View
223
Download
0
Category
Preview:
Citation preview
7/31/2019 broking industry
1/122
A
PROJECT REPORT
ON
IDENTIFICATION OF PEOPLE PREFERENCE LEVEL
REGARDING VARIOUS INVESTMENT AVENUES
UNDERTAKEN AT
SHAREKHAN LIMITED.
SUBMITTED BY
JAWEDKHAN A PATHAN
06MBA44
SUBMITTED TO
Mr. GOVIND DHINAIYA
MBA PROGRAMME
(2006-08)
SHRIMAD RAJCHANDRA INSTITUTE OF
MANAGEMENT AND COMPUTER APPLICATION
7/31/2019 broking industry
2/122
DECLARATION
I here by declare that the summer project report title
Identification of People Preference Level Regarding
Various Investment Avenues Based on original piece of
work done by me for the fulfillment of the award of the
degree of Master of Business Administration. And whatever
information has been taken from any sources had been duly
acknowledge.
I further declare that the personal data & information
received from any respondent during survey has not been
shared with any one and is used for academic purpose only.
Date: 3rd October, 2007 Javedkhan A Pathan
Place: Gopal Vidyanagar (06MBA44)
2
7/31/2019 broking industry
3/122
PREFACE
The preference of Indian investor is changing rapidly. Previously
they were investing into fixed income earning securities. In this
fixed income earning securities Government securities, bonds and
debentures and fixed deposits were common avenues. But with the
passage of time inflation increased, so there was a great need of
avenues where higher returns, more liquidity and better
management of Investors fund needed.
Initially people started investing in share market but it was
highly volatile and it required constant watch over the fund. So people
started shifting over mutual funds because they were professionally
managed they were also having high liquidity good return and they
were also helping in tax planning. From last few years mutual fund
industry has shown phenomenon growth more and more people are
attracting towards mutual funds.
On the other hand other sector, which is booming, is
insurance sector. Because in India large chunk of people are not
having any insurance and those who are having insurance are
underinsured. Traditionally people used to have insurance for the
purpose of risk cover and tax planning, but now insurance
companies are also providing benefits of market movement through
Unit Linked Insurance Plans. This plan not only gives risk cover
but also provides certain returns as well. So now Indian investors
have started accepting this type of insurance plans rather then
traditional insurance plans.
As the competition increases and new products are
launched Indian customer is having sufficient choice between
different avenues, which provides market linked returns, so Indian
investors are enabled with various option to suit their financial goals
3
7/31/2019 broking industry
4/122
and tax planning requirements.
ACKNOELEDGEMENT
Many individuals have rendered their helping hand to me in
carrying out this project. I take this opportunity to express my gratitude
to all of them.
I express my heartfelt gratitude to eminent organization
Sharekhan co. ltd for providing me with such a glorious opportunity
and furnishing me with much of the precious time and resources during
my training.
I am very much pleased to express my heartiest gratitude to our
venerable Director Dr. Bankim C.Patel for providing me with such a
glorious opportunity for learning practicality of bookies concepts.
I am highly indebted to Mr. Mehul Jani (Branch Head), for giving
best of his knowledge and precious time to me. His warm hearted
guidance has acted like light house in share house during my training.
I pay heartiest gratitude to my college mentor Mr. Govind
Dhinaiya who has provided me with the valuable suggestions, support
and guidance during my training to successfully complete my project
work.
My sincere thanks to company guide Mr. Ashish Bhakta who has
spent his precious time with me and in fulfilling the requirement of this
project. I am highly obliged to him for his Valuable support and
guidance.
Words of thanks to staff ofSharekhan ltdBardoli branch for their
co-operation and support.
I would be failing in my duty, if I dont pay my gratitude to all
important respondents as without their support the project would not
have materialized
4
7/31/2019 broking industry
5/122
EXECUTIVE SUMMARY
Statement of the study
A study on identification of people awareness, investment and
preference level and their investment criteria regarding various
investment avenues namely bank deposits, bullion, equity, Government
securities, mutual funds, real estate, insurance and bonds and
debentures
Purpose of the study
This study has been under taken to find out the preference level ofpeople towards various investment avenues and the parameters that
they consider crucial for investment decision. This study will provide
inside to Sharekhan limited to understand market better and to come
out with appropriate strategy for tap untapped market and also to
understand preference of existing customer better.
Research methodology
Type of study
Descriptive research design
Sampling frame
People of Bardoli town and surrounding area
Sampling design
Convenience sampling method has been used.
Sampling area
Bardoli town and surrounding area
Sample size
100 respondents will be surveyed from the sampling area.
Sampling unit
People of Bardoli and surrounding area.
Research instrument
5
7/31/2019 broking industry
6/122
A disguise and structured questionnaire is used.
Data collection method
Primary data.
Collected by conducting personnel interview of people.
Secondary data.
The secondary data h collected by books and thorough internet.
Data analysis tools
SPSS Software is used forT-test and Chi-Square test, Microsoft office
is used for data typing and formatting
Key findings
Most of the people are aware regarding five investment avenues
namely bank deposits, equity investment, mutual fund, insurance
and real estate
Most of the people are investing their fund in bank deposits and
insurance.
Return, safety and risk are considered as a most important
investment parameter
Majority of people believe that equity investment is better
investment avenue compare to other investment avenues.
Mutual fund is the best investment avenue followed by real estate
second best, bank deposits third best, equity investment fourth
best
Key recommendations
Return, safety, risk and marketability should be given more
importance for any investment avenue.
Broking firms or companies should promote Equity investment
aggressively foe long term investment.
6
http://d/SUMMER%20TRAINING%20REPORT/fine/HYPE%20T%20TEST.dochttp://d/SUMMER%20TRAINING%20REPORT/word%20COmperision%20summary.dochttp://d/SUMMER%20TRAINING%20REPORT/fine/HYPE%20T%20TEST.dochttp://d/SUMMER%20TRAINING%20REPORT/word%20COmperision%20summary.doc7/31/2019 broking industry
7/122
Promotional measures should be taken for increasing awareness
for bullion, Government securities and bonds and debentures.
People first preference is mutual fund hence more emphasis should be given on
mutual fund in promotional activities.
TABLE OF CONTENTS
Sr. No. TOPIC Page No.
1 INTRODUCTION 08
1.1 Industry profile 08
1.2 Company profile 10
1.3 Overview of investment 20
1.4 Investment avenues 21
2 RESEARCH METHODOLOGY 54
3 DATA ANALYSIS & INTERPRETATION 57
4 FINDINGS 113
5 CONCLUSION 115
6 BIBLIOGRAPHY 116
7 APPENDIX 117
7.1 Questionnaire 117
7
7/31/2019 broking industry
8/122
INDUSTRY PROFILE
1.1: SHARE BROKING SERVICE SECTOR PROFILE:
There are several national as well as local players in stock trading
services which are providing various services to their customers like
online trading, portfolio management system, stock broking etc. Among
them several national level players.
