Unit I - Supplementary Info - Investment Avenues

8/8/2019 Unit I - Supplementary Info - Investment Avenues

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Different Investment Different Investment Avenues Avenues


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INVESTMENTSINVESTMENTS

An Investment is a commitment of funds made in theAn Investment is a commitment of funds made in theexpectation of some positive rate of return.expectation of some positive rate of return.

Investors expectations:1.1. Security of Original CapitalSecurity of Original Capital2.2. Tax EfficiencyTax Efficiency3.3. Life Cover Life Cover 4.4. IncomeIncome5.5. High ReturnsHigh Returns6.6. SafetySafety


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F ive step investment planF ive step investment plan ::

1.1. Need AnalysisNeed Analysis

2.2. Evaluating the Available AvenuesEvaluating the Available Avenues3.3. Mapping and Matching the riskMapping and Matching the risk- -returnreturn

ProfileProfile4.4. Designing the PortfolioDesigning the Portfolio5.5. Continuous Monitoring and PortfolioContinuous Monitoring and Portfolio

ManagementManagement


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India Investment TrendsIndia Investment Trends

B ank F ixed DepositsB ank F ixed DepositsLife InsuranceLife InsuranceReal Estate/PropertyReal Estate/Property

Postal Saving SchemesPostal Saving SchemesSharesSharesNational Saving CertificateNational Saving CertificatePublic Provident F und.Public Provident F und.

Kissan Vikas PatraKissan Vikas PatraMutual F undsMutual F undsULIP (UNIT LINK INSURANCE POLICY)ULIP (UNIT LINK INSURANCE POLICY)


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NATIONAL SAVINGS CERTI F ICATENATIONAL SAVINGS CERTI F ICATE

Interest 8 % p.a. Compounded half yearly and payableInterest 8 % p.a. Compounded half yearly and payableat Maturity.at Maturity.

Certificates can be purchased by an adult for himself Certificates can be purchased by an adult for himself or on behalf of a minor, jointly by two adults, a minor or on behalf of a minor, jointly by two adults, a minor and a Trust,and a Trust,Lock in period 6 yearsLock in period 6 years

No Tax deduction at source.No Tax deduction at source.


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PU B LIC PROVIDENT F UNDPU B LIC PROVIDENT F UND

An ideal investment option for the salaried class as well as the self An ideal investment option for the salaried class as well as the self employed.employed.Interest 8.0 % p.a. Compounded, yearly .Interest 8.0 % p.a. Compounded, yearly .Deposits can be made in lump sum or in convenient installments.Deposits can be made in lump sum or in convenient installments.Interest is fully exempt from I.T.Interest is fully exempt from I.T.Withdrawals permitted on completion of 7 full financial years.Withdrawals permitted on completion of 7 full financial years.

NRIs can also invest in this scheme. NRIs can also invest in this scheme. No Tax deduction at source. No Tax deduction at source.


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KISAN VIKAS PATRAKISAN VIKAS PATRAM oney doubles in 8 years and 7 monthsM oney doubles in 8 years and 7 monthsCertificate can be purchased by an adult for himself or on behalf of aCertificate can be purchased by an adult for himself or on behalf of aminor, jointly by two adults, a minor and a Trust.minor, jointly by two adults, a minor and a Trust.

Certificates can be encashed any time after expiry of 2 years fromCertificates can be encashed any time after expiry of 2 years fromthe date of issue of the certificate.the date of issue of the certificate.Certificate can be kept as collateral security to get loan from Banks.Certificate can be kept as collateral security to get loan from Banks.Investment can be made by cash or cheque.Investment can be made by cash or cheque.

No Tax deduction at source. No Tax deduction at source.


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ULIP (UNIT LINK INSURANCE POLICY)ULIP (UNIT LINK INSURANCE POLICY)

U LIP is one in which the customer is provided with a life insuranceU LIP is one in which the customer is provided with a life insurancecover and the premium paid is invested in either debt or equitycover and the premium paid is invested in either debt or equity

products or a combination of the two. products or a combination of the two.

