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An asset or item that is purchased with the hope that it

will generate income or appreciate in the future.

 In an economic sense, an investment is the purchase of

goods that are not consumed today but are used in the
future to create wealth.

 In finance, an investment is a monetary asset purchased

with the idea that the asset will provide income in the
future or appreciate and be sold at a higher price.
Higher current income

 Saving money for major


 Planning for the retirement

 Shelter for taxes

Time frame Long Term Short Term
Nature of Reward Interest or Speculative gains
Commonly used Stock , Bonds, Commodities or
instruments for Mutual Funds options
Risk involved Less risk High risk involved
Analysis/ Trading is done Trading is usually
Information after thorough done on Rumors,
study Hot tips, Inside
(fundamental dopes etc.
analysis), past
 Equities
 Bonds
 Mutual Funds
 Real Estate
Gold ETF’s
 Commodities, Futures and Options
 Insurance
 Market risk
 Interest Rate risk
 Default risk
 Purchasing power risk
 Foreign Exchange Risk
 Political Risk

Marketability and Liquidity

 Tax consideration
An instrument of loan raised
by the government or a
company, against a specified
interest rate and a promised
date of repayment.
Bonds, while a more conservative
investment than stocks, can offer
certain investors some very attractive
Reliable income
Potential for capital gains
Diversification (especially for an otherwise
all-equity portfolio)
Tax advantages
• Secured and unsecured loans.

• Senior and subordinate bonds.

• Convertible and non-convertible bonds.

• Treasury bonds and corporate bonds

• Junk bonds
One Period Rate of Return

Current Yield

Yield to Maturity ( YTM )

Capital Gain ( Loss )

Realized Yield
Rate of return over a single holding period

Rate of return earned if the bond is purchased at

current market price and if coupon interest is paid
Market Value at the end of t years =

C * PVIFA r, ( n –t ) + F * PVIF r, (n – t )


C = Coupon

r = Reinvestment Rate

n = Term to maturity

t = Holding Period

F = Redemption Price
Rate of return earned by an investor who holds the
bond till maturity .

YTM = kd in the formula

YTM equates the present value of cash flows to the

current market price
YTM = Coupon ⇒ bond is selling at par
(P0 = PN)

YTM > Coupon ⇒ bond is at a discount

(P0 < PN)

YTM < Coupon ⇒ bond is at a premium

(P0 > PN)
1. All coupon and principal payments are made
as per the schedule.
2. The bond is held to maturity.
3. The coupon payments are fully and
immediately reinvested at precisely the same
interest rate as the promised YTM.
 It is the rate that equates the future value of the

purchase price to the total cash flow realized on

the bond.

P * FVIF r, n = Total returns + Purchase price

Default risk
Interest rate risk (price risk)
Reinvestment risk
Call risk
Inflation risk
Foreign exchange risk
Liquidity risk
Matching strategy

Laddered strategy

Barbell strategy

Interest rate strategy

More popularly known as the Indian Stock Market
Market capitalization of nearly $600 billion
Third biggest after China($2,347.4 billion) and Hong
Kong($1,293.7 billion) in the Asian region
Supervised by SEBI (Securities Exchange Board of
The Indian equity market depends on three factors :
1) Funding into equity from all over the world
2) Corporate houses performance
3) Monsoons
23 stock exchanges – BSE and NSE major ones
Capital Appreciation
Bonus shares
Dividend earnings
Long term benefits and return on investment
Simple method
Easily cashable
No guaranteed return

Last to get paid

Volatility in stock prices

Do not enjoy all the rights

1. Get a Broker
2. Get a Demat Account
o With banks, financial institutions,
broking firms, NBFC, etc
1. Get a PAN
2. Check if you need a UIN
 ETF is an investment vehicle traded on a stock
exchanges, much like stocks.
 ETF are securities that tracks an index, a
commodity or a basket of asset’s like an Index
 ETF does not have its NAV calculated everyday
like a Mutual Fund.
 It is attractive coz:
 Stock like features
 Diversification of index
 Low cost
 Tax efficiency
 Demat form
 Gold backed Exchange Traded Funds (ETFs) are securities
designed accurately to track the gold price.

 It tracks the performance of Gold Bullion

 It provides investors a means of participating in the gold

bullion market without the necessity of taking physical delivery
of gold, and to buy and sell that participation through the
trading of a security on stock exchange.

