industry related to public utility sectors such as telecom, banking and transportation. Political risk. Political risk arises out of the change in the government policy. With a change in the ruling party, the policy also changes. Business cycle. The fluctuation of business cycle leads to fluctuation in the earning of the company. Recession in the economy lead to a drop in the output of many industries. Steel and white consumer goods industries tend to move in tandem with the business cycle.

FINANCIAL RISK It refers to the variability of the income to the equity due to the dept capital. Financial risk in a company is associated with the capital structure of the company. Capital structure of the company consists of equity funds and borrowed funds. The presence of debt and preference capital result in a commitment of paying interest or pre fixed rate of dividend. The interest payment affects the payment that is due to equity investor. The debt financing increase the variability of the return to the common stock holders and affects their expectation regarding the return. RETURN ON INVESTMENT IN STOCK A major purpose of investment is to set a return or income on the funds invested. Since the return on income varies, statistical techniques are used to measure it. Over the year, many methods were adopted for quantifying return.

METHOD OF MEASUREMENT OF RETURN Computation of yield to measure a financial assets return is the simplest and oldest technique of measurement. Yield can be both expected or estimated and actual for a particular period. The formula used to find yield is: Estimate yield = Expected cash income/Current price of assets Actual yield = Cash income/Amount invested The yield that is calculated is for a particular period to find out the return on the amount that is invested. The return on the stock is measured by finding out dividend yield can be estimated on expected yield as well as actual yield: Estimated yield = Expected cash dividend/Current share price Actual yield = Dividend received/Price of share in beginning of the period Te return on the investment in stock exchange is based on the many factors like political, social, economical, goodwill of that company those stock are issued, natural factors and many more.

GOLD

Gold is a natural metal. Gold can now be used in various forms. It is no longer a tool for hedging and speculation but a bankable asset. It can be bought from banks in form of gold coins. Investors will soon look at gold-backed exchange traded funds as tools of investment. While gold can be used a security against personal loans, banks also provide loans to buy gold. Gone are the days when a future contract was the only way to involve gold in your investment portfolio. Gold is primarily a monetary asset and partly a commodity. More than two thirds of gold's total accumulated holdings relate to 'value for investment' with central bank reserves, private players and high-carat jewelry. Less than one third of gold's total accumulated holdings are as a 'commodity' for jewelry in Western markets and usage in industry. Gold market is liquid and gold held by central banks, other major institutions and retail jewelry keep coming back to the market. Due to large stocks of Gold as against its demand, it is argued that the core driver of the real price of gold is stock equilibrium rather than flow equilibrium. Economic forces that determine the price of gold are different from, and in many cases opposed to the forces that influence most financial assets. South Africa is the world's largest gold producer with 394 tons in 2001, followed by US and Australia. India is the world's largest gold consumer with an annual demand of 800 tons. Gold is a unique

metal. It is valued not just for its rarity, but also for its range of lovely colors, the distinctive character of its soft metallic glow, its resistance to tarnish, and its easy workability. Gold is so soft and malleable that one-ounce can be stretched into a wire 50 miles long, or hammered into a sheet so thin it covers 100 square feet. In its pure form, gold is a shiny yellow metal and is relatively inactive chemically

Standard of gold Legal regulations governing the marking of gold jewelry began in England as early as the year 1239. In that year, a law was enacted which established a procedure for authenticating the purity of the gold used in various articles of jewelry. The procedure involved the use of an official mark, which was stamped on the article at Goldsmith's Hall in London or at one of several British government assay offices. These "Hall Marks" started a practice, which has since been duplicated in practically every civilized country of the world. In the United States, Congress passed the National Gold and Silver Marking Act to govern standards of purity of these metals for the jewelry industry. This law also included standards of purity for gold alloys. This practice required articles such as gold-filled and rolled gold plate to conform to federally controlled standards. The most recent amendment to the Gold and Silver Marking Act was passed in 1976. The key provision of this amendment tightened the purity tolerances of the gold or gold alloys in articles of merchandise, so that "...the actual fineness of such gold or alloy shall not be less by more than three one-thousandth parts than the fineness indicated by the mark stamped, branded, en- graved, or printed upon any part of such article." The amendment also requires the fineness of gold solders to be not less than seven one-thousandths less than the stipulated purity. The amendment significantly narrowed the "minus" tolerance of karat gold, which was previously set at ½ karat for gold articles and a full karat for soldered price.

The Karat System In the karat system, pure gold is expressed as "24 karats fine" (24K). (Pure gold in commercial practice is 99.95 to fine, but is nominally considered 100 %.) The gold content of any gold article depends on the proportion of' pure gold. Precious Metals: Gold The collapse of equity markets and the arrival of low interest rates have increased the investor presence in alternative investments such as gold. In India, gold has traditionally played a multi-faceted role. Apart from being used for adornment purpose, it has also served as an asset of the last resort and a hedge against inflation and currency depreciation. But most importantly, it has most often been treated as an investment.

Gold supply primarily comes from mine production, official sector sales of global central banks, old gold scrap and net disinvestments of invested gold. Out of the total supply of 3870 tons in 2009 last, 66% was from mine production, 20 % from old gold scrap and 14% from official sector sales. Demand globally emanates from fabrication (jeweler and other fabrication), Bar hoarding, net producer hedging and Implied investment.

Gold continues to occupy a prominent part in rural Indian economy and a significant part of the rural credit market revolves around bullion as security. India is the largest consumer of gold in the world accounting for more than 23% of the total world demand annually. According to unofficial estimates, India has more than 13,000 tones of hoarded gold, which translates to around Rs 6, 50,000 corers.

Gold Imports vs. Demand in India

The Reserve Bank of India (RBI) has made a comprehensive review of the operational matters relating to management of reserves. Put out in the RBI bulletin of March, this has been done to bring about transparency of its approach, and relates to the positions as of September 30, 2003; the central bank will release two reports every year, vis-à-vis positions at end March and September. Indeed for this RBI needs to be complimented; the central bank has emerged an important player in this area. The report, representing a valuable database, is expected to generate informed debate on such crucial aspects as the level and deployment of reserves, and the exchange rate, all of which have a vital bearing on the economy. India has come a long way since the onset of economic reforms triggered by serious difficulties on the external front. Foreign exchange reserves have grown significantly since 1991 reaching $100 billion. By all conventional norms - import cover, ratio to short-term debt, and capital flows - the reserves can be considered

comfortable. These reserves are invested in across currencies, and markets. If safety and liquidity constitute the key objectives of reserve management in India, return optimization is an embedded strategy; in 2002-03 (July-June) the return on foreign currency assets dropped to 2.8 per cent from 4.1 per cent during 2001-02 mainly because of lower international interest rates. The RBI bulletin, while discussing the various risks arising out of the deployment of reserves and the measures used employed to manage them. One aspect relates to gold. According to the RBI Annual Report 1991, in September-November 1991, the RBI pledged the gold with the Bank of England to raise loans, and redeemed it after repaying the loans. Earlier, in May 1991, the Government had leased 19.99 tones out of its stock of confiscated gold to the State Bank of India, which, in turn, sold in the international market 18.36 tones with a repurchase option. SBI repurchased the gold in November-December 1991. Subsequently, the Government sold the 18.36 tons of gold to the RBI. The balance of 1.63 tones of gold has since been returned by the SBI to the Government. The gold involved in both the transactions, adding up to 65.27 tones, was kept abroad for the time being, as per RBI Annual Report 1991. Three points emerge out of this: First, the 65.27 tones kept abroad out of 350 tones exceed 15 per cent of the RBI's total gold holding. Second, this was supposed to be a temporary arrangement. INDIAN GOLD MARKET Gold is valued in India as a savings and investment vehicle and is the second preferred investment after bank deposits. India is the world's largest consumer of gold in jeweler as investment. In July 1997, the RBI authorized the commercial banks to import gold for sale or loan to jewelers and exporters. At present, 13 banks are active in the import of gold.. Domestic consumption is dictated by monsoon, harvest and marriage season. Indian jeweler off take is sensitive to price

