1.

1 INTRODUCE THE RESEARCH TOPIC

Investment is the need of the day, every person who is earning wants to invest
and safeguard him against uncertainties in the future. There are various modes
of investments available and selecting the right investment to meet ones
requirement is an art. As any investment comes with returns clubbed with a pot
full of risk, one needs to be prudent while investing.

Investment is the need of the day, every person who is earning wants to invest
and safeguard him against uncertainties in the future. There are various modes
of investments available and selecting the right investment to meet ones
requirement is an art. As any investment comes with returns clubbed with a pot
full of risk, one needs to be prudent while investing.

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1.2 SUBJECT BACKGROUND OF THE RESEARCH TOPIC

Analyzing Investment Pattern & Designing Portfolios for Bank

Employees

“In life, nothing is permanent but change.” Cash, there today may disappear
tomorrow. To avoid crisis in the future, people save and invest.

The term “Savings” has created confusion in the minds of the people, as to what
it means. The general norm that people have about savings is “the amount which
is left over after meeting the monthly expenditure in the savings account is
savings.” But in reality it is not the actual definition of savings. “Savings is that
part of income which will be kept untouched even after meeting for all the
unforeseen expenditure.”

Investment comes into picture after the savings are made. It is really important to
know when to invest, where to invest and how much to invest; the reason being
every investment made has a certain amount of returns attached to it, which is
complimented with an equal proportion of risk. Thus, investing into one mode of
investment would prove risky and to avoid this risk the investor would rather
choose a collection of investment modes that can help him in hedging this risk.
Risk in terms of minimum assured returns, capital appreciation and abnormal
profits. Such a collection of investment pattern is called ‘PORTFOLIO’.

Understanding the difference between savings and investments: Savings alone

will not help in attaining profits and increasing ones holdings as savings give only
liquidity but no appreciation. To get the benefit on the savings made one need to
invest. Investment therefore means assured regular minimum returns and capital
appreciation.

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For instance, Mr. A has made a savings of Rs. 10’ 000/- and he keeps it safely in
his locker. Such an act will not give him any benefit on the savings he has made.
Even after one year his holding will remain as Rs. 10’ 000/- only. On the other
hand Mr. B has made an equal amount of savings and he has deposited it into
his savings bank account which provides him with 3.5% interest per annum. After
one year, his holdings will give him a return of Rs. 350/-, which would make his
total holding after one year as Rs. 10’ 350/-. Thus, it is clear that Mr. B has made
an earning of Rs. 350/- against his savings. Above all he has not faced any
serious risk about loosing his investment.

With the above example it is clear that to get an appreciation on ones savings
one need to invest. Investment is thus, getting a regular return with capital
appreciation with minimum possible risk.

A step ahead one needs to find out the best mode of investment that will
maximize his returns and appreciate his capital optimally. One can see the need
of portfolio creation. As one needs to evaluate the degree of risk involved with
each investment and analyze the investors’ capability to take risk. If both suit
each other he can look forward to invest into that portfolio.

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1.3 NEED FOR THE STUDY

There have been a large number of studies made in the field of investment and
creation of portfolios. All the studies made are in reference with income levels in
general. Income levels even though same but the field of work and the life style
of a particular segment differ from others, which in turn affects the saving and
investment priorities.

Employees of banking sectors are a segment which comprises all sorts of

income groups. But the investment pattern of this segment has a uniqueness
which is needed to be studied and find the investment priorities of this segment.

Based on their investment pattern one needs to create portfolios that will cater to
the need and encourage this segment to look forward for more investments.
Thus it is really necessary to understand each segment separately.

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2.0 INTRODUCTION

Money is said to be the dirt of the hands which comes and disappears and if one
don’t save it for tomorrow he will be left helpless at the time of emergency. Thus,
every one should save and invest in order to gain profits. But as it is known no
investment comes without a minimum risk and to avoid that risk one need to
understand the market and invest accordingly.

Everyone is not aware about the market and the risks involved. Thus they look
forward to those people who are versed with this art of analyzing the market, risk
and return. These people help the individuals to create a portfolio depending on
the risk taking capabilities of these individuals.

Portfolio is the combination of various investment alternatives and it is imperative

to learn the various investment modes available individually. To understand
portfolio better it will be really essential to understand the working of the mutual
funds as they also follow the same principles that are required to create a
portfolio. Thus, it is essential to have a deep insight of the mutual funds to get
better familiarity with the portfolio creation and the different modes of investment
available for the same.