 While investing in Gold, few points need to be considered:

 Volatility
 Entry time matters
 Other selection factors
Requirements for trading:
 Trading account with a stock exchange broker
 Demat account as Gold ETF can be traded only in demat

Load Structure:
 Entry Load: Nil
Exit Load: Nil

Tax treatment:
 Is taxed as per non equity mutual fund taxation rules.
 Need not pay Wealth tax.
 No worry on adulteration
 Gold provides diversification to the portfolio
 Gold is considered as a Global Asset Class
 Gold is used as a Hedge against Inflation
 Gold is considered to be less volatile compared
to equities
 Held in Electronic Form
 Store of value
 Extremely Liquid
Parameters Jeweller Bank Gold ETF
FORM Bar or Coin Bar or Coin Demat form
SECURITY Investor’s Investor’s Fund house takes
concern concern the responsibility

PRICING Neither standard Differs from bank Transparent. Will

nor transparent to bank. Not be traded at NSE
LONG TERM Only after 3 Only after 3 After 1 year
CAPITAL GAIN years years
RESALE Conditional and Banks do not buy At secondary
Uneconomical back market prices
Brings diversification and stability to a
Highly liquid and portable
Tool against inflation
Less regulatory intervention
 Are subject to market risks.
 As with any investment in securities, the NAV of the units
issued under the Scheme can go up or down depending on the
factors and forces affecting the Bullion Market, Capital Market
and Money Market.
 The Past Performance of the fund house issuing the ETF should
not be construed for the future performance of the fund.
 ETFs are a new concept in India compared to other parts of the
 The sponsor of the mutual fund is not responsible or liable for
any loss or shortfall resulting from the operation of the fund
beyond the initial contribution made by it of an amount of Rs 1
Lac towards setting up of the Mutual Fund.
 Investors are not offered any guaranteed or assured returns
Benchmark Mutual Fund - Gold Benchmark
Exchange Traded Scheme (NSE Symbol:
Kotak Mutual Fund - Gold Exchange Traded Fund
UTI Mutual Fund - UTI Gold Exchange Traded
Fund (NSE Symbol: GOLDSHARE)
Reliance Mutual Fund - Gold Exchange Traded
Fund (NSE Symbol: RELGOLD)
Quantum Gold Fund - Exchange Traded Fund
• Commodities are any goods that are common and unbranded.
• Gold, Silver, Rubber, Pepper, Jute, Wheat, Sugar and cotton are a few popular
• Commodity market represents a formal system for the interplay of demand for
and supply of commodities.
• These markets are classified into spot market and future market.
• Due to erratic weather changes and uncertain economic environment a
commodity shortage (or oversupply) in a particular season lead to increase
(decrease) in the price of the commodity.
• Farmers and merchant could not predict what the prices would be on a given day
or season.
• It was in this context, the farmers and food grains merchants in Chicago started
negotiating for future supplies of grains in exchange for cash at a mutually
agreeable price.
• Thus the farmer could lock in his price in advance thereby securing his income.
• This effectively started the system of commodity market forward contract which
subsequently led to the development of future markets.
Concepts of Hedging
 In today's dynamic environment stakeholders are exposed to price
volatility particularly if it involves a future transaction. Hedging plays
an important role to mitigate the risks of both parties in the transaction.
 The process involves hedgers taking opposite positions in two different
Hedging Process :
Examples :
 A copper wire manufacturer has 100 tones of copper in his inventory
and there may be a threat of inventory revaluation due to decrease in
copper prices.
 In such a scenario he is better off going short (Sell) on copper
futures contracts to protect this against any possible decline in
prices. This method is called Short Hedge
 If a copper wire manufacturer has to sell copper wires to a telecom
company at a predetermined price, and if the delivery needs to
made after four months he can take a long (Buy) position in the
futures market to hedge against risk of increase in copper prices.
 This method is called Long Hedge.
Indian Commodity Exchanges
 There were 23 regional commodity future exchanges active in the
country prior to 2003 when the Govt. open the field for nationawise
electronic exchanges.
 The growth of futures trading after that was tupendous and the total
turnover crossed Rs.50 lacs crores in 2008.
 The three national commodity exchanges
 Of this, Rs.35,05,137 crore was contributed solely by MCX and
 The increasing awareness and popularity of commodity futures in
India and the slowdown in equity markets have contributed
spectacularly to the turnover in the market. The turnover of the MCX
and NCDEX reached Rs.63,62,603 crore for the period January 2008
until March 2009.
Exchanges Abbreviation Location Products