KEY F EATURESKEY F EATURESPremiums paid can be single, regular or variable.Premiums paid can be single, regular or variable.The risk charge (mortality rate) varies with ageThe risk charge (mortality rate) varies with age

The maturity benefit is not typically a fixed amountThe maturity benefit is not typically a fixed amountThe policyholder can switch between schemes, for instance,The policyholder can switch between schemes, for instance,

balanced to debt . balanced to debt .The costs in U LIP are higher The costs in U LIP are higher

U LIP products are exempted from taxU LIP products are exempted from tax


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MUTUAL FUNDSMUTUAL FUNDSM utual Funds are essentially investment vehicles where people withM utual Funds are essentially investment vehicles where people with

similar investment objective come together to pool their money andsimilar investment objective come together to pool their money andthen invest accordingly .then invest accordingly .

Features:Features: Number of available options Number of available optionsDiversificationDiversification

Professional M anagementProfessional M anagementPotential of ReturnsPotential of Returns


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CONVERT IB LE B ONDSCONVERT IB LE B ONDS

A type of bond that can be converted into shares of stock in the issuingA type of bond that can be converted into shares of stock in the issuingcompany, usually at some precompany, usually at some pre- -announced ratio.announced ratio.

From the issuer's perspective, the key benefit of raising money byFrom the issuer's perspective, the key benefit of raising money byselling convertible bonds is a reduced cash interest paymentselling convertible bonds is a reduced cash interest payment ..

Convertibility affects the performance of the bond in certain waysConvertibility affects the performance of the bond in certain ways ::

Tend to have lower interest rates than nonTend to have lower interest rates than non- -convertibles because theyconvertibles because theyalso accrue value as the price of the underlying stock rises.also accrue value as the price of the underlying stock rises.

Convertibles can offer protection against a decline in stock price asConvertibles can offer protection against a decline in stock price asearn interest even when the stock is trading down or sideways.earn interest even when the stock is trading down or sideways.


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TYPES OF BONDSTYPES OF BONDSExchangeable (XB) are bonds which may be exchanged into shares other thanare bonds which may be exchanged into shares other thanthose of the issuer. Strictly speaking, they are not convertibles, but they sharethose of the issuer. Strictly speaking, they are not convertibles, but they sharecertain common evaluation characteristics.certain common evaluation characteristics.Mandatory convertibles are short duration securitiesare short duration securities generally with yields higher generally with yields higher than found on the underlying common sharesthan found on the underlying common shares that are mandatorily convertiblethat are mandatorily convertible

upon maturity into a fixed number of common shares.upon maturity into a fixed number of common shares.Mandatory exchangeable are short duration securitiesare short duration securities generally with yieldsgenerally with yieldshigher than found on the underlying common shareshigher than found on the underlying common shares that are mandatorilythat are mandatorilyexchangeable upon maturity into a fixed number of common shares.exchangeable upon maturity into a fixed number of common shares.

ADVANTAGES:Tax advantagesTax advantages ..Lower fixedLower fixed- -rate borrowing costsrate borrowing costs ..


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REAL ESTATE FUNDSR eal estate investment has attracted lot of people. The prospects areR eal estate investment has attracted lot of people. The prospects areincreasing day after day.increasing day after day.R eal Estate Investment Trust ( R EIT) Structure is a corporate structure,R eal Estate Investment Trust ( R EIT) Structure is a corporate structure,which collects money from the investors and invests in real estate assets towhich collects money from the investors and invests in real estate assets toearn money in the form of rentals and leases.earn money in the form of rentals and leases.

CHARACTER IST ICS:(1)(1) pooling of resourcespooling of resources(2)(2) organisationalorganisational structure: Varies between companies and trusts dependingstructure: Varies between companies and trusts depending

on local regulations and eligibility criteria.on local regulations and eligibility criteria.