KEY PLAYERS:
5Paisa.com - Online trading, live stock quotes and market research
Advani Share Brokers - Share broking and market research
services
Anand Rathi Securities - Portfolio management, corporate finance,
equity & fixed income brokerage services
Brescon Group - Advisory and broking services
CIL Securities - Stock broking & merchant banking services
CRN India - Trends of stock market, trading tips, chat etc
Churiwala Securities - Stock trading, quotes and market analysis
DSP Merrill Lynch - Investment banking and brokerage services
Dalmia Securities - Stock broking & depository services
EquityTrade - Stock trading, company news & market research
Gandhi Securities - Stock broking and investment services
Gogia Capital Services - Stock broking and market analysis
Hasmukh Lalbhai - Stock trading services
Idafa Investments - Stock broking services
8
http://www.searchindia.com/cgi-bin/search/index.cgi?ID=966377344http://www.searchindia.com/cgi-bin/search/index.cgi?ID=1016666638http://www.searchindia.com/cgi-bin/search/index.cgi?ID=955747502http://www.searchindia.com/cgi-bin/search/index.cgi?ID=973785596http://www.searchindia.com/cgi-bin/search/index.cgi?ID=947985327http://www.searchindia.com/cgi-bin/search/index.cgi?ID=956950423http://www.searchindia.com/cgi-bin/search/index.cgi?ID=987687249http://www.searchindia.com/cgi-bin/search/index.cgi?ID=947365968http://www.searchindia.com/cgi-bin/search/index.cgi?ID=955888141http://www.searchindia.com/cgi-bin/search/index.cgi?ID=964445292http://www.searchindia.com/cgi-bin/search/index.cgi?ID=987687084http://www.searchindia.com/cgi-bin/search/index.cgi?ID=930095925http://www.searchindia.com/cgi-bin/search/index.cgi?ID=993560917http://www.searchindia.com/cgi-bin/search/index.cgi?ID=993560917http://www.searchindia.com/cgi-bin/search/index.cgi?ID=978734958http://www.searchindia.com/cgi-bin/search/index.cgi?ID=966377344http://www.searchindia.com/cgi-bin/search/index.cgi?ID=1016666638http://www.searchindia.com/cgi-bin/search/index.cgi?ID=955747502http://www.searchindia.com/cgi-bin/search/index.cgi?ID=973785596http://www.searchindia.com/cgi-bin/search/index.cgi?ID=947985327http://www.searchindia.com/cgi-bin/search/index.cgi?ID=956950423http://www.searchindia.com/cgi-bin/search/index.cgi?ID=987687249http://www.searchindia.com/cgi-bin/search/index.cgi?ID=947365968http://www.searchindia.com/cgi-bin/search/index.cgi?ID=955888141http://www.searchindia.com/cgi-bin/search/index.cgi?ID=964445292http://www.searchindia.com/cgi-bin/search/index.cgi?ID=987687084http://www.searchindia.com/cgi-bin/search/index.cgi?ID=930095925http://www.searchindia.com/cgi-bin/search/index.cgi?ID=993560917http://www.searchindia.com/cgi-bin/search/index.cgi?ID=9787349587/31/2019 broking industry
9/122
India Market Access - Offers stock broking, portfolio management
and investment banking services
Investsmart India - Personal finance advisory & online brokerage
services
Kisan Ratilal Choksey Shares - Stock broking and e-trading
services
Kotak Securities - Brokerage services & retail distributor of
financial securities
Manubhai Mangaldas Securities - Stock broking and market
analysis
Moneypore - Investment and broking services
Motilal Oswal - Online trading, live BSE and NSE quotes
Navia Markets - Stock broking, IPO and mutual funds services
Parag Parikh - Stock broking and portfolio management
Parsoli Corporation - Investment management & stock trading
services
Pratibhuti Viniyog - Stock broking services
Prudential - Investment management services
Quantum Securities - Offers broking and portfolio management
services.
Sivan Securities - offers services related investment banking &
stock broking with a focus on South India.
Skindia Finance - Brokerage firm focusing on GDR arbitrage,
equities & debt
Stock Holding Corporation of India - Custody management,
safekeeping & stock broking services
9
http://www.searchindia.com/cgi-bin/search/index.cgi?ID=930088159http://www.searchindia.com/cgi-bin/search/index.cgi?ID=952057582http://www.searchindia.com/cgi-bin/search/index.cgi?ID=979347867http://www.searchindia.com/cgi-bin/search/index.cgi?ID=947365119http://www.searchindia.com/cgi-bin/search/index.cgi?ID=987687737http://www.searchindia.com/cgi-bin/search/index.cgi?ID=1000747099http://www.searchindia.com/cgi-bin/search/index.cgi?ID=930089255http://www.searchindia.com/cgi-bin/search/index.cgi?ID=930089255http://www.searchindia.com/cgi-bin/search/index.cgi?ID=968327356http://www.searchindia.com/cgi-bin/search/index.cgi?ID=956269124http://www.searchindia.com/cgi-bin/search/index.cgi?ID=959008817http://www.searchindia.com/cgi-bin/search/index.cgi?ID=956269269http://www.searchindia.com/cgi-bin/search/index.cgi?ID=930089345http://www.searchindia.com/cgi-bin/search/index.cgi?ID=930089345http://www.searchindia.com/cgi-bin/search/index.cgi?ID=930089426http://www.searchindia.com/cgi-bin/search/index.cgi?ID=930089783http://www.searchindia.com/cgi-bin/search/index.cgi?ID=956269857http://www.searchindia.com/cgi-bin/search/index.cgi?ID=956308138http://www.searchindia.com/cgi-bin/search/index.cgi?ID=930088159http://www.searchindia.com/cgi-bin/search/index.cgi?ID=952057582http://www.searchindia.com/cgi-bin/search/index.cgi?ID=979347867http://www.searchindia.com/cgi-bin/search/index.cgi?ID=947365119http://www.searchindia.com/cgi-bin/search/index.cgi?ID=987687737http://www.searchindia.com/cgi-bin/search/index.cgi?ID=1000747099http://www.searchindia.com/cgi-bin/search/index.cgi?ID=930089255http://www.searchindia.com/cgi-bin/search/index.cgi?ID=968327356http://www.searchindia.com/cgi-bin/search/index.cgi?ID=956269124http://www.searchindia.com/cgi-bin/search/index.cgi?ID=959008817http://www.searchindia.com/cgi-bin/search/index.cgi?ID=956269269http://www.searchindia.com/cgi-bin/search/index.cgi?ID=930089345http://www.searchindia.com/cgi-bin/search/index.cgi?ID=930089426http://www.searchindia.com/cgi-bin/search/index.cgi?ID=930089783http://www.searchindia.com/cgi-bin/search/index.cgi?ID=956269857http://www.searchindia.com/cgi-bin/search/index.cgi?ID=9563081387/31/2019 broking industry
10/122
StockMarkit.com - Stock quotes, news, market indicators etc
Sunidhi Consultancy - Stock broking, portfolio management &
equity research
Techno Shares - Stock broking and portfolio management
Valia Consultancy - Stock investment and trading consultancy1
1.2: COMPANY PROFILE:
SSKI HISTORY
Founded in 1922, it is one of Indias oldest brokerage houses
having over Eighty years of broking experience.
Founding member of the Stock Exchange, Mumbai and pioneer
institutional broker.
SSKI is the only domestic player in a market crowded by 44
multinational securities firm.
Foray into institutional broking and corporate finance 20 years
ago. SSKI group also comprises Institutional broking division caters to
the largest domestic and foreign institutional investors, the corporate
finance division focuses on niche areas such as infrastructure, telecom
and media. SSKI holds a sizeable portion of the market in each of
these segments.
Forerunner of investment research in the Indian market, SSKI
provide the best research coverage amongst broking houses in India.
The companys research team was set up in December 1992 and is
rated as one of the best in the country. Voted four times as the top
domestic brokerage house by Asia money survey, SSKI is consistently
ranked amongst the top domestic brokerage houses in India.
Retail broking started in 1985.
Research group was set up in December 1992.
10
http://www.searchindia.com/cgi-bin/search/index.cgi?ID=963498864http://www.searchindia.com/cgi-bin/search/index.cgi?ID=963935171http://www.searchindia.com/cgi-bin/search/index.cgi?ID=995123111http://www.searchindia.com/cgi-bin/search/index.cgi?ID=987686896http://www.searchindia.com/cgi-bin/search/index.cgi?ID=963498864http://www.searchindia.com/cgi-bin/search/index.cgi?ID=963935171http://www.searchindia.com/cgi-bin/search/index.cgi?ID=995123111http://www.searchindia.com/cgi-bin/search/index.cgi?ID=9876868967/31/2019 broking industry
11/122
It acts as a pioneer if investment research in the Indian market
aimed at generating quick investment ideas.
Group interest Investment Banking, Institutional Broking and Retail
Broking.
It occupies 65% of business share from foreign institutional
investors.
SSKI named its online division as Sharekhan on February 8, 2000
coinciding with the launch of its website.
COMPANY PROFILE
Share khan is a share broking and retail broking arm of SSKI, an
organization with more than 80 years of trust and credibility in the stock
market. Retail Distribution Started In 1998. SSKI is a veteran equities
solutions company with over 8 decades of experience in the Indian stock
markets. It helps the customers/people to make informed decisions and
simplifies investing in stocks. Sharekhan brings to you a user- friendly
online trading facility, coupled with a wealth of content that will help you
stalk the right shares. SSKI named its online division as a Sharekhan and
it is into retail broking. The business of the company overhauled 6 years
ago on February 8, 2000. It acts as a discount brokerage house to a full
service investment solution provider. It has specialized research product
for the small investors and day traders. Sharekhan has a shop in 137
cities across India.
Though the portal sharekhan.com, have been providing investors
a powerful online trading platform, the latest news, research and other
knowledge-based tools for over five years now.
We have decided teams for fundamental and technical research
so that you get all the information you need to take the right investment
decisions.
11
7/31/2019 broking industry
12/122
With branches and outlets across the country, our ground network
is one of the biggest in India!
