Investement Avenues in India

Investment Avenue In India
Investment Avenues In India Introduction

Investment The money we earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle we may like to use savings in order to get return on it in the future. This is called Investment. Investment is a term frequently used in the fields of economics, business management and finance. It can mean savings alone, or savings made through delayed consumption. Investment can be divided into different types according to various theories and principles. Investment is the investing of money or capital in order to gain Profitable returns, as interest, income, or appreciation in value. When an asset is bought or a given amount of money is invested in the bank, there is anticipation that some return will be received from the investment in the future. There are a number of definitions of investment. While dealing with the various options of investment, the defining terms of investment need to be kept in mind. Investing is a very exhaustive subject. It means different things to different people. At some point of time we all are investing in something. It may be relationships; it may be marriage or a career. Life is all about doing something to reap benefits in the future. So all of us are in the investment game. However, it means different things to different people. People invest in:
Large families so that when they grow old, their children can take care of
them.
Education, to ensure job security and comfortable life. Land and crops, in order to fend for themselves and their families. Small families, to provide a good standard of education and living for their
child.
Their health. By exercising regularly and eating a balanced diet. Charitable works, to serve the needy and the poor, and ~
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External assets like real estate, shares in listed companies, gold, silver, etc.,
so that they can fall back upon them in tough times. Thus we have a lot of people doing things in the name of investing. This makes the subject of investment very complex. Reasons for Invest One needs to invest to: a. b. c. Earn return on your idle resources Generate a specified sum of money for a specific goal in life Make a provision for an uncertain future
One of the important reasons why one needs to invest wisely is to meet the cost of Inflation. Inflation is the rate at which the cost of living increases. The cost of living is simply what it costs to buy the goods and services you need to live. Inflation causes money to lose value because it will not buy the same amount of a good or a service in the future as it does now or did in the past. For example, if there was a 6% inflation rate for the next 20 years, a Rs. 100 purchase today would cost Rs. 321 in 20 years. This is why it is important to consider inflation as a factor in any long-term investment strategy. Remember to look at an investment's 'real' rate of return, which is the return after inflation. The aim of investments should be to provide a return above the inflation rate to ensure that the investment does not decrease in value. For example, if the annual inflation rate is 6%, then the investment will need to earn more than 6% to ensure it increases in value. If the after-tax return on your investment is less than the inflation rate, then your assets have actually decreased in value; that is, they won't buy as much today as they did last year.
Start Investing
The sooner one starts investing the better. By investing early you allow your investments more time to grow, whereby the concept of compounding increases your income, by accumulating the principal and the interest or dividend earned on it, year after year. The three golden rules
For all investors are: Invest early Invest regularly Invest for long term and not short term Care While Investing Before making any investment, one must ensure to:
Obtain written documents explaining the investment Read and understand such documents Verify the legitimacy of the investment Find out the costs and benefits associated with the investment Assess the risk-return profile of the investment Know the liquidity and safety aspects of the investment Ascertain if it is appropriate for your specific goals Compare these details with other investment opportunities available Examine if it fits in with other investments you are considering or you hold Deal only through an authorized intermediary Seek all clarifications about the intermediary and the investment Explore the options available to you if something were to go wrong, and then,
if satisfied, make the investment. These are called the Twelve Important Steps to Investing. Investing is a Plan
It is not a product or a procedure. It is a very personal plan. An individual has to decide what his goals are and how he can go from one level of comfort to another he would have certain resources coming to him and certain commitments to be fulfilled. A person is able to earn when he is young.
These earnings need to be invested wisely so that in old age when a persons capacity to earn diminishes, he can fall back on his investments. Therefore, he needs to have a clear picture of his financials before making an investment plan. Example: Take the case of working couple, aged 30, with two school going childrena son and a daughter. At present they live a very comfortable life. But they need to plan for the future and a very comfortable life. But they need to plan for the future expenses. The children will want to go in for higher studies within next 7-10 years. They will need to be married. The family might need a bigger house or there could be some major illness in the family. All these expenses will have to be met. The needs will increase but the income may not keep the pace. If one does not plan for these expenses one may not be able to achieve the milestones as and when they come. So this couple needs to estimate their income flow and visualize their expenses. An investment plan will help to plan for eventualities in the future. If one is at comfort level A. From there one needs to go to a higher comfort level B. to do that one would need different types of investment vehicles like stocks, bonds, real estate, etc. one would choose the investment vehicles according to ones needs. Figure explain this
B
Figure
INSURANCE INSURANCE
GOLD GOLD REAL REAL ESTATE ESTATE
BONDS BONDS MUTUAL MUTUAL FUNDS FUNDS STOCKS STOCKS
COMMODITIES COMMODITIES
A
1.1 Factors Affecting Investment Decisions Before you begin investing, its helpful to understand some of the factors that will affect your investment decisions, such as: Risk Liquidity Time Horizon Total Return Diversification Tax Consequences Rupee Cost Averaging
Risk: Risk in investments can take various forms. Liquidity: A "liquid" investment is one that can be readily turned into cash if you need the funds on short notice. Investments can vary greatly in their degree of liquidity. Shares can be traded on any business day at their current market value, which may be more than, equal to or less than the amount initially invested. Time Horizon : Different investors have different time frames in which to achieve their investment objectives. Generally, young investors with long time horizons should be able to assume greater risks because they have more time to offset any losses with the higher return potential of investments with greater risk. Older investors, however, often choose to reduce risk because they have less time to recoup losses. Total Return: All investments provide one or a combination of two different types of returns to investors - income or growth. Income is the dividend earned from stocks. Growth is the price appreciation of the security. The total return of an investment is the combination of income and growth realized over a given time period. In selecting investments based upon their expected total return, you should understand which portion is generated from income and which from growth. Usually, the greater the reliance on income, the lower the market risk but the greater the long-term purchasing power (or inflationary) risk.
Diversification:
Building a diversified portfolio with securities spread across different investment classes can help you avoid the risk of having all of your eggs in one basket. By mixing industries and types of assets, you spread your risk. A particular market condition may have less impact if your portfolio consists of a wide assortment of securities than if you purchase only one type of security. Most beginning investors don't have sufficient capital to properly diversify their portfolio by purchasing individual securities. Investing in mutual funds allows you to buy a professionally managed, diversified portfolio with relatively small rupee amounts. In addition, many mutual funds allow you to take advantage of rupee cost averaging by investing at regular intervals. Note: Mutual fund investing involves risk. Your principal and investment return in a mutual fund will fluctuate in value. Your investment, when redeemed, may be worth more or less than the original cost. 1.2 Tax Consequences: Not all investment returns are subject to the same taxation. Short term and long term returns are taxed at different capital gains rates or even taxed as business income. The taxation policy should be kept in mind while deciding which investments to make. Rupee Cost Averaging: Rupee cost averaging, the practice of committing a fixed amount of money to an investment program on a regular basis, is a popular practice with many longterm investors. By investing a set amount regularly (usually monthly or quarterly), investors are able to avoid the pitfalls of trying to time market peaks and valleys. Also, because the amount of the investments is set, investors who practice rupee cost averaging buy more shares of a stock or mutual fund when they are less costly and fewer shares when they are more expensive. Like any investment strategy, rupee cost averaging doesn't guarantee a profit or protect against loss in a declining market. Because rupee cost averaging requires continuous investment regardless of fluctuating prices, you should consider your financial and emotional ability to continue the program through both rising and declining markets.
