A PROJECT REPORT ON

STUDY OF TRADITIONAL & ALTERNATIVE FORMS OF INVESTMENT AVENUES

SUBMITTED BY

PRATIK V. CHHADVA ROLL NO. 71 TO Prof. RITU MAHESHWARI

in partial fulfillment for the award of the degree

MASTERS IN MANAGEMENT STUDIES (M.M.S.)

IN FINANCE

THAKUR INSTITUTE OF MANAGEMENT STUDIES & RESEARCH

UNIVERSITY OF MUMBAI
BATCH: 2010-2012

BONAFIDE CERTIFICATE

This is to certify that this project report Study Of Traditional & Alternative Forms of Investment Avenues is a bonafide work of Pratik V. Chhadva in part completion of the Masters in Management Studies and has been done under my guidance. The project is in the nature of original work that has not so far been submitted for any degree of this university. References of work and sources of information have been given at the end of the project. Signature of the candidate (Pratik V. Chhadva)

Forwarded through the research guide Signature of the guide: Prof. Ritu Maheshwari Designation: Asst. Professor

ACKNOWLEDGEMENT

It is with great pleasure that I present the STUDY OF TRADITIONAL AND ALTERNATIVE FORMS OF INVESTMENT AVENUES in the form of a project work. I acknowledge with sincere gratitude to all those who have helped me to make this report a success. I take this opportunity to express my deep sense of gratitude to Prof. RITU MAHESHWARI, Project Guide, Thakur Institute Of Management Studies & Research, University of Mumbai, for guiding me with keen interest in successful completion of this project work. And last but not the least, I would like to thank all the people both from within and outside the college, those I came across during my masters and who helped me with my learning objective.

Executive Summary

Investment, in literal terms, implies redirecting resources from being consumed today so that they may create benefits in the future. In the world of business, it implies using your money to buy different assets which may provide you an income or grow in its value over a period of time. This basic concept of investing has been known to man since several years. However, as time passed, the different investment options grew and became more and more developed and complicated. This report studies the basic concept of Investment, its need and then looks at the different investment avenues that have developed over the years. These investment avenues have been essentially divided into Traditional forms of investment and the more recent and structured Alternative investments. Traditional investments comprising of asset classes like gold, government bonds, bank deposits and equities have been studied, thus documenting their characteristics and risk return profiles. Similarly, Alternative investment options which garnered much attention from institutional investors and HNIs in the past few years have been looked at with a special focus on the following sectors i.e., Hedge Funds, Real Estate and Private Equity. Considering the ongoing global financial crisis, the effectiveness of these different forms of investment options have been studied with respect to their risk return profiles and their performance over the years. Throughout the report, a strong emphasis has been laid on conceptual understanding of different forms of investments so as to educate every investor and make him capable of making a reasonable investment decision, thereby constructing a balanced Investment Portfolio for himself as per his needs.

CONTENTS

1. Introduction To Investments
1.1 What are investments? 1.2 Why is there a need for investment? 1.3 Why do people invest?

1 1 1 2

2. Asset Classes
2.1 Traditional Investments 2.1.1 Gold 2.1.2 Post Office savings 2.1.3 Fixed deposits 2.1.4 Investment in the equity market and mutual funds 2.1.5 Money Market 2.2 Pros and cons of traditional investment options 2.3 The risk and returns in traditional investments

5 6 6 8 9 10 14 18 19

3. Shift from Traditional to Alternative Investments

20

4. Alternative Investments 4.1 What are alternative investments? 4.2 Pros and cons of alternative investments 4.3 Types of Alternative Investments 4.3.1 Private Equity Fund 4.3.2 Hedge Fund 4.3.3 REIT 4.3.4 Venture Capital 4.3.5 Fund of Funds

22 22 23

24 25 28 30 33

4.3.6 Derivatives - Equity, Commodity, Interest & Currency Swaps 4.4 Strategies of few Alternative Investment options 4.5 Traditional v/s Alternative Investments 4.6 Global assets under management

35 40 41 41

5. Analysis of Private Equity

5.1 Why PE over other alternatives? 5.2 Types of Private Equity 5.3 Private equity Flow 5.4 Pros and cons of PE 5.5 Global Private Equity 5.6 The PE market in INDIA 5.7 Sectoral investments by PE Funds 5.8 Fund Raising 5.9 Exiting Investments 5.10 Guidelines for investments 5.11 Risk-Return in Private Equity 5.12 Risk Mitigation

43 44 45 48 48 51 53 55 55 57 58 59 62

6. Case studies

65

7. Conclusion

70

Bibliography

72