INVESTMENT

PLANNING

Published by The Indian Institute of Financial Planning

(Approved Course Book for CFP Certification Education)

Investment Planning

ii The Indian Institute of Financial Planning

The course material is exclusively designed and published for the use of the Students of the IIFP. TheIndian Institute of Financial Planning has exclusively a copyright on the whole of the contents of thisbook. No part of this publication may be reproduced or copied or sold/distributed in any form or anymeans, electronic, mechanical, photocopying, and recording or stored in a data base or retrievablesystem without the explicit permission of the institute.

2nd Edition January 2009

Published by the Indian Institute of Financial Planning, Atma Ram House, 1 Tolstoy Marg,Connaught Place, New Delhi - 110 001

The Indian Institute of Financial Planning iii

FOREWORD

Welcome to IIFP-

Power Your Growth…..

We thank you for choosing the IIFP as your preferred education provider for CFPcertification programme. We are one of the leading education providers for CFPcertification programme and we are basically a No Frills-Pure Education instituteimparting high quality financial planning education in India.

IIFP has been promoted by Kush Education Society which has been formed andbacked by eminent industrialists and educationists of India. Kush Education Societywas formed in the year 2001 and it also runs the prestigious Delhi Public School(DPS), Varanasi.

We are constantly engaged in research and development of new study tools whichcan help our students to crack this highly professional CFP certification programmein the first attempt.

Wishing you Good Luck….

Faculty and Content Team, IIFP

Curriculum

The Indian Institute of Financial Planning v

CURRICULUM

MODULE: 4

COURSE TITLE: Investment Planning

Investment Planning

COURSE DESCRIPTION: This module includes introduction to Investment Planning, Investment vehicles,investment strategies, Regulation of an investment advisor, Application to clients, etc.

LEARNING OBJECTIVES: At the end of this module, a student should be able to:

Understand the importance of investment planning in the Financial Planning process, ethical issues foradvisors, regulation of advisors.Understand the choice of investment products in terms of their risk-return characteristics.Evaluate investment choices in the context of client’s Financial Planning needs.Understand how client investment portfolios are created, monitored and rebalanced based on their objectivesand needs.Recommend a portfolio of investment products.

DETAILED CLASS OUTLINE:

Introduction to Investment Planning

1. How investment planning is different from selling investment products

2. Investment risk

Definition of riskTypes of riskMarket riskReinvestment riskInterest rate riskPurchasing power riskLiquidity riskPolitical riskExchange rate risk

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3. Measuring risk

Standard deviationBeta

4. Managing risk

DiversificationDiversifiable and un-diversifiable riskProduct diversificationTime diversificationHedging

5. Returns

Relationship between risk and returnCompoundingTypes of returnsCAGRTotal returnsRisk-adjusted returnsPost-tax returnsTax on capital gainsTax on incomeHolding period returnYield to maturity

6. Investment portfolio

Risk and return on a portfolioMeasuring portfolio riskEffect of diversification on portfolio risk and returnInvestment vehiclesConcept, structure, returns measurement (income and/or capital gains), tradability, liquidity and legalissues of the following investment vehicles. The objective is to provide an essential understanding ofthe products from a risk-return perspective, so that proper product recommendations can be made.

7. Small savings

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8. Fixed income instruments

SecuritiesGovernment securitiesCorporate SecuritiesDepositsBank depositsCorporate deposits

9. Insurance-based investments

10. Mutual funds

The concept and role of mutual fundsFund structures and constituentsLegal and regulatory environmentThe prospectus/offer documentFund distribution and sales practicesAccounting, taxation and valuation normsInvestor servicesInvestment managementMeasuring and evaluating mutual fund performance

11. Equity shares

12. Derivatives

Essential featuresApplication to investment portfolios

13. Real estate

Forms of real estate investmentFinancing real estateCosts of buying and maintaining

14. Other investments

BullionCollectiblesPrecious metalsInvestment strategies

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15. Active and passive strategies

Market timingSecurities selectionMaturity selectionBuy/hold

16. Asset allocation

Strategic and tactical asset allocationFixed and flexible allocationRebalancing strategiesFormulae based monitoring and revision of portfoliosRegulation of an investment advisor

17. The regulatory functions, rules and codes of conduct pertaining to planners

Banks: RBIMutual funds and collective investment schemes: SEBIEquity shares: SEBIDerivatives: SEBIGrievance mechanismsApplication to clients

