broking industry

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


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


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


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


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


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.doc


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


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=978734958


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=956308138


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=987686896


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


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/


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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.asp


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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

Documents

broking industry