Different Investment

Avenues
 INVESTMENTS
An Investment is a commitment of funds made in the
expectation of some positive rate of return.

Investor’s expectations:
1. Security of Original Capital
2. Tax Efficiency
3. Life Cover
4. Income
5. High Returns
6. Safety
 Five step investment plan:

1. Need Analysis
2. Evaluating the Available Avenues
3. Mapping and Matching the risk-return
Profile
4. Designing the Portfolio
5. Continuous Monitoring and Portfolio
Management
 India Investment Trends
• Bank Fixed Deposits
• Life Insurance
• Real Estate/Property
• Postal Saving Schemes
• Shares
• National Saving Certificate
• Public Provident Fund.
• Kissan Vikas Patra
• Mutual Funds
• ULIP (UNIT LINK INSURANCE POLICY)
•
NATIONAL SAVINGS CERTIFICATE

Interest 8 % p.a. Compounded half yearly and payable

at Maturity.
Certificates can be purchased by an adult for himself
or on behalf of a minor, jointly by two adults, a minor
and a Trust,
Lock in period 6 years
No Tax deduction at source.
 PUBLIC PROVIDENT FUND

An ideal investment option for the salaried class as well as the self
employed.
Interest 8.0 % p.a. Compounded, yearly .
Deposits can be made in lump sum or in convenient installments.
Interest is fully exempt from I.T.
Withdrawals permitted on completion of 7 full financial years.
NRIs can also invest in this scheme.
No Tax deduction at source.
 KISAN VIKAS PATRA
Money doubles in 8 years and 7 months
Certificate can be purchased by an adult for himself or on behalf of a
minor, jointly by two adults, a minor and a Trust.
Certificates can be encashed any time after expiry of 2 ½ years from
the date of issue of the certificate.
Certificate can be kept as collateral security to get loan from Banks.
Investment can be made by cash or cheque.
No Tax deduction at source.
 ULIP (UNIT LINK INSURANCE POLICY)

ULIP is one in which the customer is provided with a life insurance cover and
the premium paid is invested in either debt or equity products or a
combination of the two.

KEY FEATURES
Premiums paid can be single, regular or variable.
The risk charge (mortality rate) varies with age
The maturity benefit is not typically a fixed amount
The policyholder can switch between schemes, for instance, balanced to debt .
The costs in ULIP are higher
ULIP products are exempted from tax
 MUTUAL FUNDS
Mutual Funds are essentially investment vehicles where people with
similar investment objective come together to pool their money and
then invest accordingly .

Features:
Number of available options
Diversification
Professional Management
Potential of Returns
 CONVERTIBLE BONDS
A type of bond that can be converted into shares of stock in the issuing
company, usually at some pre-announced ratio.
From the issuer's perspective, the key benefit of raising money by
selling convertible bonds is a reduced cash interest payment.

Convertibility affects the performance of the bond in certain ways:

Tend to have lower interest rates than non-convertibles because they

also accrue value as the price of the underlying stock rises.
Convertibles can offer protection against a decline in stock price as
earn interest even when the stock is trading down or sideways.
 TYPES OF BONDS
Exchangeable (XB) are bonds which may be exchanged into shares other than
those of the issuer. Strictly speaking, they are not convertibles, but they share
certain common evaluation characteristics.
Mandatory convertibles are short duration securities—generally with yields
higher than found on the underlying common shares — that are mandatorily
convertible upon maturity into a fixed number of common shares.
Mandatory exchangeable are short duration securities—generally with yields
higher than found on the underlying common shares — that are mandatorily
exchangeable upon maturity into a fixed number of common shares.

ADVANTAGES:
Tax advantages.
Lower fixed-rate borrowing costs.
 REAL ESTATE FUNDS
 Real estate investment has attracted lot of people. The prospects are
increasing day after day.
 Real Estate Investment Trust (REIT) Structure is a corporate structure,
which collects money from the investors and invests in real estate assets
to earn money in the form of rentals and leases.

CHARACTERISTICS:
(1) pooling of resources
(2) organisational structure: Varies between companies and trusts depending
on local regulations and eligibility criteria.
(3) funds may be both close ended and open ended.
(4) leveraging: Normally allowed to raise debt;
(5) tax Advantages
 KEY AREAS IN WHICH REAL ESTATE FUNDS MAY
POSITIVELY IMPACT INDIA’S REAL ESTATE SECTOR

(1) enhancing liquidity of the sector;

(2) institutionalization: enhanced competition with institutional investors
competing in a bigger way with the unorganized sector for market
dominance.
(3) greater acceptability for real estate as an investment asset class;
(i) opportunities to retail investors to participate in the real estate sector; and
(ii) asset diversification to corporate investors.
(4) improve sector transparency.
 REAL ESTATE MUTUAL FUND
An REMF is like a mutual fund for real estate assets.
Investors may buy shares in those funds which are traded on a daily basis on stock
exchanges.
The value of the shares depends on the value of the underlying real estate assets.

REMFs have many advantages over direct investment in real estate.

(1) it allows investors to invest according to their income and financial circumstances;
(2) the portfolio of real estate assets will be a lot more diversified than a single home
with assets ranging from office space to residential properties all around the country as
well as securities based on the real estate sector; and
(3) investors don’t have to deal with the legal and maintenance hassles of owning
property and may instead rely on the professional expertise of the AMCs. Finally if
they need quick money, these funds are liquid assets, which may be sold conveniently
and rapidly.
 HDFC India Real Estate Fund
•Housing Development Finance Corporation Ltd, has forayed into the real estate
fund business with the launch of 'HDFC Property Fund' in association with the State
Bank of India
•a seven-year close-ended fund which would be privately placed.
•The scheme would have a minimum contribution of Rs 5 crore per investor and
would target banks, insurance companies, corporate and high net worth individuals. 

What's in it for investors? 

•Liquidity
•Affordability
•Tax advantages
•Professional management
 Comparison of Different Investment Options

Investment Risks/Liquidity Returns Taxation Suitability

Option

Bank FDs Very low risk and low Low returns, but returns are fully Good for very low
liquidity. assured. taxable risk investors and
those in the nil or
low tax brackets.
Post Office Low risk and low MIS scheme give Since returns are Good for very low
Schemes Liquidity. 8% interest. Time taxable, the post- risk investors and
deposit 6.25-7.5%. tax returns will those in the nil or
be still lower. low tax brackets.
PPF Low risk with very low assured returns. Interest is tax- Good tax saving
liquidity (15-year lock- free. investment option.
in period. Partial  
withdrawal allowed
after 6 years).
NSC Low risk with low assured returns. Interest fully Not very attractive
liquidity (6 years lock- taxable vis-à-vis other
in). options like 5-year
Bank FDs.
Equity High risk and high Market linked No Long Term Needs high risk
liquidity. returns. Good Capital Gain Tax appetite.
potential. and 10% Short
Term Capital
Gains Tax.
ULIPs Low to High Risk Low to high Tax free returns. Not an attractive
depending on the depending on the . option due to high
investment option i.e. investment option. charges, low
Pure Debt or Mixed or flexibility and low
Pure Equity. Low diversification.
Liquidity (3-5 years
lock-in period).
Real Estate Variable risk and Market linked No tax High initial
variable liquidity returns. Good advantages, investment ,high
depending on the type potential. except attractive transactions costs
and location of tax benefits on like registration
property. the home loans. brokerage etc.; and
cannot be partly
liquidated..
Gold Low long-term risk. But hedge against No tax Not an attractive
volatile in short term. inflation. So advantages. investment option.
High Liquidity. returns could be
around inflation
levels.