They have talent pool of experienced professionals specially
designated to guide you when you need assistance, which is why
investigating with us is bound to be a hassle-free experience for
you!
The Sharekhan provides its customers First Step program, built
specifically for new investors, is testament to our commitment to being
your guide throughout your investing lifecycle
They have 588 share shops across 213 cities in India to get a
host of trading related services our friendly customer service staff will
also help you with any account related queries you may have.
ABOUT SHAREKHAN
SSKI named its online division as SHAREKHAN and it is into retail
broking.
The business of the company overhauled 6 years ago on February
8, 2000.
It acts as a discount brokerage house to a full service investment
solutions provider.
It has specialized research product for the small investors and day
traders.
Largest chain of share shops, 310 shares, shops in 137 cities
across India.
The site was also launched on February 8, 2000 and named it as
www.sharekhan.com.
The Speed Trade account of Sharekhan is the next generation
technology product launched on April 17, 2002.
12
http://www.sharekhan.com/http://www.sharekhan.com/7/31/2019 broking industry
13/122
It offers its customers with the trade execution facilities on the NSE
and BSE, for cash as well as derivatives, depository services.
Ensures convenience in Trading Experience: Sharekhans trading
services are designed to offer an easy, hassle free trading experience,
whether trading is done daily or occasionally. The customer will be
entitled to a host of value added services in the investment process
depending on his investing style and frequency offers a suite of
products and services, providing the customers with a multi-channel
access to the stock markets.
It gives advice based on extensive research to its customers andprovides them with relevant and updated information to help him
make informed about his investment decisions.
Sharekhan offers its customers the convenience of a broker-DP.
It helps the customers meet his pay in obligations on time thereby
reducing the possibility of auctions. The company believes in flexibility
and therefore allows accepting late instructions without any extracharge. And execute the instruction immediately on receiving it and
thereafter the customer can view his updated account statement on
Internet.
Sharekhan depository services offer Demat services to individual and
corporate investors. It has a team of professionals and the latest
technological expertise dedicated exclusively to their Demat
department. A customer can avail of Demat, repurchase and
transmission facilities at any of the Sharekhan branches and business
partners outlets.
BRAND NAME
The company as a whole in its offline business has named itself as
SSKI Securities Private Limited Sevaklal Sevantilal Kantilal
13
7/31/2019 broking industry
14/122
Ishwarlal Securities Private Limited. The company has preferred to
name themselves under a blanket family name.
But in its online division started since 1997, the company
preferred to name itself as SHAREKHAN. The Brand name
SHAREKHAN itself suggests the business in which the company is
dealing so that the customer could easily identify the product or service
category.
CORE SERVICES OF SHAREKHAN
1. Equity and Derivative Trading on BSE and NSE.
2. Depository Services.
3. Online Trading.
4. IPO Services.
5. Commodities Trading on MCX and NSDEX.
6. Portfolio Management Services.
SERVICES PROVIDED BY SHAREKHAN
Online Services
Offline Services
Depository Services
Equity and Derivatives Trading
Fundamental Research
Technical Research
Portfolio Management
Commodities Trading
14
7/31/2019 broking industry
15/122
Dial-n-trade
Share shops
1. Online Services:
Mutual Funds
Commodity Futures
PMS
Technical PMS
Demat Services
Share shops
2. Offline Services:
Trading with the help of Dealer
Trading without credit
By calling to the Share shops
Credit facility (Only in Delivery-based)
T+2 facility
Special website for Offline Clients:
www.mysharekhan.com
Physical contract notes
Types of Account
Classic A/c:
Features of Classic A/c:
15
7/31/2019 broking industry
16/122
Online trading account for investing in Equities and
Derivatives via sharekhan.com.
Integration of: Online trading + Bank + Demat account.
Instant cash transfer facility against purchase & sale
of shares.
Make IPO bookings.
You get Instant order and trade confirmations by e-mail
Streaming Quotes.
Personalized Market Scan with your own customized
stock ticker.
Single screen interface for cash and derivatives.
Speed-trade:
Features of Speed-trade:
Instant order Execution & Confirmation
Single screen trading terminal
Real-time streaming quotes, tic-by-tic charts
Market summary (most traded scrip, highest value and
lots of other relevant statistics)
Hot keys similar to a brokers terminal
Alerts and reminders
Back-up facility to place trades on Direct Phone lines
Single screen interface for cash and derivatives
Dial-n-trade:
Features of Dial-n-trade:
16
7/31/2019 broking industry
17/122
Two dedicated numbers for placing your orders with
your cell phone or landline. Toll free number: 1-800-22-7050.
For people with difficulty in accessing the toll-free number,
we also have a Reliance number 30307600 which is chargedat Rs. 1.50 per minute for STD calls.
Automatic funds transfer with phone banking (for
Citibank and HDFC bank customers).
Simple and Secure Interactive Voice Response based
system for authentication.
No waiting time. Enter your TPIN to be transferred to
our telebrokers.
You also get the trusted, professional advice of our
telebrokers.
After hours order placement facility between 8.00 am
and 9.30 am (timings to be extended soon.
BANK AFFILIATION
Sharekhan has affiliation with 7 banks, which allows its
customers to enjoy the facility of instant credit and transfer of
funds from his savings bank account to his Sharekhan trading
account. The Affiliated banks are as follows:
HDFC BANK
UTI BANK ( Axis Bank)
CITI BANK
ORIENTAL BANK OF COMMERCE
IDBI BANK
UBI BANK
17
7/31/2019 broking industry
18/122
CORPORATION BANK
PROMOTION TOOLS AND ADVERTISEMENT OF SHAREKHAN
1. Promotion
Online share trading is totally a new concept in Indian market.
Generally investor doesnt like to come from conventional way of
share trading. Sharekhan has introduced this product in the concept
and products are still new in the market. Therefore the company has
undertaken extensive promotion campaign to create awareness
about the product. Sharekhan adopts the following tools for
promoting the product.
Internet
Tele Marketing
Retail Share Shops
Franchisee Owners
Sales Force
2. Advertising
Company advertises its product through TV media on channels like
CNBC, Print Media-in leading dailies and outdoors media. It advertises
itself as an innovative brand with a cartoon of tiger-called SHERU.
Besides attractive and colorful brochures as well as posters are used
18
7/31/2019 broking industry
19/122
giving full details about the product. Mails are sent to people togging
on to sites like moneycontrol.com and rediff.com.
SWOT ANALYSIS
STRENGTHS
Online Trading Facility
Largest Chain of Retail Share Shops in India
80 years of Experience in securities market
Dedicated and responsive workforce/staff
Value added service for HNI client
Research Center
Membership of NSE & BSE
Trading option like Future & Option and Commodities
Volume based differentiated product.
WEAKNESSES
Less informative website
Does not have slab rate brokerage which is provided by competitors
Problems due to network crash
Unawareness Among Investors
OPPORTUNITY
Collaboration with international financial institution
To tap the Untapped market To capture the market lost to its Competitors.
To focus on developing a superior and powerful portal
To spread awareness of its Brand Name.
THREATS
Follow government laws
Severe Competition
19
7/31/2019 broking industry
20/122
Competitors develops
Prolonged depression and high volatility in the market
New Entrants.
ABOUT TOPIC
1.3 Overview of investment.
WHAT IS INVESTMENT?
The money you earn is partly spent and the rest saved for meeting
future expenses. Instead of keeping the savings idle, you may like to use
savings in order to get return on it in the future is termed as investment.
Investment is the employment of funds on assets with the aim of
earning income or capital appreciation. For a layman, investment means
some monetary commitments.
In its broadest sense, an investment is a sacrifice of current
money or other resources for future benefits. Numerous avenues of
investment are available today. You can either deposit money in a bank
account or purchase a long-term government bond or invest in the
equity shares of a company or contribute to a provident fund account or
buy a stock option or acquire a plot of land or invest in some other form.
The two key aspects of any investment are time and risk. The
sacrifice takes place now and is certain. The benefit is expected in the
future and tends to be uncertain. In some investments (like governmentbonds) the time element is the dominant attribute. In other investments
20
7/31/2019 broking industry
21/122
(like stock options) the risk element is the dominant attribute. In yet
other investments (like equity shares) both time and risk are important.
Almost everyone owns a portfolio of investments. The portfolio is
likely to comprise financial assets (bank deposits, bonds, stocks, and so
on) and real assets (motorcycle, house, and so on). The portfolio may be
the result of a series of haphazard decisions or may be the result of
deliberate and careful planning.
WHY SHOULD ONE INVEST?
(1) To earn return on your idle resources.
