Project on Avenues of Investments

CHAPTER I
1.1 INTRODUCTION
The word Investment has many interpretations as it means different things to different
persons. For a person who as lent money to another, it may be an investment for a return.
Similarly, if a person purchases shares of a company, bullion or real estate for the purpose of
price appreciation, it is also an investment for him. Likewise, an insurance plan or a pension
plan is an investment to its purchaser. From these illustrations, it is clear that investment is a
commitment of funds for earning additional income. In other words, investment is considered
the sacrifice of certain present value of money in anticipation of a reward
1.2 DEFINITION OF INVESTMENT
The following are some important definitions of investment: An investment is a
commitment of funds made in the expectation of some positive rate of returns. If the
investment is properly undertaken, the returns will commensurate with risk the investor
assumes. - Donald E. Fischer and Ronald J. Jordan The purchase by an individual or
institutional investor of a financial or real asset that produces a return in proportion to the risk
assumed over some future investment period.-F Amling According to the above definition
the current commitment of funds for a period of time in order to derive a future flow of funds
that will compensate the investing unit.
-

For the time the funds are committed

For he expected rate of inflation.
For the uncertainty / risk involved in the future flow of funds

Investment is the employment of funds on assets with aim of earning income or capital
appreciation. Investment has two attributes namely time and risk. Present consumption is
scarified to get a return in the future. The sacrifice that has to be borne in certain but the
return in the future may be uncertain. It will therefore, be useful to understand all the
important meanings of the term investment before one can have its clear concept in mind.
There are basically three concepts of investment. They are,

1. Economic investment
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2. Business investment
3. Financial investment
4. Gambling
1. Economic investment:

According to Economists, the term investment refers to the

additions to the capital stock of the society. The capital stock includes goods which are used
in the production of other goods (buildings, equipment, investment etc.,)
2. Business investment: This refers to putting money or money held in a private business.
For example, if a men puts Rs.1,00,000 in a newly opened general store, it will be said that
his investment in the business amounts to Rs.1,00,000.
3. Financial investment: This refers to putting money into securities, i.e. shares debentures,
Mutual Funds, bonds, life insurance, postal, bank deposit schemes etc., However, the term
financial investment is generally used for investment in, shares, bonds, postal, insurance,
bank deposit schemes, real estate, gold, derivates, mutual funds etc., Therefore, this study
gives more concentration to financial investment.
4. Gambling: Gambling is an act of creating artificial and unnecessary risks for expected
increased return. A gamble is a very short term investment base on rumours and hunches.
Gambling is undertaken just for thrill and excitement. In short, gambling involves acceptance
of extraordinary risks even without a through knowledge about them for pecuniary gains.
Horse racing, playing cards, lottery etc., are some typical examples of gambling.
1.3 PORTPOLIO MANAGEMENT
The portfolio management deals with the process of selection of investment from the number
of opportunities / avenues with different expected returns and carrying different levels of risk
and selection the investment is made with a view to provide the investors the maximum yield
for a given level of risk or ensure minimum be risk for a given level of return. Hence,
investment and portfolio management has emerged as one of the importand and specialized
branches of financial management.

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1.4 FACTORS INFLUENCING SLELECTION OF INVESTMENT
Selection of investments should rather be based on research of various factors. The
fundamental consideration for investment should be a growth oriented company with
substantial future potential. The major objectives of investment are increasing the rate of
return and reducting the risk. Other objectives like safely, liquidity and profitability against
inflation can be considered on subsidiary objectives.
Return
Investors are always expected a good rate of ruturn from their investment. The investment
should earn reasonable and expected return on the investment before the selection of
investment the investor should keep in mind that the form of return. The return expectiong
from investments in securities are of two types. They are,
1. Periodic cash receips.
2. Capital gain.
1.Periodic Cash Receips:Cash dividends are payable as and when the companys after tax
earning that its board of directors divides to distribute to the shareholders. In care of
debentures, bonds, bank deposits, bublic deposits etc., the coupon rate is payable at the end of
each specified period..
2. Capital Gain: The second component of return is the change in the price of the investment
called the capital gain or loss. This element of return is the different between the purchase of
price and the price at which the asset can be or is sold. Therefore, it can be a gain or loss.
The combination of the periodic cash receipts and capital gain made on the investments
constitutes the total return on particulars investment as shown below in equation(1)
Cash payment recived + Price change over the perios
Total Return

-------------------------------------------------------------------Purchase price of the sucurity

Capital appreciation
The other important objective of investment is appreciation of capital invested over a period.
The expectation of apppreciation in sucurities is in the following three ways.
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i. Conservative growth
ii. Aggressive growth
iii. Speculation.
Conservative growth:
Investors with a goal to achieve conservative conservative growth seek to build an investment
portpolio that will make money over the long-term by capical appreciation known as wealth
building over time.
Aggressive growth:
Investor with a goal to achieve short-term and long-term capital gains opts for aggressive
growth in stock. Current income from dividends is of a low priority and the investors are risk
seekers.
Speculation:
Both investment and speculation are somewhat interrelated.

