“WEALTH MANAGEMENT IN INDIA”

A Project Submitted to
University of Mumbai for partical completion of the degree of
Bachelor of Management Studies
Under the faculty of commerce

Submitted by
Ms. KAJAL CHHEDILAL SONKAR

Under the guidance of

Dr. Prashant h Shelar

Jogeshwari education society’s

JES COLLEGE OF COMMERCE SCIENCE AND
INFORMATION TECHNOLOGY
ARVIND GANDBHIR HIGH SCHOOL CAMPUS,
CAVES ROAD, JOGESHWARI (EAST).
2022-2023

Jogeshwari education society’s

JES COLLEGE OF COMMERCE SCIENCE AND
INFORMATION TECHNOLOGY
 CERTIFICATE

This is to certify that Ms. Kajal chhedilal sonkar has worked and duly
completed his Project Work for the degree of Bachelor of
Management Studies under the Faculty of Commerce in the subject
of Dr. Prashant h shelar and his project is entitled, “Wealth
Management In India” under my supervision.
I further certify that the entire work has been done by the learner
under my guidance And the no part of it has been submitted
previously for any degree of any university.
It is his own work and facts reported by his personal findings
and investigation.

Name of Signature of
Guiding
Teacher

Date of submission :
 ACKNOWLEDGMENT

To list who all have helped me is difficult because they are

so numerous and the depth is so enormous.
I would like to acknowledge the following as being
idealistic channels and fresh dimensions in the completion
of this project.
I take this opportunity to thank the University of Mumbai
for giving me chance to do this project.
I would like to thank my principal, Dr. Prashant h shelar
for providing the necessary facilities required for
completion of this project.
I take this opportunity to thank our coordinator, Dr.
Prashant h shelar for her moral support and guidance.
I would like to thank my college library, for having
provided various reference book and magazines related to
my project.
Lastly, I would like to thank each and every person who
directly or indirectly helped me in the completion of the
project especially my parents and peers who supported
me throughout my project.
 DECLARATION
I the undersigned Ms. Kajal Chhedilal Sonkar here by, declare
that the work embodied in this project work titled “Wealth
Management In India”, forms my own contribution to the research
work carried out under the guidance of Dr. Prashant H Shelar is
a result of my own research work and has not been previously
submitted to any other university for any other degree to this or
any other university.
Wherever reference has been made to previous work of others, it
has been clearly indicated as such and included in the
bibliography.
I, here by further declare that all information of this document
has been obtained and presented in accordance with academic
rules and ethical conduct.

Name and Signature Of The Learner

Certified by
Name and signature of the Guiding Teacher

INDEX

Sr No. Topic Page No.

1 Introduction 1
2 Overview of Investment 4
3 Investment Decisions and Process 11
4 Investment Alternatives 22
5 Mutual funds 48
6 Real assets 57

7 Research Methodology 67
8 Data Analysis and Interpretation 68
9 Conclusion 76
10 Bibliography 77
11 Annexure 78
 1.Introduction

WEALTH MANAGEMENT

Wealth Management as a concept originated in year 1990’s in the US. Essentially it is the
investment advisory covering financial planning that provides individuals with private
banking/ asset management/ taxation advisory & portfolio management. Warren Buffett is
the most successful investor in world. He says that “The basic ideas of investing are to look
at stocks as business, use the market's fluctuations to your advantage, and seek a margin of
safety. That's what Ben Graham taught us. A hundred years from now they will still be the
cornerstones of investing”. He is even called as wealth creator.

Wealth management is an investment-advisory discipline which incorporates financial

planning, investment portfolio management and a number of aggregated financial services
offered by a complex mix of asset managers, custodial banks, retail banks, financial planners
and others. There is no equivalent of a stock exchange to consolidate the allocation of
investments and promulgate fund pricing and as such it is considered a fragmented and
decentralised industry. High-net-worth individuals (HNWIs), small-business owners and
families who desire the assistance of a credentialed financial advisory specialist call upon
wealth managers to coordinate retail banking, estate planning, legal resources, tax
professionals and investment management. Wealth managers can have backgrounds as
independent Chartered Financial Consultants, Certified Financial Planners or Chartered
Financial Analysts (in the United States), Chartered Strategic Wealth Professionals (in
Canada), Chartered Financial Planners (in the UK), or any credentialed (such as MBA)
professional money managers who work to enhance the income, growth and tax-favoured
treatment of long-term investors.

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Private Wealth Management

Private wealth management is delivered to high-net-worth investors. Generally this includes

advice on the use of various estate planning vehicles, business-succession or stock-option
planning, and the occasional use of hedging derivatives for large blocks of stock.
Traditionally, the wealthiest retail clients of investment firms demanded a greater level of
service, product offering and sales personnel than that received by average clients. With an
increase in the number of affluent investors in recent years, there has been an increasing
demand for sophisticated financial solutions and expertise throughout the world.
The CFA Institute curriculum on private-wealth management indicates that two primary
factors distinguish the issues facing individual investors from those facing institutions:

1. Time horizons differ. Individuals face a finite life as compared to the

theoretically/potentially infinite life of institutions. This fact requires strategies for
transferring assets at the end of an individual's life. These transfers are subject to
laws and regulations that vary by locality and therefore the strategies available to
address this situation vary. This is commonly known as accumulation and
decumulation.
2. Individuals are more likely to face a variety of taxes on investment returns that vary
by locality. Portfolio investment techniques that provide individuals with after tax
returns that meet their objectives must address such taxes.

The term "wealth management" occurs at least as early as 1933. It came into more general
use in the elite retail (or "Private Client") divisions of firms such as Goldman Sachs or
Morgan Stanley (before the Dean Witter Reynolds merger of 1997), to distinguish those
divisions' services from mass-market offerings, but has since spread throughout the financial-
services industry. Family offices that had formerly served just one family opened their doors
to other families, and the term Multi-family office was coined. Accounting firms and
investment advisory boutiques created multi-family offices as well. Certain larger firms
(UBS, Morgan Stanley and Merrill Lynch) have "tiered" their platforms – with separate
branch systems and advisor-training programs, distinguishing "Private Wealth Management"
from "Wealth Management", with the latter term denoting the same type of services but with
a lower degree of customization and delivered to mass affluent clients. At Morgan Stanley,
the "Private Wealth Management" retail division focuses on serving clients with greater than
$20 million in investment assets while "Global Wealth Management" focuses on accounts
smaller than $10 million.
In the late 1980s, private banks and brokerage firms began to offer seminars and client events
designed to showcase the expertise and capabilities of the sponsoring firm. Within a few
years a new business model emerged – Family Office Exchange in 1990, the Institute for
Private Investors in 1991, and CCC Alliance in 1995. These companies aimed to offer an
online community as well as a network of peers for ultrahigh -net-worth individuals and their
families. These entities have grown since the 1990s, with total IT spending (for example) by
the global wealth management industry predicted to reach $35bn by 2016, including heavy
investment in digital channels.
Wealth management can be provided by large corporate entities, independent financial
advisers or multi-licensed portfolio managers who design services to focus on high-net-worth
clients. Large banks and large brokerage houses create segmentation marketing-strategies to
sell both proprietary and non-proprietary products and services to investors designated as

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potential highnet-worth clients. Independent wealth-managers use their experience in estate
planning, risk management, and their affiliations with tax and legal specialists, to manage the
diverse holdings of high-net-worth clients. Banks and brokerage firms use advisory talent-
pools to aggregate these same services.
The Great Recession of the late 2000s caused investors to address concerns within their
portfolios. For this reason wealth managers have been advised that clients have a greater need
to understand, access, and communicate with advisers about their situation

Life Goals
As the term wealth management has become more common, some companies have shifted
towards a model which asks clients about life goals, working environments, and spending
patterns as a way to increase communication. In 2014 Barron's reviewed "Wealth
Management Unwrapped," a book addressed to investors without endorsing any one firm or
strategy. Increasingly the industry recognized wealth management was more than an
investment advisory discipline. In 2015, United Capital rebranded their wealth management
services using the term "financial life management", which, according to the company, was
intended to more clearly define the difference between wealth management companies and
more affordable brokerage firms. The same year Merrill Lynch began a program, Merrill
Lynch Clear, which asks investors to describe life goals, and includes an educational program
for clients' children

How it works (Example):

Wealth management combines both financial planning and specialized financial services,
including personal retail banking services, estate planning, legal and tax advice, and
investment management services.

The goal of wealth management is to sustain and grow long-term wealth. The net worth
needed to qualify for wealth management services vary among institutions, but the net worth
threshold typically starts at about $20 million. Also, depending on the institution, the range of
services available is highly customizable in order to meet the specific needs of the client.

Why it Matters:

Wealth management clients are highly sought after by financial institutions and financial
service companies. Many banks that combine traditional banking wealth management
services have specialized sales and service teams to specifically cater to wealth management
clients.

2. Overview of Investment

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2.1 Meaning of financial instrument:

Financial instrument is a virtual document representing a legal agreement involving some sort
of monetary value. It can be classified generally as equity based (representing ownership of
the asset), debt based (representing a loan made by an investor to the owner of the asset).
Foreign exchange instruments comprise a third and a unique type of an instrument along with
different sub categories of each instrument.

2.2 Meaning of Investment:

In its broadest sense, an investment is a sacrifice of current money or other resources for
future benefits. Numerous avenues of investment are available today.

Eg: You can deposit money in a bank account or purchase a long term government bond or
invest in the equity shares of a company or contribute to a provident fund account or buy a
stock option or acquire a plot of land or invest in some other form.

The two key aspects of any investment are time and risk. The sacrifice takes place now and
is certain. The benefit is expected in the future and tends to be uncertain.

Almost everyone owns a portfolio. The portfolio is likely to comprise financial assets (bank
deposits, bonds, stocks and so on) and real assets (car, house and so on). The portfolio may
be the result of a series of deliberate and careful planning or haphazard decisions.

The most important features of an investment are current sacrifice and future benefit. This
kind of investment can be named as postponed consumption.

Whenever you postpone consumption, sacrifice takes place in the present and is certain
whereas the benefits occur in future and is uncertain. Therefore, the risk and expected returns
from the investment are the two key determinants of investment process.
2.3 Why are investments important?

Investments are important and useful in the context of present- day conditions. Some factors
that have been made investment decisions increasingly important are:

▪ Longer Life Expectancy or Planning for Retirement.

▪ Increasing Rates of Taxation.

▪ Higher Interest Rates.

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 ▪ Higher Rate of Inflation.

▪ Larger Incomes.

▪ Availability of a complex number of investment outlets.

Longer Life Expectancy or Planning for Retirement:

Investment decisions have become significant as most people in India retire between the ages
55 and 60. Also, the trend shows longer life expectancy. The earnings from employment
should, therefore be calculated in such a manner that a portion should be put away as savings.
Savings by themselves so not increase wealth; these must be invested in such a way that the
principle and income will be adequate for a greater number of retirement years.

Increase in working population, proper planning for life span and longevity have ensured the
need for balanced investments.

Increasingly Rates of Taxation:

Taxation is one of crucial factors in any country which introduces an element of computation
in a person’s savings. There are various forms of saving outlets in our country in the form of
Investments which helps in bringing down the tax level by offering deductions in personal
income. Benefits in tax accrue out of investment in Unit Trust Certificates, Unit Linked
Insurance Plan, Life Insurance, National Savings Certificate, etc.

Interest Rates:

Another aspect which is necessary for a sound investment plan is the level of interest rates.
Interest rates vary between on investment and another. These may vary between risky and
safe investments: they may also differ due to different benefits schemes offered by the
investments. These aspects must be considered before actually allocating any amount. A high
rate of interest may not be the only factor favoring the outlet for investments. Stability of
interest is as important as receiving a high rate of interest
Inflation:

Inflation has become a continuous problem since the last decade. In these years of rising
prices, several problems are associated coupled with a failing standard of living. Before funds
are invested, erosion of the resources will have to be carefully considered in order to make
the right choice of investments. The investor will try and search an outlet which will give him
a high rate of return in the form of interest to cover any decrease due to inflation. He will also

5
have to judge whether the interest or return will be continuous or there is likelihood or
irregularity.

Income:

Another reason why investment decisions are assumed importance is the general increase in
employment opportunities in India. After independence, with the stages at development in the
country, a number of new organizations and services were formed. These employment
opportunities gave rise in both male and female working force. More incomes and more
avenues of investment have led to the ability and willingness of working people to save and
invest their funds.

Investment Channels:

The growth and development of the country leading to greater economic activity has lead to
the introduction of vast arrays of investment outlets. Apart from putting aside savings banks
where interest is low, investors have the choice of a variety of instruments. The investors in
his choice of investment will have to try and achieve a proper mix between high rates of
return to reap the benefits of both. Some of the instruments available are corporate stock,
provident fund, life insurance, fixed deposits in the corporate sector, and so on.