(2) To generate a specified sum of money for a specific goal in life.
(3) To make a provision for an uncertain future.
One of the important reasons why one needs to invest wisely is to
meet the cost of Inflation. Inflation is the rate at which the cost of living
increases.
The aim of investments should be to provide a return above the
inflation rate to ensure that the investment does not decrease in value.
INVESTMENT OBJECTIVES: -
The main investment objectives are increasing the rate of return &
reducing the risk, safety, liquidity & hedge against inflation.
1.4 INVESTMENT AVENUES
These may be classified as shown in below:
21
7/31/2019 broking industry
22/122
HOW DO VARIOUS INVESTMENT AVENUES COMPARE?
How do various investment avenues like equity shares, fixed
income securities, deposits, real assets, and so on compare? A summary
evaluation of these investment avenues in terms of key investment
attributes is given below.
Return Risk MarketabilityLiquidity
Taxshelter
ConvenienceCurrent
yieldCapitalappreciation
EquityShare
Low High High Fairly high High High
NonconvertibleDebenture
High Negligible Low Average Nil High
EquitySchemes
Low High High High High Very High
DebtSchemes
Moderate
Low Low High No taxondividend
Very High
BankDeposits
Moderate
Nil Negligible
High Nil Very High
PublicProvident
Fund
Nil Moderate Nil Average Section80 C
benefit
Very High
Investment alternatives
Non-MarketableFinancial Assets
Equity Shares
Money Market
InstrumentBonds
Mutual Fund Schemes
Real Estate
Life Insurance
Policies
Precious Objects
Financial Derivatives
22
7/31/2019 broking industry
23/122
LifeInsurancePolicies
Nil Moderate Nil Average Section80 Cbenefit
Very High
Residential house
Moderate
Moderate Negligible
Low High Fair
Gold andsilver
Nil Moderate Average Average Nil Average
(1) Bank Deposits
The simplest of investment of avenue, opening a bank account
and depositing money in it one can make a bank deposits, there are
various kinds of bank accounts; current account, saving account, and
fixed deposit account. While a deposit in a current account does not earn
any fixed interest, deposits in other kinds of bank accounts earn interest.
The important feature of bank deposit is as follows:
Deposit in scheduled banks are very safe because of the regulation
of the reserve bank of India and the guarantee provided by the
deposit insurance corporation, which guarantees deposits up to Rs.1,00,000 per deposit of a bank.
There is a ceiling on the interest rate payable on deposit in the
savings account.
The interest rate on fixed deposits varies with the term of the
deposit.
If the deposit period is less than 90 days, the interest is paid on
maturity; other wise it is paid quarterly.
Bank deposits enjoy exceptionally high liquidity.
Loan can be raised again bank deposits.
Fixed Deposit
23
7/31/2019 broking industry
24/122
A fixed deposit is meant for those investors who want to deposit a
lump sum of money for a fixed period; say for a minimum period of 15
days to five years and above, thereby earning a higher rate of interest in
return. Investor gets a lump sum (principal + interest) at the maturity ofthe deposit.
Bank fixed deposits are one of the most common savings scheme
open to an average investor. Fixed deposits also give a higher rate of
interest than a savings bank account. The facilities vary from bank to
bank. Some of the facilities offered by banks are overdraft (loan) facility
on the amount deposited, premature withdrawal before maturity period
(which involves a loss of interest) etc. Bank deposits are fairly safer
because banks are subject to control of the Reserve Bank of India.
Features
Bank deposits are fairly safe because banks are subject to control of the
Reserve Bank of India (RBI) with regard to several policy and operational
parameters. The banks are free to offer varying interests in fixed
deposits of different maturities. Interest is compounded once a quarter,
leading to a somewhat higher effective rate.
The minimum deposit amount varies with each bank. It can range from
as low as Rs. 100 to an unlimited amount with some banks. Deposits can
be made in multiples of Rs. 100/-.
Before opening a FD account, try to check the rates of interest for
different banks for different periods. It is advisable to keep the amountin five or ten small deposits instead of making one big deposit. In case of
any premature withdrawal of partial amount, then only one or two
deposit need be prematurely encashed. The loss sustained in interest
will, thus, be less than if one big deposit were to be encashed. Check
deposit receipts carefully to see that all particulars have been properly
and accurately filled in. The thing to consider before investing in an FD is
the rate of interest and the inflation rate. A high inflation rate can simplychip away your real returns.
24
7/31/2019 broking industry
25/122
Returns
The rate of interest for Bank Fixed Deposits varies between 4 and 11 per
cent, depending on the maturity period (duration) of the FD and the
amount invested. Interest rate also varies between each bank. A Bank
FD does not provide regular interest income, but a lump-sum amount on
its maturity. Some banks have facility to pay interest every quarter or
every month, but the interest paid may be at a discounted rate in case
of monthly interest. The Interest payable on Fixed Deposit can also be
transferred to Savings Bank or Current Account of the customer. The
deposit period can vary from 15, 30 or 45 days to 3, 6 months, 1 year,
and 1.5 years to 10 years.
Duration
Interest rate (%) per annum
15-30 days 4 -5 %
30-45 days 4.25-5 %
46-90 days 4.75--5.5 %
91-180 days 5.5-6.5 %
181-365 days 5.75-6.5 %
1-2 years 6-8 %
2-3 years 6.25-8 %
3-5 years 6.75-8
Advantages
Bank deposits are the safest investment after Post office savings
because all bank deposits are insured under the Deposit Insurance &
Credit Guarantee Scheme of India. It is possible to get a loans up to75-
90% of the deposit amount from banks against fixed deposit receipts.
The interest charged will be 2% more than the rate of interest earned by
the deposit. With effect from A.Y. 1998-99, investment on bank deposits,
along with other specified incomes, is exempt from income tax up to a
limit of Rs.12, 000/- under Section 80L. Also, from A.Y. 1993-94, bank
25
7/31/2019 broking industry
26/122
deposits are totally exempt from wealth tax. The 1995 Finance Bill
Proposals introduced tax deduction at source (TDS) on fixed deposits on
interest incomes of Rs.5000/- and above per annum.
(2) BULLION
Bullion predominantly involves Precious objects. Precious objects
are items that are generally small in size but highly valuable in monetary
terms. The important precious objects are:
Gold and silver
Precious stones( Diamonds)
GOLD AND SILVER
Gold and silver, the two most widely held precious metals, appeal
to almost all kinds of investors for the following reasons.
Historically, they have been good hedges against inflation.
They are highly liquid with very low trading commissions.
They are aesthetically attractive.
They possess a high degree of 'moneyness.
As against these advantages, investment in gold and silver has the
following disadvantages.
They do not provide regular current income.
There is no tax advantage associated with them.
There may be a possibility of being cheated.
Due to the softening of their prices, gold and silver have not kept up
with inflation in recent times.
PRECIOUS STONES (DIOMOUNDS)
Diamonds, rubies, emeralds, sapphires, and pearls have appealed
to investors since times immemorial because of their aesthetic appealand rarity.
26
7/31/2019 broking industry
27/122
Diamonds, in particular, have attracted interest because of their
high per carat value.
The quality of a diamond is basically judged in terms of the 4C's,
viz. carat, colour, cut, and clarity.
While precious stones may have appeal for the affluent investors
and those who have skill in buying them, they are not suitable for the
bulk of the investors for the following reasons:
Precious stones can be very illiquid. It may not be easy to sell them
quickly with out giving major price concessions.
The grading process by which the quality and value of precious
stones is deter mined can be quite subjective.
For investment purposes, larger precious stones are suitable. Most
investment grade precious stories, diamonds in particular, require
huge investments.
Precious stones do not earn a regular return during the period theyare held. On the contrary, the investor has to incur the costs of
insurance and storage
(3) EQUITY INVESTMENT
Equity share is a share in the ownership of a companys assets and
earnings. Companies usually issue equity when they require addition
capital to fund their existing business or expand. At this point of time the
company sells part of the ownership of the company to the public. Listed
equities are generally highly liquid since they are traded in the stock
exchange.
An investor makes money from equity through dividends paid out
by the company (from its profits) on a periodic basis as well as capital
appreciation as reflected in the stock price, which fluctuates in the
27
7/31/2019 broking industry
28/122
market. Hence investors returns are directly related to the performance
of the companys business.
Equity investment generally refers to the buying and holding of
shares of stock on a stock market by individuals and funds in
anticipation of income from dividends and capital gain as the value of
the stock rises. It also sometimes refers to the acquisition of equity
(ownership) participation in a private (unlisted) company or a startup (a
company being created or newly created). When the investment is in
infant companies, it is referred to as venture capital investing and is
generally understood to be higher risk than investment in listed going-
concern situations.
