INVESTMENT AVENUES AVAILABLE WITH

SALARIED INVESTORS

TARUN GUPTA

120436679

MBA(FYIC) ; 4TH

YEAR

INVESTMENT MANAGEMENT

INTRODUCTION TO INVESTMENT AND IT’S AVENUES

• Investment is a commitment of funds for earning additional income. In other words,

investment is considered the sacrifice of certain present value of money in anticipation of a

reward for future value , the current commitment of funds for a period of time in order to

derive a future flow of funds that will compensate the investing unit.

• For the time the funds are committed

• For he expected rate of inflation.

• For the uncertainty / risk involved in the future flow of funds

• Investment is the employment of funds on assets with aim of earning income or capital

appreciation. Investment has two attributes namely time and risk. Present consumption is

scarified to get a return in the future. The sacrifice that has to be borne in certain but the

return in the future may be uncertain.

3 MAJOR CONCEPTS_INVESTMENT

• ECONOMIC INVESTMENT: According to Economists, the term investment refers to the

additions to the capital stock of the society. The capital stock includes goods which are

used in the production of other goods (buildings, equipment, investment etc.)

• BUSINESS INVESTMENT: This refers to putting money or money held in a private

business.

• FINANCIAL INVESTMENT: This refers to putting money into securities, i.e. shares

debentures, Mutual Funds, bonds, life insurance, postal, bank deposit schemes etc.

• GAMBLING: Gambling is an act of creating artificial and unnecessary risks for expected

increased return.

BRIEF INTRODUCTION_AVENUES

• # SAVINGS-Savings form an important part of the economy of any nation and the money

acts as the driver for growth of the country. Indian financial scene too presents

reasonable options for an ordinary man to invest his savings certainly not the best or

deepest of markets in the world.

• BANKS- Banks are considered as the safest of all options; indeed played an important

role in the rural upliftment, safest investment avenue for ordinary person. The interest

rate structure in the country is headed southwards, offering little above 8 percent in

their fixed deposits for one year, the yields have come down substantially in recent

times.

• Add to this, the inflationary pressures in economy and one has a position where the

savings are not earning. The inflation is creeping up, to almost 8 percent at times, and

this means that the value of money saved goes down instead of going up.

CONTINUE.

• POST OFFICES- offer financial assistance as well as the basic requirements of

communication, offering the highest interest rates, and investments are safe with the

department being a Government of India entity. Return safety and quantum of returns is

taken care of.

• PUBLIC PROVIDENT FUNDS- Public Provident Funds act as options to save for the

post retirement period for most people and have been considered good option largely due

to the fact that returns were higher than most other options and also helped people gain

from tax benefits under various sections.

• THE FIXED DEPOSIT SCHEMES FLOATED BY COMPANIES- Companies have used

fixed deposit schemes as a means of mobilizing funds for their operations and have paid

interest on them. The safer a company is rated, the lesser the return offered has been

the thumb rule. Potential roadblocks such as danger of financial position of the company

liquidity can be a major problem.

- STOCK MARKETS- provide an option to invest in a high risk, high return game.

However, as enticing as it might appear, people generally are clueless as to how the

stock market functions and in the process can endanger the hard-earned money.

- MUTUAL FUNDS-Mutual Funds are essentially investment vehicles where people

with similar investment objective come together to pool their money and then invest

accordingly. Each unit of any scheme represents the proportion of pool owned by the

unit holder (investor). Appreciation or reduction in value of investments is reflected in

net asset value (NAV) of the concerned scheme, which is declared by the fund from

time to time.

- Mutual fund schemes are managed by respective Asset Management Companies

(AMC). Different business groups/ financial institutions/ banks have sponsored these

AMCs, either alone or in collaboration with reputed international firms.

PORTFOLIO MANAGEMENT

• The portfolio management deals with the process of selection of investment from the

number of opportunities / avenues with different expected returns and carrying

different levels of risk and selection the investment is made with a view to provide

the investors the maximum yield for a given level of risk or ensure minimum be risk

for a given level of return. Hence, investment and portfolio management has

emerged as one of the important and specialized branches of financial management.

RETURN FACTOR

• The return expecting from investments in securities are of two types-

• PERIODIC CASH RECEIPTS-Cash dividends are payable as and when the

company’s after tax earnings that its board of directors divides to distribute to the

shareholders. In care of debentures, bonds, bank deposits, public deposits etc., and It

is payable at the end of each specified period.

• CAPITAL GAIN- The second component of return is the change in the price of the

investment called the capital gain or loss. This element of return is the different

between the purchase of price and the price at which the asset can be or is sold.

Therefore, it can be a gain or loss. The combination of the periodic cash receipts and

capital gain made on the investments constitutes the total return on particulars

investment

RETURN CONTINUED.

• CAPITAL APPRECIATION-Objective of investment is appreciation of capital

invested over a period. In three ways –

• Conservative growth :seek to build an investment portfolio that will make money

over the long-term by capital appreciation known as wealth building over time.

• Aggressive growth: Investor with a goal to achieve short-term and long-term capital

gains opts for aggressive growth in stock. Current income from dividends is of a low

priority and the investors are risk seekers.

• Speculation: It is said that speculation requires investment and investments are to

some extent speculative. As speculation involves high risks, in order to take

advantage of price fluctuations, stock brokers furnish a separate list of securities for

speculation purposes alone.

RISK FACTOR

• An investors should assure that “High risk - high reward and low-risk, low-reward”;

Risk avoidance and risk minimization are the important objectives of securities

analysis.

• RISK AND UNCERTAINTY-The difference between risk and uncertainty has been

than uncertainty cannot be quantified while risk can be quantified of the likelihood

of future out comes.