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2.1 STATEMENT OF THE PROBLEM

Portfolio creation is the activity that not every individual can perform. Every
individual has their own preferences in creating and selecting the portfolio.
Invariably the selection of appropriate portfolio depends upon the risk and return
involved in each portfolio. The sole objective of any investor is to maximize the
returns with given market risk. Here an attempt has been made in order to assist
the employees of banking institutions in creating appropriate portfolio.

2.2 REVIEW OF LITERATURE

The purpose of review of literature is to understand each and every element that
is involved in analyzing the investment pattern and designing portfolio for
employees in banking institution.

The literature gives an insight that will help to know not only the portfolio creation
but also to understand the key role that risk and return plays in the economy and
how each individual is affected by the risk and return factors.

METHODOLOGY

The data collected includes both primary data and secondary data. In this
competitive world it is necessary to go forward for the primary data collection as
there is a powerful element of choice available to the respondents and each
respondent will have his/ her own reasons for the choice he/ she makes.

At the same time the secondary data plays and important role as it is needed to
support the findings and the theories that are used to reach a particular

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conclusion, thus, secondary sources being text books by various authors and
collection of dynamic data through the websites and search engine.

BENEFITS OF REVIEW OF LITERATURE

As the study is being formulated on a particular segment it is very much essential

to understand the elements that affect this segment and what are the criteria that
this segment follows to safeguard their future.

Review of Literature helped in understanding the segment preferences and the

outlook that this segment has towards investment. At the same time the theory
also helped in understanding the concept of portfolio creation.

CONCLUSION

The review of literature was beneficial for the successful completion of the project
work and to carry out the survey in the right direction. The literature review
updates the knowledge of the researcher on portfolio creation techniques and the
need of the individual. It benefited in the learning of the profile of the respondents
and their preferences.

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2.3 OBJECTIVE OF THE STUDY

• To analyze the income levels of the bank employees.

• To analyze the investment preferences of the bank employees

• To analyze the savings and investment potential of the. bank employees

• To analyze the risk and return preferences of the bank employees

• To generate a portfolio for the preferences of the bank employees

2.4 SCOPE OF STUDY

The main focus of this study is to assess the bank employees in terms of their
savings and investment potentiality and then identifying the sector or areas of
investment for them. Thus, understanding of this segment and understanding of
the market scenario that caters to the need of this segment is what research tries
to do. The scope of the study was limited to some of the banks as they were
situated close by and the number of respondents also on the availability of free
time interest.

2.5 RESEARCH METHODOLOGY

Research means defining, redefining problem, formulating hypothesis or

suggested solution, collecting, organizing and evaluating data, making

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deductions and reading conclusions to determine whether they fit the formulating
hypothesis.”

It is a way to systematic solution of the research problem. The researcher needs

to understand the assumption underlying various techniques and procedures that
will be applicable to certain problem. This means that it is necessary for the
researcher to design its methodology.

There are various factors such as the personal factors as well as the market
factors that motivate a person to save and invest. Thus, the questionnaire will be
directed towards the respondents to give the feed back about their savings
interest and the various investment opportunities they are aware about and it
also give respondents to rethink about their investment criteria and upgrade it to
maximize their returns.

2.6 SAMPLING

All items under study in any field of survey is known as a universe or population.
A complete enumeration of all items in the population is census enquiry, which is
not practically possible. Thus sample design is done which basically refers to the
definition plan defined by any data collection for obtaining a sample from a given
population.

Sampling Technique

This study is purposive in nature as the research is concentrating on the various

issues that are related to this particular segment. Research is not trying to reach
a conclusion by making any assumption and findings are based on the
responses of the respondents that enriches our database with a focus on the
creation of certain portfolios for this segment.

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Convenient Sampling approach is adopted here. This is due to the fact that the
respondents were available only at the banks and only at the duty time, to get the
clear idea of their approach the nearest banks were selected and the study was
made.

SAMPLING UNIT

The population selected was of employees consisting of both males and females
of different age groups, holding different qualifications.

SAMPLING SIZE

The sample size will consist of 50 respondents of various banking institutions.

The sample size was drawn using convenience sampling method.

SAMPLE DESIGN

Sample design or sample procedure refers to a definite plan followed for the
collection of sample from a given population. The process followed was, firstly a
questionnaire was prepared with the objective in mind. The respondent from
various banking institutions were determined. The second step includes
convenience sampling whereby the selected population was considered and the
questionnaire was administered.