Investing is gambling Investing is NOT gambling. Gambling is putting money at risk by betting on an uncertain outcome with the hope that you might win money. Part of the confusion between investing and gambling, however, may come from the way some people use investment vehicles. For example, it could be argued that buying a stock based on a "hot tip" you heard at the water cooler is essentially the same as placing a bet at a casino. A "real" investor does not simply throw his or her money at any random investment; he or she performs thorough analysis and commits capital only when there is a reasonable expectation of profit. Yes, there still is risk, and there are no guarantees, but investing is more than simply hoping lady luck is on your side
INVESTMENT AVENUES
PHYSICAL ASSETS
FINANCIAL ASSETS
REAL ESTATE GOLD
SHORT TERM
LONG TERM
SAVING BANK A/C 1.3 Various Options available for Investment
COMMODITIES
POST OFFICE SAVINGS PUBLIC PROVIDENT FUND COMPANY FIXED DEPOSIT MUTUAL FUNDS
OTHERS
MONEY MARKET FIXED DEPOSIT WITH BANKS
One may invest in: Physical assets like real estate, gold/jeweler, commodities etc. and/or Financial assets such as fixed deposits with banks, small saving instruments with post offices, insurance/provident/pension fund etc. or securities market related instruments like shares, bonds, debentures etc.
Various Short-term financial options available for investment Broadly speaking, savings bank account, money market/liquid funds and fixed deposits with banks may be considered as short-term financial investment options: Savings Bank Account
Savings Bank Account is often the first banking product people use, which offers low interest (4% - 5% p.a.), making them only marginally better than fixed deposits. Money Market or Liquid Funds Money Market or Liquid Funds are a specialized form of mutual funds that invest in extremely short-term fixed income instruments and thereby provide easy liquidity. Unlike most mutual funds, money market funds are primarily oriented towards protecting your capital and then, aim to maximize returns. Money market funds usually yield better returns than savings accounts, but lower than bank fixed deposits. Fixed Deposits with Banks Fixed Deposits with Banks are also referred to as term deposits and minimum investment period for bank FDs is 30 days. Fixed Deposits with banks are for investors with low risk appetite, and may be considered for 6-12 months investment period as normally interest on less than 6 months bank FDs is likely to be lower than money market fund returns. 1.4 Various Long-term financial options available for investment Post Office Savings Schemes, Public Provident Fund, Company Fixed Deposits, Bonds and Debentures, Mutual Funds etc. Post Office Savings: Post Office Monthly Income Scheme is a low risk saving instrument, which can be availed through any post office. It provides an interest rate of 8% per annum, which is paid monthly. Minimum amount, which can be invested, is Rs. 1,000/- and additional investment in multiples of 1,000/-. Maximum amount is Rs. 3, 00,000/- (if Single) or Rs.6, 00,000/- (if held jointly) during a year. It has a maturity period of 6 years. Premature withdrawal is permitted if deposit is more than one year old. A deduction of 5% is levied from the principal amount if withdrawn prematurely. Public Provident Fund: A long term savings instrument with a maturity of 15 years and interest payable at 8% per annum compounded annually. A PPF account can be opened through a
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nationalized bank at anytime during the year and is open all through the year for depositing money. Tax benefits can be availed for the amount invested and interest accrued is tax-free. A withdrawal is permissible every year from the seventh financial year of the date of opening of the account and the amount of withdrawal will be limited to 50% of the balance at credit at the end of the 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower the amount of loan if any. Company Fixed Deposits: These are short-term (six months) to medium-term (three to five years) borrowings by companies at a fixed rate of interest which is payable monthly, quarterly, semiannually or annually. They can also be cumulative fixed deposits where the entire principal along with the interest is paid at the end of the loan period. The rate of interest varies between 6-9% per annum for company FDs. The interest received is after deduction of taxes. Bonds: It is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest on a specified date, called the Maturity Date. Mutual Funds: These are funds operated by an investment company which raises money from the public and invests in a group of assets (shares, debentures etc.), in accordance with a stated set of objectives. It is a substitute for those who are unable to invest directly in equities or debt because of resource, time or knowledge constraints. Benefits include professional money management, buying in small amounts and diversification. Mutual fund units are issued and redeemed by the Fund Management Company based on the fund's net asset value (NAV), which is determined at the end of each trading session. NAV is calculated as the value of all the shares held by the fund, minus expenses, divided by the number of units issued. Mutual Funds are usually long term investment vehicle though there some categories of mutual funds, such as money market mutual funds which are short term instruments.
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Bond: Bond is a negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan. The various types of Bonds are as follows: Zero Coupon Bond: Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond. Convertible Bond: A bond giving the investor the option to convert the bond into equity at a fixed conversion price. Treasury Bills: Short-term (up to one year) bearer discount security issued by government as a means of financing their cash requirements.
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FIXED DEPOSITS
MUTUAL FUNDS
REAL ESTATE
STOCKS
BONDS COMMODIT Y
GOLD
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Equities
Share/Stock/Equity A share is one of a finite number of equal portions in the capital of a company, mutual fund or limited partnership, entitling the owner to a proportion of distributed, non-reinvested profits known as dividends and to a portion of the value of the company in case of liquidation. Dividends are not guaranteed. They may be increased if the company performs well, but they may also be reduced or eliminated if the company performs poorly. So when you purchase shares, you become part owner of a company. As an owner, you are usually entitled to voting rights on the board of directors and corporate policy. Invest in Equities Although past performance cannot guarantee future market results, Stocks, historically have outperformed all other long-term financial assets. They are the only the financial asset that has significantly outpaced inflation over time. Investors buy stock to potentially increase their return on investment in one or both of two ways: Dividend Payments - Many companies pay portions of their annual profits to stockholders in the form of dividends. Stocks with consistent track record of paying attractive dividends are known as income stocks because investors often buy these stocks to receive the income by way of dividends in addition to being invested in the company's future growth prospects. By Selling the stock for more than they originally paid - Some companies reinvest most of their profits back into the business in order to expand. Stocks of companies with sales and earnings that are expanding faster than the general economy and faster than the average company are called growth stocks because investors expect the company to grow and expect the stock price to grow with it. When such increase in the stock price is witnessed, investors can sell their shares for an amount greater than their purchase price, thus pocketing the difference as profit.
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Profits by Investing Equities Every year, when the company draws up its accounts, the company profit for the year will become apparent. The directors of the company will decide how much of the profit to plough back into the company, and how much to distribute to the owners of the equity - i.e. the shareholders. The profit is then distributed as an amount per share - called a dividend. Companies like to increase their dividend year on year. As well as the profit from the dividends, equity share owners will also benefit if the share price rises. This means that the shareholders can sell their equity shares at a higher price than they were bought originally. So the investment return from equity shares comes from two sources: - the dividends paid from the profits of the company, and the rise in the equity share price. This return, combining these two sources of profit, has comfortably exceeded the rate of inflation in the past. Modes of Stock Purchase Stocks can be purchased individually (meaning you purchase shares of stock in one particular company) or as part of a pool investments, such as mutual funds. Mutual funds are baskets of stocks that are available for the fraction of the price you would need to buy the same stocks individually. Thats because a large number of investors pool their money together and invest in the entire portfolio of stocks. Professional money managers direct the investments within mutual funds, choosing each of the individual investments based on the mutual fund's investment goals. For example, some equity mutual funds invest in well-established companies that pay regular dividends. Others invest in younger, more growth-oriented firms or companies that have been operating below expectations for several years. Note: As with the purchase of individual stocks, your investment return and principal value of an investment in mutual funds will fluctuate. Your shares may be worth more or less than your original investment when redeemed. 2.1 Types of Equity