Current status of equity in India
Private equity and venture capital investments in India surged more than
threefold to a record $7.46 billion in 2006, compared to $2.3 billion in
2005, according to Venture Intelligence data, reports Dow Jones.
Excluding investments in real estate sector, private equity funds
invested nearly $2.6 billion in 67 deals in Indian during the last quarter
of 2006 alone.
Other Highlights from Venture Intelligence data:
* 299 total deals in 2006, with 26 worth more than $50 million compared
with 9 such deals a year earlier.
* The information technology and IT-enabled services segment attractedthe highest amount of investment with $1.47 billion spread over 87
deals in 2006.
* The manufacturing industry drew $962 million of investments in 55
deals.
* Investments in startup companies accounted for 20% of total deals in
2006 while investments in publicly traded companies made up 22%
28
7/31/2019 broking industry
29/122
There has been an explosion in private equity investment in India
with equity fund investment more than trebling in the last 12 months.
Rohit Chawdhry investigates.
The Indian economy has grown at an average of 8.5 percent over
the last four years. This represents the highest four-year average growth
in India's economic history. Even more critically, this growth has been
led by the rise in investment rates (investment to GDP ratio). While data
for Indian investment rates isn't available beyond 2005, related
indicators on non-farm credit and corporate capital expenditure point to
exceptionally high growth in investments. While non-farm credit has
increased by 30 percent over the last two years, corporate capital
expenditure has tripled. Indeed, various econometric estimates suggest
that the investment rate for 2006 is likely to be in the range of 38-40
percent or closer to Chinese levels.
Behind this sudden acceleration of growth, there has been a spurt
in M&A deal flow and also investments coming in from the private equity
space. Take for instance M&A activity in India. In 2005, Indian firms were
involved in 467 deals worth $18bn in total. But in 2006, the number of
deals soared to 740, with a total value of $26bn. In total, overseas deals
were worth $16bn in 2006 and yet as recently as 2002, acquisitions
by Indian groups in foreign countries were worth just $200m, according
to Grant Thornton.
A similar growth pattern is evident in the private equity space as
well. Chart1 documents the value and number of deals in Indian privateequity space. Private equity investment in India shot up by over 230 per
cent in 2006, thanks to the growing interest of equity funds in domestic
companies and high returns from the stock markets there. Private equity
fund investment in 2006 was $7.46 billion, up from $2.26 billion a year
earlier, according to industry tracking firm Venture Intelligence. Average
deals size increased considerably from US$ 8 million in 2002 to US$24
million in 2006.
29
7/31/2019 broking industry
30/122
Sectorally, Indian private equity deals were led by the technology sector
with 87 deals for $1.47 billion in 2006, up from 46 deals for $434 million
in 2005. Other industries that attracted private-equity attention were
manufacturing (19% of deal flow), health care (8%), banking andfinancial services (10%). Mega-deals like Idea Cellular's (Telecom service
provider) pre-IPO placement ($960 million) and the Kohlberg Kravis
Roberts buyout of the Indian software unit of Flextronics International
($725 million) significantly bumped up the total for 2006, which doesn't
include real estate deals.
Of the total private equity space, share of venture capital is on the
rise. Table 1 given below provides a break-up of the total value of
investments into early-stage investments (primarily by VCs) and late-
stage investments and PIPEs (primarily by PEs). Even within early-stage
investments, seed investments declined the most during 2000-2003 and
have essentially remained negligible during 2004-2006. While a recent
Ernst and Young Study suggests that Early & Mid Stage VCs are to be
watched for future activity, it is the late stage and PIPEs which still
constitute the bulk of the deal flow.
The same study concurs that the Indian early-stage investment is
in a comeback mode, with the formation of new India-dedicated venture
capital funds and an increasing focus among foreign venture capitalists
on defining their India strategies. A new emphasis on IP driven products
among Indian entrepreneurs and investors, along with announcements
by Intel, Cisco, and Microsoft of significant development plans in India,
suggest that the country is poised for a new wave of innovation.
The trend for the venture capital industry is particularly striking in
terms of regional flows. According to the Ernst and Young Study, the
anticipated shakeout in the venture capital industry through a healthy
consolidation in the number of funds is underway. Between 2000 and
2006, the overall number of firms making investments in US companies
declined by 49%. During the same period, the number of firms investingin European companies dropped by 52%, while the count of active
30
7/31/2019 broking industry
31/122
investors in Israeli companies fell by 57%. Venture capital investments
worldwide reached the level of US$31.3 billion. The United States,
Canada, Europe, and Israel represent 93% of capital invested, while
China and India account for the remainder.
The study further states that 2005 was a milestone year for
venture capital in China: Chinese venture-backed companies launched a
second wave of successful IPOs on the NASDAQ; China-dedicated funds
raised US$4 billion in committed capital; foreign venture capitalists
advanced the deployment of various operating models in the country;
and the government revised regulations that had temporarily restricted
the ability of foreign venture capital investors to exit investments in
Chinese companies, clearing the way for continued foreign investment.
While the funds are focusing increasingly on India and China,
raising country specific funds for the two is relatively difficult. It is
challenging to convince investors while raising funds for an India-centric
fund. It takes anywhere between 9 to 18 months to raise a $1 billion
fund, the same time it would take for a global fund to raise about $5-6
billion. While investments for local PE funds vary from $25 million to
$100 million, the foreign funds consider deals in the range of $80-200
million.
In fact, to get a share of the growing sub-$75 million investment
range, New Bridge, the Indian investment arm of Texas Pacific Group,
recently created TPG Ventures in India for investments with ticket size of
$70 million or less. Even the scale of buyouts differs by a wide margin.While buyout specialists like Blackstone and Carlyle do deals in the
range of $250-300 million, domestic PE players have done buyouts for
$30-40 million.
It is apparent from the broader trends that the private equity
space in India is only just warming up. Considering that the country
received almost no Private Equity or Venture Capital funding a decade
ago, the structural change has occurred ( in year 2003) not only in terms
31
7/31/2019 broking industry
32/122
of growth but also in terms of funding received. The instruments to fund
India's economic growth are several, from equity offerings to FCCBs;
Private Equity is yet another route to fund and participate in this growth
and it will likely take several years before this trend may peak out. Thisis just the start.
(4) GOVERNMENT SECURITIES
Debt securities issued by the central government, state
government, and quasi-government agencies are referred to as
government securities or gilt-edged securities.
Government securities have maturities ranging from 3-20 years and
carry interest rates that usually vary between 8 and 10 percent.
Even though these securities carry some tax advantages, they have
traditionally not appealed to individual investors because of low
rates of interest and long maturities and somewhat illiquid retail
markets.
Banks, financial institutions, insurance companies, and provident
funds mainly because of certain statutory compulsions typically hold
them.
As Government guaranteed security is a claim on the government, it
is secured financial instrument, which guarantees the income and
the capital.
The rate of interest on these securities is relatively lower because of
their high liquidity and safety.
(5) MUTUAL FUNDS
A Mutual Fund is a trust that pools the savings of a number of
investors who share a common financial goal. The money thus collected
is then invested in capital market instruments such as shares,
debentures and other securities. The income earned through these
32
7/31/2019 broking industry
33/122
investments and the capital appreciations realized are shared by its unit
holders in proportion to the number of units owned by them. Thus a
Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managedbasket of securities at a relatively low cost. The flow chart below
describes broadly the working of a mutual fund:
Different investment avenues are available to investors. Mutual funds
also offer good investment opportunities to the investors. Like all
investments, they also carry certain risks. The investors should compare
the risks and expected yields after adjustment of tax on various
instruments while taking investment decisions. The investors may seek
advice from experts and consultants including agents and distributors
of mutual funds schemes while making investment decisions. With an
objective to make the investors aware of functioning of mutual funds,
an attempt has been made to provide information in question-answer
format which may help the investors in taking investment decisions
The concept of investment in shares and securities of companiesby individual investors has been prevalent in India since long. With the
boom in the share market, the Mutual Funds play a big helping role to
the companies as they pool the funds (savings) and resources of various
individual investors, especially small investors and invest them in shares
and securities of the companies. These funds act as an financial
intermediary link between the investors and the companies. The
investors generally find it difficult to directly invest in big companies
because of their high share value. Also, due to lack of proper market
33
7/31/2019 broking industry
34/122
knowledge, expertise and sufficiency of resources, these investors were
always subjected to market risks. But these mutual funds are the
organized bodies which function on behalf of such investors. They
mobilises the savings and resources of so many investors under one roofby combining the skills of professionals.