Chicago Board of Trade CBOT Chicago, US Agricultural

Chicago Mercantile Exchange CME Chicago, US Agricultural

New York Metal Exchange NYMEX New York, US Energy, precious metals,
industrial metals
Multi Commodity Exchange MCX India Energy, metals, precious
metals, agricultural
National Multi-Commodity NMCE India Metals, agricultural
Exchange of India
National Commodity and NCDEX India Metals, agricultural
Derivatives Exchange
Tokyo Commodity Exchange TOCOM Tokyo, Japan Energy, precious metals,
industrial metals,
London Metal Exchange LME London, UK Industrial metals, plastics
 The economic survey for 2008-2009 has recommended certain
reforms in the commodity markets
1. Bring commodity future regulations under SEBI
• Since commodity futures are part of the financial market bringing
all financial market regulations under SEBI is better.
• At present commodity futures are regulated by FMC
2. Lift ban on futures trading in rice, tur, urad
 Futures trading of rice, tur, urad were banned in early 2007 as
trading in these commodities was perceived to be causing
pressure on inflation.
 Lifting of ban on these commodities will restore price
discovery and price risk management.
 Futures in wheat was also banned but the curve was lifted in
May this year.
 Sugar has been put on the suspended list till December this
 FMC had recommended to the Govt. to lift the ban on all
commodities as there were no direct evidence to suggest that
futures trading caused price spiral.
3. Involve APMCs or State Mandies to expand the scope of
electronic trading
 Two leading future exchanges in India – MCX and NCDEX
that has already launched electronic exchanges.
 There are over 7500 APMCs where trading take place in the
physical form.
 4. Removal of the Commodity Transaction Tax (CTT)
 At present the tax is not enforced.
 Insurance is a contract whereby, in return for the payment of
premium by the insured, the insurers pay the financial losses
suffered by the insured as a result of the occurrence of
unforeseen events.

 Commercial mechanism for transferring risk and spreading loss.

Property & Casualty
Accident & Health
Individual & Group
 Economic Concept of Insurance:
1. Insurer offers policy to cover specified
2. Insurer collects policy premiums from
3. Insurer invests premiums
4. Insurer pays money to insured customers
in the event of losses covered by policy.
Opportunities in life
Life insurance premium as % of GDP

10.0% 8.9% 8.7%

4.0% 3.4%
2.3% 2.3%

UK J apan Ko rea A ustrlia US M alaysia India China

Opportunities in non-life
N o n -life in suran c e p rem ium as % o f G DP

5.0% 4.6%

4.0% 3.5% 3.4% 3.4%

1.0% 0.6%

US UK A ustralia Ko rea J ap an M alaysia C hina Ind ia

 Current Insurance landscape
 Penetration is abysmally low at less than 3% of insurable
population* despite
 The presence of an insurance market for a long period and
with 16 Life Insurance and 15 General Insurance active today
in the market
 Existence of products to cover various risks

 Globally ranked at 54th position in terms of market penetration

and 19th in premium collection
 This anomaly persists due to the legacy of life insurance
being positioned as a savings and tax-mininisation tool
rather than as a risk protection tool

 Innovations are needed to overcome barriers for penetration, like:

 Innovations to develop low cost distribution models using a
combination of process simplifications and application of Info
Tech solutions.
 Product Simplification to enable simplicity in both underwriting
and claims administration
 Improving the awareness on the function of insurance products

Pre 2000 Today Tomorrow

Endowment and money Variety of products with Pension scheme
back policy - ~98% to total riders covering
premium income disability,critical illness, Annuity scheme
accidents etc.
Products with guaranteed Income protection
Life returns, limited, if any term Increasing acceptance of
variable returns and pure Increased term
Products viewed as term products
necessary evil for tax-
breaks Unit linked products

Home building – structure

Personal non-life insurance New products emerging to and contents (penetration
products (except motor) cater to personal needs: in India
Non virtually nil • Health ~1% v/s ~70% in UK)
• Travel
Life Corporates buying Non life (overseas/domestic) Health insurance
• Household articles (penetration in India 1-2%
• Building v/s 10% in UK)
50 • Mobile insurance Corporate and professional
• Credit insurance liability
 Real estate is a legal term that encompasses land along with
improvements to the land, such as buildings, fences, wells and other
site improvements that are fixed in location – immovable

