INVESTMENT

ALTERNATIVES
INVESTMENT ALTERNATIVES
FINANCIAL & NON-FINANCIAL DEPOSITS
GOVERNMENT SAVING SCHEMES
MONEY MARKET INSTRUMENTS
BONDS OR DEBENTURES
EQUITY SHARES
MUTUAL FUND SCHEMES
INSURANCE PRODUCTS
RETIREMENT PRODUCTS
REAL ESTATE
PRECIOUS OBJECTS
FINANCIAL DERIVATIVES
 Investment
Investment involves making of a
sacrifice in the present with the
hope of deriving future benefits.

It is considered the sacrifice of

certain present value of money
in anticipation of a reward.
 INVESTMENT ALTERNATIVES

These are the tools used to reduce risk through

diversification.
Two categories
Financial
Investments

Non-financial
Investments
Financial investments
These are the financial instruments that are used in
investment with the anticipation of getting growth
orreturn in the form of large sum of money.

These are the non-physical assets, that cannot be

seen or touched, but are present in electronic form.

Example:- Mutual funds, shares, bonds,

debentures,equities, etc.
Non financial investments
These are the assets that are used as an investment
alternative.

The prices of non-financial investments can increase as

well as decrease with time.

These are the assets which are physically present and

can be seen or touched.

Example:- Real estate, gold/silver, etc.

Deposit

A sum of money placed or kept in a bank account, usually to

gain interest.

The term Deposit refers to an amount of money in cash or

cheque form or sent via a wire transfer that is placed into a
bank account.
The target bank account for the Bank Deposit can be any
kind of account that accepts deposits
TYPES OF DEPOSITS
• Saving deposits
Demand Deposit • Current deposits

FIXED/TERM/TIME • Recurring Deposit

DEPOSITS • Cumulative deposit

Non-Cumulative
Deposit
List of Post Office and Government Schemes in India

Post office time deposits

The post office time deposits scheme fall under the category of fixed deposits and
are available at all the post offices throughout India.

The investors are not entitled to receive any amount towards interests on a monthly
basis but receive a lump sum amount as interest when the scheme matures.
Post Office Monthly Income Scheme

The monthly income scheme also falls under

the category of fixed deposits and the tenure
of this scheme is 6 years. The post office has
made it a rule to accept only a single deposit in
an account and the monthly income schemes
are available in all the post offices in India.
Kisan Vikas Patra

Kisan Vikas Patra

certificates are secured by
the backing of the central
government of India which
makes it the most effective
post office saving.
Public Provident Funds (PPF)

The public provident funds

(PPF) can be started with a
sum of 500 and can extend to
1,00,000 and the account can
be shifted from a post office
to another post office or from
a post office to a bank or
from one bank to another.
Post Office Recurring Deposit
The tenure of the post office
recurring deposit accounts is
5 years which comprise of 60
equal monthly deposits of at
least Rs.10 towards each
installment.
Senior Citizen Savings Scheme (SCSS) Account

These accounts may be

opened by an
individual, who has
attained 60 years of age
or above on the date of
opening of the account.
National Savings Certificate

This scheme is specially

designed for
government employees,
businessmen and other
salaried classes who are
Income Tax assesses.
Pradhan Mantri Jan Dhan Yojana

Under this scheme financial

services like bank’s savings and
deposit accounts, remittance,
credit, insurance, pension, and
more, is provided to those who
are from rural area and do not
have access or does not have
any bank account.
MONEY MARKET INSTRUMENTS
DEBTS INSTRUMENTS, WHICH HAVE A MATURITY OF
LESS THAN ONE YEAR AT THE SAME TIME OF
ISSUEARE CALLED MONEY MARKET INSTRUMENTS.

THESE INSTRUMENTS ARE HIGHLY LIQUID AND HAVE

NEGLIGIBLE RISK.