18. Matching investment vehicles to needs of clients

Asset allocation and portfolio rebalancing according to client needsCase studiesSingle personsYoung couplesMature couples with grown childrenEmpty nesters

Contents

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CONTENTS

Investment Planning

1. Investment : An Introduction

1. Introduction

2. Financial Markets

3. Constituents of a Financial System

4. Financial Intermediaries/Institutions

5. Financial Assets - Direct and Indirect Investing

2. Return

1. Introduction

2. Arithmetic Average

3. Geometric Average

4. Other Return terms commonly used

3. Investment Risk - Measuring and Managing

1. Introduction

2. Defining Risk

3. Measuring Risk

4. Types of Risk

5. Implications of Risk

6. Beta and Risk

7. Risk and Diversification

4. Investment Portfolios

1. Introduction

2. Return of a Portfolio

3. Risk of the Portfolio

4. Correlation coefficient

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5. Small Savings

1. Introduction

2. Post Office Savings Accounts

3. Post Office Time Deposit Accounts

4. Post Office Recurring Deposit Accounts

5. Post Office Monthly Income Accounts

6. National Savings Certificate (VIII Issue)

7. Kisan Vikas Patra

8. Public Provident Fund Scheme

9. Deposit Scheme for Retiring Government Employees

10. Deposit Scheme for Retiring Employees of

Public Sector Companies

11. Senior CItitzens Savings Scheme

6. Fixed Income Instruments

1. Introductioin Money Market Instruments

2. Money Market Instruments : The short term money market

3. Repo Transactions

4. Call / Notice Money

5. CBLO 2

6. Bill Rediscounting

7. Money Market Instruments : The long term money market

8. Commercial Paper

9. Certificate of Deposit

10. Capital Market Debt Instruments

11. Indian Debt Market

12. Terms associated with Debentures

13. Valuation of a Bond

14. Relationship between interest rates and bond prices

15. Measures of yield

16. Risk and Bonds

17. Bonds Pricing Theorems

18. Bonds and Duration

19. Computing Duration

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7. Fixed Income - Deposits

1. Introduction

2. Bank Deposits

3. Current Account

4. Account Opening and Operation of Deposit Accounts

5. Company Fixed Deposits

6. How to choose a good company deposit scheme

8. Insurance Based Investments

1. Unit Linked Insurance Plans

2. Assessing Fund Performance

3. Unit linked Insurance Policies and Endownment Plans

4. Which is better, unit linked or ‘with profits’

5. Pension Funds

9. Mutual Funds

1. Inception

2. Definition

3. Structure of Mutual Funds

4. Other Fund Constituents

5. Legal and Regulatory Environment

6. Types of Mutual Funds

7. Offer Document

8. Fund Distribution and Sales Practices

9. Sales Practices - Norms for Mutual Funds

10. Accounting Valuation and Taxation

11. Accounting Polices

12. Taxation

13. Capital Gains

14. Investor Servicing

15. Measuring and Evaluation Mutual Fund Performance

16. Annual Performance of the Fund

17. Returns are calculated as

18. Fund Management Expenses & Management Expenses Ratio (MER)

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19. Volatility of Monthly Rate of Return

20. The Fund’s Rank by Quartile

21. Market Timing using Beta

22. R-Square

23. Risk Adjusted Return

10. Equity Shares

1. IntroductionValuing Equity

2. Valuing Equity

3. Relative Valuation

4. Preferred Shares

5. Warrants

11. Equity Shares - Capital Asset Pricing Model

1. Introduction

2. The Basis of CAPM

3. Beta

4. Systematic and Unsystmatic Risk

5. Portfolio Beta

6. Relationship between Return and Risk in the CAPM

12. Derivatives

1. Introduction

2. Definition

3. Derivative Product

4. Participants in the Derivatives Markets

5. Forward Contract

6. The Cost of Carry Model

7. Futures

8. Introduction to Options

Contents

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13. Real Estate and Alternative Investments

1. Introduction

2. Types of Real Estate

3. Valuation of Real Estate

4. Investing in Real Estate

5. Forms of Real Estate Investment

6. Some Real Estate Terms

7. Investing in Gold

8. Investing in Art

9. Art Funds

14. Asset Allocation

1. Introduction

2. Sample asset allocations

3. Change and Asset Allocation

4. Allocation Strategies

5. Portfolio Rebalancing

15 Investment Strategies

1. Introduction

2. Active and Passive Strategies

3. Aspects of various Strategies

4. The Four Phases of Markets

5. Buy and Hold

6. Security Selection

7. Risk Profile and Investment Planning

8. Mutual Funds

9. Sample Asset Allocations

16 Regulatory Framework for Planners

1. Introduction

2. Association of Mutual Funds in India

3. Other

Contents

The Indian Institute of Financial Planning

CONTENTS

Chapter 1

Investment : An Introduction

Page No.