According to The Economist, "developed economies'" assets at the

end of 2009 were the following:
 Residential property: $108 trillion;
 Commercial property: $84 trillion;
 Equities: $40 trillion;
 Government bonds: $45 trillion;
 Corporate bonds: $31 trillion;
 Total: $268 trillion.
That makes real estate assets 60% and financial assets 40% of
total stocks, bonds, and real estate assets. Assets not counted here
are bank deposits, insurance "reserve" assets, natural resources, and
human assets. It is not clear if all debt and equity investments are
counted in the categories equities and bonds.
Some kinds of real estate businesses include:
 Appraisal: Professional valuation services
 Brokerages: A fee charged by the mediator who facilitates a real
estate transaction between the two parties.
 Development: Improving land for use by adding or replacing
 Net lease: Sharing leased property amongst tenants
 Property management: Managing a property for its owner(s)
 Real estate marketing: Managing the sales side of the property
 Real estate investing: Managing the investment of real estate
 Relocation services: Relocating people or business to a different
 Corporate Real Estate: Managing the real estate held by a
corporation to support its core business
Liquidity Risk: It is the risk that a given security or asset cannot be
quickly enough in the market to prevent a loss (or make the required profit)

Types of Liquidity Risk:

Asset liquidity - An asset cannot be sold due to lack of liquidity in the
market - essentially a sub-set of market risk. This can
be accounted for by:
Widening bid/offer spread
Making explicit liquidity reserves
Lengthening holding period for VAR calculations
Funding liquidity - Risk that liabilities:
Cannot be met when they fall due
Can only be met at an uneconomic price
Can be name-specific or systemic
Market risk is the risk that the value of a portfolio,
either an investment portfolio or a trading portfolio, will
decrease due to the change in value of the market risk
factors. The four standard market risk factors are stock
prices, interest rates, foreign exchange rates, and
commodity prices. The associated market risk are:

 Equity risk: The risk that stock prices and/or the implied
volatility will change.
 Interest rate risk: the risk that interest rates and/or
the implied volatility will change.
 Currency risk: The risk that foreign exchange rates
and/or the implied volatility will change.
 Commodity risk: The risk that commodity prices (e.g.
corn, copper, crude oil) and/or implied volatility will
 VOLATILITY RISK: In financial markets it is the likelihood of
fluctuations in the exchange rate of currencies. Therefore, it
is a probability measure of the threat that an exchange rate
movement poses to an investor's portfolio in a foreign
currency. The volatility of the exchange rate is measured as
standard deviation over a dataset of exchange rate
movements. A far more sophisticated extension of this
model is the Value at Risk method, which helps to determine
the actual risk exposure to a portfolio of several currencies.

 SETTLEMENT RISK: It is the risk that a counterparty does

not deliver a security or its value in cash as per agreement
when the security was traded after the other counterparty or
counterparties have already delivered security or cash value
as per the trade agreement.
Sovereign risk is the risk of a government becoming
unwilling or unable to meet its loan obligations, or reneging
on loans it guarantees. The existence of sovereign risk
means that creditors should take a two-stage decision
process when deciding to lend to a firm based in a foreign
country. Firstly one should consider the sovereign risk
quality of the country and then consider the firm's credit
Five macroeconomic variables that affect the probability
of sovereign debt rescheduling are:

 Debt service ratio

 Import ratio
 Investment ratio
 Variance of export revenue
 Domestic money supply growth
Three factors have contributed much to
global real estate opportunities :

Rapid Economic Growth

Changing Demographics
Phenomenon of off-shoring
 First, the Advisory Board determines the broader framework of the
real estate investment strategy and oversees the Investment
Committee and Fund Management team with annual reviews of
portfolio performance and approval of large transactions that are
over a preset amount or percent of total portfolio.
 Investment Committee oversees and approves Portfolio Setup
framework, as well as Asset and Portfolio Management operations.
Within this context the Investment Committee reviews semi-annually
asset and portfolio performances, current and projected, for the
whole portfolio and by category, such as property type, location,
tenant industry etc.; reviews portfolio optimization recommendations
and makes decisions regarding changes in portfolio mix in terms of
property types and locations in order to maximize portfolio return
prospects and minimize risk; sets and reviews risk mitigation
processes both at the portfolio and at the asset level. Ideally,
portfolio optimization recommendations should be based on the
results of advanced portfolio analysis using reliable return and risk
projections by property type and location (derived through advanced
econometric and forecasting techniques) and modeling frameworks
that draw from the modern portfolio theory
 The Implementation Committee executes the portfolio setup and structure, as
determined by the Advisory Board and the Investment Committee. The acquisition
department executes the portfolio build up process by screening properties available
in the market to identify those that fit the Fund’s investment strategy, performing
preliminary screening to select assets that will go through more detailed market
analysis and feasibility study, negotiating transaction terms and financial structuring,
preparing project documentation and analysis package to be presented to
Investment Committee for final approval.

