comparative analysis of investment avenues
DESCRIPTION
research project on comparative analysis of investment avenues submitted by kiran mongiaTRANSCRIPT
PROJECT REPORT
ON
COMPARATIVE ANALYSIS OF INVESTMENT
AVENUES
Submitted in Partial fulfillment of two year full time MBA Programme
(2008-2010)
Under the supervision of
Submitted To: Submitted By:
Kurukshetra University, Name : Kiran Mongia
Kurukshetra Roll No:
PREFACE
In this volatile capital market it has become very difficult for the investors that
where they should invest so as to have maximum profit. Since January, 2008
market has crashed from 21000 points to 13000 so investors could not decide of
investment avenues. The broking houses who are in the business of providing
investment opportunities and options to its clients are in trouble that how to
make their portfolio so that clients can gain.
This project takes you through with the great investment avenues available for
the investors, their comparative analysis so as to understand various investment
opportunities and satisfy investors. This project helps understanding the
differences between the different investment options and also guides you to
choose one of them as Investment Avenue.
So, it helps organization to improve their offerings in this volatile market and
take them towards development of their customer base.
All these steps help me to understand how to cope up with different types of
people and there diversified need and satisfaction level.
DECLARATION
1
I, Kiran Mongia student of, study, Budha College of management, Karnal
(Rambha), hereby declare that the summer training report on “Comparative
Analysis of Investment Avenues” submitted to Kurukshetra University,
Kurukshetra in partial fulfillment of Degree of Master’s of Business
Administration is the original work conducted by me.
The information and findings presented in this report are genuine,
comprehensive and reliable based on the data collected by me. The project was
undertaken as a part of the course curriculum of MBA full time program of 45
days for the fulfillment of the degree.
The matter presented in this report will not be used for any other purpose and
will be strictly confidential.
(KIRAN MONGIA)
ACKNOWLEDGEMENT
2
Summer training is one of the most vital and active part of the curriculum of
management students. Its basic idea behind this is to strengthen the student’s
concept through practical training and make them acquainted with actual
method and procedures.
A project includes various fields of study which need a proper analysis and
which is not possibly done by an individual, it requires help from various per-
sons.
I would like to extend my heartfelt gratitude to Mr. Ali Mohd. Choudhary
(A.V.P), Mr. Ganesh Kr. Chaurasia (Business Head), Mr. Pankaj Kumar
(Senior Relationship Manager), for their proper guidance throughout the
project. Without their support and co-operation I would have failed in my en-
deavors and targets in the summer training.
I would also thank my faculty of Budha College of Management for providing me
the great platform.
Table of Contents
3
Preface
Declaration
Acknowledgement
Company Profile
Project Introduction
Objective of study
Scope of study
Research methodology
Method of data collection
Questionnaire design
Sample size
Sampling technique
Data Analysis & Interpretation
Suggestions and recommendations
Limitation of study
Bibliography
Annexure
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Company Profile
Company Profile_______________________________
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Unicon Investments is a service sector company, providing financial services,
which has now emerged now as a one-stop investment solutions provider. Mr.
Gajendra Nagpal and Mr. Ram M. Gupta, who had great expertise and vision in
the field of finance, founded the company in 2004. The Headquarter of the
company is in New Delhi and its has its Corporate Offices in Mumbai, Kolkata,
Chennai, Hyderabad and Noida.
Unicon, a professionally managed company, is lead by a team with
unparallel managerial acumen and an experience of more than 200 years in the
financial markets. The company boasts of having more than 3500 employees,
100 branches, more than 600 partner locations and 2500 remisers providing it
with a national footprint.
The company has a customer base of more than 200000 customers. It
caters to both- the short term as well as long term financial needs through a
comprehensive diversification of investment services. These services include
offline & online trading in equity, commodities, currency derivatives to debt
markets to corporate finance & portfolio management services. The company
has a humungous presence in the distribution of the 3rd party financial products
like mutual funds, property broking and insurance products. It also has prolific
expertise on Advising on Life Insurance, General Insurance, Mutual Funds &
IPO. The distribution network is backed by in-house back-office support to
provide prompt and efficient customer services.
MISSION & VISION OF UNICON SECURITIES PVT.LTD.
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Mission:
To create long term value by empowering individual investors through superior
financial services supported by culture based on highest level of teamwork,
efficiency and integrity.
Vision:
To provide the most useful and ethical Investment Solutions - guided by values
driven approach to growth, client service and employee development.
MANAGEMENT TEAM __________________________________
Mr. Gajendra Nagpal
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GROUP COMPANIES_____________________________________
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The company proposes the following to the customers:
1. Personal Relationship Manager
This facility is provided to the customer on opening a trading account
with the company. A Personal Relationship Manager is provided to the
customer who can be reached 24x7 and not only for instructing him in the
trading affair but also get specialized and customized advice and tips about the
market which is their competitive advantage.
2. Competitive Brokerage and DP Charges
The Company offers a brokerage of 0.50% (negotiable) on Delivery and
0.10% (negotiable) on Intraday and F&O transactions plus Service Tax, SST
and Transaction Charges.
Only one time account opening charges and no annual maintenance
charges.
Margin Financing @ 18%
Margin trading of 4 times the cash deposited for delivery based trade.
Margin trading of 10 times the cash deposited for intra-day based
trade.
Buy today Sell tomorrow for all securities facility.
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Management of portfolio and advises.
Electronic transfer of funds can also be provided.
PRODUCTS OFFERED___________________________________
Equity
Commodity
Depository
Distribution
NRI Services
Back Office
Fixed Income
Portfolio Tracker
Mutual Funds
General Insurance
Life Insurance
The snapshots of products of UNICON are:
EQUITY________________________________________________
UNICON facilitates trading in secondary market in equity trading & derivative
(future & options) trading through its corporate membership of premier
exchange of the country namely National Stock Exchange (NSE), Bombay
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Stock Exchange (BSE). Unicon provides equity trading to the clients online as
well as off-line service. Unicon offers the unique feature where the customers
get to trade on NSE, BSE and Derivatives all on one screen.