THE MONEY MARKET IS DOMINATED BY THE

GOVERNMENT, FINANCIAL INSTITUTIONS, BANKS,
AND CORPORATES.
MONEY MARKET INSTRUMENTS
TREASURY BILL

COMMERCIAL PAPER

REPOS

CBLO

CERTIFICATES OF DEPOSITS
 TREASURY BILLS
ISSUED BY GOI

TWO DURATIONS – 91 DAYS AND 364 DAYS

ARE NEGOTIABLE INSTRUMENTS AND CAN BE REDISCOUNTED WITH GOI

THEY ARE SOLD ON AN AUCTION BASIS EVERY WEEK IN CERTAIN MINIMUM DENOMINATIONS BY THE RBI

THEY DO NOT CARRY AN EXPLICIT INTEREST RATE. INSTEAD THEY ARE ISSUED AT A DISTOUNT TO BE REDEEMED AT
PAR. THE IMPLICT RETURN IS A FUNCTION OF THE SIZE OF DISCOUNT AND THE PERIOD OF MATURITY.

THEY HAVE ZERO DEFAULT RISK, ASSURED RETURN, ARE EASILY AVAILABLE
CERTIFICATES OF DEPOSITS
NEGOTIABLE INSTRUMENTS ISSUED BY BANKS / FINANCIAL INSTUTIONS
WITH A MATURITY RANGING FROM 3 MONTHS TO 1 YEAR
• THESE ARE BANKS DEPOSITS TRANSFERABLE FROM ONE PARTY TO ANOTHER

THE PRINCIPAL INVESTORS ARE BANKS, FINANCIAL INSTITUTIONS,

CORPORATES AND MUTUAL FUNDS
• THESE CARRY AN EXPLICIT RATE OF INTEREST

BANKS NORMALLY TAILOR MAKE THEIR DENOMINATIONS AND

MATURITIES TO SUIT THE NEEDS OF THE INVESTORS
 COMMERCIAL PAPER

ISSUED IN FORM OF PROMISSORY NOTES REDEEMABLE AT PAR BY THE HOLDER ON MATURITY

USUALLY HAS A MATURITY PERIOD OF 90 TO 180 DAYS

THEY ARE SOLD AT A DISCOUNT TO BE REDEEMED AT PAR

CPs CAN BE ISSUED BY CORPORATES HAVING A MINIMUM NET WORTH OF RS 5 CRORES

AND AN INSVESTMASNT GRADE FROM CREDIT RATING AGENCIES

MINIMUM ISSUE SIZE IS RS 25 LACS

 REPOS
A “REPO” INVOLVES A SIMULTANEOUS “SALE AND REPURCHASE” AGREEMENT.

A repurchase agreement is the equivalent of a short-term, collateralized loan. An owner of marketable securities
sells those securities to a buyer for cash.

As part of the deal, the seller agrees to buy back the securities at a later date. That later date can be the next day,
or may be the next week. The price paid to repurchase the securities is higher than the original selling price.

The spread between the original price and the repurchase price is equivalent to interest.

Repurchase agreements are often used by institutions with available cash that are looking for quick, easy ways to
get a return on their money with little risk.
Collateralized Borrowing And Lending Obligation (CBLO)

A collateralized borrowing and lending obligation

(CBLO) is a money market instrument that
represents an obligation between a borrower and a
lender as to the terms and conditions of the loan.
Collateralized borrowing and lending obligations
(CBLOs) are used by those who have been phased
out of or heavily restricted in the interbank call
money market.
 BONDS OR DEBENTURES

BONDS OR DEBENTURES REPRESENTS LONG-TERM

DEBT INSTRUMENTS in which an investor loans money to an entity (corporate or governmental) that
borrows the fund for a defined period of time at a fixed interest rate.