2.4 Investment process:

A typical investment decision undergoes a five step procedure which in turn forms the basis
of the investment process. These steps are:

▪ Determine the investment objectives and policy.

▪ Undertake security analysis.

▪ Construct a portfolio.

▪ Review the portfolio.

▪ Evaluate the performance of the portfolio

2.5 Features of investment:

The features of an investment consist of safety of principal, liquidity, income stability,

adequate income, purchasing power stability, and appreciation, freedom from management of
investments, legality and transferability.

Safety of Principal:

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The investor, to be certain of the safety of principal, should carefully review the economic
and industry trends before choosing the types of investment. Errors are unavoidable and,
therefore, to ensure safety of principal, the investor should consider diversification involves
mixing investment commitments by industry, geographically by management, by financial
type and by maturities. A proper combination of these factors would reduce losses.
Diversification to a great extent helps in proper investment profile but it must be reasonably
accomplished and should not be carried out to extremes.

Liquidity:

Every Investor requires a minimum liquidity in his investments to meet emergencies.

Liquidity will be ensured if the investor buys a proportion of readily saleable securities out of
his total portfolio. He may, therefore, keep a small proportion of cash, fixed deposits and
units which can be immediately made liquid. Investment like stocks and property or real
estate cannot ensure immediate liquidity.

Income Stability:

Regularly of income at a consistent rate is necessary in any investment pattern. Not only
stability, it is also important to see that income is adequate after taxes. It is possible to find
out some good securities which pay practically all their earnings in dividends.

Appreciation and Purchasing Power Stability:

Investors should balance their portfolios to fight against any purchasing power instability.
Investors should judge level inflation, explore the possibility of gain and loss in the
investments available to them, limitations of personal and family considerations. The
investors should also try and forecast which securities will possible appreciate. A purchase of
property at the right time will lead to appreciation in time. Growth stock will also appreciate
over time. These, however, should be done thoughtfully and not in a manner of speculation or
gamble
Legality and Freedom from Care:

All Investments should be approved by law. Law relating to minors, estates, trusts, shares and
insurance should be studied. Illegal securities will bring out many problems for the investor.
One way of being free from care is to invest in securities like Unit Trust of India, Life
Insurance Corporation or Savings Certificates. The management of securities is then left to
the care of the Trust who diversifies the investments according to safety, stability and
liquidity with the consideration of their investment policy. The identity of legal securities and
investments in such securities will also help the investor in avoiding many problems.
7
Tangibility:

Intangibility securities have many times lost their value due to price level inflation,
confiscatory laws or social collapse. Some investors prefer to keep a part of their wealth
invested in tangible properties like building, machinery, and land. It may, however, be
considered that tangible property does not yield an income apart from the direct satisfaction
of possession or property.

2.6 Investment attributes/Factors influencing selection of investment:

In choosing specific investments, investors will need definite ideas regarding features
which their portfolios should possess. For evaluation of Investment Avenue, the
following attributes are relevant:

▪ Risk and returns.

▪ Capital appreciation.

▪ Safety and security of funds.

▪ Tax benefits.

▪ Adequate liquidity.

▪ Stability of income.

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2.7 Investment v/s speculation:

While it is difficult to distinguish between an investment and a speculation, it is possible to broadly

distinguish the characteristics of an investor and a speculator. It is as follows:

Investor Speculator

An investor has a longer planning A speculator has a very short

Planning horizon horizon with holding period of at planning horizon with holding
least 1 year. period of a few days to few
months.

An investor will assume moderate A speculator is willing to assume

Risk disposition risk & rarely will assume high risk. high risk.

An investor seeks moderate rate A speculator looks for high rate

Return expectation of returns for the limited risk of returns for the high risk borne
assumed by him. by him.

An investor will rely greatly on A speculator relies more on

Basis for decisions fundamental factors and attempt technical charts & market
a careful evaluation. psychology.

An investor will use his own funds A speculator may resort to

Leverage and borrowed funds. borrowings which may be
substantial or supplement to his
personal resources.

So in short, investing in the market has one real goal i.e. to make money. Also because many
investors know little about the stock market and decide to put money into a market which is often
more volatile.

By investing your money, you are getting your money to generate more money by earning interest on
what you put away or by buying and selling assets that increase in value precious metals, real estate,
your own small business, or any combination thereof, the objective is the same: to make investments
that will generate more cash for you in the future.
 9

2.8 Common errors in investing:

Investors appear to be prone to the following errors in investing. They are:

▪ Inadequate risks and returns.

▪ Impulsive decision making.

▪ Vaguely formed investment policy.

▪ High costs.

▪ Over diversification & under diversification of portfolios.

▪ Wrong attitude/evaluation of profits &losses.

2.9 Qualities for successful investing:

The game of investment requires certain qualities and virtues on the part of the investors to
be successful in the long run. They are as follows:

▪ Contrary thinking.

▪ Patience.

▪ Flexibility & openness.

▪ Wise & prompt decision making.

3.Investment Decisions and Process

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3.1 Approaches to investment decisions:

▪ Fundamental Approach.

▪ Psychological Approach.

▪ Academic Approach.

▪ Eclectic Approach.

Fundamental approach:

The basic tenets of the fundamental approach, which is perhaps most commonly advocated by
investment professionals, are as follows:

There is an intrinsic value of a security, which depends upon underlying economic

(fundamental) factors. The intrinsic value can be established by a penetrating analysis of the
fundamental factors relating to the company, industry, and economy.

At any given point of time, there are some securities for which the prevailing market price
will differ from the intrinsic value. Sooner or later, of course, the market price will fall in line
with the intrinsic value.

Superior returns can be earned by buying under-valued securities (securities whose intrinsic
value exceeds the market price) and selling over-valued securities (securities whose intrinsic
value is less than the market price).

Psychological Approach:

The psychological approach is based on the premise that stock prices are guided by emotion
rather than reason. Stock prices are believed to be influenced by the psychological mood of
investors. When greed and euphoria sweep the market, prices rise to dizzy heights. On the
other hand, when fear and despair envelop the market, prices fall to abysmally low levels. J.
M. Keynes described this phenomenon in eloquent terms:

"A conventional valuation which is established as the outcome of the mass psychology of a
large number of ignorant individuals is liable to change violently as the result of a sudden
fluctuation of opinion due to factors which do not really make much difference to the
prospective yield."

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Since psychic values appear to be more important than intrinsic values, the psychological
approach suggests that it is more profitable to analyses how investors tend to behave as the
market is swept by waves of optimism and pessimism which seem to alternate. The
psychological approach has been described vividly as the 'castles in the air' theory by Burton
G, Malkiel.

Those who subscribe to the psychological approach or the 'castles in the air' theory generally
use some form of technical analysis which is concerned with a study of internal market data,
with a view to developing trading rules aimed at profit-making. The basic premise of
technical analysis is that there are certain persistent and recurring patterns of price
movements which can be discerned by analyzing market data. Technical analysts use a
variety of tools like bar chart, point and figure chart, moving average analysis, breadth of
market analysis, etc.

Academic Approach:

Over the last five decades or so, the academic community has studied various aspects of the
capital market, particularly in the advanced countries, with the help of fairly sophisticated
methods of investigation. While there are many unresolved issues and controversies
stemming from studies pointing in different directions, there appears to be substantial support
for the following tenets.

Stock markets are reasonably efficient in reacting quickly and rationally to the flow of information.
Hence, stock prices reflect intrinsic value fairly well. Put differently,

Market price = Intrinsic value

Stock price behavior corresponds to a random walk. This means that successive price changes are
independent. As a result, past price behavior cannot be used to predict future price behavior.

In the capital market, there is a positive relationship between risk and return. More
specifically, the expected return from a security is linearly related to its systematic risk (also
referred to as its market risk on non-diversifiable risk).

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Eclectic Approach:

The eclectic approach draws on all the three different approaches discussed above. The basic
premises of the eclectic approach are as follows.

Fundamental analysis is helpful in establishing basic standards and benchmarks. However,

since there are uncertainties associated with fundamental analysis, exclusive reliance on
fundamental analysis should be avoided. Equally important, excessive refinement and
complexity in fundamental analysis must be viewed with caution.

Technical analysis is useful in broadly gauging the prevailing mood of investors and the
relative strengths of supply and demand forces. However, since the mood of investors can
vary unpredictably excessive reliance on technical indicators can be hazardous. More
important, complicated technical systems should ordinarily be regarded as suspect because
they often represent figments of imagination rather than tools of proven usefulness.

The market is neither as well-ordered as the academic approach suggests, nor as speculative
as the psychological approach indicates. While it is characterized by some inefficiencies and
imperfections, it seems to react reasonably efficiently and rationally to the flow of
information. Likewise, despite many instances of mispriced securities, there appears to be a
fairly strong correlation between risk and return.

The operational implications of the eclectic approach are as follows:

▪ Conduct fundamental analysis to establish certain value 'anchors'.

▪ Do technical analysis to assess the state of the market psychology.

▪ Combine fundamental and technical analyses to determine which securities are worth
buying, worth holding, and worth disposing of.

▪ Respect market prices and do not show excessive zeal in 'beating the market'.

▪ Accept the fact that the search for a higher level of return often necessitates the assumption
of a higher level of risk.

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3.2 Common errors in investing:

Investors appear to be prone to the following errors in managing their investments. They are
as follows:

▪ Inadequate comprehension of return and risk.

▪ Vaguely formulated investment policy.

▪ Naive extrapolation of the past.

▪ Cursory decision making.

▪ Simultaneous switching.

▪ Misplaced love for cheap stocks.

▪ Over-diversification and under-diversification.

▪ Buying shares of familiar companies.

▪ Wrong Attitude towards Losses and Profits.

▪ Tendency to speculate.

Inadequate Comprehension of Return and Risk:

What returns can one expect from different investments? What are the risks associated with
these investments? Answers to these questions are crucial before you invest. Yet investors
often have nebulous ideas about risk and return. Many investors have unrealistic and
exaggerated expectations from investments, in particular from equity shares and convertible
debentures. One often comes across investors who say that they hope to earn a return of 25 to
30 percent per year with virtually no risk exposure or even double their investment in a year
or so. They have apparently been misled by one or more of the following: (a) tall and
unjustified claims made by people with vested interests; (b) exceptional performance of some
portfolio they have seen or managed, which may be attributable mostly to fortuitous factors;
and (c) promises made by tipsters, operators, and others. In most of the cases, such
expectations reflect investor naiveté and gullibility.

14
By setting unrealistic goals, investors may do precisely the things that give poor results. They
may churn their portfolios too frequently; they may buy dubious 'stories' from Dalai Street;
they may pay huge premiums for speculative, fashionable stocks; they may discard sound
companies because of temporary stagnation in earnings; they may try to outguess short-term
market swings.

Vaguely Formulated Investment Policy:

Often investors do not clearly spell out their risk disposition and investment policy. This
tends to create confusion and impairs the quality of investment decisions. Ironically,
conservative investors turn aggressive when the bull market is near its peak in the hope of
reaping a bonanza; likewise, in the wake of sharp losses inflicted by a bear market,
aggressive investors turn unduly cautions and overlook opportunities before them. Ragnar D.
Naess put it this way: "The fear of losing capital when prices are low and declining, and the
greed for more capital gains when prices are rising, are probably, more than any other
factors, responsible for poor performance." If you know what your risk attitude is and why
you are investing, you will learn how to invest well. A well articulated investment policy,
adhered to consistently over a period of time, saves a great deal of disappointment.

Naive Extrapolation of the Past:

Investors generally believe in a simple extrapolation of past trends and events and do not effectively
incorporate changes into expectations. As Arthur Zeikel says:

"People generally, and investors particularly, fail to appreciate the working of countervailing
forces; change and momentum are largely misunderstood concepts. Most investors tend to
cling to the course to which they are currently committed, especially at turning points."

The apparent comfort provided by extrapolating too far, however, is dangerous. As Peter Bernstein
says:

"Momentum causes things to run further and longer than we anticipate. The very familiarity
of a force in motion reduces our ability to see when it is losing its momentum. Indeed, that is
why extrapolating the present into the future so frequently turns out to be the genesis of an
embarrassing forecast."

Cursory Decision Making:

Investment decision making is characterized by a great deal of cursoriness. Investors tend to:

15
 ▪ Base their decisions on partial evidence, unreliable hearsay, or casual tips given by brokers,
friends, and others.

▪ Cavalierly brush aside various kinds of investment risk (market risk, business risk,
and interest rate risk) as greed overpowers them.