 Return and risk analysis by asset should take into account each asset's cash flow
prospects, given current leases, stipulated rental rates, annual rent increases,
expiration dates, probabilities of renewing, probabilities and time duration for finding
new tenants for non-renewed leases, and projected market rents at which new
leases will be signed and renewed leases will rollover. Lease renewal probabilities,
time for finding new tenants and rental rate projections should be based on market
vacancy rate projections, which provide a very good indicator of market tightness.

 Transaction closing, post-acquisition management and liquidation of the property in

order to realize capital gains will complete the real estate investment process for a
particular asset.
 A mutual fund is a professionally managed type of
collective investment scheme that pools money from
many investors and invests it in stocks, bonds, short-
term money market instruments, and/or
other securities
Mutual Funds Operations Flow Chart


Returns Fund Managers

 Diversification benefits
 Low transaction cost
 Availability of various schemes
 Professional Management
 Liquidity
 Tax benefit
 Flexibility
 Well regulated
 Convenient Administration
 Return Potential
 Transparency
 Affordability
 Risks
Instrument Risk
Market Risk
Portfolio Risk
Business Risk
Financial Risk
Risk in Money Market Funds
Risk in Bond Funds
Risk in Stock Funds

 Strategies for risk reduction

Diversification by investment style
Diversification by investment objective
Novice uninformed investors
Ordinary small investors
Risk averse investors
Investors with time constraint
Investors on the look out for liquidity
Clarity of objective
Collect information from sources like Funds'
prospectus and advisors
Do not be swayed by peripherals
Go through the Investment Mix carefully
Past record is not always reliable
Know your Fund Manager
 Standard Deviation allows you to evaluate the volatility of the fund

 Beta indicates the level of volatility associated with the fund as compared to the

 R squared measuring the correlation of a fund's movements to that of an index,

R-squared describes the level of association between the fund's volatility and
market risk

 Alpha is the difference between the returns one would expect from a fund, given
its beta, and the return it actually produces. An alpha of -1.0 means the fund
produced a return 1% higher than its beta would predict. An alpha of 1.0 means
the fund produced a return 1% lower.

 Sharpe Ratio = Fund return in excess of risk free return/ Standard deviation of
 The higher the Sharpe ratio, the better a funds returns relative to the amount
of risk taken. Sharpe ratios are ideal for comparing funds that have a mixed
asset classes
Last one Week Last one Month
Rank Scheme Name Date NAV Last 1 Rank Scheme Name Date NAV (Rs.) Last 1
(Rs.) Week % Month %

1 SBI Magnum Midcap Fund - Jan 11 , 23.12 4.7576  1 JM Basic Fund - Growth  Jan 11 , 20.2104 10.4798 
Growth  2010   2010  

2 Birla Sun Life Commodity Jan 11 , 12.9365 4.6659 

2 Sundaram BNP Paribas Jan 11 , 12.5118 9.8008 
Equities Fund - Gbl Pre 2010  
Select Small Cap Fund - 2010  
Metals - Retail - Growth 

3 Birla Sun Life Commodity Jan 11 , 13.3829 4.6054 

Equities Fund - Gbl Multi 2010   3 Escorts Power and Energy Jan 11 , 18.0001 9.7192 
Comm - Retail - Growth  Fund - Growth  2010  

4 JM Agri & Infra Fund- Jan 11 , 3.4109 4.3504  4 Religare Mid N Small Cap Jan 11 , 11.66 9.2784 
Growth  2010   Fund - Growth  2010  

5 Reliance Media & Jan 11 , 27.5008 4.2495 

Entertainment Fund - 2010   5 JM Mid Cap Fund - Growth  Jan 11 , 27.6654 9.2449 
Growth  2010  

*Note:- Returns calculated for less than 1 year are Absolute *Note:- Returns calculated for less than 1 year are Absolute
returns and returns calculated for more than 1 year are returns and returns calculated for more than 1 year are
compounded annualized. compounded annualized.

Source: ICRA Online (