Products offerings for Trading
I. Unicon Plus
It enables users to get a browser based trading terminal that can be accessed by
a unique ID and password. This facility is available to all the customers of the
company the moment they get registered with it.
II. Unicon Swift
Self directed investors get an application based terminal which is replica of
NEAT terminal for trading actively with more speed, greater analytical features
and priority access to relationship manager to trade over the phone
COMMODITY___________________________________________
GOVERNMENT of INDIA has been given the permission to the multi com-
modity trading after approximate thirty years of globalization & liberalization in
world. By inspiring from the N.S.E., & B.S.E. many other stock exchange LIC,
ICICI Bank, NSE, Central Warehousing, Agriculture Industries etc. had setup
the Online Multi-Commodity Exchange. This exchange will provide the present
rate of the commodity to the on line market these exchange
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will control by the forward market commission which do work under ministry
of consumer affair,food & public distribution ,government of INDIA.
UNICON is the member of the two commodity exchange at present:
I . NCDEX____________________________________________________
National Commodity & Derivatives Exchange Limited (NCDEX) is a
professionally managed online multi commodity exchange incorporated on
April 23, 2003 under the Companies Act, 1956. It obtained its Certificate for
Commencement of Business on May 9, 2003. It has commenced its operations
on December 15, 2003.
NCDEX currently facilitates trading of thirty six commodities - Cashew,
Castor Seed, Chana, Chilli, Coffee, Cotton, Cotton Seed Oilcake, Crude Palm
Oil, Expeller Mustard Oil, Gold, Guar gum, Guar Seeds, Gur, Jeera, Jute
sacking bags, Mild Steel Ingot, Mulberry Green Cocoons, Pepper, Rapeseed -
Mustard Seed ,Raw Jute, RBD Palmolein, Refined Soy Oil, Rice, Rubber,
Sesame Seeds, Silk, Silver, Soy Bean, Sugar, Tur, Turmeric, Urad (Black
Matpe), Wheat, Yellow Peas, Yellow Red Maize & Yellow Soybean Meal. At
subsequent phases trading in more commodities would be facilitated.
II. MCX__________________________________________________________
MCX an independent and de-mutulised multi commodity exchange has
permanent recognition from Government of India for facilitating online trading,
clearing and settlement operations for commodity futures markets across the
country. Headquartered in Mumbai, MCX is led by an expert management team
with deep domain knowledge of the commodity futures markets. Inaugurated in
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November 2003 by Shri Mukesh Ambani, Chairman & Managing Director,
Reliance Industries Ltd, MCX offers futures trading in the following
commodity categories: Agri Commodities, Bullion, Metals- Ferrous & Non-
ferrous, Pulses, Oils & Oilseeds, Energy, Plantations, Spices and other soft
commodities.
DEPOSITORY_________________________________________________
Depository offer a safe, convenient way to hold securities as compared to
holding securities in paper form. Their service provides an integrated single
platform for all the clients ensuring a risk free, efficient and prompt depository
process.
Facilities Provided by Unicon
De-materialization : Physical shares can be converted into
electronic form through dematerialization at any of the Unicon
Branch.
Re-materialization: Electronic shares on request of Re-material-
ization enables one to convert Dematerialized shares into physical
form.
Transfer: One can transfer shares through inter and intra deposi-
tory services.
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IPO: Using the demat account details one can apply for IPO and
on allotment the securities are transferred directly to the demat ac-
count.
Corporate Actions: In case one is eligible for any bonus and right
issues while holding the stock in Demat Account then allotment
would be transferred to the account.
Easi: This facility empowers the clients to view, download, print
updated holings with respective valuations over the internet though
Demat Account and avail host of services.
DISTRIBUTION_________________________________________________
Unicon is fast emerging as a leader in the Insurance and Mutual Funds
distribution space. Unicon has over 100 branches and a huge number of
“Business Development Executives” who help to source and service the
customers throughout the country. Unicon is fast becoming the preferred
“Vendor Independent” distribution houses because of providing efficient service
like free pick-up of collection of cheques/DD’s, Keeping track of the premiums
etc to its customers.
MUTUAL FUNDS________________________________________________
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 invested into a variety of
securities, including stocks, bonds, and money-market instruments. Mutual
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funds issue units to the investors, which represent an equitable right in the assets
of the mutual fund. Thus a mutual fund is the most suitable investment for the
common man as it offers an opportunity to invest in a diversified, professionally
managed basket of securities at a relatively low cost.
INSURANCE____________________________________________________
General Insurance
Unicon offers all the products of general Insurance under one umbrella. Unicon
comprises of a team of distinguished professionals from insurance, finance and
other management disciplines who have vast business & managerial experience.
Unicon team evaluates the client's business environment and studies the risk
profile. based on the results of these evaluations, Unicon team then suggests the
most cost effective , integrated insurance package that is perfectly suited to the
client's risk profile.
Life Insurance
Unicon offers you a Peace of Mind by offering various life insurance plans for
your unique & specific needs. For every financial problem, there is a solution
also is the philosophy of Unicon. And is here to give one a complete financial
solutions. One can always have an access to their 83 Branch Offices situated at
prime locations of the city, or can call to their Relationship Manager for guide
to Investments.
Following is the glimpse of Life Insurance Plans:
- Protection Plans
- Child Plans
- Investment Plans
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- Saving Plans
- Retirement and Pension Plans
- NIR Plans
- Health Plans
PROPERTY_____________________________________________________
Unicon is a specialized property broking company. It offers a total solution to
the clients inclusive of market research, marketing strategy, interaction with the
professional teams and sales or leasing of the property.
NRI SERVICES__________________________________________________
Unicon offers a convenient and hassle-free way of Investing in the Indian
Securities Market to the people who are living outside India and wish to
participate in the Indian Growth story.
Procedure for NRI operations in Indian Capital Markets:
The NRI can deal with only one bank at any point of time.
He is allowed to invest only 5% of the paid up capital of a company. The
aggregate paid up value of equity of any company purchased by all NRI's
and OCBs cannot exceed 10 percent of the paid up capital of the com-
pany and in the case of convertible debentures, the aggregate paid up
value of each series of debentures purchased by all NRI's and OCBs can-
not exceed 10 % of the paid up value of each series of convertible deben-
tures.