Due to the existence of mutual funds, the investors need not
approach each company for investing their funds. They have to invest
only a certain proportion of their funds. They are provided with various
benefits as well like good return on their investments, tax benefits and
so on. On the other hand, the companies also benefits as they are able
to raise much greater capital at a much lower cost. They need not
scrutinise the entire market to search for prospective investors and incur
heavy expenditure in making advertisements for inviting them.Their
work is reduced by the help of mutual funds. Thus,mutual funds acts an
important financial support for the companies.It only appreciates their
capital value but also enhances their goodwill and profitability condition.
The first mutual fund to be established in India was the Unit Trust
of India (UTI). It is the premier fund set up to mobilise the savings of the
people and channelise them into productive corporate investments. For
small investors, the UTI offers advantages of reduced risks, steady
income and liquidity as well as knowledge of expert management
because their funds are invested in a balanced and well distributed
portfolio. Moreover, with the reforms in the country, many public and
private sectors' insurance companies and banks have also set up their
mutual funds to protect the interests of investors by providing them
various mutual fund schemes and more benefits. For instance :- Fund,
Reliance, Can bank Mutual Fund , Franklin templeton Mutual Fund ,etc.
The schemes generally offered by various mutual funds may be
classified as follows:-
BY MATURITY PERIOD
34
http://www.utimf.com/http://www.utimf.com/http://www.canbankmutual.com/http://www.franklintempletonindia.com/GeneralAccess/Mfs/Mutual_fund_scheme.asphttp://www.utimf.com/http://www.utimf.com/http://www.canbankmutual.com/http://www.franklintempletonindia.com/GeneralAccess/Mfs/Mutual_fund_scheme.asp7/31/2019 broking industry
35/122
Open-ended Fund or Scheme: - Mutual funds that can be entered into
and exited at any point of time are known as open-ended mutual funds.
Such funds or schemes do not have a fixed maturity period. It is
available for subscription and repurchase on a continuous basis. Underthis scheme, an investor can conveniently buy and sell units at net asset
value (NAV) related prices. The key feature of such schemes is liquidity.
Close-ended Fund or Scheme: - The close-ended funds are those
where one has to stay invested for a specific period of time called lock-in
period. Such fund or scheme has a stipulated maturity period, that is, 5
to 7 years. The fund is open for subscription only during a specified
period at the time of launch of the scheme. Investors can invest in the
scheme at the time of the initial public issue and thereafter they can buy
or sell the units of the scheme on the stock exchanges where the units
are listed. In order to provide an exit route to the investors, some close-
ended funds give an option of selling back the units to the mutual fund
through periodic repurchase at NAV related prices.
Interval Funds:-Interval funds combine the features of open-ended and
close-ended schemes. They are open for sale or redemption during pre-
determined intervals at NAV related prices.
BY INVESTMENT OBJECTIVE
1. Growth Funds
The aim of growth funds is to provide capital appreciation over the
medium to long term. Such schemes normally invest a majority of their
corpus in equities. It has been proved that returns from stocks, have
outperformed most other kind of investments held over the long term.
Growth schemes are ideal for investors having a long term outlook
seeking growth over a period of time.
2. Income Funds
35
7/31/2019 broking industry
36/122
The aim of income funds is to provide regular and steady income to
investors. Such schemes generally invest in fixed income securities such
as bonds, corporate debentures and Government securities. Income
Funds are ideal for capital stability and regular income.
3. Balanced Funds
The aim of balanced funds is to provide both growth and regular income.
Such schemes periodically distribute a part of their earning and invest
both in equities and fixed income securities in the proportion indicated in
their offer documents. In a rising stock market, the NAV of these
schemes may not normally keep pace, or fall equally when the market
falls. These are ideal for investors looking for a combination of income
and moderate growth.
4. Money Market Funds
The aim of money market funds is to provide easy liquidity, preservation
of capital and moderate income. These schemes generally invest in safer
short-term instruments such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money. Returns on these schemes
may fluctuate depending upon the interest rates prevailing in the
market. These are ideal for Corporate and individual investors as a
means to park their surplus funds for short periods.
5. Gilt Fund
These funds invest exclusively in government securities. Government
securities have no default risk. NAVs of these schemes also fluctuate due
to change in interest rates and other economic factors as is the case
with income or debt oriented schemes.
6. Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE
Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in
the securities in the same weightage comprising of an index. NAVs of
36
7/31/2019 broking industry
37/122
such schemes would rise or fall in accordance with the rise or fall in the
index, though not exactly by the same percentage due to some factors
known as "tracking error" in technical terms. Necessary disclosures in
this regard are made in the offer document of the mutual fund scheme.
OTHER SCHEMES
1. Tax Saving Schemes
These schemes offer tax rebates to the investors under specific
provisions of the Indian Income Tax laws as the Government offers tax
incentives for investment in specified avenues. Investments made in
Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed
as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides
opportunities to investors to save capital gains u/s 54EA and 54EB by
investing in Mutual Funds.
2. Special Schemes:-
Industry Specific Schemes
Industry Specific Schemes invest only in the industries specified in the
offer document. The investment of these funds is limited to specific
industries like InfoTech, FMCG, and Pharmaceuticals etc.
Index Schemes
Index Funds attempt to replicate the performance of a particular indexsuch as the BSE Sensex or the NSE 50.
Sector Specific Schemes
These are the funds/schemes which invest in the securities of only those
sectors or industries as specified in the offer documents. E.g.
Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG),
Petroleum stocks, etc. The returns in these funds are dependent on the
performance of the respective sectors/industries. While these funds may
37
7/31/2019 broking industry
38/122
give higher returns, they are more risky compared to diversified funds.
Investors need to keep a watch on the performance of those
sectors/industries and must exit at an appropriate time. They may also
seek advice of an expert.
Advantages of Mutual Funds
There are numerous benefits of investing in mutual funds and one
of the key reasons for its phenomenal success in the developed markets
like US and UK is the range of benefits they offer, which are unmatched
by most other investment avenues. We have explained the key benefits
in this section. The benefits have been broadly split into universal
benefits, applicable to all schemes, and benefits applicable specifically
to open-ended schemes.
Universal Benefits
Affordability
A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc.
depending upon the investment objective of the scheme. An investorcan buy in to a portfolio of equities, which would otherwise be extremely
expensive. Each unit holder thus gets an exposure to such portfolios
with an investment as modest as Rs.500/-. This amount today would get
you less than quarter of an Infosys share! Thus it would be affordable for
an investor to build a portfolio of investments through a mutual fund
rather than investing directly in the stock market.
Diversification
The nuclear weapon in your arsenal for your fight against Risk. It simply
means that you must spread your investment across different securities
(stocks, bonds, money market instruments, real estate, fixed deposits
etc.) and different sectors (auto, textile, information technology etc.).
This kind of a diversification may add to the stability of your returns, for
example during one period of time equities might underperform butbonds and money market instruments might do well enough to offset the
38
7/31/2019 broking industry
39/122
effect of a slump in the equity markets. Similarly the information
technology sector might be faring poorly but the auto and textile sectors
might do well and may protect your principal investment as well as help
you meet your return objectives.
Variety
Mutual funds offer a tremendous variety of schemes. This variety is
beneficial in two ways: first, it offers different types of schemes to
investors with different needs and risk appetites; secondly, it offers an
opportunity to an investor to invest sums across a variety of schemes,
both debt and equity. For example, an investor can invest his money in a
Growth Fund (equity scheme) and Income Fund (debt scheme)
depending on his risk appetite and thus create a balanced portfolio
easily or simply just buy a Balanced Scheme.
Professional Management
Qualified investment professionals who seek to maximise returns and
minimise risk monitor investor's money. When you buy in to a mutual
fund, you are handing your money to an investment professional who
has experience in making investment decisions. It is the Fund Manager's
job to (a) find the best securities for the fund, given the fund's stated
investment objectives; and (b) keep track of investments and changes in
market conditions and adjust the mix of the portfolio, as and when
required.
Tax Benefits
Any income distributed after March 31, 2002 will be subject to tax in the
assessment of all Unit holders. However, as a measure of concession to
Unit holders of open-ended equity-oriented funds, income distributions
for the year ending March 31, 2003, will be taxed at a concessional rate
of 10.5%.