1. Introduction 1

2. Financial Markets 1

3. Constituents of a Financial System 2

4. Financial Intermediaries/Institutions 3

5. Financial Assets - Direct and Indirect Investing 7

Chapter 1 : Investment an Introduction

1The Indian Institute of Financial Planning

Chapter 1

Investment : An Introduction

1. Introduction:Investment is simply the act of investing or putting in money for the purpose of earning a profit. In finance,it is the purchase of a financial product or other item of value with an expectation of favorable future returns.In business, however, it is defined as the purchase by a producer of a physical good such as durableequipment or inventory in the hope of improving future business. 1

Everyone right down from the lowest end of the economic segment to the richest does some sort ofinvestment. What differs is the nature of investment, the time duration, the amount invested and the purposeof investment.

The act of investment possibly originated with the explicit purpose of saving for a rainy day or for meeting afamily obligation. Since then apart from these two reasons for investment, there is also a third that is linkedto the first two is to possibly be able to improve one’s economic status.

Typically during one’s life cycle of saving and investment, in the early years one tends to borrow, during thepeak earning years, one will repay what one has borrowed as well as save for one’s retirement and finallyduring the retirement phase one will once again spend more than earnings. Apart from that one would alsokeep some of precautionary chest for unforeseen happenings. If investment during the peak earnings yearsis done sensibly, it can go a long way in ensuring a comfortable retirement. For this one requires the rightasset allocation and the right financial instruments that suit one’s requirements both in terms of return as wellas risk profile.

As of today, financial systems are highly developed, globally connected and networked. A financial systemconsists of institutional units and markets that interact, typically in a complex manner, for the purpose ofmobilizing funds for investment, and providing facilities, including payment systems, for the financing ofcommercial activity.2

This has led to a variety of investment instruments that are designed to suit the needs of investors who rangefrom totally unsophisticated to those investors who deal with highly complicated and risky instruments thathave payoffs linked to other financial products.

In fact the major role of a financial system is to intermediate between those that provide funds and those thatneed funds and typically involves transforming and managing risk. Financial markets, financial institutions andfinancial instruments are integral parts of a financial system.

2. Financial Markets:A financial market is a place where buyers and sellers interact. It can be a formal network or an informalone. It can also be a physical location as well one that has online boundaries. Stock exchanges are also partof financial markets. Financial markets perform the following functions:-3

Borrowing and Lending: Financial markets permit the transfer of funds (purchasing power) from oneagent to another for either investment or consumption purposes.

1 http://www.investorwords.com/2599/investment.html2 http://stats.oecd.org/glossary/detail.asp?ID=61893 http:/www.econ.iastate.edu/classes/econ353/tesfatsion/mish2a.htm

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Price Determination: Financial markets provide vehicles by which prices are set both for newly issuedfinancial assets and for the existing stock of financial assets.

Information Aggregation and Coordination: Financial markets act as collectors and aggregators ofinformation about financial asset values and the flow of funds from lenders to borrowers.

Risk Sharing: Financial markets allow a transfer of risk from those who undertake investments to thosewho provide funds for those investments.

Liquidity: Financial markets provide the holders of financial assets with a chance to resell or liquidatethese assets.

Efficiency: Financial markets reduce transaction costs and information costs.