INSTRUMENTS

An open-ended questionnaire will be administered supported by a personal

interview to draw detailed explanations on the investment pattern. The instrument
used to collect the data from primary source is structured questionnaires which
consist of number of questions printed in a systematic form. Information was

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collected from faculties of various institutions.

2.7 TOOLS FOR DATA COLLECTION

In dealing with real life problems it is often found that data at hand are
inadequate, and hence, it becomes necessary to collect data that are
appropriate. The data can be of two types- Primary data and Secondary data. In
this study the Primary data is collected by means of personnel interview with the
help of questionnaires which is designed in such a manner that the employees of
all streams can use it easily.

The secondary data are those data which already exist. This data is also an
important input for the study, and in this case the secondary data is collected
from various records, magazines, text books, and the internet .

2.8 LIMITATIONS OF THE STUDY

 Only a percentage of total employees in each bank could be interviewed

but the analysis is generalized.
 Some of the employees were reluctant to disclose their financial data and
the personal details.
 The findings and conclusions drawn out of the study will reflect only
existing trends in the sector.
 The accuracy and authenticity of the observations made and conclusions
drawn largely depend upon the corresponding accuracy and authenticity
of the information supplied by the respondents at large.

The respondents being employees, who are basically very busy people, most of
them were in hurry during the survey. So some errors may have occurred in
filling of the questionnaires.

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2.9 PLAN OF THE ANALYSIS

The data collected through questionnaire and the secondary data available was
examined in detail; it was further classified and tabulated for the purpose of
analysis to generalize percentages. Based upon the information and objectives of
the study, conclusions were drawn, suggestions and recommendations are made
which can be used in providing appropriate training and development programs.
Graphs and Charts have been used wherever necessary. The tabulated data is
being graphically represented for the better analysis.

2.10 SOFTWARE USE FOR DATA ANALYSIS

• MS Word
• MS Excel

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3.1 INDUSTRY PROFILE

Portfolio is the art of combining various alternative investment modes, available

in the market. But to reach a conclusion regarding the selection of these modes
one need to understand various factors terminology involved in it. Thus, to
understand the procedure of portfolio construction one needs to understand the
procedure that a mutual fund follows. As both the sector perform the same
operations understanding of one would enlighten the working of the other.

Working of Mutual Funds

These days’ people hear more and more about mutual funds as a means of
investment. Most people have most of their money in a bank savings account
and their biggest investment may be a home. Apart from that, investing is
probably something common people simply do not have the time or knowledge to
get involved in. They are really large in number. This is why investing through
mutual funds has become such a popular way of investing.

Definition of Mutual Fund

A mutual fund is a pool of money from numerous investors who wish to save or
make money. Investing in a mutual fund can be a lot easier than buying and
selling individual stocks and bonds on their own. Investors can sell their shares
when they want.

Professional Management:

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 Each fund's investments are chosen and monitored by qualified professionals
who use this money to create a portfolio. That portfolio could consist of stocks,
bonds, money market instruments or a combination of those.

Fund Ownership:

As an investor, people own shares of the mutual fund, not the individual
securities. Mutual funds permit them to invest small amounts of money, however
much investors would like, but even so, they can benefit from being involved in a
large pool of cash invested by other people. All shareholders share in the fund's
gains and losses on an equal basis, proportionately to the amount they've
invested.

Mutual Funds are Diversified:

By investing in mutual funds, investors could diversify their portfolio across a

large number of securities so as to minimize risk. By spreading their money over
numerous securities, which is what a mutual fund does, people need not worry
about the fluctuation of the individual securities in the fund's portfolio.

Chooses to invest in stable, well established, mutual fund objectives:

There are many different types of mutual funds, each with its own set of goals.
The investment objective is the goal that the fund manager sets for the mutual
fund when deciding which stocks and bonds should be in the fund's portfolio.

For example, an objective of a growth stock fund might be: This fund invests
primarily in the equity markets with the objective of providing long-term capital
appreciation towards meeting their long-term financial needs such as retirement
or a child's education.