increases and even more so to volatility. Facilities for refining, assaying, making them into standard bars in India, as compared to the rest of the world, are insignificant, both qualitatively and quantitatively. India in World Gold Industry India Tons) 13000 400 2 100-300 800 600 60 (In World Tons) 145000 28000 2600 1100-1200 3700 ----(In

(Rounded Figures) Total Stocks Central Bank holding Annual Production Annual Recycling Annual Demand Annual Imports Annual Exports

% Share 9 1.4 0.08 13 22 -----

Frequency Dist. of Gold London Fixing Volatility from 1995 till date Percentage Change Daily Number of times Percentage times Weekly Number of times Percentage times 3 0.7 62 14.1 376 85.3 4 0.2 54 2.4 2147 97.4 > 5% 2-5% < 2%

Bigger price movement since 1995

TIPS FOR BUYING GOLD y Hallmarking is a system of analyzing or assaying of precious metals like gold in a laboratory to ascertain their purity or fineness and certifying it. In other words, hallmarking gives the buyer a guarantee on the purity of gold, issued by an independent agency other than the jeweler. y Hallmarked jewelry will have five markings: the BIS logo, the fineness number, the mark of the hallmarking center, year of marking and the jeweler¶s mark. The assaying of the gold will be done in accordance with the Indian Standard Specification IS 1418, which prescribes the fire assay test (the most reliable and scientific). The jewelers are also expected to display a board, specifying the purity, in carats since consumers are more familiar with it. y The specified carat purity is an important factor in buying gold jewelry. It indicates the percentage of real gold in any piece of jewelry. In most cases, the carat of the piece of jewelry is mentioned on it, apart from the hallmark of the jeweler. This is genuine proof that it is indeed real gold. y 24-carat gold is pure. It is soft, almost flexible and easy to break. That is why it is not always used in the making of modern jewellery, which features delicate designs. Other metals like silver, copper, nickel or zinc are added to gold in small quantities to make it workable, durable and even colorful. y In choosing gold jewellery, the primary aim should be to build up a collection of the first five essential pieces, which are: necklace, bracelets, long earrings, big round earrings and different pendants. Always remember to choose gold jeweler for your collection with utmost care; it has to reflect your taste. y Jeweler, you should be equally certain that the jewellery you choose will look good on you. If you are buying a new style in gold jewellery for the first time,

it is advisable to get someone who understands gold jewellery fashions and trends, to go with you. y Gold jewellery is available in a variety of carat ranges. The preferences for a certain range of gold purity are usually based on cultural, regional or traditional factors. For instance, 22 carat gold is predominantly used in India; while Arabs prefer 21 carat gold. Most Europeans prefer 18 carat gold. 24carat jewel gold, which is considered the purest gold available, is usually used as a mode of investment or exchange. GOLD AS INVESTMENT Demand for gold for the purpose of investment has outpaced the demand for the yellow metal for jewellery in 2004. Indians purchased 74.0 tons of gold for investment from January to September 2004, while it was 67.8 tons during the same period in 2003.There are two schools of thought on this subject. The recommendations are in the range of a 15% to 20% allocation of the total portfolio. y 15% of the investment portfolio -- European Central Bank decision at the time of establishment in 1999 based on internal studies. y 20% of the investment portfolio -- Based on a model done by Germmill & Hillman on 20 years data. Ideally, however, allocation to gold from an investment perspective should be based on comprehensive financial planning. It should always be remembered that investment in physical gold must always be in the form of coins/bars and should be in addition to the jewellery held by the household. Advantages of gold in a portfolio can be explained through the following points: y Gold has a low to negative correlation with most other asset classes.

y An investment portfolio with an allocation to gold improves the consistency of portfolio performance during both stable and unstable periods. y The price of gold is not linked to the performance of economy, industry or companies. y Gold offers the benefit of diversifying portfolio risks.

Let us consider an example where an investor invests Rs 10,000 each in various options like equities, fixed deposit, PPF and gold in March 1999. Let us see what the returns are in each case, taking the deposit period 1999 to 2004 into consideration. In gold, by March 2004, his investment would have fetched him Rs 15,063, a substantial increase. The money invested in PPF would have grown to Rs 16,025 by March 2004. A fixed deposit of the same amount would have yielded Rs 13,794 by March 2004. (Refer to the data below for varying interest rates)

By March 2004, his investments in equities for the same amount would have become Rs 18,916. This is provided the investor had remained invested in the market throughout the five years, even during periods when the Sensex saw huge downward movements. Fixed Deposit Rates Year 1999 2000 2001 2002 2003 2004 Interest Rate 7.50% 7.25% 7.00% 6.50% 5.00% 4.75% Capital (Rs) 10,000 10,750 11,529 12,336 13,138 13,794

PPF Rates Year Interest Rate 1999 12% 2000 11% 2001 9.50% 2002 9% 2003 8% 2004 8% Amount (Rs.) 10,000 (Capital) 11,200 12,432 13,613 14838 16,025

Gains on Gold Year Gold Price (Rs.) 1999 4,296 2000 4,419 2001 4,340 2002 5,073 2003 5,747 2004 6,474 2005 6,900 2006 9,215 123 (79) 733 674 727 426 3,315 3 (2) 17 13 13 10,000 10,286 10,104 11,810 13,379 15,063 YoY Rise/Drop Amount (Rs.)

Rise/Drop (%)

Gains on BSE Sensex Year Sensex YoY Rise/Drop Amount (Rs.)

Rise/Drop (%) 1999 start 3,065 1999 close 5,006 2000 2001 2002 2003 2004 3,972 3,262 3,377 5,839 6,414 1,941 (1,034) (710) 115 2,462 575 1,786 63 (21) (18) 4 73 10

16,332 12,867 10,577 10,947 18,916 20,769

2005 2006

8,200 12,039

3,839

Cost efficient ways of investment in gold internationally Owning gold has been possible over the years in the form of mutual funds or stocks of gold mining companies. However, investors have been awaiting a more cost effective platform for owning gold. The World Gold council recognized this fact and launched the following ETF gold products across the world. INVESTMENT IN GOLD In January 1980, gold price was over $800 per ounce when the crude oil hit $40 a barrel. After a quarter of a century, the oil price has increased more than 50%, but gold price was cut in half. In 2001, gold reached its lowest level around $250. Since then, gold has nearly doubled - averaged $450 in 2005. Many people believe that the gold price will continue to rise based on the following observations:
1. Increasing demand from jewelry consumption in India and China. 2. Decreasing supply from production. 3. More central banks switch their reserves to gold. 4. More investors are interested in gold.