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There are a number of types of equity, each with different characteristics. Common stock or ordinary shares Common stock, as it is known in the United States, or ordinary shares, according to British terminology, is the most important form of equity investment. An owner of common stock is part owner of the enterprise and is entitled to vote on certain important matters, including the selection of directors. Common stock holders benefit most from improvement in the firm's business prospects. But they have a claim on the firm's income and assets only after all creditors and all preferred stock holders receive payment. Some firms have more than one class of common stock, in which case the stock of one class may be entitled to greater voting rights, or to larger dividends, than stock of another class. This is often the case with family owned firms which sell stock to the public in a way that enables the family to maintain control through its ownership of stock with superior voting rights. Preferred stock Also called preference shares, preferred stock is more akin to bonds than to common stock. Like bonds, preferred stock offers specified payments on specified dates. Preferred stock appeals to issuers because the dividend remains constant for as long as the stock is outstanding, which may be in perpetuity. Some investors favour preferred stock over bonds because the periodic payments are formally considered dividends rather than interest payments, and may therefore offer tax advantages. The issuer is obliged to pay dividends to preferred stock holders before paying dividends to common shareholders. If the preferred stock is cumulative, unpaid dividends may accrue until preferred stock holders have received full payment. In the case of non cumulative preferred stock, preferred stock holders may be able to impose significant restrictions on the firm in the event of a missed dividend. Convertible preferred stock This may be converted into common stock under certain conditions, usually at a predetermined price or within a predetermined time period. Conversion is always at
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the owner's option and cannot be required by the issuer. Convertible preferred stock is similar to convertible bonds Warrants Warrants offer the holder the opportunity to purchase a firm's common stock during a specified time period in future, at a predetermined price, known as the exercise price or strike price. The tangible value of a warrant is the market price of the stock less the strike price. If the tangible value when the warrants are exercisable is zero or less the warrants have no value, as the stock can be acquired more cheaply in the open market. A firm may sell warrants directly, but more often they are incorporated into other securities, such as preferred stock or bonds. Warrants are created and sold by the firm that issues the underlying stock. In a rights offering, warrants are allotted to existing stock holders in proportion to their current holdings. If all shareholders subscribe to the offering the firm's total capital will increase, but each stock holder's proportionate ownership will not change. The stock holder is free not to subscribe to the offering or to pass the rights to others. In the UK a stock holder chooses not to subscribe by filing a letter of renunciation with the issuer. Issuing shares Few businesses begin with freely traded shares. Most are initially owned by an individual, a small group of investors (such as partners or venture capitalists) or an established firm which has created a new subsidiary. In most countries, a firm may not sell shares to the public until it has been in operation for a specified period. Some countries bar firms from selling shares until their business is profitable, a requirement that can make it difficult for young firms to raise capital. Flotation Flotation, also known as an initial public offering (ipo), is the process by which a firm sells its shares to the public. This may occur for a number of reasons. The firm may require additional capital to take advantage of new opportunities. Some of the firm's original investors may want it to buy them out so they can put their money to work elsewhere. The firm may also wish to use shares to compensate employees, and a
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public share listing makes this easier as the value of the shares is freely established in the market place. The flotation need not involve all or even the majority of the firm's shares. Private offering Rather than selling its shares to the public, a firm may raise equity through a private offering. Only sophisticated investors, such as money management firms and wealthy individuals, are normally allowed to purchase shares in a private offering, as disclosures about the risks involved are fewer than in a public offering. Shares purchased in a private offering are common equity and are therefore entitled to vote on corporate matters and to receive a dividend, but they usually cannot be resold in the public markets for a specified period of time. Secondary offering A secondary offering occurs when a firm whose shares are already traded publicly sells additional shares to the public called a follow on offering in the UK or when one or more investors holding a large proportion of a firm's shares offers those shares for sale to the public. Firms that already have publicly traded shares may float additional shares to increase their total capital. If this leaves existing shareholders owning smaller proportions of the firm than they owned previously, it is said to dilute their holdings. If the secondary offering involves shares owned by investors, the proceeds of a secondary offering go to the investors whose shares are sold, not to the issuer.
Points To Remember Before Picking Up A Stock
Read everything you can about that company and all of its competitors. This
includes any news articles, all of their historical financial information (and the competitors financial information and news stories etc...)
Look at the margins - Profit margin, Gross margin, as well as the rate at which
sales will increase, decrease or stay the same.
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Taking their income statement (sales cost of sales, and net income), project
their earnings forward 5 years.
Do the same thing for each competitor company. Then based on that, do discounted cash flow and divide it per shares and you
will have a reasonable share price at which to buy that company (provided everything else look good).
Wait for the actual share price to go below your cash flow/share price - then
buy it. 2.2 Advantages & Disadvantages of Equity Funds Advantages Of Investing In Equity Funds: The main advantages of equity shares are: Investment: The funding is committed to your business and your intended projects. Investors only realize their investment if the business is doing well, E.g. through flotation or a sale to new investors. Resources: Resources for your business. The right business angels and venture capitalists can bring valuable skills, contacts and experience to your business and can assist with strategy and key decision making. Business Success: In common with you, investors have a vested interest in the business' success, i.e. its growth, profitability and increase in value. Investors are often prepared to provide follow-up funding as the business grows. Dis Advantages Of Investing In Equity Funds: The principal disadvantages of equity shares are: -
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Raising Equity Finance:
Raising equity finance is demanding, costly and time-consuming. Your business may suffer as you devote time to the deal. Potential investors will seek background information on you and your business - they will closely scrutinize past results and forecasts and will probe the management team. However, many businesses find this discipline useful regardless of any funding. Depending On the Investors:
Depending on the investor, you will be subject to varying degrees of influence over the management of your business and making of major decisions. Management Time:
You will have to invest management time to provide regular information for the investor to monitor . Diluted: Your share in the business will be diluted. However, your share may be of a much larger business because of the funding. Legal and Regulatory Issues:
There can be legal and regulatory issues to comply with when raising finance, e.g. when promoting investments
2.3 Risk Associated With Equity Market Risk in investments can be of the following types: Market Risk or Volatility : This refers to the fluctuation in the value of investments due to changes in the price of the stocks included in an investors portfolio which could be caused by a variety of factors such as performance of the company, policy announcements, political factors etc. Even a portfolio of well-
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diversified assets cannot escape all risk. Inflationary risk: Also known as purchasing power risk, this is the decline in the purchasing power of money over time, so that even the "safest" investments can leave investors with substantially less purchasing power. For example, assuming an inflation rate of 4% for the next 10 years, if you have Rs.100 today, 10 years from now inflation will have eroded that Rs.100 so that it is worth only Rs.68. Investment or credit risk: This is the possibility that a company in which an investor is invested in may not be sufficiently profitable to remain in business. Returns Associated With Equity Market Since 1990 till date, Indian stock market has returned about 17% to investors on an average in terms of increase in share prices or capital appreciation annually. Besides that on average stocks have paid 1.5% dividend annually. Dividend is a percentage of the face value of a share that a company returns to its shareholders from its annual profits. Compared to most other forms of investments, investing in equity shares offers the highest rate of return, if invested over a longer duration.