(3)(3) funds may be both close ended and open ended.funds may be both close ended and open ended.(4)(4) leveraging: Normally allowed to raise debt;leveraging: Normally allowed to raise debt;(5)(5) tax Advantagestax Advantages


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K EY AREAS IN WH ICH REAL ESTATE FUNDS MAYPOS ITIVELY IMPACT IND IAS REAL ESTATE SECTOR

(1) enhancing liquidity of the sector;(1) enhancing liquidity of the sector;(2) institutionalization: enhanced competition with institutional investors(2) institutionalization: enhanced competition with institutional investors

competing in a bigger way with the unorganized sector for market dominance.competing in a bigger way with the unorganized sector for market dominance.(3) greater acceptability for real estate as an investment asset class;(3) greater acceptability for real estate as an investment asset class;((ii) opportunities to retail investors to participate in the real estate sector; and) opportunities to retail investors to participate in the real estate sector; and(ii) asset diversification to corporate investors.(ii) asset diversification to corporate investors.(4) improve sector transparency.(4) improve sector transparency.


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R EAL ESTATE MUTUAL FUNDR EAL ESTATE MUTUAL FUND

An RE M F is like a mutual fund for real estate assets.An RE M F is like a mutual fund for real estate assets.Investors may buy shares in those funds which are traded on a daily basis on stock Investors may buy shares in those funds which are traded on a daily basis on stock

exchanges.exchanges.The value of the shares depends on the value of the underlying real estate assets.The value of the shares depends on the value of the underlying real estate assets.

REM F s have many advantages over direct investment in real estate .(1)(1) it allows investors to invest according to their income and financial circumstances;it allows investors to invest according to their income and financial circumstances;(2) the portfolio of real estate assets will be a lot more diversified than a single home(2) the portfolio of real estate assets will be a lot more diversified than a single homewith assets ranging from office space to residential properties all around the country aswith assets ranging from office space to residential properties all around the country aswell as securities based on the real estate sector; andwell as securities based on the real estate sector; and(3) investors dont have to deal with the legal and maintenance hassles of owning(3) investors dont have to deal with the legal and maintenance hassles of owning

property and may instead rely on the professional expertise of the A M Cs. Finally if they property and may instead rely on the professional expertise of the A M Cs. Finally if theyneed quick money, these funds are liquid assets, which may be sold conveniently andneed quick money, these funds are liquid assets, which may be sold conveniently andrapidly.rapidly.


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InvestmentOption

Risks/Liquidity Returns Taxation Suitability

B ank F Ds V ery low risk and lowliquidity.

Low returns, butassured.

returns are fullytaxable

Good for very lowrisk investors andthose in the nil or

low tax brackets.Post OfficeSchemes

Low risk and lowLiquidity.

M IS scheme give8% interest. Timedeposit 6.25-7.5%.

Since returns aretaxable, the post-tax returns will

be still lower.

Good for very lowrisk investors andthose in the nil or low tax brackets.

PP F Low risk with very low

liquidity (15-year lock-in period. Partialwithdrawal allowedafter 6 years).

assured returns. Interest is tax-

free.

Good tax saving

investment option.

NSC Low risk with lowliquidity (6 years lock-in).

assured returns. Interest fullytaxable

Not very attractivevis--vis other options like 5-year Bank FDs.

Comparison of Different Investment OptionsComparison of Different Investment Options


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Equity High risk and highliquidity.

M arket linkedreturns. Good

potential.

No Long TermCapital Gain Taxand 10% ShortTerm CapitalGains Tax.

Needs high risk appetite.

ULIPs Low to High Risk depending on theinvestment option i.e.Pure Debt or M ixed or

Pure Equity. LowLiquidity (3-5 yearslock-in period).

Low to highdepending on theinvestment option.

Tax free returns..

Not an attractiveoption due to highcharges, lowflexibility and low

diversification.

Real Estate V ariable risk andvariable liquiditydepending on the typeand location of

property.

M arket linkedreturns. Good

potential.

No taxadvantages,except attractivetax benefits onthe home loans.

High initialinvestment ,hightransactions costslike registration

brokerage etc.; andcannot be partlyliquidated..

Gold Low long-term risk. Butvolatile in short term.High Liquidity.

hedge againstinflation. Soreturns could be

around inflationlevels.

No taxadvantages.

Not an attractiveinvestment option.

Documents

Unit I - Supplementary Info - Investment Avenues