What to invest y Mining stocks, e.g., Bema Gold (BGO), Vista Gold (VGZ) and (NG), which have substantial amount of gold reserves. y Gold ETF, which can be traded like stocks with price tied to the spot gold. The largest gold ETF is Street Tracks Gold Shares Gold bullions and coins. y Gold futures (for experienced traders only). INVESTMENT STRATEGY For most people, simply buy and hold until almost everyone has bought gold (probably when gold reaches $1600 an ounce). If you try to catch the short-term fluctuation, the following information may be useful: y Daily report from Street Tracks Gold Shares about their Net Asset Value (scroll down to near the bottom of the linked page). If they are buying, the gold price tends to rise. y Weekly report of Commitment of Traders on gold. In the past three years (2003-2005), increase in the commercial shorts tended to drive downs the gold price. However, there is no guarantee that this indicator will work in the future. y Collected opinions from the Gold-Eagle forum. I found their opinions quite useful, especially by Goldilocks. Nova Gold

IS GOLD A GOLDEN INVESTMENT 1. The Popularity of Gold Gold and silver have been sought and prized since prehistoric times. They have also been both a cause of war and a medium of exchange. Gold is the standard by which the value of anything is assessed; it is universally accepted. Silver does not lag behind in global trade markets and as an investment. In the code of Manes, an Egyptian ruler of 3100 BC, it is declared that µone unit of gold is equal to two-anda-half units of silver in value¶. Silver was actually more widely employed as the standard of value until the nineteenth century. Indians¶ faith in God and gold dates back to the Vedic times; they worshipped both. The historian Pliny complained that her Indian trade drained ancient Rome¶s bullion resources. Indian merchants always demanded payment in silver during the times of the East India Company; so much silver was exported from London that East India Company teetered on the brink of financial disaster. According to the World Gold Council Report, India stands today as the world¶s largest single market for gold consumption. In developing countries, people have often trusted gold as a better investment than bonds and stocks. Gold and silver have been popular in India because historically these acted as a good hedge against inflation. In that sense these metals have been more attractive than bank deposits or gilt-edged securities. Despite recent hiccups, gold is an important and popular investment for many reasons: y In many countries gold remains an integral part of social and religious customs, besides being the basic form of saving. Shakespeare called it µthe saint-seducing gold¶.

y Superstition about the healing powers of gold persists. Ayurvedic medicine in India recommends gold powder and pills for many ailments. y Gold is indestructible. It does not tarnish and is also not corroded by acid ± except by a mixture of nitric and hydrochloric acids. y Gold has aesthetic appeal. Its beauty recommends it for ornament making above all other metals. y Gold is so malleable that one ounce of the metal can be beaten into a sheet covering nearly a hundred square feet. y Gold is so ductile that one ounce of it can be drawn into fifty miles of thin gold wire. y Gold is an excellent conductor of electricity; a microscopic circuit of liquid gold µprinted¶ on a ceramic strip saves miles of wiring in a computer. y Gold is so highly valued that a single smuggler can carry gold worth Rs. 50 lakh underneath his shirt. y Gold is so dense that all the 90,000 tones estimated to have been mined through history could be transported by one single modern super tanker. Why People Buy Gold y Industrial applications take advantage of gold¶s high resistance to corrosion, its malleability, ductility, high electrical conductivity and its ability to adhere firmly to other metals. y There is a wide range of industries, from electronic components to porcelain, which use gold. Dentistry is an important user of gold. The jewellery industry is another. y Acquisition of gold because of its long-proven ability to retain value, and to appreciate in value.

y Purchases by the central banks and international monetary organizations like the International Monetary Fund (IMF). 2. Sources and Price of Gold South Africa produces 72% of the gold in the free world, whereas India¶s contribution is just around 0.3%. The production of gold by the former USSR was considerable, but the quantities produced were a state secret. Many experts used to think that the Soviet State Bank had large reserves of gold. But after the fall of the communists in 1991, the Soviet State Bank had a hearty laugh; it had no gold stocks at all. After that experience, Bank of England insisted on physical delivery of gold by Reserve Bank of India during the foreign exchange crisis in early 1991. As South Africa depends on gold sales to balance her budget, her balance of payment position influences the gold market in the world. The Price of Gold During the ¶50s gold appreciated marginally; from Rs. 99 in 1950 to Rs. 111 in 1960. The next decade, 1960-70, it moved up to Rs. 184. Between 1970 and 1980 came the massive rise from Rs. 184 to Rs. 1,330. During the ¶80s, it moved up another 240%. The trend of gold prices in India in the last few years is given in Table 1. Table 1 reveals that between 1950 and 2002, gold appreciated 51 times and silver 49 times; an annual compound rate of return of 7.8% in both the cases.

Bullion Prices in India March end Gold price per Silver 10 gm (Rs) 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 18 18 30 36 62 99 79 111 71 184 540 per 1 kg (Rs) 61 46 58 48 110 160 142 185 280 521 1,012 price March End (Rs) 1980 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 Gold price per Silver 10 gm (Rs) 1,330 2,130 3,200 4,658 5,713 4,750 4,050 4,220 4,395 4,410 5,030 per 1 kg (Rs) 2,655 3,955 6,433 6,179 8,486 6,825 8,590 7,845 7,765 7,365 7,870 price

3. Gold in India In addition to the 9,000 MT of gold with the people of India, the Government of India has about 80 MT of confiscated gold. Further, the Reserve Bank of India has gold reserves as well. These official gold reserves helped India to tide over its foreign exchange crisis in 1991. India¶s stock of gold of about 9000 tones was valued at Rs. 450,000 Crore, which perhaps is an indication of the extent of black money in the country. Legal imports of about 500 tons of gold in 1998-99 were valued at about Rs. 20,000 Corer. In comparison, India¶s trade deficit that year was

only around Rs. 15,000 Corer. Today, India imports gold more than any other commodity. Than half of the annual requirement of gold in India (estimated to be around 200 MT) was met by smuggled gold. However, the situation changed totally after 1992. The ban on gold imports was lifted in March 1992. All returning NRIs can now bring gold up to 10 kg per person. They have to pay a fixed duty. This measure is expected to reduce, if not eliminate, gold smuggling, bring in revenue for the government, and reduce the disparity between international and domestic prices of gold. 4. The Prospects for Gold In 1963, the Gold Control Order was promulgated under the Defense of India Act in the light of the India-China war. Under the Gold Control Scheme, the maximum purity of all ornaments to be made in the country, whether from remolten old ornaments of higher purity or from gold in any other form, was restricted to 14 carats in place of the earlier 22 carats. Since its inception, the Gold Control Act of 1963 has had to be amended, diluted and whittled down. Eventually in 1990, the Finance Minister repealed the Gold Control Act. It was very widely welcomed by one and all, for understandable reasons. Gold smuggling into India was rampant as the gold price in India has been historically higher than the international parity price. For example, on 27 April 1990, the price of gold (10 gm) in Bombay was Rs. 3,400, whereas the New York price was only Rs. 2,065. In other words, the Indian price of gold was nearly 65% higher. The central problem of bullion trade in India is the excess of demand over supply. As there was a total ban on import of gold, the excess demand was met through