3. Constituents of a Financial System4

3.1 The financial markets can be divided into different subtypes:

3.1 (a) Capital markets which consist of:

i) Stock markets, which provide financing through the issuance of shares or common stock, andenable the subsequent trading thereof.

ii) Bond markets, which provide financing through the issuance of Bonds, and enable the subsequenttrading thereof.

b) Commodity markets: For facilitation of trading in commodities.c) Money markets: For providing short term debt financing and investment.d) Derivatives markets: For management of financial risk.e) Foreign exchange market: For buying and selling and hedging of foreign currency

4 http://www.indianmba.com/Faculty_Column/FC177/fc177.html

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The capital markets consist of primary markets and secondary markets. Newly formed (issued) securitiesare bought or sold in primary markets. Secondary markets allow investors to sell securities that they hold orbuy existing securities. While primary markets help to create assets, it is the secondary market that createsliquidity. An efficient primary market requires an equally efficient secondary market and vice-versa. Forfinancial markets to function effectively one requires a host of financial intermediaries performing host ofservices and functions.

In other words, a market is primary if the proceeds of sale go to the issuer of the securities sold whereas incase of secondary market the proceeds go from one investor to another investor. Example: In case of initialpublic offer by the companies the proceeds of the issue go to the company issuing the securities.

4. Financial Intermediaries/Institutions

4.1 Financial intermediaries perform the following functions:-

Risk transformation: Financial intermediaries transform risk through risk spreading and risk pooling bydiversifying their portfolio through numerous borrowers by investing in different firms and projects.

Risk screening: In the process of dealing with numerous projects and firms, financial intermediariesacquire skills of risk screening. This assumes importance for individual lenders who instead of trying to selectdifferent firms for direct lending can instead just select a particular intermediary who in turn will be able toscreen credit worthy borrowers.

Risk Monitoring: As part of the lending agreement, borrowers are required to give details of performanceand cash flows to lenders on a regular basis. Financial intermediaries in view of their specialized expertiseare best positioned to monitor the borrowers on an ongoing basis which individual lenders both on accountof lack of knowledge and time would find it difficult to do so.

Maturity intermediation:5 Financial intermediaries can purchase financial assets with long maturities(“lend long”) while at the same time selling financial assets (acquiring liabilities) with short maturities (“borrowshort”). Thus, illiquid long-maturity assets (e.g., mortgages) are transformed into a more liquid form (e.g.,deposit accounts); and the buyers of the more liquid assets are charged a premium for this liquidity in theform of a lower rate of return. The gap between the average maturity of an intermediary’s assets and theaverage maturity of its liabilities is referred to as the maturity gap of the intermediary.

Reduction of transactions and information costs: 6Intermediaries are able to reduce the transactionscosts entailed during the process of matching borrowers with lenders. Intermediaries are also able to reducethe transactions costs associated with the writing and communicating of contract terms for borrowers andlenders. Since intermediaries perform the task of bringing borrowers and lenders together though indirectly,they are able to reduce substantially transactions costs due to the economies of scale. In addition, informationcosts incurred as a result of monitoring and enforcement of contract terms are reduced by centralizing thesefunctions in one agent with extensive experience. This is particularly important in cases in which would-belenders are relatively unsophisticated compared to would-be borrowers. As long as the intermediary’s ownreturn is tied to the success of these monitoring and enforcement functions, it has an incentive to performthese functions in a reliable manner.

Diversification: Since financial intermediaries have access to large amounts of funds, it can well afford todiversify their portfolio across numerous borrowers, projects, instruments each having its own maturity andcash flows. Such portfolio diversification is not possible for an individual borrower.

5 http://www.econ.iastate.edu/classes/econ353/tesfatsion/mish2a.htm6 4 http://www.indianmba.com/Faculty_Column/FC177/fc177.html

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Liquidity: Despite the illiquidity of the portfolio, financial intermediaries are in a position to provide liquidityto those who lend to them simply because it functions on the principle that all those who need liquidity donot need it at the same time. That is the withdrawals made by an individual are unrelated to others andtherefore would not translate into mass withdrawals.

4.2 Types of Financial Intermediaries

There are numerous financial intermediaries ranging from banks, brokers, pension funds, insurance companies,mutual funds, financial advisors, development institutions, co-operative institutions and a host of otherinstitutions. Some of the major Financial intermediaries include:

4.2 (a) Banks: A bank is a financial institution that acts as a payment agent for customers, and borrows andlends money. Banks act as payment agents by conducting checking or current accounts for customers,paying cheques drawn by customers on the bank, and collecting cheques deposited to customers’ currentaccounts. Banks also enable customer payments via other payment methods such as telegraphic transfer,EFTPOS, and ATM.

EFTPOS: Electronic Fund Transfer Point of Sale refers to the technology that allows a retailer to directlydebit a customer’s bank account by using a debit card.