▪ Uncritically follow others because of the temptation to ride the bandwagon or lack of
confidence in their own judgment.
Simultaneous Switching:

When investors switch over from one stock to another, they often buy and sell more or less
simultaneously. For example, an investor may sell stock A and simultaneously buy stock B.
Such action assumes that the right time for selling stock A is also the right time for buying
stock B. This may not often be so. While it may be the right time to sell stock A, it may not
necessarily be the right time to buy stock B. Alternatively, while it may be the right time to
buy stock B, it may not necessarily be the right time to sell stock A. Hence, when you
contemplate switching, you should first sell (if you feel it is the right time to do so) or buy (if
you feel it is the right time to do so) and make the other deal at an appropriate time.

Misplaced Love for Cheap Stocks:

Investors often have a weakness for stocks which look apparently cheap. This is revealed in the
following behavior:

▪ They buy a stock that is on its way down because some. How a falling share looks a good
bargain.

▪ They tend to 'average' down. This means that they buy more of the same stock when its
price falls in a bid to lower their average price.

Over-Diversification and Under-Diversification:

There are number of individual portfolios which are either over-diversified or

underdiversified. Many individuals have portfolios consisting of thirty to sixty, or even more,
different stocks. Managing such portfolios is an unwieldy task.

"Over-diversification is probably the greatest enemy of portfolio performance. Most of the

portfolios we look at have too many names. As a result, the impact of a good idea is negligible."

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Perhaps as common as over-diversification is under-diversification. Many individuals do not
apparently understand the principle of diversification and its benefit in terms of risk
reduction. A number of individual portfolios seem to be highly under-diversified, carrying an
avoidable risk exposure.
Buying Shares of Familiar Companies:

Investors are often tempted to buy shares of companies with which they are familiar. Typical
practitioners, for example, may prefer to buy shares of pharmaceutical companies. Perhaps
they believe in the adage "a known devil is better than an unknown God" and derive
psychological comfort from investing in familiar or well-known companies. Those who have
such tendencies, however, must realize that in the stock market there is hardly any correlation
between the fame of a company's products and the return on its equity stock.

Wrong Attitude towards Losses and Profits:

Typically, an investor has an aversion to admit his mistake and cut losses short. If the price
falls, contrary to his expectation at the time of purchase, he somehow hopes that it will
rebound and he can break even (he may even buy some more shares at the lower price in a
bid to reduce his average price). Surprisingly, such a belief persists even when the prospects
look dismal and there may be a greater possibility of a further decline. This perhaps arises out
of a disinclination to admit mistakes. The pain of regret accompanying the realization of
losses is sought to be postponed. And if the price recovers due to favorable conditions, there
is a tendency to dispose of the share when its price more or less equals the original purchase
price, even though there may be a fair chance of further increases. The psychological relief
experienced by an investor from recovering losses seems to motivate

such behavior. Put differently, the tendency is to let the losses run and cut profits short, rather than
to cut the losses short and let the profits run. As Ragnar D. Naess says:

"In fact, it is curious that a feeling of apprehension or fear usually accompanies the execution
of any policy that proves to be sound and profitable, whereas very often the easy and
comfortable action turns out to have been a mistake."

Tendency to Speculate:

The tendency to speculate is common, particularly when the market is buoyant and ecstatic.
Try to resist this. You may find it difficult to follow this advice. Yet, in the long run you are
likely to be better off if you refrain your speculative instincts.
3.3 Investment Process:
17
The Investment process is generally described in four stages. These stages are:-

▪ Investment policy.

▪ Investment Analysis.

▪ Valuation of securities.

▪ Portfolio Construction.

Investment Policy:

The first stage determines and involves personal financial affairs and objectives before
making investment. It may also be called preparation of the investment policy stage. The
investor has to see that he should be able to create an emergency fund, an element of liquidity
and quick convertibility of securities into cash. This stage, may therefore, be considered
appropriate for identifying investment assets and considering the various features of
investments.

Investment Analysis:

When an individual has arranged a logical order of the types of investments that he requires
on his portfolio, the next step is to analyze the securities available for investment. He must
make a comparative analysis of the type of industry, kind of security and fixed v/s Variable
securities. The primary concern at this stage would be from beliefs regarding future behavior
or prices and stocks he expected returns and associated risk.

Valuation of Securities:

The third step is perhaps the most important consideration of the valuation of investment.
Investment value, in general, is taken to be the present worth to the owners of future benefits
from investments. The investor has to bear in mind the value of these investments. An
appropriate set of weights have to be applied with the use of forecasted benefits to estimate
the value of the investment assets. Comparison of the value with the current market price of
the asset allows a determination of the relative attractiveness of the asset. Each asset must be
valued on its individual merit. Finally, the portfolio should be constructed
Portfolio Construction:

Portfolio construction requires knowledge of the different aspects of securities. These are
briefly recapitulated here, consisting of safety and growth of principal, liquidity of assets

18
after taking account the stage involving investment timing, selection of investment, allocation
of savings to different investments and feedback of portfolio. Thus these are the steps an
investor must follow in order to invest his capital, money, savings.

3.4 Investment avenues in India (list):

There are various investment avenues available India for investing, it depends on the investor
where he wants to invest or deploy his fund in order to reap benefits from them. There are
various investment avenues in India which can be classified as under:

Non- marketable financial assets:

A good portion of financial assets is represented by non marketable financial assets. They can
be classified as:

▪ Post office savings schemes.

▪ Public provident fund.

▪ Deposits with banks.

▪ Company deposits

Equity shares:

Equity shares represent ownership capital. As an equity shareholder you have an equity stake
in a company. These are the most attractive investment it has also becoming popular in India.
They are as follows:

▪ Blue chip shares.

▪ Penny shares.

▪ Income shares.

▪ Growth shares.

▪ Cyclical shares.

▪ Defensive shares.

▪ Speculative shares.

19
Bonds:

Bonds or debenture represents a long term debt instrument. The issuer promises to pay a
stipulated cash flow. Bonds may be classified as:

▪ Saving bonds.

▪ Private sectors bonds.

▪ Public sectors bonds.

▪ Preference shares.

Money market instrument:

Debt instrument which have maturity less than a year at the time of issue are called as the
money market instrument. The important money market instruments are as follows:

▪ Treasury bills.

▪ GILT – Edged securities.

▪ Commercial paper.

▪ Certificate of Deposits.

Mutual fund:

Instead of direct buying an equity share or a fixed income security, one can invest in various
schemes floated by mutual funds, which in turn invest their money in the equity shares or the
fixed income securities. There are three broad types of mutual fund schemes:

▪ Equity scheme.

20
 ▪ Debt scheme.

▪ Balanced scheme.

Life insurance:

In a broad sense life insurance can be termed as an investment .Because it involves insurance
premium which represents the sacrifice and the sum assured, its benefits. The main types of
insurance policies in India are:

▪ Endowment Assurance.

▪ Money Back Plan.

▪ Whole Life Assurance.

▪ Unit Linked Plan.

▪ Term Assurance.

Real asset:

For bulk of the investor they are likely to have real estate investment in their portfolio. The
various real estate investments like:

▪ Residential House.

▪ Commercial Property.

21
 ▪ Agricultural Land.

▪ Suburban Land

Precious objects:

Precious objects are generally small in size but they have a very high financial value. They
may or may not comprise in an investor’s portfolio. There are various precious objects like:

▪ Gold and silver.

▪ Art objects.

▪ Precious stones.

▪ Precious metals.

Financial derivatives:

A derivative is an instrument whose value depends on the value of some underlying asset.
Hence, it may be viewed as a side bet on that asset. From the point of view of investors there
are two main types of derivatives:

(1) Futures (2) Options.

4. Investment Alternatives
As an investor we have a wide array of investment avenues available with us. They can
be classified as shown in Exhibit A.

Exhibit A Investment Avenues

Investment
alternatives

Non-marketable Money market

financial assets instruments

22
 Bonds/debentures Equity shares/Preference
shares

Mutual fund Life insurance

Schemes policies

Real Assets Precious objects

Financial derivatives

4.1 Non-marketable financial assets:

A good portion of the financial assets of an individual investor is held in the form of
nonmarketable financial asset. A security that is difficult to BUY or SELL because it does
not trade in a normal market or Exchange. These securities are NOT tradable, transferable or
negotiable. This category would include:

Bank deposits:

Perhaps the simplest form of investment avenues, simply by opening a bank account and
depositing money in it. One can make a bank deposit. There are various kinds of bank
accounts: current a/c, savings a/c and fixed deposit a/c. while a deposit in a current account
does not earn any interest, deposits in other kinds of bank accounts do earn interest. The
important features of bank deposits are as follows:

▪ Loans can be raised against bank deposits.

▪ Deposits in scheduled banks is considered to be safe because of the regulations of the RBI
(Reserve Bank of India) and the guarantee of the DIC (Deposit Insurance
23
 Corporation) which guarantees deposits up to Rs. 1lakh per depositor of a bank.

▪ There is a ceiling of the interest rate payable on deposits in the savings account.

▪ The interest rate on fixed deposits varies with the term of the deposit. In general, lower
is the interest rate with short term deposits and higher is the interest rate with long term
deposits.

▪ If the deposit is less than 90 days, then the interest is paid on maturity or else it is generally
paid on quarterly basis.

▪ Bank deposits enjoy exceptionally high liquidity. Banks now offer customers the
facility of premature withdrawals of either a portion or whole fixed deposit. Such
withdrawals would earn interest rates corresponding to the periods for which they
were deposited.

Different types of deposits accounts are:

Savings Bank Account:

A Saving Bank account (SB Account) is meant to promote the habit of saving among the people.
It also facilitates safekeeping of money. In this scheme fund is allowed to be withdrawn
whenever required, without any condition. Hence a savings account is a safe, convenient and
affordable way to save your money. Bank deposits are fairly safe because banks are subject to
control of the reserve bank of India with regard to several to several policy and operational
parameters. Bank also pays you a minimal interest for keeping your money with them. The
Interest Rate of Savings bank account in India varies between 2.5% and 4%. In Savings Bank
account, bank follows the simple interest method. The rate of interest may change from time to
time according to the rules of Reserve Bank of India.

Fixed Deposits Account:

A fixed deposit is meant for those investors who want to deposit a lump sum of money for a
fixed period, say for a minimum period of 15 days to five years and above, thereby earning a
higher rate of interest in return. Investor gets a lump sum (principal + Interest) at the maturity
of the deposit.

Bank fixed deposits are one of the most common savings scheme open to an average investor.
Fixed deposits also give a higher rate of interest than a saving bank account. The facilities
24
vary from bank to bank. Some of the facilities offered by banks are overdraft (loan) facility
on the amount deposited, premature withdrawal before maturity period (which involves a loss
of interest) etc. bank deposits are fairly safer because banks are subject to control of the
Reserve Bank of India.

The rate of interest for Bank Fixed Deposits varies between 4 and 11 percent, depending on
the maturity period (duration) of the FD and the amount invested. Interest rate also varies
between each bank. A bank FD does not provide regular interest income, but a lump-sum
amount on its maturity.

Recurring Deposit Account:

The Recurring deposit in bank is meant for someone who wants to invest a specific sum of
money on a monthly basis for a fixed rate of return. At the end, you will get the principal sum
as well as the interest earned during that period. The scheme, a systematic way for long term
savings, is one of the best investment options for the low income groups. The rate of interest
varies between 7% and 11% depending on the maturity period and amount invested. The
interest is calculated quarterly or as specified by the bank.

Advantages of Bank Deposits:

▪ Investment is reasonably safe and secured with adequate liquidity.

▪ Banks offer reasonable rate of return on the investment made and that too in a regular
manner.

▪ Banks offer loan facility against the investment made.

▪ Procedures and formalities involved in a bank investment are limited, simple and
quick.

▪ Banks offer various services and facilities to their customers.

Disadvantages of Bank Deposits:

25
 ▪ The rate of return in the case of bank investment is low as compared to other avenues of
investment.

▪ The return on the investment is not adequate even to protection against the present
inflation rate in the country.

▪ Capital appreciation is not possible in bank investment.

Post Office Savings Account:

A post office savings account is similar to a savings bank account. The salient features are as
follows:

▪ The interest rate is 3.5% p.a. (per annum).

▪ The interest is tax exempt.

▪ The amount of first deposit should be at least Rs. 20/- for an ordinary account and Rs.
250/- for a checking account.

▪ The maximum balance that can be held is Rs. 50,000/- for a single account and Rs.
1lakh for a joint account.

Post Office Time Deposits (POTD’s):

Similar to fixed deposits of commercial banks. The salient features are as follows:

▪ Deposits can be made in multiples of Rs. 50/- without any limit.

26
 ▪ The interest rate in this instrument is generally higher than those on bank deposits.

▪ Interest is calculated half-yearly and paid annually

▪ Withdrawals can be made after 6 months of deposit. On withdrawals made between

6months and 1year, NO interest is payable. On withdrawals after 1year but before the
term of deposit, interest is paid for the period the deposit has been held, subject to a
penal deduction of 2%.

▪ A POTD can be pledged.