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Depending on investment objectives, funds can be broadly classified in the
following 5 types:

• Aggressive growth means that people will be buying into stocks which
have a chance for dramatic growth and may gain value rapidly. This type
of investing carries a high element of risk with it since stocks with dramatic
price appreciation potential often lose value quickly during downturns in
the economy. It is a great option for investors who do not need their
money within the next five years, but have a more long-term perspective.
Should not choose this option when people are looking to conserve capital
but rather when they can afford to potentially lose the value of their
investment.
• As with aggressive growth, growth seeks to achieve high returns;
however, the portfolios will consist of a mixture of large-, medium- and
small-sized companies. The fund portfolio blue-chip companies together
with a small portion in small and new businesses. The fund manager will
pick, growth stocks which will use their profits grow, rather than to pay out
dividends. It is a medium - long-term commitment, however, looking at
past figures, sticking to growth funds for the long-term will almost always
benefit the investor. They will be relatively volatile over the years so they
need to be able to assume some risk and be patient.
• A combination of growth and income funds, also known as balanced
funds, are those that have a mix of goals. They seek to provide investors
with current income while still offering the potential for growth. Some funds
buy stocks and bonds so that the portfolio will generate income while still
keeping ahead of inflation. They are able to achieve multiple objectives
which may be exactly what we are looking for. Equities provide the growth
potential, while the exposure to fixed income securities provides stability to
the portfolio during volatile times in the equity markets. Growth and
income funds have a low-to-moderate stability along with a moderate

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 potential for current income and growth. Investor need to be able to
assume some risk to be comfortable with this type of fund objective.
• Income funds. These funds will generally invest in a number of fixed-
income securities. This will provide investor with regular income. Retired
investors could benefit from this type of fund because they would receive
regular dividends. The fund manager will choose to buy debentures,
company fixed deposits etc. in order to provide investor with a steady
income. Even though this is a stable option, it does not go without some
risk. As interest-rates go up or down, the prices of income fund shares,
particularly bonds will move in the opposite direction. This makes income
funds interest rate sensitive. Some conservative bond funds may not even
be able to maintain our investments' buying power due to inflation.
• The most cautious investor should opt for the money market mutual fund
which aims at maintaining capital preservation. The word preservation
already indicates that gains will not be an option even though the interest
rates given on money market mutual funds could be higher than that of
bank deposits. These funds will pose very little risk but will also not protect
investor’s initial investments' buying power. Inflation will eat up the buying
power over the years when their money is not keeping up with inflation
rates. They are, however, highly liquid so investor would always be able to
alter their investment strategy.
• Closed-End Funds: A closed-end fund has a fixed number of shares
outstanding and operates for a fixed duration (generally ranging from 3 to
15 years). The fund would be open for subscription only during a specified
period and there is an even balance of buyers and sellers, so someone
would have to be selling in order for an investor to be able to buy it.
Closed-end funds are also listed on the stock exchange so it is traded just
like other stocks on an exchange or over the counter. Usually the
redemption is also specified which means that they terminate on specified
dates when the investors can redeem their units.

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 • Open-End Funds: An open-end fund is one that is available for
subscription all through the year and is not listed on the stock exchanges.
The majority of mutual funds are open-end funds. Investors have the
flexibility to buy or sell any part of their investment at any time at a price
linked to the fund's Net Asset Value.

Getting Started

Start with investor’s financial needs: People have different investment needs
depending on their financial goals, tolerance for risk and time frame—when they
need the money they invested.

Mutual funds are created with these needs in mind-it start with investor. Before
choosing investments, think about financial goals, risk tolerance and time frame
of the investor. Then choose investments that match them.

The investment pyramid: There is a wide variety of mutual fund options to meet
the equally wide variety of investment needs of investors. The investment
pyramid below shows fund categories that are suitable for different time frames,
with the longest time frames at the top and the shortest at the base of the
pyramid.

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Figure No 3.1

Investment experts recommend growth investments such as stocks and stock

funds for long-term goals, where investors won’t need to sell their investment for
5 years or more. For short-term goals, where investor might sell their investment
in 1 year or less, they recommend fixed income funds and other liquid

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investments. Of course, their specific recommendations will depend on investors
comfort with risk.

Benefits of mutual funds: Stocks, bonds, money market instruments-as an

investor, one have a wide variety of choices, and it would be difficult to find one
type of investment vehicle that effectively takes advantage of all of to day
investment options. That's why an investor may want to consider diversifying his
portfolio over a variety of investment vehicles as mutual funds do for them.

In addition to providing investors with the flexibility to create an investment plan

based on their individual goals, mutual funds offer many other advantages such
as professional management, affordability and diversification.