The Banking Regulation Act of India, 1949 defines Banking as “accepting, for the purpose of lending orinvestment of deposits of money from the public, repayable on demand or otherwise and withdrawable bycheques, draft, order or otherwise.”

Banks essentially perform the following functions :7

Accepting Deposits from public/others (Deposits) : Banks are also called custodians of public money.Basically, the money is accepted as deposit for safe keeping. But since the Banks use this money to earninterest from people who need money, Banks share a part of this interest with the depositors.

Lending money to public (Loans) : Lending money is the second major activity of the bank. The bankacts an intermediary between the people who have the money to lend and those who have the need formoney to carry out business transactions

Transferring money from one place to another (Remittances): Banks also carry out, on behalf of theircustomers the act of transfer of money - both domestic and foreign.- from one place to another. This activityis known as “remittance business” Banks issue Demand Drafts, Banker’s Cheques, Money Orders etc. fortransferring the money. Banks also have the facility of quick transfer of money also know as TelegraphicTransfer or Tele Cash Orders.

Acting as trustees: Banks also act as trustees for various purposes. For example, whenever a companywishes to issue secured debentures, it has to appoint a financial intermediary as trustee who takes charge ofthe security for the debenture and looks after the interests of the debenture holders.

Other Functions: Bankers also provide security to the money and valuables of the general public in theform of lockers. It also carries out the government business in terms of carrying out its tax and non taxreceipts.

7 http://www.banknetindia.com/banking/bfgovernment.htm

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4.2 (b) Financial Adviser: A financial advisor is a professional who renders investment advice and financialplanning services to individuals and businesses. Ideally, the financial adviser helps the client maximize theirnet worth while minimizing risk by using proper asset allocation. Financial advisers use stocks, bonds, mutualfunds and insurance products to meet the needs of their clients. Many financial advisers receive a commissionpayment for the various financial products that they broker, although “fee-based” planning is becomingincreasingly popular in the industry. A further distinction should be made between “fee-based”, i.e., theycharge fees and collect commissions, and “fee-only” advisers. Fee-only advisers receive 100% of theircompensation directly from their clients and have no outside conflicts of interest created by commissions orreferral fees paid by other product or service providers.

4.2 (c) Insurance Companies: Insurance companies provide or sell insurance to hedge against the risk ofcatastrophic financial loss. Insurance itself is defined as the equitable transfer of the risk of a potential loss,from one entity to another, in exchange for a premium and duty of care. For the insurance services provideinsurance companies charge premium which among other things is dependent on the amount of insurancecoverage. From the point of view of the insurance company there are four general criteria for decidingwhether to insure events or not.

1. There must be a larger number of similar objects so the financial outcome of insuring the pool ofexposures is predictable. Therefore, they can calculate a “fair” premium.

2. The losses have to be accidental and unintentional (i.e., on the insured’s part).

3. The losses must be measurable, identifiable in location and time, and definite. An insurer also requiresthat losses cause economic hardship. This so that the insured has an incentive to protect and preservethe property to minimize the probability that the losses occur.

4. The loss potential to the insurer must be non-catastrophic, i.e., it cannot put the insurance company infinancial jeopardy.

5. Losses must be uncertain of occurrence

Insurance companies can be classified as life insurance companies and non life insurance companies. Lifeinsurance companies sell life insurance, annuities and pensions products. Non-life or general insurancecompanies sell other types of insurance. These companies are subject to usually different tax and accountingrules. While life insurance is usually long term in nature, non life insurance cover is for a shorter period suchas one year.

Third party administrators are companies that perform underwriting and sometimes claim handling servicesfor insurance companies. These companies often have special expertise that the insurance companies do nothave.