▪ Deposits in 10-15years Post Office Cumulative Time Deposit Account (POCTDA)
can be deducted before computing the taxable income u/s 80C

Monthly Income Scheme (MIS):

This is a popular scheme of the post office namely MISPO which is meant to provide monthly
income to the depositors. The salient features are as follows:

▪ The term of this instrument is 6years with minimum investment of Rs.1,000/maximum of

Rs. 3lakhs in a single account and Rs. 6lakhs in a joint account.

▪ The interest rate is 8% p.a, monthly payable and a bonus of 10% payable on maturity.

▪ There is NO tax deduction at source.

▪ There is a facility of premature withdrawal after 1year with 5% deduction before

3years.

Kisan Vikas Patra (KVP):

Another popular scheme of the post office. The salient features are as follows:

▪ The minimum amount for investment is Rs. 1,000/- without any limit.

▪ The investment doubles in 8½ years. Hence, the compounded interest rate works out
to be 8.4%.

▪ There is NO tax deduction at source.

▪ KVP’s can be pledged as a collateral security for raising loans.

▪ There is a withdrawal facility after 2½ years.

27
28
National Savings Certificate (NSC):

A very well known instrument of the post office. The salient features of NSC are as follows:

▪ It comes in denominations of Rs. 100/-, Rs, 500/-, Rs. 1,000/-, Rs. 5,000/- and Rs.10,000/-.

▪ It has a term of 6years. Over this period Rs. 100/- becomes Rs. 160.1/-. Hence, the
compound rate of interest works out to be 8.16%.

▪ The investment in NSC can be deducted after the computation of taxable income u/s 80C.

▪ There is NO tax deduction at source.

▪ This instrument can be pledged as a collateral security to raise loans.

Employee Provident Fund (EPF):

A major vehicle of savings for salaried employees. The salient features are as follows:

▪ Each employee has a separate provident fund account in which both the employer and the
employee are required to contribute a certain minimum amount on a monthly basis.

▪ The employee can choose to contribute additional amounts, subject to certain restrictions.

▪ The contribution made by the employer is FULLY tax exempt (from the employee’s point of
view) while the contributions made by the employee can be deducted before computing the
taxable income u/s 80C.

▪ Provident fund contributions currently earn a compound interest rate of 8.5% p.a. that is
fully tax exempt.

▪ The balance in the provident fund is totally exempt from wealth tax. Further, it is not subject
to attachment under any order or decree of court.

▪ Within certain limits, the employee is eligible to take a loan against the provident fund
balance pertaining to his contributions only.
 27

Public Provident Fund (PPF):

One of the most attractive schemes for investment available in India. The salient features are
as follows:

▪ Individuals and HUF’s can participate in this scheme. A PPF account maybe opened at
any branch of the SBI (State Bank of India) or its subsidiaries or at specified branches
of the other public sector banks.

▪ Though the period of a PPF account is stated to be 15years, the number of contributions
has to be 16. This is because the 15 year period is calculated from the financial year
following the date on which the account is opened. Thus, a PPF account matures on
the
th
first day of the 17 year.

▪ The subscriber to a PPF account is required to make a minimum deposit of Rs. 100/-
p.a. and maximum of Rs.70,000/-.

▪ Deposits in a PPF account can be deducted before computing the taxable income u/s
80C.

▪ PPF deposits currently earn a compounded interest rate of 8% p.a. which is totally
exempt from wealth tax. Further, it is not subject to attachment under any order or
decree of a court.

rd th
▪ The subscriber to a PPF account is eligible to take a loan from the 3 year to the 6
year after opening the account. The amount of loan cannot exceed 25% of the balance
nd
standing to the credit of the PPF account at the end of the 2 year preceding financial

30
 year. The interest payable on such loans is 1% higher than the PPF account interest
rate.

th
▪ The subscriber of a PPF account can make one withdrawal every year from the 6 year
th
to the 15 year. The amount of withdrawal cannot exceed 50% of the balance at the
th
end of the 4 preceding year or the year immediately preceding the year of
withdrawal, whichever is lower, less the amount of loan, if any. The withdrawal can

be put to any use and is not required to be refunded.

▪ On maturity, the credit balance in a PPF account can be withdrawn.

4.2 Money market instruments:

Debt instruments, which have maturity of less than 1year at the same time of issue, are called
money market instruments. These instruments are short term financial instruments issued by
the financial institutions, governments, banks and corporates. The major money market
instruments are Treasury bills, certificates of deposit, commercial paper and repos. Individual
investors scarcely participate in the money market directly. These instruments are highly
liquid and have extremely low risk. They tend to have lower returns than higher risk
investments, but are much safer due to being backed by the resources and reputation of an
institution state. Money market securities are considered to be very safe investments with
maturity of 1year or less and often 30days or less. A brief description of money market
instruments is given below:

Treasury bills (T-Bills):

The most important money market instrument. T-Bills are short term instruments of the
Central/State Government. They are promissory notes issued at discount and redeemed at par
for a fixed period. These instruments are issued by the RBI (Reserve Bank of India) and sold
fortnightly/monthly auctions at varying discount rates depending upon the bids. They DO
NOT carry an explicit interest rate/coupon rate. There’s NO specific amount/limit on the
extent to which these can be issued/purchased to raise funds for meeting expenditure needs
and also provide outlet for parking temporary surplus funds by investors. They are zero risk
instruments and hence their returns are not so attractive. These instruments are easily
available in the Primary as well as Secondary market. The difference between the purchase
price and maturity value is the interest income earned by the purchaser of the instrument. At

31
present, the Indian Government has issued 3 types of T-Bills through auctions i.e. 91days,
182days and 364days with a minimum amount of Rs. 25,000/- and its multiples. The primary
tenor of a T-Bill in India is 91 to 364days. T-Bills auctions are held on the NDS (Negotiated
Dealing System) and the members electronically submit their bids in the system. NDS is an
electronic platform for facilitating dealing in Government securities. Though the yield on
TBills is somewhat low, they have appeal for the following reasons:

▪ They can be transacted readily and there is a very active secondary market for them.

▪ T-Bills have nil credit risk and negligible price risk (because of their short tenor).

Certificates of Deposits (CD’s):

CD’s represent short term deposits which are transferable from one party to another. It is a
negotiable money market instrument and is issued in a dematerialized form or registered
form or in bearer. Banks and financial institutions are the major issuers of CDs. The principal
investors in CDs are banks, financial institutions, corporates and mutual funds. CDs carry a
certain interest rate having a maturity of 3months to 1year. CDs can be issued to individuals,
corporations, companies, trusts, funds, associations, etc.. and also by NRI’s (Non-Resident
Indians) but only on non-repatriable basis which should be clearly mentioned on the
certificate. The minimum deposit that could be accepted from a single subscriber should not
be less than Rs. 1lakh or multiples thereof. Presently the secondary market in CDs is not
active because investors in CDs tend to hold then till maturity and as the CDs are issued in
physical form, they attract stamp duty on transfer. CDs are a popular form of short term
investment for mutual funds and companies for the following reasons:

▪ Banks are normally willing to tailor the denominations and maturities to suit the
needs of the investors.

▪ CDs are generally risk free and easily transferable instruments.

▪ They generally offer a higher interest rate as compared to T-Bills or term deposits.

Commercial paper (CP):

CP is an unsecured short term promissory note issued by the firms that are generally
considered to be financially strong. CP, as a privately placed instrument, was introduced with
a view of enabling highly rated corporate borrowers to diversify their sources of short term
32
borrowings and to provide an additional instrument to the advisors. A CP usually has a
maturity period of 90days to 180days in the denomination of Rs. 5lakhs (face value) or
multiples thereof. It is sold at discount and redeemed at par. CPs are issued by corporates,
primary dealers (PDs) and the all-India financial institutions (FIs) that have been permitted to
raise short term resources under the limit fixed by the RBI are eligible to issue CP. It is
mandatory for issuance of CPs to be credit rated either from Credit Rating Information
Services of India Ltd (CRISIL) or the Credit Analysis & Research Ltd (CARE) or the
Investment Information & Credit Rating Agency Of India Ltd (ICRA). The minimum credit
rating should be P-2 of CRISIL or such equivalent rating by other agencies. The maturity
period of a CP is 15days to 1year. The issuer shall ensure at the time of issuance of CP that
the rating so
obtained is current and has not fallen due for review. Only a scheduled bank can act as an
IPA (Issuing and Paying Agent). Hence the implicit rate is a function of the size of discount
and the maturity period. The RBI has now mandated that all further issues of CPs should be
in a demat form.

Repos:

Popularly known as Repurchase Agreement or Ready Forward contract. A repo involves a

simultaneous sale and repurchase agreement. Repo is a short term money market instrument
by which the inflow of cash from the transaction can be used to meet temporary liquidity
requirement in the short term money market at a comparable cost. In a typical repo
transaction, the counter parties agree to exchange securities and cash with an agreement to
reverse the transaction after a given period of time. To the lender of cash, the securities lent
by the borrower serves as the collateral; to the lender of securities, the cash borrowed by the
lender serves as the collateral. Repo, thus, represents a collateralized short term lending. A
reverse repo is the mirror image of repo. This instrument is often used for raising short term
finance by banks and corporations. A repo is equivalent to a spot sale combined with a
forward contract. A repo also known as ready forward transaction means funding by selling a
security held on a spot (ready) basis and repurchasing the same on a forward basis. Generally,
repos are done for a period not exceeding 14 days. Different instruments can be considered as
a collateral security for undertaking the ready forward deals and they include Government
dated securities, T-Bills. While banks and PDs are permitted to undertake both repos and
reverse repos other participates such as institutions and corporates can only lend funds in the
repo market. Repos are settled on DvP (Delivery v/s Payment) basis on the same day and it is
very essential for the participants in the repo transactions to hold a SGL (Subsidiary General

33
Ledger) account and a current account with RBI. Also, the repo transactions are also reported
in the WDM (Wholesale Debt Market) segment of the NSE (National Stock Exchange).

4.3 Debentures:

This is a capital market instrument in the debt segment. A debenture is a long term debt
instrument issued by private sector companies which offer to pay interest in lieu of the
money borrowed for a certain period. A debenture is thus like a certificate of loan
evidencing the fact that the company is liable to pay a specific amount with interest and
although the money raised by the debentures becomes a part of the company’s capital
structure, it does NOT become a share capital. Debentures are freely transferable by the
debenture holder as they are normally issued in the physical form. The debenture holders
have NO voting rights in the company’s general meeting of shareholders but they may have
separate meetings/votes.

Debentures are divided in different categories and further classified on the basis of:

Non-convertible debentures (NCDs):

These instruments retain the debt character and CANNOT be converted into equity shares.

Partly convertible debentures (PCDs):

A part of these instruments are converted into equity shares in the future at notice of the issuer.
The issuer decides the ratio of conversion which is normally decided at the time of subscription.

Fully convertible debentures (FCDs):

These instruments are fully convertible into equity shares at the issuers notice with respect to
the ratio of conversion decided by the issuer upon conversion. The investors enjoy the same
status as ordinary shareholders of the company do.

Optionally convertible debentures (OCDs):

The investor has the option to either convert these debentures into shares at the price decided by
the issuer/agreed upon at the time of issue.

Secured debentures:

34
These instruments are secured by a charge on the fixed assets of the issuer company. So, if
the issuer fails on payment of either the principle interest amount, his assets can be sold to
repay the liability on the investors.

Unsecured debentures: Incase of the unsecured instruments, if the issuer defaults on

payment of the interest/principle amount, the investor has to be along the other unsecured
creditors of the company.
4.4 Bonds:

Bonds refer to debt instruments bearing interest on maturity. In simple terms, organizations
may borrow funds by issuing debt securities named bonds, having a fixed maturity period
(more than 1year) and pay a specified rate of interest (coupon rate) on the principle amount
to the holders. Bonds have a maturity period of more than 1year which differentiates it from
the other debt securities like commercial papers, T-Bills and other money market
instruments.

The bonds can be classified on the basis of variability of coupon which includes:

Zero coupon bonds:

These bonds are issued at a discount to their face value and at the time of maturity. The face
value is repaid to the holders. No coupon is paid to the holders and hence, there is no cash
inflow in zero coupon bonds.

Deep discount bonds:

The issue price of zero coupon bond is inversely related to their maturity, i.e. longer the
maturity period, lesser would be the issue price and vice-versa. These types of bonds are
known as deep discount bonds.

The bonds can also be classified on the basis of variability of maturity which includes:

Callable bonds:

The issuer of a callable bond has a right but not the obligation to buy a bond before the
maturity date in which the investor may redeem a bond fully/partially. A call option is
either a European option or an American option.

European option:

Under this option, the issuer can exercise the call option on a bond only on the specified date.
35
American option:

Under this option, the option can be exercised any time before the specified time.