Advantages of Mutual Fund: As an investor, one would like to get maximum

returns on his/ her investments, but may not have the time to continuously study
the stock market to keep track of them. Investors need a lot of time and
knowledge to decide what to buy or when to sell. A lot of people take a chance
and speculate, some get lucky, most don t. This is where mutual funds come in.
Mutual funds offer investors the following advantages:

Professional management: Qualified professionals manage investor’s money,

but they are not alone. They have a research team that continuously analyses
the performance and prospects of companies. They also select suitable
investments to achieve the objectives of the scheme. It is a continuous process
that takes time and expertise which will add value to their investment. Fund
managers are in a better position to manage their investments and get higher
returns.

Diversification: Diversification lowers investors’ risk of loss by spreading their

money across various industries and geographic regions. It is a rare occasion
when all stocks decline at the same time and in the same proportion. Sector

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funds spread the investment across only one industry so they are less diversified
and therefore generally more volatile.

More choice: Mutual funds offer a variety of schemes that will suit investor’s
needs over a lifetime. When investor enter a new stage in his/ her life, all they
need to do is sit down with their financial advisor who will help them to rearrange
their portfolio to suit their altered lifestyle.

Affordability: As a small investor, one may find that it is not possible to buy
shares of larger corporations. Mutual funds generally buy and sell securities in
large volumes which allow investors to benefit from lower trading costs. The
smallest investor can get started on mutual funds because of the minimal
investment requirements. Investors can invest with a minimum of Rs.500 in a
Systematic Investment Plan on a regular basis.

Tax benefits: Investments held by investors for a period of 12 months or more

qualify for capital gains and will be taxed accordingly (10% of the amount by
which the investment appreciated, or 20% after factoring in the benefit of cost
indexation, whichever is lower). These investments also get the benefit of
indexation.

Liquidity: With open-end funds, investor can redeem all or part of his/ her
investment any time he/ she wishes and receive the current value of the shares.
Funds are more liquid than most investments in shares, deposits and bonds.
Moreover, the process is standardized, making it quick and efficient so that
investor can get his/ her cash in hand as soon as possible.

Rupee-cost averaging: With rupee-cost averaging, investors invest a specific

rupee amount at regular intervals regardless of the investment's unit price. As a
result, their money buys more units when the price is low and fewer units when
the price is high, which can mean a lower average cost per unit over time.
Rupee-cost averaging allows investor to discipline themselves by investing every
month or quarter rather than making sporadic investments.

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The Transparency: The performance of a mutual fund is reviewed by various
publications and rating agencies, making it easy for investors to compare fund to
another. As a unit holder, investors are provided with regular updates, for
example daily NAVs, as well as information on the fund's holdings and the fund
manager's strategy.

Regulations: All mutual funds are required to register with SEBI (Securities
Exchange Board of India). They are obliged to follow strict regulations designed
to protect investors. All operations are also regularly monitored by the SEBI.

Equity Funds:

Chances are that investor has at least one long-term goal. Whether it's saving for
retirement or starting ones own business, equity funds may help them reach their
financial goals.

The mutual fund concept is simple: A number of people who share the same
financial objective pool their money and have it invested and managed by
professional portfolio managers. Equity funds invest this pooled money primarily
in common stocks of public companies generally with long-term capital
appreciation as a goal.

A fund's risk and return depend on the types of companies it buys. The investor's
risk and return are also affected by how long they keep their money invested in
the fund. Investor stand the best chance of reaping the rewards of stocks if they
keep their money invested for a long time.

Types of Equity Funds: One fund may invest in only the stocks of well-
established companies while others concentrate their investments in companies
in one specific industry. Some examples:

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Growth funds: These funds invest in rapidly growing companies which tend to
use their profits to finance future growth instead of paying them out as dividends.

Balanced funds: These funds invest in blue chip stocks-large, established

companies with long histories of steady growth and reliable dividends. The
income from the dividends can help reduce the fund's volatility over the long
term.

Sector funds: These funds concentrate their investments in a particular market

sector or industry such as health care, communications or biotechnology.
Because of their specific focus and lack of diversification, sector funds are
generally best used as a complement to a well-diversified portfolio.

Global funds: The ability to invest anywhere in the world is the biggest
advantage global equity funds offer because they have the greatest number of
stocks to choose from. Investing globally, however may involve higher risks
depending on market conditions, currency exchange rates and economic, social
and political climates of the countries where the fund invests.

Investment Styles: Another dimension for looking at an equity fund is whether

it's following a value or growth style of investing. Both growth- and value-oriented
investments can be important components of a diversified portfolio.

Value investing: Value managers tend to look for companies trading below their
intrinsic value, but whose true worth they believe will eventually be recognized.
These securities typically have low prices relative to earnings or book value, and
often have a higher dividend yield. For example, these companies are found in
out-of-favor industries.

