Various Investment Alternatives

Group: 5
Topics :
•Derivatives
•Insurance Schemes
•Bank Deposits
•Post office
•ADR & GDR
 BANK DEPOSITS
Bank deposits consist of money placed into banking institutions for
safekeeping. These deposit are made to deposit accounts such as:
a) Saving Accounts
b) Checking Accounts
c) Money Accounts
d) Market Accounts
They offer different types of deposits as depending on the needs
of the customer.
Interest is paid by banks on regular interval or at maturity date.
These deposit is preferred more of their liquidity and safety than
for return thereof.
Features of bank deposit

• Fixed deposit scheme offered by the company.

• Used by the companies to borrow from small

investors.

• Offers higher returns than bank FD’s.

• Rating can be guide to their safety . Go in for FD’s

with a higher and stable rating.
 Types Of Bank Deposit
1. Demand Deposit
• Savings Account
• Current Account
2. Term Deposit
• Fixed Deposit
• Recurring Deposit
 Advantages of Bank Deposits
• Liquidity
• Safe Investment
• Flexible Maturity Date
 Disadvantages of Bank Deposits
• Low Returns
• Issue of liquidity
• Penalty
 DERIVATIVE
• A derivative is a contract that derives its value from
the performance of an underlying entity. This
underlying entity can be an asset, index, or interest
rate, and is often simply called the “underlying".
• Suppose A wants to buy 500 shares of ABC
Ltd. Which is presently quoted at the rate of
1000 each share, But A does not want to buy
these shares today. He wants to buy these
shares after 3 months. So he simply go to ABC
ltd. and asks them to sign a contract in which
it is written that A can buy 500 share @ 1000
each after 3 months. By signing the contract
ABC Ltd. Gives right to A to buy the 500 shares
@ 1000 each after 3 months.
 Functions of Derivatives
1. Derivatives shift the risk from the buyer of the
derivative product to the seller and as such are very
effective risk management tools.
2. Derivatives help in facing financial risk arising due to
change in prices, interest rates and currency rates.
3. Derivatives provide opportunities to make profit for
those who are ready to bear risk.
 Types of Derivatives
There are four types of derivatives:
1. Forwards
2. Futures
3. Options
4. Swaps
 American Depositary
Receipt(ADR)
An American depositary receipt (ADR) is a
negotiable certificate issued by a U.S. depository
bank representing a specified number of shares—
or as little as one share—investment in a foreign
company's stock. The ADR trades on markets in
the U.S. as any stock would trade.
 ADVANTAGES OF ADR

• The American investor can invest in foreign companies

which can fetch him higher returns.
• The benefit of currency fluctuation can be availed.
• It is an easier way to invest in foreign companies as there
are no restrictions to invest in ADR.
• ADR simplifies tax calculations. Trading in shares of
foreign company in ADR would lead to tax under US
jurisdiction and not in the home country of company.
• The pricing of shares of foreign companies in ADR is
generally cheaper. Hence it provides additional benefit to
investors.
 DISADVANTAGES OF ADR
• Even though the transactions in ADR take place in US dollars,
still they are exposed to the risk associated with foreign
exchange fluctuation.
• The number of options to invest in foreign companies is
limited.
• This limits the choice available to US investor to invest.
• The investment in companies opting for ADR often becomes
illiquid as investor needs to hold the shares for long term to
generate good returns.
• Any violation of compliance can lead to strict action by
Securities Exchange Commission.
GLOBAL DEPOSITORY RECEIPTS
(GDR)
Global Depository Receipt (GDR) is an instrument
in which a company located in domestic country
issues one or more of its shares or
convertibles bonds outside the domestic country.
Global Depository Receipt (GDR) is a certificate
issued by an international bank to a company
against purchasing some shares of the same
company which are then traded on international
stock exchange.
FOR EXAMPLE : A company based in USA, willing to get
its stock listed on German stock exchange can do so
with the help of GDR. The US based company shall
enter into an agreement with the German depository
bank, who shall issue shares to residents based in
Germany after getting instructions from the domestic
custodian of the company.
GDR PROCESS MECHANISM
 Advantages of GDR
• GDR provides access to foreign capital markets.
• A company can get itself registered on an overseas
stock exchange or over the counter and its shares
can be traded in more than one currency.
• GDR expands the global presence of the company
which helps in getting international attention and
coverage.
• GDR are liquid in nature as they are based on
demand and supply which can be regulated.
• The valuation of shares in the domestic market
increase, on listing in the international market.
 To be continued..

• GDR can be freely transferred.

• Foreign Institutional investors can buy the
shares of company issuing GDR in their
country even if they are restricted to buy
shares of foreign company.
• M GDR increases the shareholder base of
the company.
 Disadvantages of GDR
• Violating any regulation can lead to serious
consequences against the company.
• Dividends are paid in domestic country’s
currency which is subject to volatility in the
forex market.
• It is mostly beneficial to High Net-Worth
Individual (HNI) investors due to their capacity
to invest high amount in GDR.
• GDR is one of the expensive source of finance.