4.5 Preference shares:

This is another form of equity capital. It is a capital market instrument in the equity segment. It
defines it to be those shares which carry preferential rights as the payment of dividend at a fixed
rate (a) and as to repayment of capital in case of winding up the company

(b). Thus, both the preferential rights, viz (a) and (b), must attach to preference shares. The
rate of dividend on these shares is fixed. The Directors of the Company may decide not to
pay any dividend to any class of shareholders even if there are sufficient profits. But if they
decide to pay the dividend, then the preference shareholders will get the priority to pay the
ordinary shareholders.

Preference shares may be classified according to the rights attached to them as follows:

Cumulative & Non-cumulative preference shares:

In case of cumulative preference shares, the dividend on these shares will go on accumulating until
it is paid in full arrears, before any dividend is paid on equity shareholders.

In case of non-cumulative preference shares, the dividend does not have to accumulate and
therefore, no arrears of dividend will be paid in the year of profits. If the company does not
have any profits in a year, NO dividend will be paid to non-cumulative preference
shareholders as well.

Redeemable & Irredeemable preference shares:

The redeemable shares can be redeemed on/after a period foxed for redemption with respect to
certain restrictions imposed.

Irredeemable preference shares are those shares are those shares which cannot be redeemed during
lifetime of the company.

Convertible & Non-convertible preference shares:

36
Where the preference shareholders are given a right to convert their holding into ordinary
shares, within a specified period of time, such shares as known as convertible preference
shares. The holders of non-convertible preference shares have no such right of conversation.

Participating & Non-participating preference shares:

The holders of participating preference shares have a right to participate in the surplus profits
of the company remained after paying dividend to the ordinary shareholders and preference
shareholders at a fixed rate. The preference shares which do not have a right to participate in
surplus profits, are known as non-participating preference shares.

Why should the investors opt for preference shares?

▪ They are the FAIR SECURITITES for the shareholders during depression periods when
the company profits are low.

▪ These shares carry PREFERENTIAL RIGHTS as regard to payment of dividend and

as regard of repayment of capital at the time of winding up the company. In short,
their risk level is low.

▪ With the preferential right of repayment of capital at the time of winding up the company, it
saves them from LESSER CAPITAL LOSSES.

▪ Shareholders are given voting rights in matters directly affecting their interest by
which their INTEREST IS SAFE.

Why shouldn’t the investors opt for preference shares?

▪ NO GUARANTEE OF ASSETS i.e. the interests and the preference capital made
are not protected by the company.

▪ The shareholders can only ask for returns of their capital investment in the company
as they have NO CLAIM OVER THE SURPLUS.

▪ The shareholders DO NOT ENJOY ANY VOTING RIGHTS except in matters directly
affecting their interest.

▪ The shareholders get FIXED DIVIDEND even if the company earns higher profits.

37
4.6 Equity shares:

It is a capital market instrument in the equity segment. Equity shares are tools that vest
ownership rights to their owners. These shares are a form of equity capital where companies
are legally bound to pay their creditors interest income along with the original capital
amount.
These shares can be bought from the stock market, from the stock brokers,

from the online stock brokering portals and from the banks. The investors who buy these
equity shares are known as equity shareholders who have the voting rights in the company
and share all the money remaining after the business obligations are net.

Votes = No. of shares an equity shareholder has […formula]

No. of shares issued by the company

The equity shareholders get a lion’s share of the profits when the business is running well.
The most important feature is that the new equity shares if issued are first offered to the
existing equity owners in accordance with their present ownership ratio.

Book value of an eq.sh = Paid up capital + reserves &

surplus […formula]

No. of o/s* equity shares. {o/s*=outstanding}

Rights of Equity shareholders:

As collective owners of the company, the equity shareholders enjoy the following rights.

They are as follows:

▪ Equity shareholders have a residual claim to the income of the firm. This means: the
profits after tax (-) preference dividend (=) equity shareholders. However, the BOD
(Board of Directors) have the right to decide how it should be split between dividends
and retained earnings.

▪ Dividends provide current income to equity shareholders and retained earnings tend
38
 to increase the intrinsic value of equity shares.

Note: Equity dividends are presently TAX EXEMPT in the hands of the recipient. The company
paying the dividend is required to pay the DIVIDEND CONTRIBUTION TAX.

▪ Equity shareholders elect the BOD and have the right to vote on every resolution placed
before the company. The BOD, in turn, appoints the top management of the firm.
Hence, equity shareholders, in theory, exercise an indirect control over the operations
of the firm. In practice, however, equity shareholders – scattered, ill-organized,
passive, and indifferent as they often are- fails to exercise their collective power
effectively.

39
 ▪ Equity shareholders enjoy the pre-emptive right which enables them to maintain their
proportional ownership by purchasing the additional equity shares issued by

the firm. The law requires companies to give existing equity shareholders the first
opportunity to purchase, additional issue of equity capital.

As in the case of income, equity shareholders have a residual claim over the assets of the
company in the event of liquidation. Claims of all others – debenture holders, secured
lenders, preferred shareholders, and other creditors are prior to the claim of equity
shareholders.

Stock market classification:

In stock market parlance, it is customary to classify equity shares as follows in illustration 1:

Illustration1.Classification of equity shares

Shares of large, well established, & financially strong companies with an

Blue chip shares impressive record of earnings and dividends.

Shares of companies that have a fairly entrenched position in a growing

Growth shares market & which enjoys an above average growth rate as well as
profitability.

Shares of companies that have fairly stable operations, relatively

Income shares limited growth opportunities & high dividend payout ratios.

Shares of companies that have a pronounced cyclicality in their

Cyclical shares operations.

Shares of companies that are relatively unaffected by the ups and

Defensive shares downs in general business conditions.

Shares that tend to fluctuate widely because there is a lot of speculative

Speculative shares trading in them.
 37

Advantages of Investment in Shares:

▪ Equity shareholders get income in the form of dividend.

▪ Companies offer attractive dividends to the share holders even when the rates dividend
is flexible.

▪ Profitable and stable companies offer good reward to their investors in the form of high
rate of dividend.

▪ The liability of equity share holder is limited only to the extent of their investment.
Naturally, the shareholder is not required to pay anything more than the face value of
the shares purchased.

▪ Shares are easily transferable and this facilitates easy transfer of ownership at the option
of the shareholders (investor) as it also brings liquidity to the investment in shares.

▪ The equity shareholders get an opportunity to participate in the profitability of their

company in the course of time.

▪ The profitable companies issue bonus shares and rights issue from time to time these
gives benefits to the share holders.

▪ Equity shares carry tax benefits. While dividend is not taxable at the hands of the
investor, capital gains are. When you sell your shares at a profit, it attracts a capital
gains tax. Gains realized within one year of purchase of shares come under the
shortterm capital gains tax, and are included in gross taxable income. If the duration is
more than one year, it is termed as long-term capital gains tax. The rate is 10% for
short-term capital gains and nil for long-term capital gains (long-term capital gains is
exempted totally).

41
 ▪ Capital gain to the equity investor is possible in the case of shares as the prices of shares
fluctuate along with the future prospects of the company. Due to rise in the prices of
the shares, there is capital appreciation and this offers extra benefit to the
shareholders.

Disadvantages of Investment in shares:

▪ Uncertainty of Income/Return: The return as regards investment in shares is

uncertain as it is linked with the profitability of the company.

▪ Risky Investment: In the case of shares, there is an element of risk as regards changing
market values. The shares price may go down due to various reasons. Secondly,
selling at low price is bound to bring financial loss. This suggests that investment in
shares is always risky.

▪ Speculative activities are harmful: Speculative activates are quite common as regards
shares. However, such speculative deals affect genuine investors and they may suffer
loss even when they are not directly involved in such speculative activities.

▪ Future linked with the company: In the case of shares, the future of the shareholder
is linked with the future of the company. The return on investment will be attractive, if
the company makes good profit. However, a shareholder may not get any return on his
investment if his company fails to get reasonably high profit.

Ways of investment in equity shares:

▪ Direct investment:

One can directly invest in the shares of a company through Primary Markets or Secondary
Market. Shares generally have two stages in their lifespan – Initial Public Offering (Primary
Market) and Listing (Secondary Market).

42
 ▪ Indirect investment:

▪ Investing through Mutual Funds.

▪
Investing through portfolio management.

4.7 Mutual fund schemes:

A mutual fund is a trust that pools the savings of a number of investors who share a common
financial goal. When you participate in the mutual fund scheme, you become part owner of
the investments under that scheme. The money thus collected is then invested in capital
market instruments such as shares, debentures, etc… A mutual fund, therefore, represents a
vehicle of collective investment. The income earned through these investments

and the capital appreciations realized are shared by its unit holders in the proportion to the
number of units owned by them. Thus, a mutual fund is the most suitable investment for a
common man as it offers an opportunity to invest in a diversified, professionally managed
basket of securities at a relatively low cost.

For investors, the performance of their investment depends on what happens to the funds per
unit value/ NAV (Net Asset Value).

NAV = market value of assets –

liabilities […formula]

{o/s –
No. of o/s shares outstanding}

In India, the following entities are involved in a mutual fund operation:

▪ The sponsor.

▪ The mutual fund.

▪ The trustees.

▪ The AMC (Asset Management Company).

43
 ▪ The custodian.

▪ The registrars.

▪ The transfer agents.

Mutual fund schemes invest in 3 broad categories of financial assets i.e.

▪ Bonds: Debt instruments having maturity of more than 1year.

▪ Cash: Bank deposits and debt instruments having maturity less than 1year.

▪ Stocks: Equity instruments and equity related instruments.

Depending on the asset mix, mutual funds are classified into 3 broad types. They are as
follows in exhibit 1.1.

Types of mutual funds

44
1. Equity Schemes o Diversified equity
schemes o Index schemes o Sectoral
schemes
o Tax planning schemes

2. Hybrid (Balanced) Schemes o Equity-

oriented schemes o Debt-oriented
schemes o Variable asset allocation
schemes

3. Debt Schemes
o Gilt schemes
o Mixed schemes

o Floating rate debt schemes o Cash (liquid) schemes

4.8 Financial derivatives:

A derivative is an instrument whose value of some underlying asset. From the point of view
of investors and portfolio managers, futures and options are the two most financial
derivatives. They are used for hedging and speculation. They are as follows:

Futures:

A futures contract is an agreement between 2 parties to exchange an asset for cash at a

predetermined future date for a price that is specified today. The party which agrees to
purchase the asset is said to have a long position the party which agrees to sell the asset is
said to have a short position.

The party holding the long position benefits if the price increases, whereas the party holding
the short position loses if the price increases and vice-versa.

Options:

An option gives the owner the right to buy/sell an underlying asset (equity shares is the focus
here) on or before the given date at a predetermined price. Options represent a special kind of
financial contract under which the option holder enjoys the right (for which he pays
premium), but has NO obligation, to do something.
There are two basic types of options. They are as follows:

Call option:
45
A call option gives the option holder the right to buy a fixed number of shares of a certain
stock, at a given exercise price on or before the expiry date. To enjoy this option, the option
buyer (holder) pays a premium to the option writer (seller) which is non-refundable. The
seller of the call option is obliged to sell the shares at a specified price, if the buyer chooses
to exercise the option.

Put option:

A put option gives the option holder the right to sell a fixed number of shares of a certain
stock at a given exercise price on or before the expiry date. To enjoy this right, the option
buyer (holder) pays a non-refundable premium to the option seller (writer). The writer of the
put option is obliged to buy the shares at a specified price, if the option holder chooses to
exercise the option.

4.9 Life insurance:

The basic customer needs met by life insurance policies are protections and savings. Policies
that provide protection benefits are designed to protect the policyholder/his dependants from
the financial consequence of unwelcome events such as death/long term sickness/disability.
Policies that are designed as savings contract allow the policyholder to build up funds to meet
specific investment objectives such as income in retirement or repayment of a loan. Some
policies also provide a mixture of savings and protection benefits.

The common types of insurance policies are as follows:

▪ Endowment Assurance

▪ Money Back Plan

▪ Whole Life Assurance

▪ Unit Linked plan

▪ Term Assurance

▪ Riders

▪ Tax Breaks

Endowment Assurance:

46
There are two basic variants of this policy. They are (1) Non Participating (without profit)
Endowment Assurance (2) Participating (with profits) Endowment Assurance.

Non participating (without profit) Endowment Assurance: This policy offers a guaranteed
amount of money (the ‘sum assured’) at the maturity date of the policy in exchange for a
single premium at the start of the policy or a series of regular premiums throughout the term
of the policy. If the policyholder dies before the maturity date then usually the same sum
assured is paid on death. Of course, the policy could be structured with a sum assured paid on
death, which is different from that paid at maturity.

The policyholder may be allowed to surrender the policy before maturity and receive a lump
sum amount at the time, on guaranteed/non-guaranteed terms. If the policyholder wishes to
keep the policy in force without paying further premiums, a reduced sum assured may be
granted. There is usually a provision to take a loan up to 90% of the surrender value.