Mutual Fund: Diversification of Funds
What Is Mutual Fund? A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a
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mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns. There are various investment avenues available to an investor such as real-estate, bank deposits, post office deposits, shares, debentures, bonds etc. A mutual fund is one more type of Investment Avenue available to investors. There are many reasons why investors prefer mutual funds. Buying shares directly from the market is one way of investing. But this requires spending time to find out the performance of the company whose share is being purchased, understanding the future business prospects of the company, finding out the track record of the promoters and the dividend, bonus issue history of the company etc. An informed investor needs to do research before investing. However, many investors find it cumbersome and time consuming to pore over so much of information, get access to so much of details before investing in the shares. Investors therefore prefer the mutual fund route. They invest in a mutual fund scheme which in turn takes the responsibility of investing in stocks and shares after due analysis and research. The investor need not bother with researching hundreds of stocks. It leaves it to the mutual fund and its professional fund management team. Another reason why investors prefer mutual funds is because mutual funds offer diversification.
An investors money is invested by the mutual fund in a variety of shares, bonds and other securities thus diversifying the investors portfolio across different companies and sectors. This diversification helps in reducing the overall risk of the portfolio. It is also less expensive to invest in a mutual fund since the minimum investment amount in mutual fund units is fairly low (Rs. 500 or so). With Rs. 500 an investor may be able to buy only a few stocks and not get the desired diversification. These are some of the reasons why mutual funds have gained in popularity over the years.
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3.1 Diversification Of Funds Diversification is nothing but spreading out your money across available or different types of investments. By choosing to diversify respective investment holdings reduces risk tremendously up to certain extent. The most basic level of diversification is to buy multiple stocks rather than just one stock. Mutual funds are set up to buy many stocks. Beyond that, you can diversify even more by purchasing different kinds of stocks, then adding bonds, then international, and so on. It could take you weeks to buy all these investments, but if you purchased a few mutual funds you could be done in a few hours because mutual funds automatically diversify in a predetermined category of investments (i.e. - growth companies, emerging or mid size companies, low-grade corporate bonds, etc).
Manages Investors Money Custodian This is the role of the Asset Management Company (the Third tier). Trustees appoint the Asset Management Company (AMC), to manage investors money. The AMC in return charges a fee for the services provided and this fee is borne by the investors as it is deducted from the money collected from them. The AMCs Board of Directors must have at least 50% of Directors who are independent directors. The AMC has to be approved by SEBI. The AMC functions under the supervision of its Board of Directors, and also under the direction of the Trustees and SEBI. It is the AMC, which in the name of the Trust, floats new schemes and manages these schemes by buying and selling securities. In order to do this the AMC needs to follow all rules and 8 regulations prescribed by SEBI and as per the Investment Management Agreement it signs with the Trustees. If any fund manager, analyst intends to buy/ sell some securities, the permission of the Compliance Officer is a must. A compliance Officer is one of the most important persons in the AMC. Whenever the fund intends to launch a new scheme, the AMC has to submit a Draft Offer Document to SEBI. This draft offer document, after getting SEBI approval becomes the offer document of the scheme. The Offer Document (OD) is a legal document and investors rely upon the information provided
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in the OD for investing in the mutual fund scheme. The Compliance Officer has to sign the Due Diligence Certificate in the OD. This certificate says that all the information provided inside the OD is true and correct. This ensures that there is accountability and somebody is responsible for the OD. In case there is no compliance officer, then senior executives like CEO, Chairman of the AMC has to sign the due diligence certificate. The certificate ensures that the AMC takes responsibility of the OD and its contents. 3.2 Custodian A custodians role is safe keeping of physical securities and also keeping a tab on the corporate actions like rights, bonus and dividends declared by the companies in which the fund has invested. The Custodian is appointed by the Board of Trustees. The custodian also participates in a clearing and settlement system through approved depository companies on behalf of mutual funds, in case of dematerialized securities. In India today, securities (and units of mutual funds) are no longer held in physical form but mostly in dematerialized form with the Depositories. The holdings are held in the Depository through Depository Participants (DPs). Only the physical securities are held by the Custodian. The deliveries and receipt of units of a mutual fund are done by the custodian or a depository participant at the instruction of the AMC and under the overall direction and responsibility of the Trustees. Regulations provide that the Sponsor and the Custodian must be separate entities.
3.3 The Role Of The AMC The role of the AMC is to manage investors money on a day to day basis. Thus it is imperative that people with the highest integrity are involved with this activity. The AMC cannot deal with a single broker beyond a certain limit of transactions. The AMC cannot act as a Trustee for some other Mutual Fund. The responsibility of preparing the OD lies with the AMC. Appointments of intermediaries like independent financial advisors (IFAs), national and regional distributors, banks, etc. is
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also done by the AMC. Finally, it is the AMC which is responsible for the acts of its employees and service providers. As can be seen, it is the AMC that does all the operations. All activities by the AMC are done under the name of the Trust, i.e. the mutual fund. The AMC charges a fee for providing its services. SEBI has prescribed limits for this. This fee is borne by the investor as the fee is charged to the scheme, in fact, the fee is charged as a percentage of the schemes net assets. An important point to note here is that this fee is included in the overall expenses permitted by SEBI. There is a maximum limit to the amount that can be charged as expense to the scheme, and this fee has to be within that limit. Thus regulations ensure that beyond a certain limit, investors money is not used for meeting expenses.
3.4 Working of Mutual Fund
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Regulatory Authorities To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry. AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc. Alternative Way To Investment In Mutual Funds - SIP
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SIP is a way of investing in Mutual Funds where you pay a fixed amount each month for a fixed tenure. Like If you take an SIP of 5,000 for 1 year on Jan 1, 2008, you will be paying Rs 5,000 per month for next 12 months. Please understand that its not a financial instrument, but a way of investing in mutual funds, some people confuse SIP with PPF, NSC, and mutual funds, they think they can invest in SIP, its just a mode of investment. Invest in mutual funds through SIP Investment through SIP must be done only when markets are uncertain or very volatile, when you dont know which side they are headed to. SIP will be beneficial only if markets really are volatile or going down after you invested. If it happens that markets turns bullish and starts going up, in that case SIP will not be beneficial and will give less return compared to lump sum investment in start. SIP is a simple concept and hence very powerful , lets see some reasons why its worth investing through SIP
Types of Mutual Funds Schemes in India Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a collection of many stocks, an investors can go for picking a mutual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below. Overview of existing schemes existed in mutual fund category: BY STRUCTURE Open - Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.
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Close - Ended Schemes: These schemes have a pre-specified maturity period. One can invest directly in the scheme at the time of the initial issue. Depending on the structure of the scheme there are two exit options available to an investor after the initial offer period closes. Investors can transact (buy or sell) the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchanges could vary from the net asset value (NAV) of the scheme on account of demand and supply situation, expectations of unit holder and other market factors. Alternatively some close-ended schemes provide an additional option of selling the units directly to the Mutual Fund through periodic repurchase at the schemes NAV; however one cannot buy units and can only sell units during the liquidity window. SEBI Regulations ensure that at least one of the two exit routes is provided to the investor. Interval Schemes: Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.
Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesnt mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can expect higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile.
Overview of existing schemes existed in mutual fund category