large-scale smuggling. According to the Bombay Bullion Many investors have forgotten that when gold price went up during the late 1970s it was just trying to catch up with prices of other things, which had already gone up. In 1970, when the price of gold was $35 an ounce (due to the gold standard then followed in USA) it was unquestionably undervalued. When gold hit $850 an ounce in January 1980 it was again, unquestionably, overvalued. If the increase in gold price had kept the same pace in 1980s and 1990s as it did in 1970s, it would have become $20,000 an ounce by 2000. With a number of Central Banks selling off huge chunks of their gold reserves, the international price of gold has come down in the last few years. Timothy Green, a well-known gold expert, reminds us of a historical truth: µThe great strength of gold throughout history has not been that you make money by holding it, but rather you do not lose. That ought to remain its best credential¶. A research study on gold established a remarkable consistency in the purchasing power of gold over four centuries. WHY INVESTMENT IN GOLD y Gold is the only universal currency, which does not loose its value across the Globe. y Gold is the only asset, which acts as a risk mitigator for a portfolio in case of volatility of other asset classes. For ex- in case of any adverse events, asset classes like Equity, Debt may show downward trend but Gold mostly shows upward trend. Hence, overall return on investments does not come down as Gold acts as a shock absorber.

y By constituting Gold also as one of the options in a mixed portfolio, portfolio's capacity to take exposure in high-risk high return investments like equities increases. y Gold prices are increases day-to-day. y Its give an higher rate of return to the investors. The gold industry consumes a tenth of the world¶s energy, spews out 30-50% of the globe¶s toxic emissions and imperils 40% of the frontier forests A single gold ring generates a staggering 20 tones of waste. John Maynard Keynes, the renowned British economist who famously advocated digging holes and filling them up during the Depression in the 1930s, once castigated gold as a ³barbarous relic´. But its peculiar appeal simply refuses to fade. Even in the 21st century, when it has stopped serving as the reserve for currencies of the world, Fort Knox, the Reserve Bank in Mumbai and countless other central banks around the globe continue to hoard vast quantities of it, although the yellow metal does not appreciate in value or earn interest. India is the biggest consumer of this metal, some 950 tones of it annually, by some counts (accurate estimates are impossible to come by, considering that much of it is smuggled in, though not on the scale previously). Old-timers still recall ³the bad old days´ when Morarji Desai, as finance minister, imposed a Gold Control Order. Everyone had to declare his holdings, much to the chagrin of some householders, especially industrialists and sundry businessmen who hoard gold as unaccountedfor wealth. According to the international lobby group known as the World Gold Council, ³Gold was acquired in India in Roman times as part of the silk and spice trade, and the first gold ducats struck by the Venice Mint in 1285 went into the Levant (i.e.

the countries bordering the eastern Mediterranean) and on into India. In the 17th century the Dutch and English East India Companies paid for goods with gold and silver and during the American Civil War, India received gold from the US in return for the cotton that it supplied to make up for the lost crops in America. Estimates vary, but it is believed that at least 13,000 tones of gold rest in India ± or approximately 9% of the worlds cumulative mine production.

India in world gold industry

India (In Tones) Total Stocks Central Bank holding Annual Production Annual Recycling Annual Demand 13,000 400 2 100-300 800

World (In Tones) 145,000 28,000 2,600 1,100-1,200 3700

% Share 9 1.4 0.08 13 22

³The hoarding tendency is well ingrained in Indian society, not least because inheritance laws in the middle of the 20th century lent a great desirability to anonymity. Indian people are renowned for saving for the future and the financial savings ratio is strong, with a ratio of financial assets-to-GDP of 93%. Gold is valued in India as a savings and investment vehicle and is the second preferred investment behind bank deposits. India is the world¶s largest consumer of gold in jewellery (much of which is purchased as investment). Gold circulates within the system and roughly, 30% of gold jewellery fabrication is from recycled pieces. India is typically also the largest purchaser of coins and bars for investment (over

80 tones per year).´ What no one, either in industrial or developing countries, is at all aware of, is that this is arguably the world¶s most polluting industry, in the conventional sense of causing waste and toxic effluents. A single gold ring generates a staggering 20 tones of waste! Most people take gold for granted something that one inherits, acquires on auspicious occasions and tries to accumulate as much as possible of. It is not for nothing that there is the adage, ³old is gold´. We seldom think about the environmental impact of pandering to our craze for the yellow metal. The gold industry consumes a tenth of the world¶s energy, spews out 30-50% of the globe¶s toxic emissions and imperils 40% of the frontier forests. The entire process ± from mining to jewellery ± is highly polluting. When you dig for gold, you extract far more earth and rock than contains minute traces of this metal ± if you are lucky, to begin with. Open pit mines generate huge piles of waste rock. Mine waste has polluted groundwater, leaving it thousands of times more acidic than battery acid. As a recent report from Earthworks and Oxfam America observes, ³Once it¶s extracted, the ore is crushed, piled into huge heaps and sprayed with cyanide, which causes the gold to leach out of the ore. Some mines use several tones of cyanide daily. A rice-grain sized dose of cyanide can be fatal. The cyanide contaminated waste ore is usually just abandoned.´ IS OLD INVESTMENT BETTER THAN FDs? Thought to be one of the first known metals, gold has been coveted throughout history for its beauty, scarcity, malleability, and uncanny resistance to rust and corrosion. Centuries ago, gold's unique combination of properties -- its sun-like color, its soft hardness, and, especially, its imperviousness to decay and corruption -- imbued it with magical associations in the eyes of many. Because of these unique properties, gold has traditionally been the currency of choice for much of

the world's population. The value of gold has transcended all national, political, and cultural borders, making it the ideal currency. Historically gold prices were determined by a combination of political and economical factors, till a universally acceptable concept of London and American gold price was institutionalized. An outcome of such initiatives was the Washington Agreement. However, in the past few years, the major factors impacting the gold price can be summarized as under: 
 

Weak US dollar Growth in demand for jewellery Increase in demand for exchange-traded paper backed products

Weak US dollar Projections about a declining dollar due to an ever-increasing twin deficit supported by many investment veterans are met by much denial from politicians as well as from investors. As long as foreigners are willing to pour in the amount of $2 billion every working day, the dollar won't crash. But if foreign confidence were to wane, the US dollar will be heading south. No matter how you look at the US twin deficits and America's future fiscal liabilities, this problem is huge and some painful adjustments not only seem to be necessary but unavoidable as well. It should be obvious that one of these major painful adjustments will be a massive devaluation of the US dollar. It seems that the idea of dollar devaluation is gaining support from the Fed when the president of the Dallas Fed, Robert McTeer recently said: "Over time, there is only one way for the dollar to go -- lower." Former ECB president Wim Duisenberg, quoted by Spanish Newspaper El Pais,