Participating (with profit) Endowment Assurance: The structure of this policy is similar to
that of the non-participating policy except that the initial sum assured under the policy is
expected to be enhanced by payment of bonuses (distribution of the profits made by the
insurance company) to the policyholder. In India, bonuses usually take the form of additions
to the initial sum assured & become payable in the event of the occurrence of the insured
event, i.e. survival up to the maturity date/earlier death. However, some insurance companies
provide bonuses (dividends) as regular cash payments. In this case, the policyholder may
have the option of using the cash bonus to offset the future premiums available.

Money back Plan:

This is a popular savings cum protection policy because it provides lump sum at periodic
intervals.

Eg: An initial amount of Rs. 1,000/- and a term of 20 years, the policy may provide for part
payment of the sum assured as follows:

▪ 20% at the end of 5years

47
 ▪ 20% at the end of 10years

▪ 20% at the end of 15years

▪ 40% at the end of 20years

This policy usually provides a guaranteed addition to the initial sum assured every year. The
money back policy explained above is a non-participating policy. This policy is also available
in a participating format where the guaranteed additions will be replaced by ‘bonuses’. As
with endowment assurance, a surrender value on guaranteed/non-guaranteed terms may be
paid if the policyholder chooses to withdraw from policy. Alternatively the policyholder may
have the option of converting the policy into a paid up policy. Usually there is no loan facility
available to the investors.

Whole Life Assurance:

This policy provides a benefit on the death of the policyholder whenever that might occur.
Basically, it provides long term financial protection to the dependants. It is particularly useful
as a mean of protecting some of the expected wealth transfer that a parent would be aiming to
make to his/her children when he/she dies. Without this policy the wealth transfer is likely to
be very small if the parent dies young. This policy can also be tax efficient.

There are both participating and non-participating versions of this policy. Non-participating
policy offers a guaranteed sum assured on death of the policyholder. Under the participating
policy, the initial guaranteed sum assured may be increased by bonuses/cash refunds may be
given.

With endowment assurance, a benefit may be paid if the policyholder chooses to withdraw
from the policy. Similarly, there may be a ‘paid up’ policy option. The policyholder may also
have the option of taking a loan up to 90% of the surrender value.

Unit Linked Plan:

48
A unit linked plan is also an investment oriented product. As compared to other investment
plans, the investment portion of the unit linked plan functions like a mutual fund. It is
invested in a portfolio of debt and equity instruments, in conformity with the announced
investment policy. Hence, it grows/erodes in line with the performance of that portfolio.
Throughout the period of investment, the policyholder enjoys an insurance cover as
stipulated.

Term Assurance:

This is a pure protection policy, which provides a benefit on the death of the policyholder
within a specified term. Premiums may be paid regularly over the term of the policy or as a
single premium at the outset. Generally, there is no payment if the policyholder survives to
the end of the policy.

A popular variant of the term assurance policy is the decreasing term assurance policy under
which the sum assured decreases over the term of the policy. This type of policy can be used
to meet two such specific needs.

Firstly, it can be used to repay the balance o/s under a loan (eg: house mortgage) in the event
of death of the policyholder. Secondly, it can be used to provide an income for the family of
the deceased policyholder from the time of death up to the end of the policy term. Term
assurance policies are typically offered in the non-participating format. These policies are
usually structured with no ‘surrender value’ and ‘paid up’ policy options. The main attraction
of a term assurance policy is that it provides a death benefit to the policyholder at a lower
cost than under an endowment assurance or a whole life policy plan for the same level of
benefit.

Riders:

They are add-ons to the life insurance policies described above. These add-ons can be
purchased with the base policy on the payment of small additional premium. The commonly
offered riders in the Indian context are as follows:

49
 ▪ Accidental Death Benefit (ADB) rider.

▪ Critical Illness (CI) rider.

▪ Waiver of Premium (WoP) rider.

▪ Term rider.

Tax Breaks:

The tax breaks from a policyholder point of view are as follows:

▪ The premium payable under a life insurance policy can be deducted from taxable
income u/s 80C of Income Tax Act, 1961. In the case of an individual, the insurance
policy can be on the life of the individual/spouse/child of the individual.

▪ The premium paid by the individual under an annuity plan of the Life Insurance
Corporation of India (as approved by IRDA) is deductible from the taxable income of
that individual of maximum Rs. 10,000/- [Section 80CCC of the Income Tax Act,
1961].

▪ Any sum received under a life insurance policy, including the sum allocated by way of
bonus on such policies is exempted from tax u/s 10(10D) of the Income Tax Act,
1961.

50
4.10 Real assets:

Unlike financial assets, real assets are tangible/physical in nature. The major types of real
assets are as follows:

▪ Real Estate

▪ Residential House

▪
Commercial property

▪
Urban & semi-urban land

▪
Agricultural Farm

▪ Precious metals

▪
Gold

▪
Silver

▪ Precious stones ▪
Diamonds

▪
Others

▪ Art objects ▪
Paintings

▪
Sculptures

▪
Antiques

5. Mutual funds
51
A mutual fund represents a vehicle for collective investment. When you participate in the
scheme of a mutual fund, you become part-owner of the investments held in under that
scheme. Till 1986, the Unit Trust of India (UTI) was the only mutual fund in India. Since
then, public sector banks and insurance companies have been allowed to set up subsidiaries to
undertake mutual fund business. State Bank of India (SBI), Canara Bank, LIC, GIC and a few
other public sectors banks entered the mutual fund industry. In 1992, the mutual fund
industry was open to private sector and a number of private sector mutual funds such as Birla
Mutual Fund, HDFC Mutual Fund, IDBI-Principal Mutual Fund, Kotak Mahindra Mutual
Fund, ICICI Prudential Mutual Fund and Reliance Mutual Fund have been set up.

At present, there are about 30 mutual funds managing nearly 1000 schemes. While the mutual
fund industry has registered a healthy growth over the last 15 years, it is very small in relation
to other intermediaries like banks and insurance companies.

5.1 Meaning of 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, etc... The income earned through these investments and the capital
appreciations realized are shared by its unit holders in the proportion to the number of units
owned by them. Thus, a mutual fund is the most suitable investment for a common man as it
offers an opportunity to invest in a diversified, profession ally managed basket of securities at
a relatively low cost.

For investors, the performance of their investment depends on what happens to the funds per
unit value/ net asset value (NAV)

NAV = Market value of Assets – Liabilities [... formula]

Number of outstanding shares

5.2 Entities in a mutual fund:

52
In India, the following entities are involved in a mutual fund. They are as follows:

▪ Sponsor.

▪ Mutual Fund.

▪ Trustees.

▪ Asset Management Company.

▪ Custodian.

▪ Registrars & Transfer Agents.

Sponsor:

The sponsor of a mutual fund is like the promoter of the company. The sponsor maybe a
bank, a financial institution or a financial services company. It may be foreign or Indian. The
sponsor is responsible for setting up and establishing the mutual fund. The sponsor is the
settler of the mutual fund trust. The sponsor delegates the trustee function to the trustees.

Mutual Funds:

The mutual fund is constituted as a trust under the Indian Trust Act, 1881, and registered with
SEBI. The beneficiaries of the trust are the investors who invest in various schemes of the
mutual fund.

Trustees:

A trust is a notional entity that cannot contract in its own name. so, the trust enters into
contracts in the name of the trustees. Appointed by the sponsor, the trustees can either be
individuals or corporate bodies (a trustee company). To ensure that the trustees are fair and
rd
impartial, SEBI rules mandate that at least 2/3 of the trustees are independent i.e. they have
no association with the sponsor.

The trustees appoint the Asset Management Company (AMC), secure the necessary
approvals, periodically monitor how the AMC functions, and hold the properties of various
schemes in trust for the benefit of the investors. The trustees can be held accountable for the
financial irregularities of the mutual fund.

53
Asset Management Companies (AMC):

The AMC, also referred to as the Investment Manager, is a separate company appointed by
the trustees to run the mutual fund. The AMC is compensated in the form of investment
management and advisory fees. Each scheme of the mutual fund pays the AMC an annual
investment management and advisory fees which is linked to the size of the scheme.

The head of the AMC is generally referred to as the Chief Executive Officer (CEO). Next to
him is the Chief Investment Officer (CIO) who shapes the fund’s investment philosophy and
who is supported by fund managers responsible for managing various schemes. The fund
managers are assisted by a team of analysts who track markets, sectors and companies.

Custodian:

The custodian handles the investment back office operations of a mutual fund. It looks after
the receipt and delivery of the securities, collection of income, distribution of dividends, and
segregation of assets between schemes. The sponsor of a mutual fund cannot act as its
custodian. This condition is meant to ensure that the assets of the mutual fund are not in the
hands of its sponsor.

Registrars & Transfer Agents:

The registrars and transfer agents handle investor related services such as issuing units,
redeeming units, sending fact sheets and annual reports, and so on. Some funds handle such
functions in house, while others outsource it to SEBI approved registrars and transfer agents
such as Karvy and CAMS.

5.3 Types of mutual funds:

Mutual funds invest in three broad classes of financial assets. They are as follows:

o Stocks: Equity and equity related instruments.

o Bonds: Debt instruments that have a maturity of more than 1year (T-Bills,
commercial paper, corporate debentures, and asset based securities).

o Cash: Debt instruments that have a maturity of less than 1year (T-Bills, commercial
paper, certificate of deposit, reverse repos, and call money and bank deposits).
54
Depending on the asset mix, mutual fund schemes are classified into three broad categories:
equity schemes, hybrid schemes and debt schemes. There are several variants within each of
these broad categories.

Equity schemes:

Equity schemes invest the bulk of their corpus – 85% to 95% or even more – in equity shares
or equity linked instruments and the balance in cash. Equity schemes offered by mutual funds
in India may be classified broadly into the following sub types.

▪ Diversified Equity Schemes:

As the name suggests, these schemes invest in a broadly diversified portfolio of equity stocks.
Typically these stocks have 20-50 or even more equity stocks from a wide range of industries.
Some of them are HDFC Equity Scheme, Reliance Vision Fund.

▪ Index Schemes:

An index scheme is an equity scheme that invests its corpus in a basket of equity stocks that
comprise a given stock market index such as Sensex, S&P Nifty Index, with each stock
equivalent to the index. Thus, an index scheme appreciates or depreciates so does the index.
The principal objective of an index scheme is to give a return in the line with the index. Some
of them are: UTI Master Index, Franklin India Index, NSE Nifty.

▪ Sectoral Schemes:

In this scheme, the equity stocks are invested in a particular sector like pharmaceuticals,
information technology, telecommunications, power and so on. These schemes appeal to
investors invested in taking a bet on specific sectors. Some of them are as follows: UTI Petro,
Franklin InfoTech and Reliance Pharma Fund.

▪ Tax Planning Schemes:

55
Tax planning scheme/equity linked saving schemes (ELSS) is open to only individuals and
HUFs. Subject to such conditions and limitations, as prescribed u/s 80C of the Income Tax
Act, 1961, subscriptions to such schemes can be deducted before computing the taxable
income. Some of them are as follows: Franklin India Taxshield and Reliance Tax Saver
(ELSS) Fund.

Hybrid Schemes:

This scheme is also referred to as balanced schemes; invest in a mix of equity and debt
instruments. A hybrid scheme may be equity oriented or debt oriented or has a variable asset
allocation.

▪ Equity oriented Schemes:

An equity oriented hybrid scheme is tilted in the favour of equities which may account for
about 60% of the portfolio, the balance being invested in debt instruments (bonds and cash).
Examples of equity oriented schemes are HDFC Prudence and Unit Scheme 95.

▪ Debt oriented Schemes:

A debt oriented hybrid scheme is tilted in the favour of debt instruments. The most popular
debt oriented schemes in India are Monthly Income Plans which typically have a debt
component of 85% - 90% dominated by the bonds and an equity component of 10% - 15%.
Examples of such schemes are Birla MIP and FT India MIP.

▪ Variable Asset Allocation Schemes:

A variable asset allocation scheme is one wherein the proportion of equity and debt are
varied, often on the basis of some objective criterion. The allocation to equity (debt)
increases (decreases) when the market falls but decreases (increases) when the market rises.

Debt Schemes:

Debt schemes invest in debt instruments i.e. bonds and cash. The wide range of debt schemes
currently offered by mutual funds in India may be divided into the following sub categories.
They are as follows: gilt schemes, mixed debt schemes, floating rate debt schemes and cash
schemes.

56
 ▪ Gilt Schemes:

A gilt scheme or a government security scheme invests only in government bonds and cash.
Gilt schemes may be dedicated to gilts of varying maturities: long term, medium term and
short term. Examples of gilt schemes are Tata GSF and UTI G-Sec.