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He can enter only into delivery based trades, all deliveries must only be
routed through beneficiary accounts and not directly through the broker.
Shares bought by him cannot be sold unless the payout of the same is re-
ceived from exchange.
All purchase and sale transactions have to be reported to the RBI by the
designated bank.
Original brokers contract notes have to be submitted to the designated
Bank branch, within 24 hours of the transaction.
He will be required to make bill to bill payments/ settlements. No adjust-
ments of purchase against sale consideration should be done.
Shares cannot be bought against the shares sold in the same settlement.
All Purchase and Sales will be dealt separately for payments / receipts.
Sale proceeds of any transaction not reported/approved by the RBI are al-
lowed to be credited to the NRE/NRO savings/demat account. The
transaction will have to be reversed in the account and losses if any will
be borne by the client.
All tax liabilities arising out of buying and selling of securities will be
handled by the designated bank.
BACKOFFICE ____________________________________________
Unicon through its online back-office aims to increase the transparency and
provides the link to view the details of the account online anytime and
anywhere.
The following reports can be viewed online:
1 Sauda details
2 Financial Ledger
3 Net Position fot the day
4 Net position Detail
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FIXED INCOME_________________________________________________
The Fixed Income vertical of UNICON Group deals in Sovereign Paper,
Money Market/ Fixed Income Instruments and Merchant Banking Activities.
Broadly, it undertakes the following:
a. Dealing in all types of money market instruments viz. Commercial
paper (Origination & Placement), Certificate of Deposit and
Treasury Bills both in Primary and Secondary market.
b. Dealing in Government Securities (including securities of Oil,
Fertilizer & Food Bonds) and other PSU/ Corporate Bonds with
counterparties like Banks, Primary Dealers, Mutual Funds,
Insurance Companies, Regional Rural Banks, Co operative Banks,
Central & State PSUs, Housing Finance Companies, NBFC &
Corporates.
c. Retailing of Central, State Government Securities and Bonds to PF
Trusts, Universities & Colleges.
d. Advisory Services to PF Trusts.
e. Arrangers for Private placement of Bonds & placing it with Banks,
Mutual funds, Insurance Companies & Corporates.
f. Raising of capital by way of Initial Public Offers (IPO) and
Follow-on Public Offerings (FPO)
g. Securitization of receivable portfolio of Housing Finance
Companies, Banks & NBFCs by way of Pass through certificates.
PORTFOLIO TRACKER_________________________________________ -
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The Portfolio Tracker is a simple yet powerful tool that lets you monitor
the value of your investments and other securities you've got your eye on. To set
up your portfolio, all you need to do is enter the quantities of your investments
in different things, and the price you made your purchases and sales at. Portfolio
Tracker lets you monitor certain securities, it is not intended to reflect your
actual holdings or account information at any broker/dealer.
COMPETITORS
India bulls Financial Services Limited
India Info line
Karvy Securities
Fortis Securities ( Religare)
Share khan ltd
ICICI Securities ltd
Motilal Oswal Securities
Kotak Securities
HDFC Securities
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INVESTMENT AVENUES
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INTRODUCTION
Savings form an important part of the economy of any nation. With the savings
invested in various options available to the people, the money acts as the driver
for growth of the country. Indian financial scene too presents a plethora of
avenues to the investors. Though certainly not the best or deepest of markets in
the world, it has reasonable options for an ordinary man to invest his savings.
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, this is called Investment.
One needs to invest and earn return on your idle resoures and generate sum of
money for a specific goal in life and make a provision for an uncertain
future .One of the important reason why people needs to invest wisely is to meet
the cost of inflation. Inflation is the rate at which the cost of living increases.
The cost of living is simply what it costs to buy the goods and services you need
to live. Inflation causes money to lose value because it will not buy the same
amountof a good or service in the future as it does now or did in the past. The
sooner one starts investing the better. By investing early you allow your
investments more time to grow, whereby the concept of compounding increases
your income, by accumulating the principal and the interest or dividend earned
on it, year after year. Tha three golden rules for all investors are :
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Invest Early
Invest regularly
Invest for long term and not for short term
INVESTMENTS
The dictionary meaning of investment is to commit money in order to earn a
financial return or to make use of the money for future benefits or advantages.
People commit money to investments with an expectation to increase their
future wealth by investing money to spend in future years. For example, if you
invest Rs. 1000 today and earn 10 %over the next year, you will have Rs.1100
one year from today.
An investment can be described as perfect if it satisfies all the needs of all
investors. So, the starting point in searching for the perfect investment would
be to examine investor needs. If all those needs are met by the investment, then
that investment can be termed the perfect investment. Most investors and
advisors spend a great deal of time understanding the merits of the thousands
of investments available in India. Little time, however, is spent understanding
the needs of the investor and ensuring that the most appropriate investments
are selected for him.
The Investment Needs of an Investor
By and large, most investors have eight common needs from their investments:
1. Security of Original Capital;
2. Wealth Accumulation;
3. Comfort Factor;
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4. Tax Efficiency;
5. Life Cover;
6. Income;
7. Simplicity;
8. Ease of Withdrawal;
9. Communication.
Security of original capital: The chance of losing some capital has been a
primary need. This is perhaps the strongest need among investors in India, who
have suffered regularly due to failures of the financial system.
Wealth accumulation: This is largely a factor of investment performance,
including both short-term performance of an investment and long-term
performance of a portfolio. Wealth accumulation is the ultimate measure of the
success of an investment decision.
Comfort factor : This refers to the peace of mind associated with an
investment. Avoiding discomfort is probably a greater need than receiving
comfort. Reputation plays an important part in delivering the comfort factor.
Tax efficiency: Legitimate reduction in the amount of tax payable is an
important part of the Indian psyche. Every rupee saved in taxes goes towards
wealth accumulation.
Life Cover: Many investors look for investments that offer good return with
adequate life cover to manage the situations in case of any eventualities.
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Income: This refers to money distributed at intervals by an investment, which
are usually used by the investor for meeting regular expenses. Income needs
tend to be fairly constant because they are related to lifestyle and are well
understood by investors.