recently said: "dollar devaluation seems inevitable due to the tremendous US Current Account deficit." Furthermore he recently said on Dutch television that we can only hope and pray for a smooth economic transition in the US. Why is this so important? Simple, the US dollar is the key driver for gold; as the dollar goes, so will gold; but in the opposite direction. Growth in demand for jewellery In spite of the convergence of diamond and palladium, the demand for gold jewellery has seen a regular growth year-on-year. Countries primarily responsible for this growth are India, China, Italy, Turkey and the USA. The demand for consumption of gold in jewellery was 6% higher at 735 tones and also comprised a new first-quarter record. The US, which accounts for 10% of world gold demand, is also one of the markets where public taste in gold jewellery is enjoying a renaissance. The renewed interest in gold also extends to Japan, a market that showed a 19% increase in demand. The Indian market -the world's largest for gold demand -- was 23% higher following the marriage and festival period, which, in turn, has led to restocking by retailers. The earthquake in India, however, is unlikely to hit demand significantly as it occurred in an area which comprises only 5% of the total Indian consumption. There were sharp falls in demand in Turkey and Taiwan -- down 38% and 31%, respectively. This was due to economic difficulties and continued weakness in investment demand. Increase in demand for exchange traded paper backed products For the first time in history, gold can be purchased like any listed stock at select stock exchanges of the world like London Stock Exchange, Australian Stock Exchange (Gold Bullion Securities) and New York Stock Exchange (Street Tracks Gold). The World Gold Council initiated Electronic Traded Funds have displayed very good performance and growth in volumes since launch. THE GOLD INVESTMENT IS BETTER THAN THE STOCK EXCHANGE IN THE LONG TERM INVESTMENT Reasons: The investment in gold is better than stock in long-term investment is true. There are so many reasons they define the gold investment is better than stocks. The

India is under developing country and the more than 70% population of India living in the villages. In India the income group are divided in the three parts like middle class, low class and higher-class income group. The higher-class income group of India is invested there income in the both stages like in gold as-well-as stock. But the other two groups are invested there investment in the gold more then the stocks because they are living in the villages and due to less knowledge of the investment in stock exchange they purchases gold jewellery for the long time period and after some time they sell the gold jewellery and earned more return on them. The price of stock market investment is up and down day to day but the price of gold commodity is rises from last 9 and 10 years. The Indian rural area population is invested there money more in the gold than stock due to their customs and many interest. y India's love for gold Over centuries and millennia, gold has become an inseparable part of the Indian society and fused into the psyche of the Indian. Having passed through fire in its process of evolution it is seen as a symbol of purity, the seed of Agni, the God of fire. Perhaps this is why it is a must at every religious function. Gold has acted as the common medium of exchange or the store of value across different dynasties in India spanning thousands of years and countless wars. Thus wealth could be preserved inspire of wars and political turbulence. For centuries, gold has been a prime means of saving in rural India.

In Western countries, gold jewellery is sold at fixed and high prices ranging from 100% to 300% and more above the value of it¶s fine gold content. In India, gold jewellery is sold at fluctuating and low prices related to the prevailing value of its fine gold content. The declared retail marks up ranges from 5-25%. It acts as a tradable investment in that it is easy for consumers to sell or exchange their jewellery at a reasonable price. There are approximately 300,000 ³traditional´ gold jewellery outlets, more than 10,000 refiners, more than 1000 coin fabrication units and about 3 million active goldsmiths and ancillary workers throughout the country. The 181 million families in India hold an average of 64 grammas of fine

gold of which at least 90% is held as gold jewellery. These statistics give a measure of the fanatical passion for gold in India.

India is the largest importer of gold with demand hovering around 25% of world gold demand. It imports about 663 tones of gold annually mainly in the form of small cast bars weighing 10 tolas (3.75oz), widely known as TT bars or biscuits at an annual cost of approximately US $7 billion. Since 1990, an estimated 5,246 tones of gold have been imported officially and unofficially. Eight major gold refiners in Australia, Switzerland, South Africa and United Kingdom produce most imported TT bars. The official import of gold bullion for the domestic market occurs through two authorized Government schemes: Open General License (OGL) scheme since 1997 and the Non resident Indian (NRI) scheme since 1992. The OGL scheme (20 banks and 4 public sector undertakings are authorized) accounts for 99% of official imports.

Today, gold forms 10% of average Indian asset allocation.

Asset class Bank deposits

Allocation 20%

Insurance and small savings 27% Gold Shares Mutual Funds Others 10% 2% 2% 39%

But, most of this gold is in the form of jewellery ± something that is looked upon as a status symbol to be sold only in distress. Gold is not yet considered as a serious part of an investment portfolio. Jewellery by itself has a major drawback ± there is a loss of around 30% due to making charges. Then what would be the ideal way to invest in gold? Sanjeev Aggarwal, Managing Director-Indian Sub Continent, World Gold Council (WGC) suggests that physical gold can be bought from banks like ICICI Bank and HDFC Bank. The banks have started to sell 10 gm denominated gold coins. These coins are of 99.99% purity. If you sell these coins or bars in the market, you will get the full value of gold without any loss due to making or melting. Financial planners recommend a systematic investment in gold. Certified Financial Planner Gaurav Mashruwala and his wife Pranati did exactly that. They have been buying 100 grams of physical gold every year for the last 10 years. They make their purchase every Diwali. Over the last 10 years, they have managed a return of 8.5% per annum. y Gold Future Gold futures are the traditional way of involving gold in investment schemes and business transactions. A `Futures¶ contract contains an agreement to buy or sell a specific commodity, asset or security at a pre-decided price. The contract is legally binding to both parties. The two parties are: the investor, who may want to buy or sell gold or any other commodity, and the broker who is willing to take an opposite position. This is how it works. An investor may want to buy gold feels that the price will rise from say Rs 750 per gram to Rs 800 per gram within three month.

He could lock in to a specific price for delivery after three months. The investor then enters into a futures contract with a broker. The investor only has to pay up the margin money of 10-20 per cent, depending on the prevalent interest rates and the exchange rules. The investor could invest his balance money in other assets for the period. But, if on the delivery date the price of gold has touched Rs 820, he needn¶t feel stupid. As, he could take delivery by paying the balance amount and sell the gold in the spot market if he is an investor. This offers him tremendous leverage. The reverse works when prices fall. With gold prices hovering well over the Rs 800 per gram and no decline in sight, its seems only logical that investors should seriously look at various opportunities that the yellow metal offers, before planning their portfolio. Futures trading in Gold in India was carried out till 1962 mainly via Bombay Bullion Association, but as the Gold Control Act came into force this trading was debarred for around 41 long years. On 29 August 2003, National Multi-Commodity Exchange of India Ltd; got the permission to once again carry out this trend of futures trading in Gold. For centuries, gold has meant wealth, prestige, and power, and its rarity and natural beauty have made it precious to men and women alike y PRICE DIFFERENCE ON BOTH The price of the gold was increased from last 9 to10 years. The price of gold was more increased in the year 1996. Due to increases of the price of the gold the demand of the gold is increases in India in a high rate of return. The gold price is increasing in India and all over the world because the investor is invested there investment in gold more then the stock for the long term investment. The gold investment gives and high rates of the return the stock. With the help of the data we find that the gold investment is better than the stock because in current the investors invested their money more in gold for the long period.

The demand of the gold is much higher than the stock in current as well as in the last years. The price of the gold is always high than the stock. PRICE OF GOLD PER 10 GRMS IN LAST 8 YEARS
12000 10000 8000 6000 4000 2000 0 1 2 3 4 5 6 7 8 PRICE YEAR

The BSE Sensex is also in the increasing rate due to last 8 years. Due to the investment increases in the FII¶S, blue chip companies, software companies, IT sectors, cement companies and many more companies the stock exchange Sensex are also increasing. But the investment in the stock exchange is less than investment in gold.