In case of Individuals and Hindu Undivided Families a deduction up to Rs.9,000 from the Total Income will be admissible in respect of income from
39
7/31/2019 broking industry
40/122
investments specified in Section 80L, including income from Units of the
Mutual Fund. Units of the schemes are not subject to Wealth-Tax and
Gift-Tax.
Regulations
Securities Exchange Board of India (SEBI), the mutual funds regulator
has clearly defined rules, which govern mutual funds. These rules relate
to the formation, administration and management of mutual funds and
also prescribe disclosure and accounting requirements. Such a high level
of regulation seeks to protect the interest of investors.
Benefits of Open-ended Schemes
Liquidity
In open-ended mutual funds, you can redeem all or part of your units
any time you wish. Some schemes do have a lock-in period where an
investor cannot return the units until the completion of such a lock-in
period.
Convenience
An investor can purchase or sell fund units directly from a fund, through
a broker or a financial planner. The investor may opt for a Systematic
Investment Plan (SIP) or a Systematic Withdrawal Advantage Plan
(SWAP). In addition to this an investor receives account statements
and portfolios of the schemes.
Flexibility
Mutual Funds offering multiple schemes allow investors to switch easily
between various schemes. This flexibility gives the investor a convenient
way to change the mix of his portfolio over time.
Transparency
Open-ended mutual funds disclose their Net Asset Value (NAV) daily
and the entire portfolio monthly. This level of transparency, where the
investor himself sees the underlying assets bought with his money, is
40
7/31/2019 broking industry
41/122
unmatched by any other financial instrument. Thus the investor is in the
know of the quality of the portfolio and can invest further or redeem
depending on the kind of the portfolio that has been constructed by the
investment manager.
(5) REAL ESTATE
Real estate means managing the property right.
Real estate investments require high initial investment.
Real estate offers an attractive way to diversify an investment
portfolio.
In addition, it offers favorable risk-return trade-off due to the
uniqueness of properties & the localized and relatively inefficient
market in which they are traded.
Real estate differs from security investments in two days.
(1) It involves ownership of a tangible asset, real property rather than
financial claims.
(2) Managerial decisions about real estate greatly affect the returns
earned from investment.
The most important asset for individual investors is generally a
residential house.
In addition to this, the more affluent investors are likely to be
interested in other types of real estate, like commercial property,
agricultural land, semi-urban land, and time-share in a holiday
resort.
RESIDENTIAL HOUSE: -
A residential house represents an attractive investment proposition
for the following reasons.
The total return (rental savings plus capital appreciation) from a
41
7/31/2019 broking industry
42/122
residential house is satisfactory.
Loans are available from various quarters for buying/constructing
residential property.
For wealth tax purposes, the value of a residential property is
reckoned at its historical cost and not at its present market price.
Interest on loans taken for buying/constructing a residential house is
tax deductible within certain limits.
Ownership of a residential property provides psychological
satisfaction.
Due to these advantages, a residential property (independent house
or flat) represents the most important part of the portfolio for the
bulk of investors. Further, they may be interested in buying some
semi-urban land and/or a share in some holiday home project
because they involve relatively modest outlays.
COMMERCIAL PROPERTY
The more affluent investors may be interested in investing in
commercial property.
This may take the form of constructing a commercial complex or
buying office or shop space in a commercial complex.
The appeal of such an investment lies mainly in the form of
regular rental income, which can be revised upward periodically.
Further, the commercial property may enjoy some capital
appreciation over a period of time.
The disadvantage of such an investment is that it requires a large
outlay and may require time and effort in managing
AGRICULTURAL LAND
42
7/31/2019 broking industry
43/122
The appreciation in the value of agricultural land makes it an
attractive investment proposition. Its appeal is further enhanced by the
following factors.
Agricultural income is not taxable. However, it is included in the
total income for determining the tax rate applicable to the non-
agricultural income of the assessed.
Agricultural land is exempt from wealth tax.
Loans are available for agricultural operations at a confessional rate.
There is a charm in living in a farmhouse.
Capital gains arising from the sale of agricultural land may be tax-
exempt in some cases (as certain types of agricultural land are not
regarded as capital assets) or may be taxed at a confessional rate.
As against the above attractions, investment in agricultural land
has some problems associated with it. The principal ones are.
In many states, land ceiling laws are quite restrictive. Moreover, in
some states the law precludes non-agriculturists from acquiring
agricultural land.
Many states have laws that confer ownership to the cultivating
tenant.
Farmhouses, in general, are not very safe.
Agricultural activity is often uneconomical or unprofitable,
particularly if it is done on a part-time basis.
SUBURBAN LAND
Land within city limits is often very costly. However, you can buy
residential land (converted land) in private layouts in suburban areas at
affordable prices. Such an investment offers scope for capitalappreciation. Further, it gives you an opportunity to move to a quieter
43
7/31/2019 broking industry
44/122
location that may not be very far from the city as the city expands.
If you are considering buying suburban land, make sure that the
developer satisfies all zonal requirements and has a clear title. Many
people have been cheated by fly-by night land developers.
Why Invest in India?
The Indian economy and the real estate sector in particular are high on
its ride to prosperity. As India's economic growth curve raises, real
estate India has emerged as one of the most appealing investment areas
for domestic as well as foreign investors. Indian real estate has huge
potential demand in almost every sector, but especially commercial,
residential, retail, industrial, hospitality, healthcare etc. But maximum
growth is attributed to its growth from the booming IT sector, since an
estimated 70 per cent of the new construction is for the IT sector.
Investment scenario has certainly undergone a paradigm shift in India.
Gone are the days when potential investors used to sought after
investment options like equity bonds and park money in shares where
your return ranges between 5.55 to 6%. Data showcased by property
surveys show that returns from rental incomes on investment in
commercial property in Indian metros, is around 10.5%, the highest in
the world.
Key Facts
Selling and buying Indian property is now considered as the most
profitable and attractive business opportunity in the present real estate
scenario in India. New demands have added to strength of real estate
markets across the commercial, residential and retail sectors in India.
Not surprisingly, demand for Indian property has been increasing
steadily for the past few years and it has exceeded supply.
There has also been an upward swing on the real estate price values in
44
7/31/2019 broking industry
45/122
the recent years. Due to the huge demand and rising prices, investment
and speculative interest in real estate is growing while excess money
supply, stock market gains and policy changes are adding to the trend in
favor of the real estate sector.
In the last one year, the capital values of the commercial office spaces
has increased by up to 40% owing to the increase in the demand from IT
/ ITES and BPO sector across major metros in India.
India has a distinct regulatory and financing management in place.
Real estate boom in India is supported by its own flourishing economy on
a sustainable basis. Here, growth of the property market is not a result
of renovation and overhauling; but rapid development that witness for
India riding the high growth waves.
Factors Favoring Investments
Tremendous growth has been taking place in both residential as well as
commercial segments that is attracting huge investments phenomenal
price escalation (more than 100% in several places) in last couple ofyears.
Lower interest rates, easy availability of housing finance, burgeoning
income and better job prospects, increase of nuclear families have given
a boost to the demand for residential properties in India. The net yields
(after accounting for all outgoings) on residential property are currently
at 4-6% p.a. However, these investments have benefited from the
improving residential capital values. As such, investors can count on
potential capital gains to improve their overall returns. Capital values in
the residential sector have risen by about 25-40% p.a in the last 2 years.
The retail market in India has been growing due to increasing demand
from retailers, higher disposable incomes and opening up of FDI in
Retail. The capital appreciation in this sector is close to 20-35% p.a.
However, the risks associated with this sector are higher as retailers areprone to cyclical changes typical of a business cycle. Changing
45
7/31/2019 broking industry
46/122
consumer behavior combined with increasing disposable incomes will
ensure further growth of the retail sector in India.
In the present day scenario, if there is any powerful investment tool that
brings burgeoning financial returns, it is INDIAN REAL ESTATE!!!
Investors should consider the parameters minutely and meticulously to
find out why investing in Indian real estate now is the best viable option.
Real Estate in India
With property boom spreading in all directions, real estate in India is
touching new heights. However, the growth also depends on the policies
adopted by the government to facilitate investments mainly in the
economic and industrial sector. The new stand adopted by Indian
government regarding foreign direct investment (FDI) policies has
encouraged an increasing number of countries to invest in Indian
Properties.
India has displaced US as the second-most favored destination for FDI in
the world. As the investment scenario in India changes, India which has
attracted more than three times foreign investment at US$ 7.96 billion
during the first half of 2005-06 fiscal, as against US$ 2.38 billion during
the corresponding period of 2004-05, making India amongst the
"dominant host countries" for FDI in Asia and the Pacific (APAC).