Ease of withdrawal: This refers to the ability to invest long term but
withdraw funds when desired. This is strongly linked to a sense of ownership.
It is normally triggered by a need to spend capital, change investments or cater
to changes in other needs. Access to a long-term investment at short notice can
only be had at a substantial cost.
Communication: This refers to informing and educating investors about the
purpose and progress of their investments. The need to communicate increases
when investments are threatened.
Security of original capital is more important when performance falls.
Performance is more important when investments are performing well.
Failures engender a desire for an increase in the comfort factor.
Perfect investment would have been achieved if all the above-mentioned needs
had been met to satisfaction. But there is always a trade-off involved in
making investments. As long as the investment strategy matches the needs of
investor according to the priority assigned to them, he should be happy.
The Ideal Investment strategy should be a customized one for each investor
depending on his risk-return profile, his satisfaction level, his income, and his
expectations. Accurate planning gives accurate results. And for that there must
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be an efficient and trustworthy roadmap to achieve the ultimate goal of wealth
maximization.
Choosing the Right Investment Options
After understanding the concept of investment, the investors would like to
know how to go about the task of investment, how much to invest at any
moment and when to buy or sell the securities, This depends on investment
process as investment policy, investment analysis, valuation of securities,
portfolio construction and portfolio evaluation and revision. Every investor
tries to derive maximum economic advantage from his investment activity.
For evaluating an investment avenues are based upon the rate of return, risk
and uncertainty, capital appreciation, marketability, tax advantage and
convenience of investment. The following Table should give the clear picture
relating to the investors’ investment decisions in various financial market
instruments. The choice of the best investment options will depend on personal
circumstances as well as general market conditions. For example, a good
investment for a long-term retirement plan may not be a good investment for
higher education expenses. In most cases, the right investment is a balance of
three things: Liquidity, Safety and Return.
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Investment Options in India
Some of the most preferred Investment Avenues
NoN-MARKETABLE FINANCIAL ASSETS
A good portion of the financial assets of individual investors is held in the form
of non-marketable financial assets like bank deposits, post office deposits,
company deposits, provident fund deposits. The main feature of these assets is
that they represent personal transactions between the investor and the issuer. For
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Example, when you open a saving bank a/c , you deal with bank personally. In
contrast, When you buy equity shares in the stock market you do not know who
is the seller.
Bank Deposits
Bank deposit simply refers to opening a bank a/c & depositing money in it.
There are various kind of bank A/C’s: current A/c, saving a/c, Fixed deposit a/c.
While a deposit in current A/c does not earn any interest, deposits in other bank
a/c earn Interest.
Company Deposits
Many companies, large and small, solicit fixed deposits from the public.Fixed
deposits mobilized by manufacturing companies are regulated by RBI. Key
feature of co. deposits are as :
1. For a manufacturing co. the term of deposits can be one to three
years, whereas for a non-banking finance co. it can vary between
25 months to 5 years.
2. The interest rate on it are higher than those on bank deposits.
3. Company deposit represent unsecured loans.
4. It offers the facility for premature withdrawal to attract deposits.
Public provident fund scheme
Individuals & HUFs can participate in this scheme. A PPF a/c may be opened
at any branch of the SBI or its subsidiaries or at specified branches of other
nationalized banks. The subscriber to a PPF a/c is required to make a min.
deposit of rs.100 per year. The max. permissible deposit per year is
rs.70000/-.PPF currently earn a compound interest rate of 8% p.a. which is
totally exempt from taxes.
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Fixed InCOME SECURITIES
It includes the following:
Government Securities
Saving Bonds
Private sector Debentures
Public sector undertaking bonds
Government Securities
Debt securities issued by the central government, state government and
quasi-government agencies are referred to as govt. securities or gilt-
edged securities. Govt. securities have maturities ranging from 3-20
years and carry interest rates that usually vary between 8 and 10 %.
RBI Savings Bonds
Individuals, HUFs, and NRIs can invest in these bonds. The minimum
amount of investment is rs.1000/-. There is no upper limit. The maturity
period is 5 years from the date of issue. The interest rate is 8% p.a.,
payable half-yearly. These bonds can be offered as security to banks for
availing loans.
Private sector debenture
Akin to promissory notes, debentures are instruments meant for raising
Long-term debt. The obligation of a co. towards its debenture holders is
similar to that of a borrower who promises to pay interest and principal
at specified times.
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When a debenture issue is sold to the investing public, a trustee is
appointed through deed. The trustee is usually a bank or financial
institution.
Public Sector Undertaking Bonds
PSUs issue debentures that are referred to as PSU bonds. There are two
broad varieties of PSU bonds: taxable bonds and tax-free bonds. There
is no deduction of tax at source on the interest paid on these bonds. They
are transferable by mere endorsement and delivery. There is no stamp
duty applicable on transfer. They are traded on stock exchanges.
Fixed Deposits
It same as a term or time deposit. Money may be placed with a bank, merchant
bank, building society or credit union for a fixed term at a fixed rate of interest
which remains unchanged during the period of the deposit. Depositors may have
to accept an interest penalty if they break the deposit, ie, ask to take the money
out before the agreed period has expired.
Few points which FD investors must consider at the time of investment,
1. Safety
FDs have conventionally been the premier choice for investors with a low risk
appetite; assured returns is the key factor which attracts investors towards de-
posits. Stick to FDs of the highest credit rating i.e. those with a “AAA” rating
even if their rates seem modest vis-à-vis those offered by company deposits.
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2. Tenure
Short tenured fixed deposits continue to be your best bet. With interest rates on
the ascent, a further hike in rates offered by fixed deposits cannot be ruled out.
Locking your investments in longer tenured instruments may lead to an oppor-
tunity loss.
3. Liquidity
Find out how FD fares on the pre-mature encashment front i.e. how easily can
your investment be liquidated. Also enquire about the penalty clauses, e.g. do
you suffer a loss of interest and/or principal amount. Compare how various FDs
rank on this parameter and pick the best deal; thereby try to minimise the impact
of illiquidity which is typically associated with FDs.
