Presentation on Short-Term Investment Avenues

Group No. – Nishit Kumar – F2F- 42 Vishal Kumar – F2F- 43 Kewal Varu – F2F- 57 Devi Prasad – F2F- 58

. Money Market. Commodities. Short term floating rate funds. Mutual Funds.What is Short Term Investment Avenues  Short term investment avenues are different short term assets classes in which an investor can invest its money for a period less than 365 days or 1 years.  Different Classes in which an investor can invest are: Equity market. Short term fixed Deposits.

) .11% 0.11% 0.FLOATING RATE STP 10.44% 2.47% 2.65%  TEMPLETON FLOAT STP 12.10% 0.66%  JM FLOATER FUND STP 11.23 0. In a situation like the present one when interest rates are on the rise.45% 2.46% 2. Floating rate funds invest in instruments that revise their coupon rate in sync with changes in a pre-determined benchmark like the MIBOR (Mumbai Interbank Offered Rate).  As a result.10% 0.  Short-term floaters  Short-term Floating Rate Funds NAV (Rs) 1-Wk 1-Mth 6-Mth  UTI .73%  KOTAK FLOATER STP 10.90 0. any change in the benchmark is reflected in the floating rate instrument's coupon as well. floating rate funds can prove to be particularly lucrative. NAV data as on May 31.11% 0.62%  HDFC FLOATING STP 11.01 0.44% 2.Short-Term Floating Rate Funds  Short-term floating rate funds are suited for investors with an investment horizon of six months.98 0.07 0.60%  (Source: Credence Analytics. 2005.

. bonds and other securities. which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. However.  Mutual Fund offer liquid funds and ultra short term funds in the debt category. there are no such restrictions for ultra short-term funds.  Liquid funds invest in money market instruments with a maturity of 91 days or less.MUTUAL FUNDs  Mutual funds are money-managing institutions that pool money from the public and invest it in capital market such as stocks.

MONEY MARKET As money became a commodity. lending. buying and selling with original maturities of one year or less.  Different instruments in money market are: Treasury bills Certificate of deposits Commercial papers. the money market became a component of the financial markets for assets involved in short-term borrowing. .

the value to you . There are no treasury bills issued by State Governments. 91-day. therefore. namely.000).10% interest rate ($200/$9. the Govt. the T-bill pays a 8. In this case.Treasury Bill .  Treasury bills are available for a minimum amount of Rs.T-Bill  Treasury bills (T-bills) offer short-term investment opportunities. the appreciation .comes from the difference between the discounted value you originally paid and the amount you receive back ($10.10%) over a three-month period.  For example. Essentially. generally up to one year. Treasury bills are also issued under the Market Stabilization Scheme (MSS).800 = 8. Instead. 25. the Government of India issues three types of treasury bills through auctions. 182-day and 364-day. You will not receive regular payments as you would with a coupon bond.25. At present.and. Treasury bills are issued at a discount and are redeemed at par.000. for example.800. of India (and its nearly bulletproof credit rating) writes you an IOU for $10.000 and in multiples of Rs. .000 that it agrees to pay back in three months. let's say you buy a 13-week T-bill priced at $9. They are thus useful in managing short-term liquidity.

Almost all large CDs. A CD bears a maturity date. For example.CD  A savings certificate entitling the bearer to receive interest. It is a time deposit that restricts holders from withdrawing funds on demand. as well as some small CDs. this action will often incur a penalty. a specified fixed interest rate and can be issued in any denomination. the CD will have grown to 10. Although it is still possible to withdraw the money. CDs for more than 100. are negotiable.000 * 1.05). let's say that you purchase a 10.000 are called "large CDs" or "jumbo CDs". .Certificate Of Deposit .000 are called "small CDs". CDs are generally issued by commercial banks and are insured by the FDIC.000 CD with an interest rate of 5% compounded annually and a term of one year.500 (10.  A certificate of deposit is a promissory note issued by a bank. CDs of less than 100. The term of a CD generally ranges from one month to five years. At year's end.

 It is issued for a shorter period of time for example 6 months. . 1 years.Commercial Papers  The commercial paper is a debt instrument used for raising shortterm funds by the Corporates.  CPs are very common in Market.  CPs are rated by Credit rating companies.

The securities are listed on stock exchanges.238.  Steel Authority of India Ltd.Rs. .  Reliance industrial infrastructure limited.25 per share.Rs.Rs.Rs.2350 per share.(ONGC).496 per share.  Oil and Natural Gas Corporation Ltd.30 per share. (SAIL).1299 per share.95.Rs.  TCS.  Examples of some of the common stocks which are traded daily are:  Infosys.Equity Market  A equity market is a public entity for the trading of company stock and derivatives at an agreed price.

the term Short Term Deposit refers to an amount of money placed in a bank or financial institution for a term no longer than one year.Short .75% .50%  HDFC Bank [ Get Quote ]7.  Short and safe  FD Rates (per annum)  State Bank of India [ Get Quote ]6.75%  ICICI Bank [ Get Quote ]7. Let's start off with short-term fixed deposits. A Short Term Deposit will usually earn a fixed rate of interest. an assured return avenue like fixed deposits would be the apt choice.000 for a 181 day (approximately 6 months) period.  For example.Term Fixed Deposit  In deposit terminology.  For investors who offer higher importance to capital preservation vis-àvis returns. we shall assume that an investor wants to invest a sum of Rs 10.

 (Interest rates as on 7th September 2012 on a per annum basis for a 181 day tenure)  The table above lists rates offered by some of the leading banks. In the example above.50 per cent per annum. . the investor would at best earn a return of 6. investing in the same entails taking on higher risks since they are unsecured in nature. While company deposits offer higher returns.  Hence only fixed deposits with a high level of safety have been considered for the purpose of this study.

25 6.e.f.50 6. 1 Cr Existing Rates Revised rates Existing Rates Revised rates w.50 6.2012 07.00 8.15 lakhs to less than Rs.50 8.00 8.08.00 8.Example of SBI rate Below Rs. w.00 7.50 7.e.50 .50 8.50 7.15 Lakhs Tenor Rs.f.2012 07.00 7.f.e.08.50 7 days to 90 days 91 days to 179 days 180 days 181 days to 240 days 241 days to less than 1 year 7.2012 7.2012 07.00 7.09.09.f.00 7. w.50 6.00 7.e.50 7. w.50 6. 07.

Master your semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master your semester with Scribd & The New York Times

Cancel anytime.