4.1 Advantages & Disadvantages of Investing in mutual funds
Advantages of investing In mutual funds Equity fund: These funds invest a maximum part of their corpus into equities holdings. The
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structure of the fund may vary different for different schemes and the fund managers outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows:

Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS)
Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix. Debt funds:
The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as:
Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government. Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities. MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is
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also invested in corporate debentures. Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all
categories of mutual funds. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz; Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly. By investment objective: Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.
Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).
Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.
Liquidity - Just like an individual stock, mutual fund also allows investors to
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liquidate their holdings as and when they want. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis. Disadvantages of Investing Mutual Fund Professional Management- Some funds dont perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor himself, for picking up stocks. Costs The biggest source of AMC income is generally from the entry & exit load which they charge from investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capitalgain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability. 4.2 The Types Of Risks Associated With Mutual Funds: Risk is an inherent aspect of every form of investment. For mutual fund investments, risks would include variability, or period-by-period fluctuations in total return. The value of the scheme's investments may be affected by factors affecting capital markets such as price and volume volatility in the stock markets, interest rates, currency exchange rates, foreign investment, changes in government policy, political, economic or other developments.
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Market Risk: At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both an outstanding, highly profitable company and a fledgling corporation may be affected. This change in price is due to "market risk". Inflation Risk: Sometimes referred to as "loss of purchasing power." Whenever the rate of inflation exceeds the earnings on your investment, you run the risk that you'll actually be able to buy less, not more. Credit Risk: In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures? Interest Rate Risk: Changing interest rates affect both equities and bonds in many ways. Bond prices are influenced by movements in the interest rates in the financial system. Generally, when interest rates rise, prices of the securities fall and when interest rates drop, the prices increase. Interest rate movements in the Indian debt markets can be volatile leading to the possibility of large price movements up or down in debt and money market securities and thereby to possibly large movements in the NAV. Investment Risks: In the sect oral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities. Liquidity Risk: Thinly traded securities carry the danger of not being easily saleable at or near their real values. The fund manager may therefore be unable to quickly sell an illiquid bond and this might affect the price of the fund unfavorably. Liquidity risk is characteristic of the Indian fixed income market.
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Changes in the Government Policy: Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund. 4.3 Returns from Mutual Funds:
Generally, Mutual Funds do not offer guaranteed returns to investors. Although, SEBI regulations allow Mutual Funds to offer guaranteed returns subject to the Fund meeting certain conditions, most Funds do not offer such guarantees. In case of a guaranteed return scheme, the sponsor or the AMC, guarantees a minimum level of return and makes good the difference if the actual returns are less than the guaranteed minimum. The name of the guarantor and the manner in which the guarantee shall be met must be disclosed in the offer document by the Mutual Fund. Investments in mutual funds are not guaranteed by the Government of India, the Reserve Bank of India or any other government bodies. There are three ways, where the total returns provided by mutual funds can be enjoyed by investors: Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.
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Fixed Deposits
Introduction To Fixed Deposits Fixed deposits are loan arrangements where a specific amount of funds is placed on deposit under the name of the account holder. The money placed on deposit earns a fixed rate of interest, according to the terms and conditions that govern the account. The actual amount of the fixed rate can be influenced by such factors at the type of currency involved in the deposit, the duration set in place for the deposit, and the location where the deposit is made. The most unusual characteristic of a fixed deposit is that the funds cannot be withdrawn for a specified period of time. In most cases, fixed deposits carry duration of five years. During that time, the money remains in the account and cannot be withdrawn for any reason. Individuals, corporate entities, and even nonprofit organizations that wish to set aside funds and limit their access to the funds for a period of time often find that fixed deposits are a simple way to accomplish this goal. As an added benefit, the monies in the account will earn a fixed rate of interest regardless of any fluctuations in interest rates that apply to other types of accounts. However, both these benefits can also turn into disadvantages under certain circumstances. Because the money cannot be withdrawn until the duration is
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complete, the funds cannot be used even in emergency situations. Changes in the going interest rate may also rise to a point above and beyond the interest rate applied to existing deposits. This means account holders are actually earning less interest with fixed deposits than with other types of loans and accounts. While the interest rate on fixed deposits cannot be changed, there is sometimes a way to work around the issue of obtaining use of funds in an emergency situation. At times, the lending institution where the fixed deposit is placed may be willing to extend a separate loan to the account holder, using the fixed account as collateral. While not ideal, this can at least make it possible to deal with the current financial crunch. Fixed deposits are a credible way to make a return on investment that is somewhat higher than a standard savings account. The use of fixed deposits can also be helpful when working with various types of currency. By establishing what is known as a Foreign Currency Fixed Deposit or FCFD, it is possible to choose the type of currency involved in the deposit and lock in a rate of interest. If the choice of currency is a good one, this means the investor can enjoy a healthy fixed deposit currency rate for the duration of the deposit and earn more than with a standard fixed deposit strategy. However, going with an FCFD does contain a slightly higher amount of risk, since the funds deposited must be converted to the currency of choice and then converted back when the deposit is fulfilled. If the currency did not fare well in the interim, there is some chance of obtaining a loss, due to the changes in the rate of exchange from the time the fixed deposit was activated until the time the deposit is considered complete Points To Remember For Fixed Deposit Investment
In this article I will be writing about the important points to consider while opening the fixed deposit account. I have already published many articles explaining the fixed deposit account and the tax savings involved with the fixed deposit schemes. This post is intended to list some of the key points which you must be aware before opening the fixed deposit account. I hope you will like the post and
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will be more informative. Please post your feedback and add if you have any points in your mind. If you like the post, subscribe to our future articles here.
Split Your Fixed Deposit You have to split the fixed deposit to avoid the TDS (Tax deduction at Source). If the total interest is more than Rs.10000 in a branch for the specific year, then TDS must be paid. To avoid that please split the fixed deposit and invest in the different banks.
Plan the Tenure It is important to plan the number of years you want to keep the deposit. Banks will charge as penalty if you are foreclosing the deposit account. Please ask the banker for penalty applicable for the foreclosing.
Appoint a Nominee Always appoint a nominee for your fixed deposit to avoid the hassle free release of amount after you. If you are not appointing any nominee, they will have to bring any of the heirs proof certificates to receive the money.
Check the compound interest policies This is one of the important considerations while opening a fixed deposit account. When you hear the rate of interest is 6.0% p.a., first thing you have to ask whether it is compounded quarterly, half-yearly or yearly. If the interest is compounded quarterly, then the return rate of interest will be potentially more than the actual one.
Learn about taxable FD investment If you are not aware that the FD savings can be used for tax benefits, please learn about the tax savings on fixed deposit. It has limitation of Rs.100000 under section 80c. Might be useful if you are looking for the same one.
5.1 Advantages & Disadvantage Of Fixed Deposits:
Safety FDs have conventionally been the premier choice for investors with a low risk appetite; assured returns is the key factor which attracts investors towards deposits. Stick to FDs of the highest credit rating i.e. those with a
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AAA rating even if their rates seem modest vis--vis those offered by company deposits. Company deposits are unsecured in nature and investing in them would imply taking on disproportionately higher risk. If as an investor you are open to investing in instruments involving higher risk levels, market linked instruments like mutual funds may not be a bad deal.
Tenure Short tenured fixed deposits continue to be your best bet. With interest rates on the ascent, a further hike in rates offered by fixed deposits cannot be ruled out. Locking your investments in longer tenured instruments may lead to an opportunity loss. Even if a 3-Yr FD looks like a lucrative proposition as compared to one which runs over a year or so, pick the short tenured one. In a rising rate scenario, you could be more than compensated for the lower returns at present.
Liquidity Find out how your FD fares on the pre-mature encashment front i.e. how easily can your investment be liquidated. Also enquire about the penalty clauses, e.g. do you suffer a loss of interest and/or principal amount. Compare how various FDs rank on this parameter and pick the best deal; thereby try to minimize the impact of illiquidity which is typically associated with FDs.
Flexible investment periods: To suit your personal needs, you can choose from an investment period of between 1 and 60 months for fixed deposit, or between 1 week to 12 months for foreign currencies deposit. If you need your deposit to mature on a specific date
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Accessibility: Banks offer you access to a wide range of the worlds major currencies to help you achieve your investment goals. You can even switch from one currency to another by simply giving us your instructions. Your deposit can also be remitted either by draft or telegraphic transfer.
Automatic renewals: To ensure continued growth, your matured deposit will automatically be renewed for the same period of time at the banks prevailing rate. This allows you to enjoy uninterrupted interest earnings on your principal amount invested. You will also have the choice of issuing specific standing instruction regarding the renewal of your deposit and the disposal of interest earned. In the event that you decide to change your renewal instruction, you will need to inform us at least 2 working days before maturity.
Early payment of interest: If you place your savings in Fixed Deposit account for at least 24 months, you can enjoy early interest payments. On receipt of your instructions, the interest will be credited to your operating account on a yearly basis.
Pre-approved overdraft: To ensure that your investment continues to grow, whilst giving you the flexibility to satisfy any unexpected financial needs, Banks offer you a preapproved overdraft worth up to 90%or 100% Deposit value.
Credit Card: Enjoy the benefits of recognition, payment flexibility, attractive reward points, worldwide accessibility to cash at over 600,000 ATMs and many more simply by carrying a credit card. To qualify, all you need is to maintain
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at least B$5,000 in your Fixed Deposit Account over a 3 months period. Disadvantages Of Investing Of Fixed Deposits:
A person can withdraw money only when his/her maturity period is over. A person suffers a loss if he/she try to withdraw money before maturity period
As compared to other investment instruments percentage of return is less.
5.2 Risk and returns No Risk Means Fixed Instruments If you want to begin investing but are not ready to take any risk, you still have plenty of choices available in the market. From your traditional bank fixed deposit, to fixed maturity plans (FMPs) of mutual funds there are a number of instruments to choose from. Since these instruments offer a fixed return on your investment, they are known as fixed income instruments. Some traditional fixed income assets are bank fixed deposits, money-back, wholelife and endowment policies of life insurance companies, post office saving schemes, government endorsed saving schemes like Kisan Vikas Patra and FMPs. Fixed income assets broadly offer an annual return of eight to nine percent on your investment. Except public provident fund (PPF), returns from all other instruments are subject to tax that reduces the returns of these instruments and if you take inflation into consideration, your returns come down even further. Though bank fixed deposits are widely considered a safe option, however, there have been instances when depositors have lost their savings. This is why one must look for a banks track record and credibility before investing. In case a bank goes bust, depositors can claim a maximum compensation of Rs. 1Lakh irrespective of their actual deposits. Fixed income assets could be used to balance your portfolio as well. If you invest a
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part of your funds in these instruments, you can reduce the overall risk on your portfolio substantially. With a prudent mix of fixed income assets and equity, you can create a robust portfolio that enhances your wealth significantly.
Real Estate
Introduction to Real Estate Real Estate Market Investment involves the buying and selling of Real Estate for sheer profit. Profits are piled up slowly by renting out Real Estate Properties in a cash flow method or are generally improved upon and resold for a financial gain. Real Estate Market Investment makers can also wholesale properties in order to make profits. Usually real estate market has a 'laggard effect' to the equity markets. What it means is a few months/year after equity markets have rallied the real estate markets also start moving up. The factors an investor should look into before investing are:

The current demand of the Real Estate Market. The future trend of the Real Estate Market. It is also important to know whether the demand is increasing, decreasing or remaining constant. Real Estate Market Investment has advantages and disadvantages at the same time. Though it looks like the advantages are more in numbers but the disadvantages if not taken care of can prove to be fatal.
Points to remember before Investing in Real Estate Your budget: This is the very first thing that you need to plan out. If you have a budget in hand then only can you search appropriately. This will also help save your time as you will look out for homes that are within your budget. Mortgage Payments: Financing of the house is a big issue that needs to be planned
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out in an organized manner. Interest rates of loans from bank or any other financial institution have to be calculated way before you buy a home. Closing Costs: If it is for the first time that you are buying a house then always ensure that the closing costs is included in your budget. Buying a home in a posh locality means more of closing costs. Local Property Laws: Every region or state has its own set of laws so they need to be checked and understood beforehand. Realty Agent Help: In current times, help of real estate agents is mandatory as assistance of an experienced person helps you to deal effectively. You can find a huge list of these agents offline as well as online. Beware of frauds: There are endless people that will try convincing you to buy a disputed property. So, beware of it. Following these above mentioned tips will ensure that you get into a secure property deal and as per your wishes. So, why wait.. Simply go and get your dream home.. Real estate investment involves the commitment of funds to property with an aim to generate income through rental or lease and to achieve capital appreciation. Real estate refers to immovable property, such as land, and everything else that is permanently attached to it, such as buildings. When a person acquires real estate, s/he also acquires a set of rights, including possession, control and transfer rights. Understanding real estate investment is crucial because it usually involves a substantial investment and a long-term one. Moreover, the real estate market can be unpredictable. This is particularly important when one goes beyond buying home to actually 'investing' in real estate. There are a number of ways in which an investor can participate in the real estate market. Real Estate Investment: Rental One can opt for real estate investment with an aim to rent the property out to a
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tenant. The owner (landlord) earns a continuous stream of rent from the tenant, but is responsible for paying the mortgage, taxes and any costs associated with maintaining the property. The owner also benefits from capital appreciation (a rise in the value of the property over time). The landlord runs the risk of not finding a tenant and could suffer negative monthly cash flows, with mortgage payments and maintenance expenses still to be borne. As compared to owning stocks and bonds, rental real estate requires a significant amount time and effort to be devoted by the landlord. Real Estate Investment Groups Real estate investment groups are similar to small mutual funds. They are set up for rental properties. While an investor may own one or more units, a professionally managed company acquires builds, maintains and lets out all the units on the properties in exchange for a percentage of the monthly rent. Real Estate Trading Real estate traders hold properties for only a short span of time (less than four months), aiming to sell them at a profit. This process is called flipping properties. Investors aim at purchasing significantly undervalued or very hot properties. Such owners may or may not invest money into improving the property before putting it back on sale. A bear market could result in substantial losses for a real estate trader, since the investment is large. Resources Listings of available REO properties are a great starting point to exploring available real estate investment opportunities. Real Estate Investment Trusts (REITs) A real estate investment trust (REIT) is a corporation that invests in real estate. REITs trade on major exchanges. A REIT uses investors' money to acquire and operate properties. Before making a choice regarding the kind of real estate
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participation, an investor must evaluate his/her investment capacity and risk appetite 6.1 Types Of Real Estate:
Residential real estate
The most common form of real estate investment as it includes the property purchased as other people's houses. In many cases the Buyer does not have the full purchase price for a property and must engage a lender such as a Bank, Finance company or Private Lender. Herein the lender is the investor as only the lender stands to gain returns from it. Different countries have their individual normal lending levels, but usually they will fall into the range of 70-90% of the purchase price. Against other types of real estate, residential real estate is the least risky.
Commercial real estate
Commercial real estate is the owning of a small building or large warehouse a company rents from so that it can conduct its business. Due to the higher risk of Commercial real estate, lending rates of banks and other lenders are lower and often fall in the range of 50 The real advantage in the Real Estate Market Investment is that theoretically this business has an ever growing tendency because of the growing population and the demand for Real estates both for residential and office usages. As all the things in this field are very expensive and every time one sells it the profit becomes more. The ability to borrow based on the value of the Real estate Property, is another advantage. It is easier to finance Real Estate than any other product. While investing other pluses requires the buyer to have the entire buying price available for the pluses. But in Real Estate Market Investment, one just needs to have a fraction of the buying price available as the down payment. That is why, Real Estate, in spite of being extremely expensive, is much easier to buy than a piece of industrial
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instrument of the very same price. Disadvantages of Investing In Real Estate Real Estate Market Investment is something that needs to be maintained and taxes to be submitted from time to time. A small mistake in this procedure can bring a major loss to the investor. During the real estate booms, investors can be attracted to buy Real Estate properties without calculating the expenditures attached in the purchase and for the existing expenditures of the property. The Real Estate Market can then suddenly flow against them instead of flowing for them making the investor face a major loss. 6.2 Risk Associated with Real Estate Real Estate Investment is now treated as a major case of capital budgeting by using state-of-the-art investment analysis which incorporates the future stream of income it may generate and the associated risk adjustments. It has been the highlight of the investment literature since the 1970s when investment theorists extended techniques such as probability, time value of money and utility into its analysis. Real estate is basically defined as immovable property such as land and everything permanently attached to it like buildings. Real property as opposed to personal or movable property is characterized by the right to transfer the title to the land whereas title to personal property can be retained. The investment in real estate essentially depends on the risks associated with it, that is to say, even if the venture succeeds when the future stream of income will accrue to the investor and the alternative investment opportunities. Real estate investment can be attractive if viewed as a business opportunity; it can generate rental income, using it as collateral to secure a loan for a business venture, to offset otherwise taxable income through cash savings on tax-deductible interest rate losses, or simply from the profits garnered from its resale. Notable, in this context is the gains reaped by real estate speculators who trade in real estate futures (by buying and selling purchase options).
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Common examples of real estate investment are individuals owning multiple pieces of real estates one of which is his primary residence and others are occupied by tenants from where the rental income accrues. Real estate investment is also associated with appreciation in the value of property thereby having the potential for capital gains. Tax implications differ for real estate investment and residential real estates. Real estate investment is long term in nature and investment professionals routinely maintain that ones investment portfolio should have at least 5&percnt;20&percnt; invested in real estate. 6.3 Returns Associated With Real Estate Real Estate Investment Property follows a business cycle like any investment business-it has its peaks and troughs. But as real estate investment property is defined as investment in properties, which even can be commercial in nature, real estate can make a fortune for many individuals giving them the license to permanently walk away from their jobs. Commercial property may include apartments and multifamily units, offices, hotels, malls, retail stores, businesses and industrial property. Commercial properties are acquired for realizing both capital gains and rental income Property investment can lead to diversification of ones investment portfolio, as real estate investments can be profitable for many giving them financial freedom in the long run. The real property can be put to its best use if it produces the highest value for land, as if vacant. But as many real estate investment property analysts point out, it can go horribly wrong if not undertaken in a careful manner Real estate investment can be profitable if one takes note of the following:

Maximizing return Minimizing risk Comparing investments
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Saving time, and, Optimizing the deal structure
Other Investment Avenues

7.1 Gold For centuries gold has been the ultimate cushion against the dangers of stocks price falls, fluctuating rate changes, inflation, rising/falling real estate prices, natural calamities, wars and more. Gold has been the best way to safeguard your investments against unstable financial markets. Gold is Good Investment Whether or not gold is a good investment, is a question that does not have a simple answer. Gold has appreciated substantially over the past couple of years. The growth rate of late has been much higher than the conventional rate of appreciation. However, if we look at the past 15-20 years record, it is seen that Gold is a hedge against inflation. Over the last 20 years, the average return from Gold has been around 7%. So, if the past trend continues, one could expect around say 6-9% returns from gold in the long-term. Also, another aspect that we should look at is a weakening currency. No matter which country you originate from, there is a chance that your countrys currency will suffer a downfall at a particular point of time. Gold, on the other hand, retains its true value and can help you protect your riches because it does not rely on the state of the countrys economic, whether it is on the up or downtrend. Therefore, investing a small portion of ones investment portfolio in gold would be a good idea. Invest In Gold Gold can be bought in various forms and the decision should be based on the reason you need gold. If you see this purely as an investment, you can either buy it in the form of physical gold bars, biscuits and or coins or even in a dematerialized
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form. For most Indians, gold purchases usually mean buying jewellery. However, the disadvantage of buying gold in the form of jewellery is that its resale is not always a profitable proposition. Here are some other ways of investing in gold: 7.2 GOLD Etfs You can invest in gold by buying Gold Exchange Traded Funds (ETFs). Being ETFs, these funds are listed and traded on the stock exchange i.e. investors can buy and sell them like any other stock on the stock exchange, on a real- time basis. All you need is a demat account and a share trading account with a broker or subbroker who deals in stocks. These are traded in units of one. That means you can buy one or more units at a time. Each unit represents approximately the market value of one gram of gold. Gold ETFs are traded close to real-time gold prices in the market, that is, ETF prices move up and down with the market price of gold in the conventional marketplace. Your expenses in an ETF would be very low: you would pay securities transaction tax (STT), brokerage /service tax, and the like, which are unlikely to exceed around 1% of market price. Youd hold gold in demat form in your demat account, just as you hold shares. If you decide to sell your ETF units, you can do so through your stock broker or subbroker and the charges would be the same as what you paid while buying the ETF. Thus an ETF is very convenient, and you need not worry about the purity of the gold, secure storage, insurance against theft, and so on. Physical Gold This is the traditional way to invest in gold. Investors can buy gold and then store it in a banks locker. If you are one of those people who keep buying gold jewellery for a marriage of a daughter or son, a better option would be to buy gold ETF units now at the current price of gold, hold them in your demat account, and sell them in the future, whenever you want, and use the money to buy jewellery then.
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In this way, you will be protecting yourself from rising gold prices, while also sparing yourself anxiety about the purity and safety of your gold. You can keep accumulating gold at a slow rate, perhaps even one gram at a time. It is evident that gold is an asset class that you can rarely go wrong with. Therefore, think seriously about investing in gold. 7.3 Bonds: Unlike equities that represent a participation in a company, a bond is a debt security. When you purchase a bond, you lend money to the issuer of the bond. The issuer can be a government, a municipality, a federal agency, a corporation or another entity. A bond has generally a maturity (a date at which the issuer reimburse the amount borrowed) and an interest payment. The stream of payments linked to a bond is known in advance (provided that the issuer can pay) but this stream depends of the bond. You have bonds that pay a fixed interest during the life of the paper (fixed rate bonds); you have others that pay a revised interest rate (floating rate bonds) or even no interest at all (zero coupon bonds). The first thing that comes to most people's minds when they think of investing is the stock market. After all, stocks are exciting. The swings in the market are scrutinized in the newspapers and even covered by local evening newscasts. Stories of investors gaining great wealth in the stock market are common. Bonds, on the other hand, don't have the same sex appeal. Plus, bonds are much more boring - especially during raging bull markets, when they seem to offer an insignificant return compared to stocks. However, all it takes is a bear market to remind investors of the virtues of a bond's safety and stability. In fact, for many investors it makes sense to have at least part of their portfolio invested in bonds.
7.4 Commodities Market:
49
A commodity may be defined as an article, a product or material that is bought and sold. It can be classified as every kind of movable property, except Actionable Claims, Money & Securities . Commodities actually offer immense potential to become a separate asset class for market-savvy investors, arbitrageurs and speculators. Retail investors, who claim to understand the equity markets, may find commodities an unfathomable market. But commodities are easy to understand as far as fundamentals of demand and supply are concerned. Retail investors should understand the risks and advantages of trading in commodities futures before taking a leap. Historically, pricing in commodities futures has been less volatile compared with equity and bonds, thus providing an efficient portfolio diversification option. Commodity market is an important constituent of the financial markets of any country. It is the market where a wide range of products, viz., precious metals like Gold, Silver, base metals, crude oil, energy and soft commodities like palm oil, coffee etc. are traded. It is important to develop a vibrant, active and liquid commodity market. This would help investors hedge their commodity risk, take speculative positions in commodities and exploit arbitrage opportunities in the market.
Data Analysis ~
50
1) Classification of respondents Age
Interpretation: Below 35 years are 37%, 36-50 years are 53%, 51-60 years are 6% And above 60 years are 4%.
2) Classification of Respondents Occupation
51
Interpretation : Government employees are 29%, Businessman are 28%, Private sector are 36%, Students are 2%, Others are 5%.
52
Investment Avenue In India 3) Classification of respondents - Income