4. Additional benefits
Fixed deposits from reputed entities offer additional benefits, e.g. they can be
used as collateral against which loans can be raised. Select a fixed deposit
scheme which scores favourably on such parameters-
Any investment portfolio should comprise the right mix of safe, moderate and
risky investments. While mutual funds and stocks are the favorite contenders for
moderate and risky investments,fixed deposits, government bonds etc. are con-
sidered safe investments. Fixed deposits have been particularly popular among a
large section of investors in India as a safe investment option for a long period.
With fixed deposits or FDs as they are popularly known, a person can invest an
amount for a fixed duration. The banks provide interest rates depending on this
loan amount and the tenure of deposit. Here are the benefits, drawbacks of fixed
deposits and precautions one should take while making such investments.
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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 investments and the capital appreciation realized is
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 managed basket
of securities at a relatively low cost. The flow chart below describes broadly the
working of a mutual fund:
Mutual Fund Operation Flow Chart
ORGANISATION OF A MUTUAL FUND
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There are many entities involved and the diagram below illustrates the
organizational set up of a mutual fund:
Mutual fund units are Issued and redeemed by the Fund Management Company
based on the fund's net asset value (NAV), which is determined at the end of
each trading session. NAV is calculated as the value of all the shares held by the
fund, minus expenses, divided by the number of units Issued. Mutual Funds are
usually long term investment vehicle though there some categories of mutual
funds, such as money market mutual funds which are short term instruments.
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A)Equity Funds
Equity funds are considered to be the more risky funds as compared to other
fund types, but they also provide higher returns than other funds. It is advisable
that an investor looking to invest in an equity fund should invest for long term
i.e. for 3 years or more. There are different types of equity funds each falling
into different risk bracket. In the order of decreasing risk level, there are follow-
ing
Types of equity funds:-
Aggressive Growth funds Growth Funds
Equity income /Dividend yield
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Diversified equity funds
Equity Index Funds
Value Funds
B)Money Market/Liquid Funds
Money market / liquid funds invest in short-term (maturing within one year) in-
terest bearing debt instruments. These securities are highly liquid and provide
safety of investment, thus making money market / liquid funds the safest invest-
ment option when compared with other mutual fund types. However, even
money market / liquid funds are exposed to the interest rate risk. The typical in-
vestment options for liquid funds include Treasury Bills (issued by govern-
ments), Commercial papers (issued by companies) and Certificates of Deposit
(issued by banks).
C)HYBRID FUNDS
As the name suggests, hybrid funds are those funds whose portfolio includes a
blend of equities, debts and money market securities. Hybrid funds have an
equal proportion of debt and equity in their portfolio. There are following types
of hybrid funds in India:
Balanced Funds Growth-and-Income Funds Asset Allocation Funds
D) GILT FUNDS
Also known as Government Securities in India, Gilt Funds invest in government
papers (named dated securities) having medium to long term maturity period.
Issued by the Government of India, these investments have little credit risk (risk
of default) and provide safety of principal to the investors. However, like all
debt funds, gilt funds too are exposed to interest rate risk. Interest rates and
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prices of debt securities are inversely related and any change in the interest rates
results in a change in the NAV of debt/gilt funds in an opposite direction.
Pros & cons of investing in mutual funds:
For investments in mutual fund, one must keep in mind about the Pros and cons
of investments in mutual fund.
Advantages of Investing Mutual Funds:
A. Professional Management - The basic advantage of funds is that, they are
professional managed, by well qualified professional. Investors purchase funds
because they do not have the time or the expertise to manage their own
portfolio. A mutual fund is considered to be relatively less expensive way to
make and monitor their investments.
B. Diversification - Purchasing units in a mutual fund instead of buying
individual stocks or bonds, the investors risk is spread out and minimized up to
certain extent. The idea behind diversification is to invest in a large number of
assets so that a loss in any particular investment is minimized by gains in others.
C. Economies of Scale - Mutual fund buy and sell large amounts of securities at
a time, thus help to reducing transaction costs, and help to bring down the
average cost of the unit for their investors.
D. Liquidity - Just like an individual stock, mutual fund also allows investors to
liquidate their holdings as and when they want.
37
E. Simplicity - Investments in mutual fund is considered to be easy, compare to
other available instruments in the market, and the minimum investment is small.
Most AMC also have automatic purchase plans whereby as little as Rs. 2000,
where SIP start with just Rs.50 per month basis.
Disadvantages of Investing Mutual Funds:
A. Professional Management- Some funds doesn’t perform in neither the
market, as their management is not dynamic enough to explore the available
opportunity in the market, thus many investors debate over whether or not the
so-called professionals are any better than mutual fund or investor him self, for
picking up stocks.
B. Costs – The biggest source of AMC income is generally from the entry &
exit load which they charge from investors, at the time of purchase. The mutual
fund industries are thus charging extra cost under layers of jargon.
C. Dilution - Because funds have small holdings across different companies,
high returns from a few investments often don't make much difference on the
overall return. Dilution is also the result of a successful fund getting too big.
When money pours into funds that have had strong success, the manager often
has trouble finding a good investment for all the new money.
D. Taxes - when making decisions about your money, fund managers don't
consider your personal tax situation. For example, when a fund manager sells a
security, a capital-gain tax is triggered, which affects how profitable the
38
individual is from the sale. It might have been more advantageous for the
individual to defer the capital gains liability
Equity Market
A stock market is a public market for the trading of company stock and
derivatives at an agreed price; these are securities listed on a stock exchange as
well as those only traded privately.
Indian stock markets particularly the BSE and the NSE, had been a preferred
destination not only for the Indian investors but also for the Foreign investors.
Although Indian Markets had been through tough times due to various scams,
but history shows that they recovered very fast. Many types of scrip had been
value creators for the investors. People have earned fortunes from the stock
markets, but there are people who have lost everything due to incorrect timings
or selection of fundamentally weak companies.
Equity shares
At the most basic level, stock (often referred to as shares) is ownership, or
equity, in a company. Investors buy stock in the form of shares, which represent
a portion of a company's assets (capital) and earnings(dividends). As a share-
holder, the extent of your ownership (your stake) in a company depends on the
number of shares you own in relation to the total number of shares available For
example, if you buy 1000 shares of stock in a company that has issued a total of
100,000 shares, you own one per cent of the company.