▪ Mixed Debt Schemes:

Mixed debt schemes invest in the government bonds, corporate bonds and cash. Typically,
30% - 40% of the corpus is invested in government bonds, 40% - 55% of the corpus is
invested in corporate bonds, and the balance is invested in cash. Examples of this scheme are
HDFC Income and UTI Bond.

▪ Floating Rate Debt Schemes:

Floating rate debt schemes invest in a portfolio comprising substantially of floating rate debt
bonds, fixed rate bonds swapped for floating rate returns, and cash. An example of this
scheme is Grindlays Floating Rate Scheme.

▪ Cash Schemes:

Cash schemes, also called liquid schemes, invest primarily in money market instruments
(TBills, commercial paper, certificate of deposits, call money and reverse repos) and deposits
with bank. They also have an allocation of about 25% of short term bonds. Currently cash
schemes account for the largest share of the mutual fund industry in India because corporates
use these schemes extensively for parking short term surplus funds. Examples of this scheme
are HDFC Liquid & Reliance Liquidity Fund.

5.4 open or close ended scheme:

Most mutual Fund schemes are either open-ended or close-ended. As the name suggests,
openended schemes are those that are continuously open to the public of buying or selling,
and doesn't have any maturity or closure period. Close-ended schemes, on the other hand
have a predefined lifetime and the redemption happens at maturity. Close-ended schemes
may also be listed at the stock exchange to provide liquidity options to the customer.
57
Open ended scheme:

When any mutual fund scheme opens for the first time to collect the corpus from the public,
then it is referred to as a New Fund Offer (NFO). Post the NFO, the asset management
company will take care of the administrative parts of collecting the investment amounts,
deciding the investment patterns, sending the unit details to the investors and so on. Post-this,
the Fund Manager starts off on the investment, and the scheme again re-opens to the public
for reinvestment at the daily NAV. The public can now buy or sell shares at the daily NAV
that is published.

The characteristics of an open-ended scheme are:

▪ Post the NFO, the fund is open at all times to the public of purchase or redemption of
units.

▪ The fund will publish daily NAV which will determine the purchase and redemption
price.

▪ The investors can buy or sell units directly from the Asset Management Company or
its distributors any time they desire.

▪ The corpus of the fund will vary based on the daily purchases or redemptions.

▪ The fund will have to keep adequate liquidity safeguards so that it can account for any
sudden and high volume redemption pressure.

▪ There is no fixed period for the scheme.

Close ended scheme:

In close-ended schemes, the mutual fund schemes open only for a particular duration at the
time of its NFO. Post-that the scheme is closed for the public and no additional corpus is
added to the scheme through the public investment.

58
59
The characteristics of close-ended schemes are:

▪ The fund is open only once to the public during the NFO and then closed till the
maturity.

▪ The fund has a defined maturity or tenure.

▪ The fund may at its discretion allow units to be sold at certain pre-determined dates or
intervals.

▪ The close-ended scheme may also be listed on the stock exchange and traded by the
investors. Typically, the scheme may trade at a discount to the NAV.

▪ The corpus of close-ended schemes is fixed.

▪ The fund manager doesn't face the same liquidity pressures as fund managers of an
open-ended scheme would do.

5.5 open ended schemes v/s close ended schemes:

A mutual fund scheme may be a close ended scheme or an open ended scheme. The key
differences between the two are as follows:

Details Open ended schemes Close ended schemes

Investment time Open at all times. Only during the (NFO) New Fund

Offer.

Liquidit
y or Directly to the AMC/through the Only at maturity/pre determined
redemption distributors at any time. intervals/traded on the stock
exchange.

Duration No fixed tenure. Fixed maturity period.

Fund managers Can face liquidity pressures due to No such pressures exist.
strategy sudden redemption.
 55

5.6 Pros and cons of mutual fund:

For most of the individual investors, mutual funds represent an excellent vehicle for investing
indirectly in stocks, bonds and cash. However, there are some disadvantages as well. The pros
and cons of mutual fund investing are summarized below:

Pros Cons

Diversification Expenses
Professional management Lack of thrill
Liquidity
Tax advantage
Comprehensive regulation
Transparency

61
 56

6. Real assets

Real Assets:

Assets that is real and physical in nature. For example, land, residential house, gold, silver,
diamonds, painting, etc... Real assets are denominated in units and not in rupees. This is a
important difference between real assets and financial assets. While the real assets loom large
in the wealth of people all over the world, they form a large share of the wealth of Indians.
Hence, a basic understanding of the features of various forms of real assets is required by all
investors.

Investment in real estate properties is at a peak now. It is popular due to high saleable
value after some years. Such properties include buildings, commercial premises, industrial
land, farmhouses, agricultural land, etc...
Such properties attract the attention of affluent investors and builders. However the resale
price may be attractive in due course when they can recover four times or even more the
price paid. This is how real estate is one of the attractive and a profitable avenue for the
investors of the property.

6.1 Features of real estate:

The real estate market is characterized by several imperfections like the following:

▪ High degree of government control: A high degree of government control exists with
respect to real estate. The nature of control/regulation changes over time.

▪ Stratified local markets: Within a given area, several levels of real estate markets may
coexist. Such diversity gives an edge to those who can accurately assess demand for
various submarkets in a given area.

▪ Poor information flow: Most real estate transactions are private and hence information
about them is not readily available. If a good database can be developed through local
contacts and market research, there can be a strong competitive edge in the real estate
market.

63
 ▪ Slow adjustment of demand and supply: Given its somewhat disorganized nature,
real estate market is characterized by periodic demand and supply imbalances. This
tends to give rise to real estate cycles. Those who can anticipate these cycles can take
maximum advantage of it.

6.2 Advantages of real estate:

Real assets offer several advantages. Some of them are as follows:

▪ Inflation hedge: Real assets often provide an inflation hedge because inflation means a
higher replacement cost for real estate, precious metals and other physical items.

▪ Efficient diversification: The returns from various types of real and financial assets are
less positively correlated compared to those from financial assets alone. This means
that a portfolio which is diversified across financial and real assets is more efficient in
reducing risk.

▪ Psychic pleasure: Investment in real assets is a psychic pleasure. You can easily
relate to an attractive house, a beautiful painting, an exquisite piece of jewellery.

▪ Safe haven: People invest in gold and other precious objects as a safe haven in times of
trouble.

6.3 Disadvantages of real estate:

Investing in real estate offers disadvantages as well. They are as follows:

▪ Illiquid markets: Stock or bonds can be sold instantly at a price close to the latest
quotation. But here in real estate, diamonds, paintings, etc... it may take months to get
the desired price.

▪ High spreads and commissions: The dealers spread or the broker’s commission in
stock and bonds is comparatively small. However, for most of the real assets (except
gold and silver) the spread or commission is high.

▪ No current income: real assets (possible exception of real estate) provide NO current
income. Investments in such assets entail storage and insurance costs.

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6.4 Attraction of real estate:

Real estate often represents the largest component of wealth of the individual investors.

Investment in real estate is attractive for various reasons. They are:

Capital appreciation in real estate is fairly high. In India, real estate

Capital Appreciation has appreciated at a higher rate compared to any other asset.

Real estate fetches a good rental income. Rental yield on real

Rental Income estate is typically higher than the dividend yield on equity shares.

A substantial portion of investment in real estate can be financed

Leverage with a bank loan.

Tax Shelter Real estate investment offers several tax advantages.

6.5 Types of real estate:

The types of real estate are listed below. They are as follows:

Residential House:

A residential house represents an attractive investment proposition for the following reasons.
They are:

▪ The total return (rental savings plus capital appreciation) from a residential house is
satisfactory.

▪ Loans are available from various quarters for buying/constructing residential

property.

▪ For wealth tax purposes, the value of a residential property is reckoned at its historical
cost and not at its present market price.

▪ Interest on loans taken for buying/constructing a residential house is tax-deductible

within certain limits.

Due to these advantages, a residential property (independent house or flat) represents the
most important part of the portfolio for the bulk of investors. Further, they may be interested
in buying some semi-urban land and/or a share in some holiday home project because they
involve relatively modest outlays.

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Commercial Property:

The more affluent investors may be interested in investing in commercial property. This may
take the form of constructing a commercial complex or buying office or shop space in a
commercial complex.

The appeal of such an investment lies mainly in the form of regular rental income which can
be revised upward periodically. Further, the commercial property may enjoy some capital
appreciation over a period of time. The disadvantage of such an investment is that it requires
a large outlay and may require time and effort in managing it.

Agricultural Land:

The appreciation in the value of agricultural land makes it an attractive

investment proposition. Its appeal is further enhanced by the following factors.
Therefore, the advantages of an agricultural land are as follows:

▪ Agricultural income per se is not taxable. However, it is included in the total income for
determining the tax rate applicable to the non-agricultural income of the assessee.

▪ Agricultural land is exempt from wealth tax.

▪ Loans are available for agricultural operations at a concessional rate.

▪ There is a charm in living in a farmhouse.

▪ Capital gains arising from the sale of agricultural land may be tax-exempt in some cases
(as certain types of agricultural land are not regarded as capital assets) or may be
taxed at a concessional rate.

As against the above attractions, investment in agricultural land has some disadvantages as
well. The principal ones are as follows:

▪ Farmhouses, in general, may not be safe.

▪ Agricultural activities are often uneconomical and unprofitable, particularly if done

on a part time basis.
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Suburban Land:

Land within city limits is often very costly. However, you can buy residential land (converted
land) in private layouts in suburban areas at affordable prices. Such an investment offers
scope for capital appreciation. Further, it gives you an opportunity to move to a quieter
location that may not be very far from the city as the city expands.

If you are considering buying suburban land, make sure that the developer satisfies all zonal
requirements and has a clear title. Many people have been cheated by fly-by-night land
developers.

6.6 Precious objects:

Investment in precious objects can include:

▪ Investing in precious metals.

▪ Investing in precious stones.

Investing in precious metals:

Precious metals are known for being volatile and quite unpredictable. Gold and silver are the
two most widely held precious metals and appeal to almost all kinds of investors. They have
a reputation for being stable, safe bet when it comes to investing. It offers a good sense of
security, as an instant mode of liquidity if at all the market crashes or when liquidity is
required for any reason. If the economy is doing OK, precious metals can still be a fairly wise
investment
strategy, but that’s not to say it’s without risk.

The advantages of precious metals are as follows:

▪ Historically, they have been good hedges against inflation.

▪ They are highly liquid with very low trading commissions.

▪ They are highly attractive instruments for the investors.

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 ▪ Returns on gold, in general, have been negatively correlated with the returns on stock.
So, in short, gold provides a good diversification opportunity.

▪ They possess a high degree of ‘moneyness*’.

*a substance possesses moneyness when it is (1) a store of value (2) durable (3) easy to own
anonymously (4) easy to subdivide into small pieces that are also valuable (5) easy to
authenticate (6) interchangeable, that is, homogenous/fungible.

As against these advantages, investment in gold and silver has the following disadvantages
as well. They are as follows:

▪ They do not provide regular current income.

▪ There is no tax benefits associated with them.

▪ There may be a possibility of getting cheated.

Investing in gold and silver:

Investment in gold and silver can be in physical or non-physical form. The physical form
includes bullion, coins and jewellery. Gold or silver bars, called as bullions, come in wide
range of sizes. Gold or silver coins may/may not have collector’s value. Jewellery made of
gold or silver may provide aesthetic satisfaction but is not a good form of investment because
of high making charges which may not be recovered when sold or exchanged.

The non-physical form includes futures contracts, units of gold exchange traded funds
(ETFs) and shares of gold mining companies. Investors can buy futures contract in gold or
silver as these contracts tend to be highly leveraged investments. The units of gold exchange
traded funds (ETFs) are listed on a secondary market and investors can buy such units easily.
Gold ETFs have been permitted in India since March 2007.

Benchmark Mutual Fund and UTI were the first two funds to launch gold ETFs. Each share
th
of gold ETF represents 1/10 of an ounce of physical gold i.e. equivalent to 1gm of physical
gold.

68
This may be the best way to invest in gold as it spares you the hassles involved in
ascertaining of the purity of gold and storing it safely.

Finally, an investor can buy shares of common stock of a company that mines gold or silver
as an indirect way of investing in these metals.

Most Common Ways to Invest in Precious Metals:

▪ Gold Bullion: Gold bullion (or bars) is pure (or almost pure) gold. We can purchase
these at banks, brokerage houses and precious metals dealers, and revel in the
decadence of owning gold bars. However, we should always buy from a reputable
source and have the metal certified for weight and purity so we don't get taken.
Meanwhile, when we buy gold bullion we must also have a very safe place to store it
(and recognize that we won't earn interest on it). We can also buy silver bullion,
platinum bullion and palladium bullion.

▪ Numismatics: Numismatics is minted coins (in a variety of precious metals, but most
commonly silver or gold) that you usually created to commemorate a special
occasion.