It is said that speculation

requires investment and investments are to some extent speculative. Speculation is the
purchase or sale of anything in the hope of profit from anticipated change in price.
Accouding to Emery, Speculation consits in buying and selling commodities or securities or
other property in the hope of a profit from anticipated changes of value. As speculation
involves high risks, in order to take advantage of price fluctuations, stock brokers furnish a
separate list of sucurities for speculation purposes alone.
Safety and security of funds
The selected investment avenue should be under the legal and regulatory frame work. If it is
not under the legal frame work, it is difficult to represent the grievances, if any. Apporaval of
the law if self adds a flovor of safety. Even though approved by law, the safety of the
principal differs from one mode of investment to another. Investment made in government
assures more safety than with private party. From the safety point of view investment can be
ranked as follows bank deposits government bonds, UTI Units, debentures, shares and
deposits with the non-banking financial company.(NBFCS)

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Risk
The lever of risk depends on the objective of investment. The investors expect greater return
should also be prepares to carry higher risk. Also an investors should assure that High risk high reward and low-risk, low-reward. By careful planning and periodical review of the
market situation, the investor can minimize their risk on the portfolio. Risk avoidance and
risk minimization are the important objectives of securities analysiss.
Risk and Uncertainty:
Some times, a decision can lead to more than one possible outcome, such siturations are best
with uncertainly when it is not known exactly what will happen in future, but the variance
possiblities are neglected by their assumed probability of occurrence is called risk. The
difference between risk and uncertainty has been than uncertainty cannot be quantified while
risk can be quntified of the likelihood of future out comes.
Represented as follows:
Types of Risk
The risk is categorized into two types
1. Systematic Risk
2. Unsystematic Risk
This is represented as follows:

Systematic Risk:
Systematic risk refers to that portion of variation in return caused by factors that affect the
price of all securities. This movement is generally due to the response to economic, social and
changes. The systematic risk cannot be avoided.
Market Risk:
Variation is prise sparked off due to real social, political and economic events is referred to as
market risk.

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Interest Rate Risk The uncertainty in future market values and the size of future incomes,
caused by fluctuations in the general level of interest is known as interest rate risk.
Inflation Risk:
An uncertainty of purchasing power is regarted to as an risk due to inflation.

Unsystematic Risk:
Unsystematic risk refers to that portion of the risk which is caused due to factors unique or
related to a firm or industry. For examples, if excise duty or customs duty on goods
increases, the share price of the industry declines. The unsystematic risk will arise due to the
following reasons.
External and Internal business risk:
Such as business cycle, govt. policies and firms operations etc.,
Financial Risk:
Financial Risk is associated with the capital structure of a firm. A firm with no debt financing
has no financial risk.
Liquidity:
The liquidity of investment is the prime concern for investment prime made by an investor.
Before making investment, the investor should keep in mind the degree of liquidity required.
The investor should prefer for securities which ensure liquidity or marketability.
Tax Considerations
The investor, before selecting the securities for investment will take into consideration the
provision of income tax, Capital gains tax, and wealth tax to minimize tax burden and avail
all tax examption available.

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CHAPTER II
2.1 FINANCE Vs INVESTMENT
Investment decision and finance decision interact with each other like the two blades of a
pair of scissors, the investment (and savings) decision interacts with the finance (and
spending) decision to cut the pie (called total income) into mutually satisfactory (optional)
proportions. For many years finance and investment have encompassed the three major areas
of spending in the aggregate economy as stated in equation (2)
2.2 Foundation of investment
Investment management and other disciplines
Investment principles are base on elements developed in a number of academis displine. This
may classified as basis (Luxury items & furniture, Consumable products, Paint, sanitary
wares, tiles, items etc.,) and applied (Dealership and Distributor) as depicted in the above
chart. Trade/business is assigned a special classification since it is unnecessary to some parts
of the investment process but critical to some others.
The above disciplines are interacts with each other while investing in modern concepts, the
above mentioned disciplines are widely used while taking and investment decisions.
Investment process
The investment process involves a series of operations guiding to the purchase of investment
avenues in the market. The flowchart shows the stages and factors connected thereof.

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2.3 INVESTMENT AVENUES AVAILABLE IN INDIA
Investing in the financial markets, arguably a subject of interest for scores, never formed
part of all discipline in our curriculam. A subject that would have shaped the monetary
destiny of each of us was never even considered. The concept of investor education never
existed a decade ago, and crystallized only after the IPO scam in 1994-95. Fundamantal and
technical analysis, which are the key to participating in the market were made available only
to the privileged sections of the society then. The investors intention relating to disposable
income makes the question that where, when and how to invest. In the past, investment
avenues were limited to precious assets,schemes o the post office and bank. At present
investors can choose from a variety of instruments and assets. While making the choice, they
should consider the expected rate of return and available risk on their investment. Financial
education and

knowledge about the different avenues enable the investors to choose

investment intelligently. Investment avenues are of several kinds. Many types of investment
channels are also available. Therefore, the investors protection and awareness on investment
are becoming a necessity. To view above all, the securities and exchange board of India
(SEBI) to the lead in making the Indian retail investor well informed.
The various investment avenues can be classified under the following categories.
2.4 INVESTMENT MEDIA
The financial investment avenues are further classified with negotiable securities that the
transferable and non negotiable securities that are not transferable. The negotiable securities
may yield variable income or fixed income. These are equity shares. Bonds, debentures,
government securities and money market securities. The non negotiable securities are not
transferable. They yield only fixed income. They are deposits schemes of post offices, banks,
companies and non bankin financial institution, etc. There are tax-banefit schemes such as
public provident fund, GPF, National savings certificate etc., are also available. Mutual fund,
chit fund, and venture capital etc., are another types of financial investment avenues. They
are of recent in India. At present there are 1500 plus MF schemes in the market. In the last
decade, the MF industry has grown substantially and today MFs. Are the best suited vehicles
for individual investing. The non financial investment avenues also known as real precious
assets which are also part of the portfolio. They are gold, silver, arts, property etc.,

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