While one per cent seems like a small holding, very few private investors are
able to accumulate a shareholding of that size in publicly quoted companies,
many of which have a market value running into billions of pounds. Your stake
may authorize you to vote at the company's annual general meeting, where
shareholders usually receive one vote per share.
39
In theory, every stockholder, no matter how small their stake, can exercise some
influence over company management at the annual general meeting. In reality,
however, most private investors' stakes are insignificant. Management policy is
far more likely to be influenced by the votes of large institutional investors such
as pension funds.
a) STOCKS SYMBOLS
A stock symbol, or 'Epic' symbol, is the standard abbreviation of a stock's name.
You can find stock symbols wherever stock performance information is pub-
lished - for example, newspaper stock listings and investment websites. Com-
pany names also have abbreviations called ticker symbols. However, it's worth
remembering that these may vary at the different exchanges where the company
is quoted.
b) PERFORMANCE INDICATORS
Here is a list of the standard performance indicators
Performance Indicator Definition
Closing price: The last price at which the stock was bought or sold
High and low : The highest and lowest price of the stock from the previous
trading day
52 week range: The highest and lowest price over the previous 52 weeks
Volume: The amount of shares traded during the previous trading day
High and low
Net change: The difference between the closing price on the last trading
day and the closing price on the trading day prior to the last.
40
THE STOCK EXCHANGES
A marketplace in which to buy or sell something makes life a lot easier.
The same applies to stocks. A stock exchange is an organization that provides a
marketplace in which investors and borrowers trade stocks. Firstly, the stock ex-
change is a market for issuers who want to raise equity capital by selling shares
to investors in an Initial Public Offering (IPO). The stock exchange is also a
market for investors who can buy and sell shares at any time.
a) Trading shares on the stock exchange
As an investor in the INDIA, you can't buy or sell shares on a stock exchange
yourself. You need to place your order with a stock exchange member firm (a
stockbroker) who will then execute the order on your behalf. The NSE AND
BSE are the leading stock exchange in the INDIA. Trading is done through
computerized systems.
b) The trading process
If you decide to buy or sell your shares, you need to contact a stockbroker who
will buy or sell the shares on your behalf. After receiving your order, the stock-
broker will input the order on the SETS or SEAQ system to match your order
with that of another buyer or seller. Details of the trade are transmitted electron-
ically to the stockbroker who is responsible for settling the trade. You will then
receive confirmation of the deal.
c) Types of shares available on the stock exchange
You cannot trade all stocks on the stock exchange. To be listed on a stock ex-
change, a stock must meet the listing requirements laid down by that exchange
in its approval process. Each exchange has its own listing requirements, and
41
some exchanges are more particular than others. It is possible for a stock to be
listed on more than one exchange. This is known as a dual listing.
Derivative Market
Is a product whose value is derived from the value of one or more basic
variables, called underlying. The underlying asset can be equity, index, foreign
exchange (forex), commodity or any other asset. Derivative products initially
emerged as hedging devices against fluctuations in commodity prices and
commodity-linked derivatives remained the sole form of such products for
almost three hundred years. The financial derivatives came into spotlight in
post-1970 period due to growing instability in the financial markets. However,
since their emergence, these products have become very popular and by 1990s,
they accounted for about two thirds of total transactions in derivative products.
Types of derivatives
The most commonly used derivatives contracts are forwards, futures and
options, which we shall discuss in detail later. Here we take a brief look at
various derivatives contracts that have come to be used.
A. Forwards: A forward contract is a customized contract between two entities,
where settlement takes place on a specific date in the future at today's pre-
agreed price.
B. Futures: A futures contract is an agreement between two parties to buy or
sell an asset at a certain time in the future at a certain price. Futures contracts
42
are special types of forward contracts in the sense that the former are
standardized exchange-traded contracts.
C. Options: Options are of two types - calls and puts. Calls give the buyer the
right but not the obligation to buy a given quantity of the underlying asset, at a
given price on or before a given future date. Puts give the buyer the right, but
not the obligation to sell a given quantity of the underlying asset at a given price
on or before a given date.
D. Swaps: Swaps are private agreements between two parties to exchange cash
flows in the future according to a prearranged formula. They can be regarded as
portfolios of forward contracts. The two commonly used swaps are:
Interest rate swaps : These entail swapping only the interest related
cash flows between the parties in the same currency.
Currency swaps : These entail swapping both principal and interest
between the parties, with the cash flows in one direction being in a
different currency than those in the opposite direction.
Insurance
People need insurance in the first place. An insurance policy is primarily
meant to protect the income of the family’s bread earners. The idea is if any
one or both die their dependents continue to live comfortably. The circle of
life begins at birth follower by education, marriage and eventually after a
Life time of work we look forward to life of retirement. Our finances too tend
to change as we go through the various phases of life. In the first twenty of
our life, we are financially and emotionally dependents on our parents and
their are no financial commitments to be met. In the next twenty years we
43
gain financial independence and provide financial independence to our fam-
ilies. This is also the stage when our income may be unable to meet the grow-
ing expenses of a young household. In the next twenty as we see our
Investments grow after our children grow and become financially independ-
ent. Insurance is a provision for the distribution of risks that is to say it is a
financial provision against loss from unavoidable disasters. The protection
which it affords takes form of a guarantee to indemnify the insured if certain
specified losses occur. The principle of insurance so far as the undertaking of
the obligation is concerned is that for the payment of a certain sum the guar-
antee will be given to reimburse the insured. The insurer in accepting the
risks so distributes them that the total of all the amounts is paid for this insur-
ance protection will be sufficient to meet the losses that occur. Insurance then
provide divided responsibility. This principle is introduced in most stores
where a division is made between the sales clerk and the cashiers department
the arrangement dividing the risks of loss. The insurance principle is similarly
applied in any other cases of divided responsibility. As a business however
insurance is usually recognized as some form of securing a promise of indem-
nity by the payment of premium and the fulfilment of certain other stipula-
tions
Types of insurance
A) Term insurance plans
Term insurance is the cheapest form of life insurance available. Since a term in-
surance contract only pays in the event of eventuality the life cover comes at
low premium rates. Term insurance is a useful tool to purchase against risk of
early death and protection of an asset.