▪ Certificates: We can buy certificates that represent the ownership of a specified

quantity of gold, silver or platinum. These allow us to own precious metals without
having to worry about storing the actual product.

▪ Stocks and Mutual Funds: A relatively simple and safe way to invest in the precious
metals market is with which are diversified and managed for us. Precious metals
stocks are also available, but, because they are less diversified, are a bit more risky.

▪ Futures: Futures are a contract to buy or sell precious metals for a certain price at a
future point in time. While this has the potential for a large return, it is also extremely
risky. Experts typically only recommend investing in precious metals futures if we are
very familiar with the metals market (and are confident that we will be able to
accurately predict whether values will rise or fall).

▪ Tax Implications: Since there is no income as such from holding gold/silver, there is
no liability for income tax. But bullion and jewellery are subject to capital gains and
69
 wealth tax after necessary deductions. However, buying gold/silver in large quantities
may invite the tax man to the place.

Investment in precious stones:

Diamonds, rubies, emeralds and sapphires have appealed to the investors since time
immemorial because of their aesthetic appeal and rarity.

Diamonds:

rd
De Beers Consolidated Mines Limited, a South African Company, owns about 1/3 of the
diamond mines in the world and has contracts to buy the output of a number of diamond
mines. Hence, it substantially controls most of the supply of the diamonds. The control along
with its enormous financial resources enables De Beers to exercise a certain degree of control
over the prices of diamonds. If diamond prices stagnate, De Beers curtails its supply and even
buys diamonds to prop up the prices. Similarly, if diamond prices rise sharply, De Beers
expands its supply to moderate the price hike.

The quality of a diamond is basically judged in terms of the 4Cs, i.e. carat weight, cut, clarity
and colour. Depending on the quality of the diamond, the price per carat may vary. A perfect
diamond may cost five times more per carat as compared to an imperfect diamond. Some
institutions like (GIA) Gemological Institute of America inspect diamonds for a fee and issue
a certificate describing them in the terms of 4Cs.

Coloured stones:

Rubies, sapphires and emeralds are referred to as coloured stones. A high quality ruby is
‘pigeon blood red’ in colour and clear; a high quality sapphire is ‘pure blue’ in colour and
clear; a high quality emerald is ‘deep, translucent green’.

While coloured stones are much scarcer than diamonds, the latter command a higher price per
carat for the following reasons. They are as follows:

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 ▪ Jewellery lovers prefer diamonds over coloured stones.

▪ De Beers Consolidated Mining Limited supports diamond prices.

▪ It is difficult to differentiate genuine small coloured stones from industrially

manufactured coloured stones.

Precious stones make sense for the affluent people who have skills in buying them for the
following reasons. They are as follows:

▪ Diamonds have a gratificational and emotional attraction. They have great appeal as
objects of adornment.

▪ According to trade sources, diamond prices have been appreciating at an average rate
of about 10% p.a.

▪ They can be held anonymously. It means the investor can buy diamonds as much as
they want without any government interference and without any registration.
Moreover, diamonds can be portable.

If you wish to buy diamonds primarily for investment purposes, you should buy larger
diamonds (one carat and above) which are certified. A diamond certificate provides details
about the quality and authenticity of the diamond. It helps establishing the value of the
diamond.

While precious stones may have appeal for the affluent investors and those who have skills in
buying them, they are not suitable for the bulk of the investors for the following reasons.
They are as follows:

▪ Precious stones can be very illiquid. It may not be easy to sell them quickly without
giving major price concessions.

▪ The grading process by which the quality and value of precious stones is determined
can be quite subjective.

▪ For investment purpose, larger precious stones are suitable. Most investment grade
precious stones, diamonds in particular, require huge investments.
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 ▪ Precious stones do not earn a regular return during the period they are held. On the
contrary, the investor has to incur the costs of insurance and storage.

6.7 Art objects:

Objects which possess aesthetic appeal because their production requires skill, taste,
creativity, talent and imagination may be referred to as art objects. According to this
definition, paintings, sculptures, etchings, and so on, may be regarded as art objects. The

value of an art object is a function of its aesthetic appeal, rarity, reputation of the creator,
physical condition and fashion. A brief description of the more commonly bought art objects
i.e. paintings and antiques. They are as follows.

Paintings:

Paintings appear to be the most popular amongst the art objects. In the last decade, interest
for paintings has grown considerably.

If an investor has an inclination to buy paintings, it is important to consider the painting to be

viewed as an object of art as well as an investment medium.

Antiques:

An object of historical may be considered as an antique. It could be a coin, a manuscript, a

sculpture, a painting, or any other object.

Antiques tend to appreciate in value over time, but in a very unpredictable manner.

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 7. Research methodology

Research Objective: To study and analyze the various investment avenues available for
an Indian investor.

Sampling technique:
Initially, a rough draft will be prepared keeping n mind the objective of the research. A study
will then be undertaken in order to know the accuracy of the questionnaire. The selection of
units from the population based on their easy availability and accessibility to the researcher is
known as convenience sampling.

Convenience sampling technique will be used for collecting the data from different investors.
This technique is the best in surveys dealing with an exploratory purpose for generating
ideas.

Sampling unit:
The respondents who will be asked to fill out the questionnaires are the sampling units. These
comprise of employees of MNC’s, government employees, self employed, professionals, and
other investors.

Sampling size:
The sample size will be restricted to only 100, which comprises of people from Mumbai.

Sampling area:
The area of research is Mumbai.

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 8. Data Analysis and interpretation
Primary data:
The information collected is conducted by a survey by distributing a questionnaire to 100
sample investors in Mumbai. These 100 sample investors are of different age groups,
different occupations, different income levels and more over different qualifications.

▪ Sample size: 100 investors.

▪ Research type: Descriptive.

▪ Method: Questionnaire.

Analysis in this report:

An analysis is made on the response received from 100 sample investors. The objective of

the report is to find out the investor’s behaviour on various investment avenues, to find out

the needs of the current and future investors.

The questionnaire contains various questions on the investor’s financial experience, based

on these experiences an analysis is made to find out a pattern in their investments.

Based on these investment experiences of the 100 sample investors an analysis is made and

74
interpretations are drawn. Interpretations are made on a rational basis, these

interpretations may be correct or may not be correct but care is taken to draw a valid and

approvable interpretation.

Analysis is made only from the information collected through questionnaires no other data or
information is taken into consideration for purpose of the analysis.

Analysis of the Survey:

TABLE 1: DEMOGRAPHICS OF THE SAMPLE INVESTOR

Parameter No. of investors Percentage

GENDER
Male 58 58%
Female 42 42%
TOTAL 100 100%
AGE GROUP

Below 20 0 0%

Between 30-40 35 35%

Above 40 30 30%

TOTAL 100 100

%

QUALIFICATION
Under graduates 7 7%

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Graduates 46 46%

Post graduates 39 39%

Others 8 8%

TOTAL 100 100

%

OCCUPATION
Salaried 52 52%

Business 22 22%

Professional 14 14%

House wife 11 11%

Retired 1 1%

TOTAL 100 100

%

ANNUAL INCOME
Below Rs. 2lakhs 37 37%

Rs. 2lakhs-Rs.4lakhs 31 31%

Rs. 4lakhs-Rs.
6lakhs 18 18%
Above Rs. 6 lakhs 14 14%

TOTAL 100 100

%

Interpretation of the survey:

Table 1 above shows that 58% of the investors are men and the rest 42% are women.
Generally, men bear the financial responsibility in Indian society, and therefore, they have to
make investment (and other) decisions to fulfil the financial obligations.

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When it comes to age, it was found that 35% are young and significant number under the age
group of 20-30. 35% of them are in the age group of 30-40. 30% of them are above 40 years
of age. There are no investors below 20 years of age.

Nearly 52% of the investors belong to the salaried class, 22% were business class, 14% were
professionals, 11% were housewives and the rest were retired.

It was found that irrespective of annual income they earn all the investors interested in
investments since today’s inflated cost of living is forcing everyone to save for their future
needs, and invest those saved resources efficiently.

39% of the individual investors covered in the study are postgraduates, 46% investors are
graduates and 7% of the investors are under graduates. The remaining 8% investors can be
classified as illiterates or others. It is interesting to note that most of the investors (covered in
the study) can be said to possess higher education (bachelors degree and above), and this
factor will increase the reliability of conclusion drawn about the matters under investigation.

37% of the investors are earning less than Rs. 2lakhs per annum, 31% investors are earning
between Rs. 2lakhs and Rs. 4lakhs, 18% investors are earning between Rs. 4lakhs and Rs.
6lakhs and 14% investors are earning above Rs. 6lakhs per annum. Since most of the
investors are below Rs. 4lakhs annual earnings, many of them are non risk takers.

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TABLE 2: OTHER CHARACTERISTICS OF SAMPLE INVESTORS.
Table 2.1: Investors willing to lose principal amount
Parameter No. of investors Percentage
YES 5 5
NO 95 95
TOTAL 100 100

NO. OF INVESTORS

YES
NO

95

Since many of the investors annual earnings are below Rs. 2lakhs and Rs. 4lakhs, many of
them do not take the risk of losing their principal investment amount. 95% of the sample
investors are not ready to lose their principal investment amount as compared to the other 5%
upto a certain limit.

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 Table 2.2: Time period preferred to invest
Parameter No. of investors Percentage
Short term 10 10

Medium term 60 60
Long term 30 30

Total 100 100

NO OF INVESTORS

10
30

LONG TERM
MEDIUM
TERM SHORT
TERM
60

Many of the investors prefer to invest their money for medium term i.e. from 1-5 years,
instead of short term or long term. 10% investors prefer investing in short term, 60%
preferred in medium term and 30% in long term.

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This table shows the savings objectives of the sample investors, investors are the option to
select one or more savings objectives, since there may be one or more answers, each parameter
has a particular vote given by the investors. The maximum votes given by the investors
st
represent that to be the main or most referred objective. 1 rank is given to the children’s
education. Many
investors feel that investing money for the future of the child’s education is the prime and the
most important need. Many investors in the age group of 20-30 and 30-40 are thinking of
saving for their children’s marriage. So children’s marriage is given last rank. After children’s
education, investors are saving for their own health care. There is a greater need for the
Indians to save for their health care especially for those who are living a mechanical and a
sedentary lifestyle. Retirement and home purchase are given subsequent ranks after health
care.

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All investors have common purposes for investing. Salaried people invest for tax savings and
for future expenditure. Business people invest for the purpose of earning returns. Almost all
the investors have all the four purposes behind investing their money.

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When the investors were asked about the factors considered before investing, many of them
st
voted for safety of principle and low risk. 1 rank was given to safety of principal and then
nd
2 rank was given to low risk. Now this is not practically possible in and for the Indian
investment avenues. Investment and earning higher returns follows a simple thumb rule:
‘higher the risk, higher the returns and vice-versa.’ Every investor must know this principle
before investing.

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 9. Conclusion
This study confirms the relationship between age and risk appetite of individual investors. An
individual investor would prefer investing in financial assets/products which give risk free
returns but also definitely expect high returns for bearing a higher level of risk for those who
have larger risk appetite.

This therefore confirms that Indian investors even if they belong to a high income
category/class, well educated, salaried, independent, financially sound and stable, they are
conservative participants/investors and prefer playing safe in the market.

The investment product designers can design products which can cater to the investors who
are low risk tolerant and use TVs as a marketing media for awareness of the products/assets.

This study highlights all the investment avenues which in turn form the base of Wealth
Management

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 10. Bibliography
Websites Referred:

www.google.com
www.investopedia.com
www.sebi.gov.in
www.moneycontrol.com
www.quora.com
www.efinancemanagement.com
www.investingforme.com

Books Referred:

1)Wealth Management in the New Economy: Investor Strategies for Growing, Protecting and
Transferring Wealth
Book by Norbert M. Mindel and Sarah E. Sleight

2) Private Wealth Management:

Book by G. Victor Hallman and Jerry Rosenbloom

3) Indian Mutual Funds Handbook (5th Edition): A Guide for Industry Professionals and
Intelligent Investors
Book by Sundar Sankaran

11.Annexure
1)What is your preferred mode of investment?
1. Equity Shares

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 2. Preference Shares
3. Debentures
4. Mutual Funds

2)What is your age-group?

1. 18-25 2.
25-35
3. 35-45
4. 46 and above

3)Are you willing to lose your principal amount?

1. Yes
2. No

4)What is your preferred time-frame for an investment?

1. Short term
2. Medium term
3. Long term

5)What is the objective of your investment?

1. Education
2. Healthcare
3. Property
4. Children’s marriage
5. Other

6)What is the purpose behind your investment?

1. Future expenditure
2. Tax Saving
3. Wealth creation
4. Earning returns

7)What are the factors you consider before making an investment?

1. Safety of investment
2. Low risk
3. High risk
4. Maturity Period

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