Interpretation : Below 2 lakhs are 0%, 2 lakhs-4 lakhs are 4%, 4 lakhs 6 lakhs are 24%, 6 lakhs 8 lakhs are 23% And above 8 lakhs are 48%
53
4) Classification of respondents Education
Interpretation: Undergraduate are 10 %, Graduate are 43% And post graduate and above are 47%
54
5) Investment Decision Making
Interpretation : Taken on own initiative are 74%, Taken on own initiative but with help from an expert are 18% And made by expert on investors behalf are 8%.
55
6) Objectives of investment.
Interpretation: Preserve capital and generate income are 42%, Generate moderate capital growth with some income are 30%, Generate aggressive capital growth over long-term are 17%, Generate Long term capital growth are 12%.
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7) Factors influencing Investment Decision
Interpretation : Risk are 25%, Rate of return are 36%, Tax shelter are 14%, Marketability are 17%, Convenience are 8%.
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8) Most preferred Investment option
Interpretation : Fixed deposits are 27%, Insurance schemes are 25%, Equities are 4%, Mutual funds schemes are 24 %, Real estate are 9% and commodities/derivatives are 10%
9) Investment Time Horizon
58
Interpretation: Below 1 year are 46%, 1-3 years are 33%, 4-9 years 19%, Above 10 years are 2%.
10) Sources of Investment Information
59
Interpretation: Newspaper/Magazine are 30%, Electronic media are 10%, Peer group/ friends are 18% , Broker/ Financial Advisor are 20% and Internet are 19%.
11) Risk tolerance level
60
Interpretation : Low (category A) are 41%, Medium (category B) are 25%, High (Category C) are 34%
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12) Investor Satisfaction
Interpretation : Yes are 32 %, No are 43% and Neutral are 24%.
FINDINGS People invest but do not invest wisely Objectives for invest and the choice of instruments are not matched. ~
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Need for understanding of financial management and planning People do not have a clear view over investment opportunities in the market. Lack of knowledge to build a balance portfolio management. Investors perceptions on investment are very across all age group. Respondents feel that administered rate of return on investment is not enough. Inflated rate on investment put the investors in dilemma. Awareness about a particular avenues for investment set aside the investors to continue as it is. Need of financial literacy on the avenues for investment and financial instutions. A large majority of business peoples are investing mainly to meet financial amergency and regular income. Business peoples in the annual income range up to Rs.100000 is poor savings. A large majority of business peoples prefer to invest in financial institutions, bank, others. Venture capital and derivatives are unpopular avenues for investment. Some of the business people are used to put their investment in Real estate, mutual funds, shares and chit funds. ~
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Conclusion
People find mutual funds attractive but don't invest in them due to the risk factor? Its time to conclude that mutual funds are a lucrative investment, ensure higher returns, better tax benefits and carry minimalistic risk. Fixed Maturity Plans issued by mutual funds are much more profitable than fixed deposits offered by banks, post office savings or other investments. The fact is that according to the SEBI rules, mutual funds are not allowed to assure returns. The yield is indicated and not assured. However, for all practical purposes, the indicated yield is almost exactly what the investor gets at the time of maturity.
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Bibliography
http://www.investopedia.com/ http://www.nseindia.com/ http://www.scribd.com/doc/18487104/various-investment-avenues http://www.investorwords.com http://www.mutualfundsindia.com/ http://www.economywatch.com/investment/real-estate-investment.html http://economictimes.indiatimes.com/ http://en.wikipedia.org/wiki/Investment http://typesofinvestment.com/ http://tutor2u.net/business/finance/finance_sources_equity_introduction.asp http://www.hsbc.co.in/1/2/personal/investments/useful-info/useful-info-invest-faqs
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Annexure
Q.1 Classification of respondents Age?
a) Below 35 years
b) 36-50 years
c) 51-60 years
d) above 60 years
Q.2 Classification of Respondents Occupation ?
a) Government employees
b) Businessman
c) Private sector
d) Students
e) Others
Q.3 Classification of respondents - Income?
a) Below 2 lakhs
b) 2 lakhs-4 lakhs e) above 8 lakhs
c) 4 lakhs 6 lakhs
d) 6 lakhs 8 lakhs
Q.4 Classification of respondents Education ?
a) Undergraduate
b) Graduate
c) And post graduate and above
Q.5 Investment Decision Making ?
a) Taken on own initiative
b) Taken on own initiative but with help from an expert c) made by expert on investors behalf
66
Q.6 Objectives of investment?
a) Preserve capital and generate income
b) Generate moderate capital growth with some income c) d) Generate aggressive capital growth over long-term Generate Long term capital growth
Q.7 Factors influencing Investment Decision?
a) Risk
b) Rate of return
c) Tax shelter
d) Marketability
e) Convenience
Q8. Most preferred Investment option ?
a) Fixed deposits
b) Insurance schemes
c) Equities
d) Mutual funds schemes
e) Real estate
f) commodities/derivatives
Q.9
Investment Time Horizon ?
a) Below
1 year
b) 1-3 years
c) 4-9 years
d) Above 10 years
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Q.10 Sources of Investment Information ?
a) Newspaper/Magazine d) Broker/ Financial Advisor
b) Electronic media e) Internet
c) Peer group/ friends
Q.11 Risk tolerance level ?
a) Low
(category A)
b) Medium (category B)
c) High (Category C)
Q.12 Investor Satisfaction?
a) Yes
b) No
c) Neutral
68

Investement Avenues in India

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Investement Avenues in India

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Investment Avenue In India

Investment Avenues In India Introduction

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

GOLD GOLD REAL REAL ESTATE ESTATE

BONDS BONDS MUTUAL MUTUAL FUNDS FUNDS STOCKS STOCKS

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

REAL ESTATE GOLD

SAVING BANK A/C 1.3 Various Options available for Investment

MONEY MARKET FIXED DEPOSIT WITH BANKS

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Points To Remember Before Picking Up A Stock

Investment Avenue In India

Investment Avenue In India

Raising Equity Finance:

Investment Avenue In India

Mutual Fund: Diversification of Funds

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

3.4 Working of Mutual Fund

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Overview of existing schemes existed in mutual fund category

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

5.1 Advantages & Disadvantage Of Fixed Deposits:

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

As compared to other investment instruments percentage of return is less.

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Investment Avenue In India

Residential real estate

Commercial real estate

Investment Avenue In India

Investment Avenue In India

Maximizing return Minimizing risk Comparing investments

Investment Avenue In India

Saving time, and, Optimizing the deal structure

Other Investment Avenues