BSE SENSEX IN LAST 8 YEARS
14000 12000 10000 8000 6000 4000 2000 0

SENSEX

19 99

20 01

20 03

y RISK FACTORS Risk in case of investment in stocks There are so many factors affects the investment of the stock. There are two types of risk in the stock: systematic and unsystematic risk. These both risk are affected the investment in the stocks. The investment in the stocks is affected by: y Market risk y Interest rate risk y Purchasing power risk y Business risk y Financial risk The political, legal, social and Government rules and regulation also affect the investment in the stock exchange. India is an under developing country, out of its 70% of population is living in the rural area. Due to less knowledge about the stock exchange the middle and lower income class of India not invested their money in the stocks. The risk is higher in the stocks than gold because: 1. Depending upon government policies. The stock exchange is totally depending on the government policies. The rules and regulations of government are

20 05

affected the stock. The government policy is change every year in India. So due to the price of different companies changed every day, month and every year. 2. Fluctuation in price. The fluctuations in the price of the stock are also affect the stock market. Due to the bull and bear situation in the stock exchange the investor faced more risk in the market. The stocks price is affected by many factors like government policies, political, social and many more. So due to day-to-day change in the price the risk factor is also increased in the stocks. 3. Natural climates. The natural climates are also affected the dealing in the stock exchange. Due to the natural climates stock exchange faced a bear situation in the market it means due to natural climates like flood, earthquake and others the stock market goes down and the investors faced more risk. 4. Less knowledge. India is a large country and its 70% of population is living in villages. So due to living in rural areas the maximum population of India not well know about stock exchange. The middle class and the lower class families of India is invested there money for buying gold. So due to less knowledge about the stock exchange they do not want to take risk. Risk in gold investment There are so many factor also affected the gold investment. The risk in the golden investment is less than the stock exchange because the gold investment is not based on the government policies, legal factors, political factors etc. There are other factors affects the gold investment like: 1. Gold wants more security then stock. 2. Theft problems. 3. Less Liquidity in gold investment because if an investor has need of money then at the time they cannot sell gold. 4. The demand of gold is less on the international level. Now the demand of the white gold is increase in the international level.

y RETURN FACTORS Return in case stock The risk and the return both are high in case of stock. But due to more risk the investors do not want to invest in the stocks because they do not want to take risk in the long-term investment. Return is also high in the stock exchange because the liquidity ratio is more in the stock than the gold investment. Return in the gold investment The gold investment is much higher than investment in the stock because the price of the gold is increases day to day and its demand is also high than the stocks. If an investors invested their money in the gold then in the future they earns more money. Due to less risk in the gold investment the investors invested their investment in gold. In the long term investment the gold investment is better than the stocks. If we buy some amount of gold today then after some years if we want to purchase is then it gives more return.

PRICE Gold
12000 10000 8000 6000 4000 2000 0 1 2 3 4 5 6 7 8
14000 12000 10000 8000 6000 4000 2000 0

Stock exchange

SENSEX

PRICE YEAR

01

19

20

20

Gold Year Price

20

05

99

03

1999 2000 2001 2002 2003 2004 2005 2006

4296 4419 4340 5073 5747 6474 6900 9200

Stock exchange Year 1999 2000 2001 2002 2003 2004 2005 2006 Sensex 3065 3972 3262 3377 5839 6414 8200 12000

CHAPTER -2

LITERATURE REVIEW

LITERATURE REVIEW

1. Stock Market Development and Financial Intermediaries:

Asli Demirgüç-Kunt and Ross Levine (May 1995) World stock markets are booming. Between 1982 and 1993, stock market capitalization grew from $2 trillion to $10 trillion, an average 15 percent a year. A disproportionate amount of this growth was in emerging stock markets, which rose from 3 percent of world stock market capitalization to 14 percent in the same period. He highlights certain important correlations: In the 41 countries they studied, there are enormous cross-country differences in the level of stock market development for each indicator. The ratio of market capitalization to GDP, for example, is greater than 1 in five countries and less than 0.10 in five others. There are intuitively appealing correlations among indicators. For example, big markets tend to be less volatile, more liquid, and less concentrated in a few stocks. Internationally integrated markets tend to be less volatile. And institutionally developed markets tend to be large and liquid. The three most developed markets are in Japan, the United Kingdom, and the United States. The most underdeveloped markets are in Colombia, Nigeria, Venezuela, and Zimbabwe. Malaysia, the Republic of Korea, and Switzerland seem to have highly developed stock markets, whereas Argentina, Greece, Pakistan, and Turkey have underdeveloped markets. Markets tend to be more developed in richer countries, but many markets commonly labeled "emerging" (for example, in Korea, Malaysia, and Thailand) are systematically more

developed than markets commonly labeled "developed" (for example, in Australia, Canada, and many European countries). Between 1986 and 1993, some markets developed rapidly in size, liquidity, and international integration. Indonesia, Portugal, Turkey, and Venezuela experienced explosive development, for example. Case studies on the reasons for (and economic consequences of) this rapid development could yield valuable insights. The level of stock market development is highly correlated with the development of banks, nonbank financial institutions (finance companies, mutual funds, and brokerage houses), insurance companies, and private pension funds. 2. Stock Market Development and Long-Run Growth: Ross Levine and Sara Zervos (March 1996) Levine and Zervos empirically evaluate the relationship between stock market development and long-term growth. The data suggest that stock market development is positively associated with economic growth. Moreover, instrumental variables procedures indicate a strong connection between the predetermined component of stock market development and economic growth in the long run. While cross-country regressions imply a strong link between stock market development and economic growth, the results should be viewed as suggestive partial correlations that stimulate additional research rather than as conclusive findings. Much work remains to be done to shed light on the relationship between stock market development and economic growth. Careful case studies might help identify causal relationships and further research could be done on the time-series property of such relationships. Research should also be done to identify policies that facilitate the development of sound securities markets.

3. Stock Market

K.S. Chalapati Rao

With the backing of the World Bank group, many developing countries started giving prominence to stock markets for financing enterprises and allocation of savings. In India too, the process started in the early µeighties. In the wake of increased pace of economic liberalisation initiated in 1991, the Capital Issues Control Act, 1947, which till then regulated the issue and pricing of new capital, was done away with and even greater emphasis was placed on the stock market. As a part of the measures to develop the stock market and liberalisation of the external sector, foreign institutional investors were invited to trade directly on the Indian stock exchanges. The main expectations were that the market would help corporates raise resources directly from investors, help attract foreign portfolio capital and facilitate the process of privatisation. The entry of foreign portfolio/institutional investors (FIIs) was expected to broaden the base of the market and also help in the market¶s development by forcing developing country governments to follow consistent and market friendly policies. Through their expert analysis and research, FIIs were expected to help in better price discovery. Since 1991, a number of measures at improving share trading and delivery mechanisms and investor protection ranging from more periodic disclosures, takeover regulations, insider trading rules, corporate governance code, etc. have been introduced by the Securities and Exchange Board of India (SEBI), the market regulator.