A BOND OR DEBENTURE is like a loan: the issuer is the borrower (debtor), the holder is the lender
(creditor), and the coupon is the interest. Bonds provide the borrower with external funds to finance
long-term investments, or, in the case of government bonds, to finance current expenditure.
TYPES OF BONDS OR DEBENTURES
CENTRAL GOVENRMENT SECURITIES

STATE DEVELOPMENT LOANS

PUBLIC SECTOR UNDERTAKING BONDS

PRIVATE SECTOR DEBENTURES

PREFERENCE SHARES
TYPES OF BONDS OR DEBENTURES
CENTRAL GOVENRMENT SECURITIES

STATE DEVELOPMENT LOANS

PUBLIC SECTOR UNDERTAKING BONDS

PRIVATE SECTOR DEBENTURES

PREFERENCE SHARES
CENTRAL GOVENRMENT SECURITIES
A government security is a bond issued by a
government authority with a promise of
repayment upon maturity.

Government securities such as savings bonds,

treasury bills and notes also promise periodic
coupon or interest payments.

These securities are considered low-risk, since

they are backed by the taxing power of the
government.
STATE DEVELOPMENT LOANS
SDLs ARE DEBT SECURITIES ISSUED BY
THE STATE GOVERNMENT. RBI
MANAGES THE ISSUE OF THESE
SECURITIES. EACH STATE IS ALLOWED
TO ISSUE THESE SECURITIES UPON A
CERTAIN LIMIT EACH YEAR. THE
COUPON RATES OF SDLs ARE
MARGINALLY HIGHER THAN THOSE G-
secs FOR THE SAME MATURITY.
PUBLIC SECTOR UNDERTAKING BONDS
PSU are medium- and long-term obligations issued by public sector
companies in which the government share holding is generally greater than
51%.

some PSU Bonds carry tax exemptions.

the minimum maturity is 5 years for taxable bonds and 7 years for tax-free
bonds. PSU bonds are generally not guaranteed by the government and are in
the form of promissory notes transferable by endorsement and delivery.
PREFERENCE SHARES
Preference shares are those shares which carry certain special or priority
rights. Firstly, dividend at a fixed rate is payable on these shares before any
dividend is paid on equity shares.

Secondly, at the time of winding up of the company, capital is repaid to

preference shareholders prior to the return of equity capital. Preference
shares do not carry voting rights.

However, holders of preference shares may claim voting rights if the

dividends are not paid for two years or more on cumulative preference shares
and three years or more on non-cumulative preference shares.
 EQUITY SHARES
Equity shares are the main source of finance of a firm. It is issued to the general public.

Equity shares were earlier known as ordinary shares. The holders of these shares are the real owners of the company

Equity shareholders do not enjoy any preferential rights with regard to repayment of capital and dividend. They are entitled to
residual income of the company, but they enjoy the right to control the affairs of the business and all the shareholders collectively
are the owners of the company.

The value of equity shares are expressed in terms of face value or par value, issue price, book value, market value etc.

A point comes where the company reaches a very big level and requires huge capital investment for business growth. It then offers
its equity share to the general public. This is called Initial Public Offer (IPO). More such issues in future are called Follow-on Public
Offer (FPO)
Features of Equity Shares
Owned capital
Fixed value or nominal value
Distinctive number
Right To control
Return on shares
Transfer of shares
Benefit of right issue
Benefit of Bonus shares
Capital appreciation
TYPES OF EQUITY SHARES
Blue chips shares
Income shares
Growth shares
Penny stocks
Cyclical shares
Speculative shares
Defensive shares
Value shares
Advantages of equity shares
• Equity shares are very liquid and can be easily sold in the capital
i. Advantages from market.
the Shareholders’ • In case of high profit, they get dividend at higher rate.
• Equity shareholders have the right to control the management
Point of View of the company.

ii. Advantages
• They are a permanent source of capital and as such; do not
from the involve any repayment liability.
Company’s Point • They do not have any obligation regarding payment of dividend
of View:
 Disadvantages of equity shares
i. Disadvantages from the Shareholders’ Point of View:

Equity shareholders get dividend only if there remains any profit after paying debenture interest, tax and preference
dividend.

Thus, getting dividend on equity shares is uncertain every year.

ii. Disadvantage from the Company’s Point of View:

Cost of equity is the highest among all the sources of finance.