44
B) Endowment plans
Endowment plans are savings and protection plans that provide a dual benefit of
protection as well as savings. Endowment plans pay a death benefit in the event
of an eventuality should the customer survive the benefit period a maturity be-
nefit is paid to the life insured.
C) Whole of life plans
A whole of life plan provides life insurance cover to an individual up to a spe-
cified age. A whole of life plan is suitable for an individual who is looking for
an extended life insurance cover and /or wants to pay premium over as long as
tenure as possible to reduce the amount of upfront premium payment.
D) Pension plans
Pension plans allow an individual to save in a tax deferred manner. An indi-
vidual can either contribute through regular premiums or make single premium
investments. Savings accumulate over the deferment period. Once the contract
reaches the vesting age , the individual has the option of choosing an annuity
plan from a life insurance company. An annuity is paid till the life the lifetime
of the insured or a predetermined period depending upon the annuity option
chosen by the life insured.
E) Unit Linked Insurance Plans
Unit linked insurance plan (ULIP) is life insurance solution that provides for the
benefits of risk protection and flexibility in investment. The investment is de-
noted as units and is represented by the value that it has attained called as Net
Asset Value (NAV). The policy value at any time varies according to the
value of the underlying assets at the time. In a ULIP, the invested amount of the
premiums after deducting for all the charges and premium for risk cover under
45
all policies in a particular fund as chosen by the policy holders are pooled to-
gether to form a Unit fund. A Unit is the component of the Fund in a Unit
Linked Insurance Policy. The returns in a ULIP depend upon the performance
of the fund in the capital market. ULIP investors have the option of investing
across various schemes, i.e., diversified equity funds, balanced funds, debt
funds etc. It is important to remember that in a ULIP, the investment risk is gen-
erally borne by the investor.
In a ULIP, investors have the choice of investing in a lump sum (single
premium) or making premium payments on an annual, half-yearly, quarterly or
monthly basis. Investors also have the flexibility to alter the premium amounts
during the policy's tenure. For example, if an individual has surplus funds, he
can enhance the contribution in ULIP. Conversely an individual faced with a li-
quidity crunch has the option of paying a lower amount (the difference being
adjusted in the accumulated value of his ULIP). ULIP investors can shift their
investments across various plans/asset classes (diversified equity funds, bal-
anced funds, debt funds) either at a nominal or no cost.
Expenses Charged in a ULIP
Premium Allocation Charge
A percentage of the premium is appropriated towards charges initial and re-
newal expenses apart from commission expenses before allocating the units un-
der the policy.
Mortality Charges
These are charges for the cost of insurance coverage and depend on number of
factors such as age, amount of coverage, state of health etc.
46
Fund Management Fees
Fees levied for management of the fund and are deducted before arriving at the
NAV.
Administration Charges
This is the charge for administration of the plan and is levied by cancellation of
units.
Surrender Charges
Deducted for premature partial or full encashment of units.
Fund Switching Charge
Usually a limited number of fund switches are allowed each year without
charge, with subsequent switches, subject to a charge.
Service Tax Deductions
Service tax is deducted from the risk portion of the premium.
47
COMPARATIVE ANALYSIS of investment avenues
Return Safety Volatility Liquidity Convenience
Equity High Low High High Moderate
Bonds Moderate High Moderate Moderate High
Co. Debentures Moderate Moderate Moderate Low Low
Co. FDs Moderate Low Low Low Moderate
Bank Deposits Low High Low High High
PPF Moderate High Low Moderate High
Insurance Low High Low Low Moderate
Mutual Funds High High Moderate High High
RESEARCH METHODOLOGY48
RESEARCH DESIGN
A Research design is purely and simply the framework of plan for a study that
guides the collection and analysis of data. The study is intended to find the
investors preference towards various investment avenues. The study design is
descriptive in nature.
DESCRIPTIVE RESEARCH
Descriptive study is a fact-finding investigation with adequate interpretation. It
is the simplest type of research and is more specific. Mainly designed to gather
descriptive information and provides information for formulating more
sophisticated studies.
METHODS OF DATA COLLECTION
Primary data : Telephonic survey, Questionaire
Secondary data : Newspapers, Websites
Sample Size : 100
Research Area : Ghaziabad, Noida
Sampling Technique
Convenience method of sampling is used to collect the data from the
respondents. Researchers or field workers have the freedom to choose
whomever they find, thus the name “convenience”. About 100 samples were
collected from Ghaziabad and noida city.
49
OBJECTIVE OF THE STUDY
To understand all about different investment avenues available in India.
To find out how the investors get information about the various financial instrument
To find out the saving habits of the different customers and the amount they invest in various financial instruments.
In which type of financial instrument they like to invest.
How long they prefer to keep their money invested.
What is the return that they expect from the investment.
What are the various factors that they consider before investing.
To give a recommendation to the investors that where they should invest.
SCOPE OF STUDY
The study enables to have a better knowledge of investing option available in
the market. The study highlights some of the most important investing
options available with the Indian investors. It gives an overview of pros and
cons of investing in different avenues and also help in choosing best from
them.
50
DATA ANALYSIS & INTERPRETATION OF
THE STUDY
A. Number of male and females in survey
Gender Respondent
Male 83
51
Female 17
Total 100
Table 1.1
Figure 1.1
Interpretation
The male respondent are 83 and the females are 17 which shows the majority of
male respondent in survey.
B. Geographical Distribution
Geographical distribution % of respondent
Noida 28
52
Ghaziabad 72
Table 1.2
Figure 1.2
Interpretation
As the sampling area is Noida & Ghaziabad. Here, 72% respondent are from
Ghaziabad & 28% from Noida.
C. Age of the respondent
Age % of Respondent
53
20-30 25
31-40 36
41-50 27
Above 50 12
Total 100
Table 1.3
Figure: 1.3
Interpretation
The total number of respondent are 100.The % of respondent are : 25 % from
age group 20-30, 36% from age group 31-40, 27% from 41-50 and 12% from
age group above 50.