4. Free-float Sensex is a Better Index

Dr. Pratap Chandra Biswal Assistant Professor Institute for Studies in Industrial Development New Delhi ± 110 002

Free float Sensex is a step in the right direction. Its success and transparent practice is in the hands of company management and regulators. BSE will be transforming the Sensex into a free-float index from September 1, 2003. Globally, the free-float methodology of index construction is considered to be industry best practice and all major index providers like MSCI, FTSE, S & P and STOXX have adopted the same. Currently in India there are two indices based on the free-float methodology. BSETECk index -- the country¶s first free-float index, was launched in July 2001, and BANKEX, also by BSE, was introduced in June 2003. After gaining experience with these two indices and following a series of discussions during the last couple of years, BSE is shifting the Sensex, its flagship index, regarded widely as the bellwether of India¶s stock market, into a free-float index. Notably, in order to generate a nationwide debate on the issue of free-float, BSE organized a µRoundtable on Free-float index¶ in March 2002 chaired by Mr. Mark Makepeace, president and CEO-FTSE group and the response was overwhelming support from the investing community for shifting the benchmark indices to the free-float methodology.

5. The Indian Stock Market In 2005±06

K S Chalapati Rao K V K Ranganathan Institute for Studies in Industrial Development

In the last year¶s share price increase India may have benefited, along with some other emerging markets, from FII investment strategies. But the lingering doubts about quality of FII funds are not entirely baseless as almost half of the funds entered through the PN route, which masks the antecedents of the investors. FII investments are being supported on two main counts. One, they reduce the cost of equity capital to enterprises. The question is to what extent the cost should be reduced. An associated question is: are there enough safeguards to ensure that the moneys thus raised are utilized to the optimum and to prevent empire building by the promoters? On the other hand, in the ensuing volatile environment, can enterprises and local investors decide about the fair value of a share? What looks like an under priced issue in a rising market may turn out to be a vastly overvalued one in a falling one. The second is even less convincing as it seeks to provide support to balance of payments and thus have nothing to do with the financing of corporates, the main objective. Interestingly, one of the measures suggested to spread the risks is to enable domestic investors/institutions to invest in other economies. In the dependence on foreign portfolio investments, not much thought is being given to the domestic individual investor¶s role, position and predicament. It also needs to be given a thought whether it is better to give foreign portfolio investors all the concessions and cope with their ³irrational exuberance´ and suffer the volatility or to tap the huge potential of NRI professionals whose remittances have proved to be much more in terms of volume.

CHAPTER ± 3

RESEARCH METHODOLOGY

RESEARCH METHODOLOGY Research is a voyage from known to unknown. Research methodology is s procedure for conducting a systematic & a planned way to carry out our research project for the purpose of achieving the objective. A useful research methodology must be exhaustive, comprehensive in the time and free from bias or uncertainty. The researcher is therefore compelled to follow certain basic scientific rules or steps and stipulation is designing, planning and executing the research. TYPES OF RESEARCH In this research we used Analytical research because in this project we collected the secondary data those already available in the market. With the help of this types of research we analysis the all situation of stock and gold market. We used facts of information already available, and analyze these to make a critical evaluation of the material. OBJECTIVE OF STUDY  To identify the role of stock exchange and gold investment.  To identify the best long-term investment.  To identify the best option of investment from the stock or the gold in India.  To identify the investment stage of different-different income group of the county.  To study the market potential of the stock exchange and the gold investment. RESEARCH DESIGN A research design is the arrangement of condition and analysis of data in manner that aims to combine relevance to the research purpose with economy in the procedure in fact; the research design is the conceptual structure with is research is conducted. It constitutes the blue prints for the collection, measurement and analysis. Research has used only secondary data for the purpose of to collect data.

With the help of past and current data are available in the market to identify the best option of investment in the long-term investment. In this research only used the secondary data for the purpose to analysis the best one. DATA SOURCES These were to type of data sources which were helpful in preparing this project report. i. Primary Data ii. Secondary Data The research plan can call or gathering secondary data, primary data or both. Secondary data consist of information that already exists somewhere having been collected for another purpose. Primary Data: This marketing research project involved some primary data collection. The normal procedure was to contact the respondent and have their personal interviews together relevant information on the research topic. In this project the data collected through various respondents in this field is used as primary data. Secondary Data: Some of the records available within the internet on the topic acted as a source of secondary data. METHOD OF DATA COLLECTION In this research only used the secondary method for the purpose of to collect the data. With the help of different-different books, magazines, internet and journals for collecting data.

LIMITATIONS y The research is not exhaustive. y Less time for research. y Not collected more data related to the research. y Only used secondary data for research. y Not availability of market near the place of study. y More flexibility of prices in both market create problem in analysis of data. y Cover only selected data. y Not any practical knowledge related to calculated risk and return in stock and gold investment.

CHAPTER ± 4

DATA ANALYSIS AND INTERPRETATION

DATA ANALYSIS 1. Do you make any investment? a. Yes OPTION YES NO b. No NO. OF RESPONDENT 80 20

No. of respondent
20% YES NO 80%

INTERPRETATION: This figure says that most of the respondent makes investment. And the era of saving is passed away now people are more aware of investment.

2. In which area you would like to make your investment? a. Bank deposit b. Insurance e. Mutual fund c. Gold d. Stock f. Others

ASSET CLASS BANK DEPOSITS INSURANCE SMALL SAVINGS GOLD SHARES MUTUAL FUNDS OTHERS AND

ALLOCATION 20%

27% 10% 2% 2% 39%

20%
Banks

39%

Insurance Gold Shares

27% 10% 2%

Mutual funds Others

2%

INTERPRETATION: This figure shows that most of the respondent make small investment and in insurance. And the investment in mutual fund also rises.

3. If you have to invest in gold or stock in which area you will prefer to invest? a. Gold b. Stock

ASSET CLASS GOLD STOCK

NO. OF RESPONDENT 60 40

No. of respondent

40% Gold stock 60%

INTERPRETATION: This figure says that if respondent have to make investment either in gold or stock then they will prefer gold. People still have believed in the gold investment instead of securities.

4. What do you think which investment is more risky? a. Gold ASSET CLASS GOLD STOCK b. Stock NO. OF RESPONDENT 45 55

No. of respondent

45% 55%

Gold stock

INTERPRETATION: This figure shows that according to respondent investment in both markets are approx equally risky but still the data shows that the stock market is more risky.

5. What do you think which investment provides more return?

a. Gold ASSET CLASS GOLD STOCK

b. Stock NO. OF RESPONDENT 40 60

No. of respondent

40% Gold Stock 60%

INTERPRETATION: This figure says that stock gives more return. The dividend provided by the stock is more than the returns provided by the gold investment.

6. How much amount you invest in these investments?

a. 10000-30000 b. 30000-60000 e. Above 200000

c. 60000-100000 d. 100000-200000

AMOUNT (RS.) 10000-30000 30000-60000 60000-100000 100000-200000 ABOVE 200000

NO. OF RESPONDENT 30 20 15 20 15

No. of respondent
15% 30% 20% 10000-30000 30000-60000 60000-100000 100000-200000 Above 200000 15% 20%

INTERPRETATION: This figure shows that most of the respondent does investment of amount of rs.10000-30000.