Payment of dividend on equity shares is not tax deductible expenditure.

Mutual funds

Equity schemes

Debt schemes

Hybrid schemes
Insurance products

Term assurance
contracts
Traditional • Endowment policies
savings linked • Whole life policies
contracts
Unit linked
certificates
 Retirement Products
Employees Provident Fund scheme, 1952

Employees Pension scheme, 1995

New Pension scheme

Voluntary Retirement Schemes

Immediate Annuity Plan

Deferred Annuity
 Employees Provident Fund scheme
Employer and employee both are required to contribute 12% of the employee’s basis wages, DA,
and retaining allowance every month

The employee can choose to contribute additional amounts, subject to certain restrictions.

The interest rate on the provident fund balance is declared annually.

The balance in the PF account in fully exempt from wealth tax.

Within certain limit, the employee is eligible to take a loan against the provident fund balance
pertaining to his contributions only.
Employee pension scheme (EPS)
This scheme is administered by the
EPFO, under this scheme 8.33 % from
the employer’s contribution of 12 % to
the employee provident fund is
diverted to the Employee pension
scheme.
 New Pension scheme
It is defined contribution basis, the payout on the completion of the scheme or
retirement depends on the returns generated from the contributions made by subscriber.

The PFRDA will regulate and develop the pension market.

The scheme offers various mixes of equity and debt and also has a default option that
allocates contributions between debt and equity based on the age of the contributor.

The NPS is a good vehicle for building a corpus for retirement, the govt has opened it to
all individuals with effect from April 1 2009.
Voluntary retirement schemes

There are various schemes and annuity products that

investors may subscribe to voluntary primarily to
provide retirement benefits. The important ones are :-
• Public provident fund
• New pension scheme
• Pension plan of insurance companies
• Mutual funds
Immediate Annuity Plan

An immediate annuity plan can be purchased by

paying a lump sum amount. It provides for

annuity payments at a stated amount immediately

after purchase of the plan. There is a variety of
options are available for the type and mode of
payment
DEFERRED ANNUITY
A deferred annuity enables the
policyholder to build up a pension that
becomes payable
on his or her retirement from gainful
employment.
REAL ESTATE
Real estate is a booming
industry in India. It has huge
prospects in all the major
sectors like housing,
commercial, manufacturing,
hospitality, retail etc.
• Real Estate is termed as the “Money
Making Industry” in the country.
 REAL ESTATE
Pros Cons
Cash flows Costly to Buy, Sell and Operate

Attractive Capital appreciations Requires management

Inflation Hedge Low Liquidity

Influence performance Higher Transaction Costs

Tax benefits Legal Difficulties

PRECIOUS METALS
High value & Liquidity

Diversify Your Portfolio

Hedge against inflation

Stable than currencies

PRECIOUS STONES
Inflationary Hedge

Universal Value

Value Appreciation

Allows Full Possession

ART OBJECTS AND COLLECTIBLES
Not sensitive to interest rate fluctuations

Hedge against inflation

Uptrend

Increasing demand
Financial derivatives

Financial instrument whose characteristic and value

depend upon the characteristics and value of an underlie,
typically a commodity, bond, equity or currency.

Derivatives doesnot have a value of its own. Rather, its

value depends on the value of the underlying asset.
Futures

Transferable contract between two parties to buy or

sell an asset at a certain date in the future at a
specified price.

It is a standardized contract with a standard underlying

asset, a standard quantity an quality of under lying
instrument and a standard timing of instrument
Options

An option is a contract that goes a step further and provides the

buyer of the option the right without the obligation, to buy or sell
put as specified asset at an agreed price on or upto a specific date.

An option gives its holder the right to buy or sell an underlying

asset on or before a given date at a predetermined price.
Calls

CALLS give the buyer the right but

not the obligation to buy a given
quantity of the underlying asset, at a
given price on or before a future
given date.
puts

PUTS gives the buyer the right, but

not obligation to sell a given
quantity of the underlying asset at a
given price on or before a given
date.