Financial Markets

Select Financial Products: Definition,

Features and Comparison
 Scope of the Presentation

 Classification of Financial Products

 Product Features

 Comparison on Objective, Risk, Time Horizon

 Comparison on 10 Year Returns

 Concluding Remarks
 Financial Products

Marketable Financial Products Non Marketable Financial Products

Easily converted into cash Not easily transferable

Easily transferable from one person to another

No ready market for them

Have highly liquid markets

Can be sold at a reasonable price Normally kept till maturity

Products: Treasury Bills, Government Products: Bank deposits, Post Office

Securities, Shares, Mutual Funds, MIS, National Saving Certificate,
Debentures/Bonds, Derivatives, Public Provident Fund, Senior Citizen
Insurance Saving Scheme
Product Features
Treasury Bills
- Instruments issued by the GoI
- Short term financing needs
- Issued at discount to the face value
- Redeemed at face value

Shares
- Represent ownership of a Company
- Issued to meet business needs of the Company
- Bought and sold in share market
- Associated with high risk and high returns
- Shares/stocks/equities/securities are words that are used interchangeably

Bonds
- Issued by Companies / Governments
- Finance business operations / fund expenses like infrastructure and social programs
- Have fixed interest rate
- Principal or face value of the bond is recovered on maturity
Mutual Funds
- Professionally managed, collective investment vehicle
- Governed by SEBI
- Involves diversification of investment into products such as shares, bonds and government
securities
- Diversified investment helps reduce investor’s risk exposure while increasing return potential

Bank Deposits
- Classified into “Demand Deposits” and “Timed Deposits”
- Demand deposits like Saving, Current account can be withdrawn without any notice to the
bank
- Timed deposits or term deposits are also called fixed deposits
- Fixed deposits are repayable after the expiry of a specified period. Period is fixed at the
time of making investment
Insurance
- Equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium
- Insurer is a company selling the insurance. Insured is the person who gets the insurance
cover by paying premium
- Insurance is relevant so long as the occurrence of the perceived risk is uncertain
- Only the economic consequences can be insured
- Insurance in India is classified as Life and Non-life or General Insurance

- Life insurance is a contract between an insured and an insurer to pay the insured, or his
nominated heirs, a specified sum of money on the happening of an event contingent upon
the life of the insured.

- Insurance other than life insurance is called General insurance. Eg. Motor insurance,
Marine insurance, Health insurance etc.
Post Office Monthly Income Scheme (POMIS)
- Popular with people who require monthly cash flow out of their investments. It pays interest
income every month
- Term is 5 years
- A single individual can deposit max. of Rs. 4.5 Lac. A couple can, however, deposit max. of
Rs. 9 Lac in joint account
- Account can be opened in any post office. Only one deposit is allowed in an account
- Interest received is taxable
- Interest rate is reset every quarter

National Saving Certificate (NSC)

- Generally popular for taking tax benefit u/s 80C
- Term is 5 years
- Issued in denominations of Rs. 100/500/1,000/5,000 and10,000
- No maximum investment limit
- Can be pledged as security for bank loan
- Interest is taxable
- Interest rate is reset every quarter
Public Provident Fund (PPF)
- Introduced by Central Government on 1st July, 1968
- Term is 15 years. Can be extended in blocks of 5 years thereafter
- Minimum deposit in a year is Rs. 500 and maximum deposit is Rs. 1.5 Lac
- Tax benefit u/s 80C
- Interest on investment and maturity amount are tax free
- Structured as a retirement product. Hence, there are restrictions on withdrawal
- Interest rate is reset every quarter

Senior Citizen Saving Scheme (SCSS)

- Notified with effect from 2nd August, 2004
- Scheme is for the benefit of senior citizens
- Term is 5 years and extendable by another 3 years
- Minimum investment is Rs. 1,000 and maximum Rs. 15 Lacs
- Eligible for tax benefit u/s 80C
- Amongst the small savings scheme, SCSS gets the highest interest rate
- Interest is taxable
- Interest rate is reset every quarter
Product Comparison
 Investment Objective
 Investment Risk
 Investment Horizon
 Investment Objective Risk Tolerance Investment Horizon

Equity Shares Capital Appreciation High Long Term

Corporate Debentures Income High-Moderate Medium-Long Term
Bank Deposits Income Low Short-Medium-Long Term
Public Provident Fund Income Low Long Term
Life Insurance (traditional) Risk Cover Low Long Term
Life Insurance (ULIPs) Risk Cover, Capital Growth, High-Moderate Medium-Long Term
Income
Gold Inflation Hedge Low Medium-Long Term
Mutual Funds Capital Growth, Income High-Moderate-Low Short-Medium-Long Term
 10 Year Returns of Financial Products
Product Category Date / Period 10 Year Returns (%)
Fixed Deposit State Bank Deposit 9 August 2009 8.03
Insurance LIC of India 15-20 year 6.50
Insurance (ULIP) Insurance-cum-Investment 10-20 year 11
NSC Post Office 5 year 7.89
Mutual Fund Multi Cap Fund (Equity) 30 August 2019 16.88
PPF Bank / Post Office 15 year 8.30
NCD Corporate Debenture 7 year (July 2019) 9.70
Sensex Share Market 6 March 2019 16
Gold Alternate Investments Sept 2019 9.03
1. SBI published FD rate was 7.75% for 10 years on 9 Aug 2009. Interest is quarterly compounding
2. LIC plans are generally 15 year and plus. Jeevan Vaibhav plan was single premium 10 yr plan which was discontinued in
year 2013. The return was ~8.30%
3. 10 year NSC discontinued from 20 December 2015. Return on 10 year NSC was 8.89%
4. Source: Morningstar, Value Research, SBI, Moneycontrol, India Post, HDFC MF, LIC, Advisor Khoj, BSE
 18
16
14
12
10
Returns

8
6
4
2
0 Products

FD Insurance ULIP NSC MF PPF NCD Sensex Gold

 Concluding Remarks

• Maximum returns were possible when one invested in equity share market or
equity mutual fund
• These high returns were possible only when one invested for a long term (10
years in our case)
• Products like FD, PPF, NSC gave high single digit returns. Here the certainty of
returns even in short term is much better
• Life Insurance per se is not an investment product. It’s objective is to secure the
dependents against the risk of death of the family provider.
• ULIP combine the features of insurance and investment. The premiums are
higher and the insurance coverage is low as compared to pure insurance plan.
• One should not chase only higher returns. The products should be assessed on
both risk and returns
• For a healthy investment portfolio, an optimum mix of equity and debt products
should be chosen and this mix should be in sync with the investors age, risk
appetite and goals.
Thank You