7. What do you think in which investment more knowledge is required?

a. Gold

b. Stock

ASSET CLASS GOLD STOCK

NO. OF RESPONDENT 35 65

No. of respondent

35% gold Stock 65%

INTERPRETATION: This figure shows that stock is required more knowledge than the gold because the portfolio is not easy to make and the formalities attached with the stock is more.

8. What do you think which investment is more fluctuating?

a. Gold ASSET CLASS GOLD STOCK

b. Stock NO. OF RESPONDENT 20 80

No. of respondent

20%

Gold stock

80%

INTERPRETATION: This figure shows that stock is more fluctuate as compare to gold. Because the market fluctuation are more in the stock and there are both upward and downward trend present while in gold mostly the upward trend is mentioned.

9. What do you think which investment gives faster return?

a. Gold ASSET CLASS GOLD STOCK

b. Stock NO. OF RESPONDENT 25 75

No. of respondent

25% Gold Stock 75%

INTERPRETATION: This figure shows that stock gives faster return as compare to gold.

10. What do you think which investment required more funds?

a. Gold ASSET CLASS GOLD STOCK

b. Stock NO. OF RESPONDENT 75 25

No. of respondent

25% Gold Stock 75%

INTERPRETATION: This figure shows that gold is required more funds as compare to stock. It is because the investment in stock can be start from some thousands but the investment in gold needs lakhs.

11. What do you think which investment has more liquidity?

a.

Gold

b. Stock NO. OF RESPONDENT 60 40

ASSET CLASS GOLD STOCK

Liquidity

60 50 40 % 30 20 10 0 Gold Stock

INTERPRETATION: This shows that the liquidity in case of gold investment is more than the investment in stock.

12. What do you think that which investment is more suitable for all income

group?

a. Gold ASSET CLASS GOLD STOCK

b. Stock NO. OF RESPONDENT 85 15

No. of respondent
15%

Gold stock

85%

INTERPRETATION: This figure shows that gold investment is more suitable for all income groups.

13. What do you think that which investment by different income groups?

a. High b. Middle

c. Low

CLASS HIGH MIDDLE LOW

GOLD 55 60 80

STOCK 45 40 20

90 80 70 60 50 40 30 20 10 0 High class income Middle class income Lower class income

Gold Stock

INTERPRETATION: This figure shows that whether it is high, middle or low income group they prefer to invest more in gold.

14. What do you think in which investment area govt. makes more

interference?

a.

Gold

b. Stock

ASSET CLASS GOLD STOCK

NO. OF RESPONDENT 30 70

No. of respondent

30% Gold Stock 70%

INTERPRETATION: This figure shows that govt. make more interference in stock. Because the investment is for third party and govt. has to keep control on it.

CHAPTER ± 5

FINDINGS AND CONCLUSION

FINDINGS In this research ³investment in stock or gold investment, which one option is better for the long-term investment´ we found that the gold investment is better than the stock in long term investment in India. With the help of many reasons we found that situation. Reasons are: y The risk in case of stock is more than the gold investment. y The return on the gold investment is more than stock in long-term investment. y The knowledge of stock investment is less than gold in India. y The demand of gold is high in India. y India is number 1 in the demand of gold per year. y India is number 1 country in gold consumption. y The fluctuation in price of stocks is high than in gold. y The investment in gold is high than the stock in India. y India love¶s most to gold.

y The liquidity in stock is high than the gold investment. y The fluctuation in price of stocks is more risky in the future. y The all income group invested their money in the gold. y The middle and lower income group invested their money for to buy gold for the long time period. y The government enter fear is more in the stock exchange than the gold because the stock exchange is totally depend on the government policies

CONCLUSION India is an under development country so the development of the country is depend upon on the many sectors. The stock exchange is one of the major players. In this research ³gold investment or stocks which one option is better for the long term investment´ we found that the gold investment is better than the stock. In India mostly income groups invested their money in the gold for the long-term investment. Out of all investment the 10% investment in doing only in the gold. Due to less risk, more return and the knowledge related to gold the all income groups invested their investment in the gold. Due to less knowledge of stocks the income groups invested their money in gold investment for long time period.

CHAPTER ± 6

SUGESTIONS

SUGGESTIONS y Always deal with the market intermediaries registered with SEBI / Exchanges. y Before placing an order with the market intermediaries please check about the credentials of the companies, its management, its fundamentals and recent announcements made by them and various other disclosures made under various Regulations. y Adopt trading / investment strategies commensurate with your Risk bearing capacity as all investments carry risk, the degree of which varies according to the investment strategy adopted. y Don't deal with unregistered brokers / sub-brokers, intermediaries. y Don't fall prey to promises of guaranteed returns. y Don't blindly follow media reports on corporate developments, as they could be misleading. y The knowledge of stock exchange dealing and investment is less than other investment. y Provided all knowledge about stock to the rural areas also. y Dealing in the gold is better option for the long-term investment so the investors invested their money in the gold. y Maintain a communication system with all investor. y Provided all information related to the market to all areas investors. y Make a market in which an investor sells there gold in any time.

ANNEXURE

QUESTIONNAIRRE

Dear sir/madam, I CHIRAG AGARWAL pursuing MBA from Maharishi Markendeshwar Institute of Management (MMIM), Mullana (Ambala). I am carrying a final research project on title ± "Comparative study of investment in gold and stock: A customer perspective´ , Ambala. I will take care that personal information would be kept fully confidential. Name«««««.. Age««««««. Education a. Graduate b. Post Graduate c. Under Graduate d. Other

Occupation a. Businessman b. Serviceman e. other c. Professional d. Ex-serviceman

1. Do you make any investment? a.Yes b. No

2. In which area you would like to make your investment? a. Bank deposit c. Gold

b. Insurance e. Mutual fund

d. Stock f. Others

3. If you have to invest in gold or stock in which area you will prefer to invest?

a. Gold

b. Stock

4. What do you think which investment is more risky?

a. Gold

b. Stock

5. What do you think which investment provides more return?

a. Gold

b. Stock

6. How much amount you invest in these investments?

a.10000-30000 c.30000-60000 e. Above 200000

b. 60000-100000 d. 100000-200000

7. What do you think in which investment more knowledge is required?

a.Gold

b. Stock

8. What do you think which investment is more fluctuating?

a.Gold

b. Stock

9.What do you think which investment gives faster return?

a.Gold

b. Stock

10. What do you think which investment required more funds?

a.Gold

b. Stock

11.What do you think which investment has more liquidity?

a. Gold

b. Stock

12. What do you think that which investment is more suitable for all income group?

a. Gold

b. Stock

13. What do you think that which investment by different income groups?

a.High

b. Low

c.Middle

14. What do you think in which investment area govt. makes more interference?

a. Gold

b. Stock

BIBLIOGRAPHY BOOKS y Punitharathy Pandian, The security and portfolio management. y R.G. Gopal, Stock brokers in India. y C.R. Kothari, Research Methodology. MAGAZINES y Business India (December, March and April 2006) y Business & Economy (7th April to 20th April) y Portfolio Organized (Feb, 2006) y The Finapolis (Feb, 2006) WEBSITES y www.google.com y www.yahoosearch.com y www.gold.org y www.stock.com y www.stock.org y www.stockexchange.com y www.goldindia.com NEWS PAPERS y The Indian Express (April 24, 2009) The Times of India (April, 2009)

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