D. Occupation of Respondent
Occupation % of Respondent
54
Student 5
Entrepreneur 25
Working 32
Professional 23
Retired 15
Total 100
Table: 1.4
Figure :1.4
Interpretation
As the sample size is 100, where major responses are from working category
i.e. 32% & the rest are 25% from entrepreneur, 23% from professionals, 15%
from retired & 5% from students.
E. Knowledge about the available investment avenues
Investment Options YES NO
Mutual fund 55 45
55
Equity market 75 25
Derivatives 35 65
Fixed Deposit 100 0
Insurance 98 2
Table: 1.5
Figure :1.5
Interpretation
The responses mention in table 1.5 shows that people are more aware about
investment as fixed deposits (100) in bank because it is a common type of
investment since earlier time, followed by Insurance (98). Near about 75 people
knows about investment in equity shares & 55 in mutual funds. Only 35 people
knows about investment in derivatives because it is common to those people
who are risk taker.
F. Source of Information regarding investment avenues
Sources of information Responses in %
Media 45
56
Newspaper 30
Co.’s sales force 15
Advertisement 10
Table 1.6
Figure 1.6
Interpretation
Table 1.5 shows that media is the most powerful source of information
regarding investment avenues, for example: Zee Business, CNBC Aawaz.
After media newspaper is a good source of information. Co.’s sales force &
advertisement are also helpful in providing such information.
G. Rating given to Investment Avenue
More preferred Moderate Less preferred
57
Mutual Fund 25 22 15
Equity 12 18 22
Derivatives 7 10 33
Fixed deposits 80 15 5
Insurance 75 15 10
Table:1.7
Interpretation
H.% of Income As Investment
% Of Income As Investment Responses
58
Below 5 % 37
5-10 % 28
10-20% 20
Above 20% 15
Table 1.8
Figure:1.8
Interpretation
I. Basis for making Investment
Basis of Investment Responses in %
Market Sentiments 43
Fundamental & technical Analysis 18
59
Past performance 39
Table: 1.9
Figure: 1.9
Interpretation
As per the responses obtained from the survey of 100 people shows that 43%
people takes market sentiments as the basis for making investment, while there
are 39% people, who considers the past performance & only 18% people makes
fundamental & technical analysis for making Investment .
J. Reason for choosing any particular investment option
Reason to invest Responses in %
Maximum Return 45
60
Tax Saving 12
Safety 18
Regular Income Flow 30
Table : 1.10
Figure :1.10
Interpretation
As responses obtained from people shows that maximum people makes
investment with the aim to gain max. return ®ular income flow.Out of 100 ,
43% people Invest to gain Max. return, 29% for regular income flow,17% for
safety & 11% for tax saving.
SUGGESTIONS & RECOMMENDATIONS
61
To earn good return with less capital risk, a investor have to
be active while designing his portfolio.
Every attributes of investor like his age level, income level,
his expectation level have effect on their portfolio design.
An investor should go with well diversified portfolio in com-
pare to stick on only one or two investment avenue.
Investors should update his knowledge continuously to grab
good opportunities in market.
Investors should take decision carefully because updation of
portfolio is a costly affair.
LIMITATION OF THE STUDY
62
The project is based upon various financial instrument that are available in India
and the perception level of the customer about these financial instruments. For
which there will be the need of information from the customers about their
knowledge of these financial products. The various limitations of the study are:
Total number of financial instrument in the market is so large that it
needs a lot of resources to analyze them all.
Handling and analyzing such a varied and diversified data needs a lot of
time and resources.
Reluctance of the people to provide complete information about them-
selves can affect the validity of responses.
Due to time and cost constraint study is conducted in only area of
Ghaziabad and Noida.
The lack of knowledge in customers about the financial instruments can
be a major limitation.
The Information can be biased due to the use of questionnaire.
Bibliography
63
www,nseindia.com
www.bseindia.com
www.uniconindia.in
www.amfiindia.com
www.mcx.com
www.mutualfundsindia.com
www.scribd.com
64
Annexure
QUESTIONNAIRE
Name :
Contact No:
E mail id:
65
1. What is your age ?
(a) 20-30 [ ] (b) 31-40 [ ] (c) 41-50 [ ] (d) 51 &
above [ ]
2. Gender
(a) Male [ ] (b) Female [ ]
3. Occupation
(a) Student [ ] (b) Entrepreneur [ ] (c)
Working [ ]
(d) Professional [ ] (e) Retired [ ]
4. Do you know about the following investment options
available in financial market?
Mutual Fund Yes No
Fixed deposits Yes No
Derivatives Yes No
Equity Yes No
Insurance Yes No
5. How do you get information regarding these financial in-
struments?
Advertisement [ ] Media [ ] Newspaper [ ]
Co.’s Sales force [ ]
66
6. Please rate the following investment options as per your
preference :
Mutual Fund [ ] Fixed Deposits [ ]
Derivatives [ ]
Equity [ ] Insurance [ ]
7. How often you invest in these investment avenues?
Regularly As per mkt. cond. Speculation
9. What is your Annual Income ?
A. 1 to 3 lacs [ ] B. 3-5 lacs [ ]
C. 5-10 lacs [ ] D. More [ ]
10. What % of Income you invest in these financial
instrument ?
A. Below 5% [ ] B. 5 – 10 % [ ]
C. 10 – 20% [ ] D. Above 20% [ ]
11. On what basis you invest in any particular investment
option :
Past performance Market
Sentiments
Fundamental/tech. analysis others
67
12. What are the
factors you consider while investing in any of the finan-
cial instrument?
Max. return Tax saving
Safety Regular income flow
13. How long you
prefer to keep your money invested in any financial in-
strument?
Less than 6 months 6 months to 1 yr.
1 to 3 yrs. More than 3 yrs.
14. How much return you expect from investment?
A. 10 to 20% [ ] B. 20 to 30% [ ]
C. 30 to 50% [ ] D. above 50% [ ]
15. Are you satisfied with your investment decision, please
rate :
Highly satisfied Satisfied
Less Satisfied Not satisfied
68
69