The positive outlook of Indian government is the key factor behind the
sudden rise of the Indian Real Estate sector - the second largest
employer after agriculture in India. This budding sector is todaywitnessing development in all area such as - residential, retail and
commercial in metros of India such as Mumbai, Delhi &NCR, Kolkata and
Chennai. Easier access to bank loans and higher earnings are some of
the pivotal reasons behind the sudden jump in Indian real estate.
Why Invest In Indian Real Estate?
Flying high on the wings of booming real estate, property in India has
become a dream for every potential investor looking forward to dig
46
7/31/2019 broking industry
47/122
profits. All are eyeing Indian property market for a wide variety of
reasons:
It's ever growing economy which is on a continuous rise with 8.1 percent
increase witnessed in the last financial year. The boom in economy
increases purchasing power of its people and creates demand for real
estate sector.
India is going to produce an estimated 2 million new graduates from
various Indian universities during this year, creating demand for 100
million square feet of office and industrial space.
Presence of a large number of Fortune 500 and other reputed companies
will attract more companies to initiate their operational bases in India
thus creating more demand for corporate space.
Real estate investments in India yield huge dividends. 70 percent of
foreign investors in India are making profits and another 12 percent are
breaking even.
Apart from IT, ITES and Business Process Outsourcing (BPO) India hasshown its expertise in sectors like auto-components, chemicals,
apparels, pharmaceuticals and jewellery where it can match the best in
the world. These positive attributes of India is definitely going to attract
more foreign investors in the near future.
The relaxed FDI rules implemented by India last year has invited more
foreign investors and real estate in India is seemingly the most lucrative
ground at present. The revised investor friendly policies allowed
foreigners to own property, and dropped the minimum size for housing
estates built with foreign capital to 25 acres (10 hectares) from 100
acres (40 hectares). With this sudden change in investment policies, the
overseas firms can now put up commercial buildings as long as the
projects surpass 50,000 square meters (538,200 square feet) of floor
space.
47
7/31/2019 broking industry
48/122
Indian real estate sector is on boom and this is the right time to invest in
property in India to reap the highest rewards.
(7) INSURANCE
In simple terms, insurance allows someone who suffers a loss or
accident to be compensated for the effects of their misfortune. It lets
you protect yourself against everyday risks to your health, home and
financial situation.
There are many different types of insurance:
You are unlikely to need every single one of these, so read around,
choose carefully and remember to read the small print.
* Travel: Holidays can be dangerous occasions - especially abroad. If
someone falls ill it is much more difficult than it would be at home to
cope with the situation. Medical treatment is expensive.
* Household contents and building insurance: Contents insurance covers
the contents of a home such as furniture, carpets, clothes, television,
refrigerators, jewellery and so on. In other words, what you would take
with you if you moved. Buildings insurance protects against damage to
the actual structure of the home and to its fixtures and fittings. Contents
and buildings policies can be bought separately or together in one
package.
* Car insurance: Most people know something about motor insurance.
This is because any vehicle driven on public roads must have a certainlevel of insurance. The Road Traffic Act ensures that drivers must meet
liabilities they incur should they injure other people or cause damage in
an accident.
* Life insurance: A means of providing for your dependents should you
die early, but also a way to save cash through endowment policies or
similar.
48
7/31/2019 broking industry
49/122
* Private medical insurance: This covers the costs of private medical
treatment for curable short-term illness or injury. It means that should
you become ill you could be treated immediately privately rather than
being put on an NHS waiting list.
* Critical illness insurance: This allows you to insure your income/ health
were you to become too ill to work later on in life, and protects any
dependents/ loved ones from the financial consequences of such
unexpected events.
* Accident, sickness and unemployment cover: According to Moneyextra:
"In 1999, 30,000 properties were re-possessed by mortgage lenders...
Many lost their homes because they could no longer afford to pay their
mortgage payments through an accident, sickness or unemployment." If
you are planning on buying a house it may be sensible to think about
getting some mortgage payment protection insurance.
*Pet insurance: This basically helps you foot the vet's bills if your pet
gets poorly. By paying regularly into an insurance policy it means you
have paid for the bill gradually rather than having to find the money for
a steep bill when you can least afford it. More
LIFE INSURANCE
The basic customer needs met by life insurance policies are
protection and savings.
Policies that provide protection benefits are designed to protect the
policyholder (or his dependents) from the financial consequence of
unwelcome events such as death or long-term sickness/ disability.
Policies that are designed as savings contracts allow the poli-
cyholder to build up funds to meet specific investment objectives
such as income in retirement or repayment of a loan.
In practice, many policies provide a mixture of savings and
protection benefits.
49
7/31/2019 broking industry
50/122
Types of life insurance policy
The common types of life insurance policies are:
(1) Money Back Plan
(2) Whole Life Assurance
(3) Unit Linked Plan
(4) Term Assurance
(5) Immediate Annuity
(6) Deferred Annuity
(7) Riders
(8) Bonds and debentures
Bonds or debentures represent long-term debt instruments. The
issuer of a bond promises to pay a stipulated stream of cash flows.
This generally comprises periodic interest payments over the life of
the instrument and principal payment at the time of redemption(s).
A bond is a legal document containing an acknowledgement of
indebtedness. It contains a promise to pay a stated rate of interest for a
defined period and then to repay the principal at a given date of
maturity. Thus it denotes borrowing of a company and represents its
loan capital. The bonds issued by the Government or the public sector
companies in India are generally secured. While the private companies
issue both secured and unsecured bonds. Bond-holders are the creditors
of a company. If they do not receive interests on their bond, they have
the right to foreclose, sell the company's assets and recover the
principal amount. They play an important role in company's investment
portfolio. They are required to provide continuity of income under all
reasonably conceivable economic conditions for sustenance of a
business.
The salient features of bonds are as follows:-
A bond is issued at a face value which is called 'par value. The par
50
7/31/2019 broking industry
51/122
value reflects the initial capital subscribed by a company.
Returns on bonds are in the form of interests. Interest paid on
bonds is fixed and regular. It is also called the 'coupon rate' and is
paid on the par value of the bond. Interests are paid to the bond
holders irrespective of the profits of the company. Such an interest
rate is tax deductible.
A bond may be traded in a stock exchange. The price at which it is
currently sold or bought is called 'the market value' of the bond.
Such a value may be different from par value or redemption value.
A bond is issued for a specified period of time. It is repaid on
maturity. The value which a bondholder will get on maturity is
called redemption value.
At the time of winding up, bond holders/debenture holders must be
repaid before the shareholders of the company.
Bonds do not carry any voting rights and thus its holders do not
participate in the management of the company.
Bonds are safer investment as compared to shares. The
underwriting commission, brokerage, etc. are also comparatively
lower in the case of bonds.
Most modern corporate bonds are callable at the discretion of the
issuer. This gives the issuing company the right to recall a bond
before it reaches maturity. It may be to the benefit of the company
to recall the bonds, retire them and issue new bonds at a lower
rate.
The bonds issued by a band may be of the following types:-
Unsecured and Secured Bonds: - The bonds which do not create a
change in the assets of the company are termed as unsecured or naked
bonds. Such bonds are not secured because no property is pledged or
51
7/31/2019 broking industry
52/122
mortgage on their issue and hence, the bondholders do not have any
cover to guarantee the safety of their investment.
On the other hand, the secured or mortgaged bonds are those which are
issued by pledging some property against them. They create a fixed or
floating charge on the company's assets. Hence, if the company makes a
default in payment, the bondholders can recover their dues from the
mortgaged property.
Redeemable and Irredeemable Bonds: - A redeemable bond is
issued for a certain period of time. The bondholder will be repaid the
amount on the expiry of such period or at any time prior to their
maturity at the option of the company. Whereas, bond without any
aforesaid redemption period is termed as the irredeemable or perpetual
bond. These are repayable either at the time of winding up of the
company or on happening of certain specified uncertain or contingent
events.
Convertible and Non-convertible Bonds: - In case of convertible
bonds, its holders are given the option to convert their bonds into equity
shares after a specific period and on certain conditions. This serves as
an incentive to the bondholders who can in course of time participate in
the profits and management of the company. Whereas, non-convertible
bonds do not carry any right to be converted into equity shares.
Bearer and Registered Bonds: - Bearer bonds can be transferred by
mere delivery as no record of such bonds is maintained. Such bonds
require no legal formalities for their transfer and no formal notice is
given to the company. But bond coupons are attached with them. The
bondholders can claim interest by filling and sending the coupons to the
company. Whereas, the register
Recommended