4.2 (d) Mutual funds: Mutual Fund is a trust that pools the savings of a number of investors who share acommon financial goal. The money thus collected is then invested in capital market instruments such asshares, debentures and other securities. The income earned through these investments and the capitalappreciation realised are shared by its unit holders in proportion to the number of units owned by them. Themajor advantage for investors is the reduction in investment risk by spreading investments across asset class.SEBI has prescribed a formal structure for mutual funds in India. This can be diagrammatically representedas follows:-8

8 http://www.hdfcfund.com/fundschool/structureShow.jsp

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4.2 (e) Pension funds:9 Pension fund companies pool assets that are bought with the contributions to apension plan for the exclusive purpose of financing pension plan benefits. A pension is a steady income givento a person (usually after retirement). Pensions are typically payments made in the form of a guaranteedannuity to a retired or disabled employee. Pension are created by an employer for the benefit of anemployee and are commonly referred to as an occupational or employer pension. Labor unions, thegovernment, or other organizations may also fund pensions. Pension plans can be divided into two broadtypes: Defined Benefit and Defined Contribution plans. Some plan designs combine characteristics ofdefined benefit and defined contribution types, and are often known as “hybrid” plans. A traditional pensionplan that defines a benefit for an employee upon that employee’s retirement is a defined benefit plan. Thebenefit in a defined benefit pension plan is determined by a formula that can incorporate the employee’s pay,years of employment, age at retirement, and other factors. A defined contribution on the other hand is a planproviding for an individual account for each participant, and for benefits based solely on the amountcontributed to the account, plus or minus income, gains, expenses and losses allocated to the account.

As of today India has a well developed and vibrant financial sector with numerous financial intermediaries. Abrief diagrammatical presentation is given below10:-

SEBI

TRUSTEE

MKT. / SALES

OPERATIONS

SPONSOR

MKT. / SALES

DISTRIBUTOR

INVESTOR

SCHEMES

MUTUAL FUND

FUND MANAGER

AMC

9 http://en.wikipedia.org/wiki/Pension10 http://www.indiamarkets.com/imo/finanavenues/home.asp

INSTITUTIONS IN THE FINANCIAL SECTOR

Chapter 1 : Investment an Introduction

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5. Financial Assets - Direct and Indirect InvestingEach of these financial intermediaries creates as well as buys and sells various financial instruments orfinancial assets. Financial assets are nothing but claims on the issuers of the securities, which are claims thatare negotiable, or saleable in various market places.11 These instruments can be either classified as directand indirect, Marketable or Non-Marketable.

Direct investments are those wherein the investor acquires a direct claim on the security issued by the firstissuing authority whereas indirect investment are those investments wherein a secondary claim is issued onthe base of the primary securities. Investors acquire units from the financial intermediary who directly investsin the primary securities. The valuation of units is based on the market value of the primary securities.

Marketable securities are those securities that can be bought and sold in the market whereas non marketablesecurities have to be held until maturity and there is no secondary market. These are usually governmentsponsored small savings schemes or social security schemes and, therefore, are illiquid. However, limitedwithdrawals subject to conditions and penalties may be permitted in non marketable securities.

5.1 Direct Investing(A) Non- Marketable

a. Savings Account/Current Accountb. Fixed Deposits/Recurring Deposits in Banks/Corporates/Financial Institutionsc. Public Provident Fund/Employee Provident Fundd. Post office depositse. Senior Citizens Saving Plansf. Kisan Vikas Patra/National Savings Certificateg. RBI relief bonds

(B) Marketablea. Money Market

i. Treasury billsii. Certificate of Depositiii. Commercial Paperiv. Reposv. Bills of Exchange

b. Capital Marketi. Fixed Income

1. Bonds/Debenturesa. Corporateb. Governmentc. Municipal

ii. Equities1. Common Stock2. Preferred Stock

c. Derivatives Marketi. Optionsii. Futuresiii. Forwardsiv. Swaps

11 Jones, Charles P. Investments, Chapter 2, pp 25, 8th edn, Wiley Finance

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5.2 Indirect Investing(A) Mutual funds(B) Pension Funds(C) Insurance companies

Each of these financial instruments has further divisions and sub-divisions each with their own amount andtiming of cash flows and more important their risk and return profile.

Broadly speaking, most instruments can be broadly divided into categories of fixed income instruments(debt) and equity. Money market instruments too mainly fall into the category of fixed income instruments.While debt has a lower risk and return profile, equity is the most risky of instruments. In recent times therehas emerged yet another class of instruments called hybrid instruments which combine characteristics of debtand equity.

Investment planning is really about finding the right kind of financial instruments and avenues to meet thevarious financial objectives keeping in mind the risk and return profile of the investor. It is, therefore,important that before selecting the appropriate investment vehicle to fund one’s investment needs, theconcepts of risk and return and how they are measured should be learnt. It is only then can one map thevarious investment alternatives as per requirements.