• SYSTEMATIC RISK- involves market risk, interest rate risk, and Inflation risk.

• UNSYSTEMATI RISK- involves External and Internal business risk(Such as

business cycle, govt. policies and firm’s operations etc.), Financial risk and Liquidity.

DIVERSE AVENUES_INVESTMENT

“One Has To Look For Alternate Sources Of Income Or Something That

Transforms Savings Into Wealth. That Something Is Called Investment.”

#1 ULIP - A unit link insurance plan is a product that provides dual benefit of

insurance and investment to the consumers. Some part of the premium paid is

utilized to offer insurance cover to the policy holder while the remaining

portion is invested in various equity and debt schemes.

Tax Implications - Premiums paid towards a life insurance policy is eligible

for tax deductions under Section 80C with a limit of 1 lakh in a financial year.

TRADITIONAL PLANS_INSURANCE

TERM PLANS

Term insurance is the basic form

of insurance as it provides risk

cover in the exchange of yearly

paid premiums. In the event of

death of the policyholder, sum

assured is paid out to the

nominee. Besides offering

protection, term plan also makes

one eligible for tax deduction.

ENDOWMENT

PLANS

Unlike whole life plans, the tenure

in Endowment Plans is decided for

particular period say 15, 20, 25 or

30 years. In case of death of

insured, insurer settles the claim

by paying Sum assured along with

bonus. In case of survival, the

insured receives guaranteed

maturity benefits plus bonus

announced by the insurer.

WHOLE LIFE

PLANS

Whole Life Plans are the ones

which typically run till the

insured is alive, irrespective of

the premium payment term. On

surviving the policy term, the

maturity proceeds are paid and

the Sum Assured is retained.

NON-RISKY INVESTMENT_AVENUES

PPF/EPF

PPF, a statutory scheme by

the central government, is

meant for both salaried and

self-employed individuals.

EPF, on the other hand, is a

financial aid for retirement

designed exclusively for

salaried employees. PPF and

EPF are eligible for tax

exemption under section 80C

NATIONAL

SAVINGS

CERTIFICATE

A saving bond, mainly used

for small saving and income

tax saving investment in

India, part of the Postal

Saving System of Indian

Postal Service (India Post).

The holder gets the tax

benefit under section 80C of

Income Tax act, 1961

MIS / BONDS AND

DEBENTURES

# Investors interested in

generating monthly income can

sign up for this account and get

an assured monthly income.

#A debenture is a debt

instrument which is not

supported by any specific

security; instead the credit of

the company issuing the same is

the underlying security.

Government treasuries are

usually the ones which use this

as a tool to gather medium- to

long-term funds.

EQUITY/RISK RELATED INVESTMENT AVENUES

EQUITY OR STOCK MARKET

• Risk involved is high but the prospects of a

high potential returns (In comparison to the

less risky avenues) makes them an attractive

proposition for the people with a high risk

appetite.

• This option is quite suitable for investors who

are aggressive. People investing in stocks

must have sufficient knowledge of share

market in order to make potentially positive

decisions.

ELSS- EQUITY LINKED SAVING

SCHEME

• Equity Linked savings scheme is a kind

of mutual fund. This scheme offers dual

benefit of capital appreciation and tax

saving. There is a lock in period of 3

years, starting from the date of

investment.

• Maturity benefits from the scheme are

tax exempted.

NATIONAL PENSION SCHEME

National Pension Scheme is a fixed contribution based pension

system implemented by Government of India ; allowing investor to

contribute his funds towards both equity and debt and free to choose

the percentage amount that has to go towards debt and equity as

well. If he/she is unable to choose on his/her own then the age

criteria is used to decide the investment allocation. Till 35 years of

age, exposure to equity and debt is 50%. Post 35, after every 5 years

equity investment reduces by 10% .

A minimum investment of Rs.500 per month has to be done. On

exiting the scheme before 60 years, 80% of the accumulated savings

have to be used to buy life annuity from an IRDA regulated

insurance provider. The remaining 20% only can be withdrawn as

lump sum. If an investor exits the scheme after 60 years of age then

40% of accumulated savings have to be used to buy life annuity.

As per DTC (Direct taxes code) the withdrawn lump sum amount is

tax exempted but the maturity proceeds from annuity get taxed.

OTHER INVESTMENT AVENUES

1. ANTIQUES- antiques are a lifestyle investment. They can be high-risk speculative

investments, if buyers expect too much return.

2. WINE- Benefit to wine investment is there is less tax pay. Capital gains tax is not paid on

wine, as it is classed as a 'wasting' asset.

3. COINS - Rare coins are an excellent inflation hedge.

4. GOLD- Commodities like gold are a hedge against inflation. Investors generally buy gold as

a hedge or safe haven against any economic, political, social or currency-based crises. These

crises include investment market declines, burgeoning national debt, currency failure,

inflation, war and social unrest.

5. ARTS AND PAINTINGS- Includes old master paintings, classical sculptures, ceramics,

coins, drawings, antique furniture and other upmarket collectibles.

CONCLUSION

• Be very specific of your needs, your understanding about the instrument and your ability to take

risks. A certain investment product might offer you decent returns but may not be eligible for tax

deduction. If your requirement is tax deduction then choose products that help you save tax. If

income is what you expect then invest in ULIPs or equity but keep the risks involved in your mind

too. If you mean to protect your life then choose term insurance over all other products.

•

• Over the years, much of the mystery about financial markets have been removed “layer by layer”.

Besides, Indian market are now one of the best regulated markets in the world. Hence, it is also

time that along with increasing the overall literacy, we as a country also focus on increasing

financial literacy. This would turn India from a country of good savers to a country of wise savers

and help build financially strong and secure India.

THAT’S IT.