Growth investing: Growth managers look for companies with above-average

earnings, growth and profits which they believe will be even more valuable in the
future. They also look for companies that are well position to capitalize on long-
term growth trends that may drive earnings higher. Because these companies

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tend to grow earnings at a fast pace, they typically have higher prices relative to
earnings.

A Word about Risk: Stocks historically have outperformed other asset classes
over the long term, but tend to fluctuate in value more dramatically over the short
term. These and other risks are discussed in each fund's prospectus.

Advantages of Equity Funds Diversification: Equity mutual funds allow

investors to spread their money across a larger number of securities than they
probably could on their own. This diversification dramatically reduces the risk of
anyone company s losses adversely affecting their investment as a whole.

Professional Management: Professional money managers closely monitor the

securities markets and individual companies, buying and selling securities as
they see opportunities arise. Few individual investors can devote time or
resources to daily management of a sizable portfolio or stay up to date on the
thousands of securities available in the financial markets.

Liquidity: Investors may sell some or all of their mutual fund shares at any time
and receive their current value (net asset value). The value may be more or less
than their original cost.

Convenience: Mutual funds offer shareholders many services that make

investing easier. Investor may buy or sell shares each business day,
automatically add to or withdraw from their account each month, and have
income dividends and capital gains paid out to them or automatically reinvested.

Income Funds:

Income funds invest their pool of money primarily in individual bonds which is
why they are sometimes call bond funds. Income funds make loans to
corporations and governments by investing in their bonds and other interest-

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earning securities. In return, the corporations and governments pay interest to
the fund.

These funds are interest-rate sensitive, meaning that if interest rates fall, and the
value of income fund shares may raise and if interest rates are rising, the value
of a bond fund share may fall. Many bonds in which mutual funds invest have no
guarantees but they have traditionally provided higher current income than other
fixed-income alternatives such as money market funds and certificates of
deposit.

Portfolio managers constantly monitor the securities within the fund, buying and
selling bonds to maintain or improve the fund's share value as they seek to
achieve the best return that market conditions will allow. The share price of all
mutual funds is calculated daily by dividing the total value of the securities held
by the fund by the number of shares outstanding.

Maturity: Maturities are the length of time in which a bond must be paid. Bonds
can have short, intermediate or long-term maturities. Short-term bonds mature in
less than 2 years, intermediate-term bonds mature in 2 to 10 years, and long-
term bonds have maturities of 10 to 30 years.

Generally, bonds with longer maturities pay higher interest rates to compensate
investors for greater interest-rate risk. Longer-term bonds are more sensitive to
interest rate movements than bonds with shorter maturities, causing longer-
maturity investments to experience a greater degree of price volatility.

A bond fund's share price generally tends to fluctuate less than the price of an
individual bond, however, due to the wide variety of maturities and individual
characteristics of various bonds within a fund's portfolio.

Bond Prices: Investors are often concerned about the fluctuation of their bond
fund's share price. Because of changes in the market price of the bonds held the
value of the bonds in a fund's portfolio changes daily.

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The value of these bonds changes for a variety of reasons, primarily in response
to the movement of interest rates. Bond prices and interest rates generally have
an inverse relationship, moving up and down like a see-saw. When interest rates
go down, the prices of bonds generally go up, and vice versa.

For example, an Rs.1’000 bond with a fixed annual rate of 7% and current
interest rates fell to 5%, the 7% bond becomes more attractive to other investors,
thus increasing its resale value. However, if current interest rates climb to 10%,
the bond would be less attractive, causing its value to fall.

The prices of bonds are also affected by their credit quality and availability in the
market. If there is an abundance of bonds paying a certain interest rate, demand
may not meet supply, thus lowering prices. The reverse is also generally true.
For example, as interest rates decline, people tend to look to corporate bonds for
higher yields. Such increased demand can lead to increased prices in the
corporate bond sector.

The price of a given bond also depends on its credit quality, which may change.
However, despite the rating that bonds are assigned by the rating agencies, their
value is continually changing. If a corporation with questionable credit strength
restructures, the value of any outstanding bonds may increase.

Advantages of Income Funds:

• Diversification. Income funds allow investors to spread their principal

across a large number of securities, thus cushioning the effect that one
bond can have on overall investment results. As market and economic
conditions change, the portfolio managers can make adjustments in an
attempt to meet the fund's stated objectives.

• Active management. Experienced portfolio managers closely monitor a

mutual fund, buying and selling securities when necessary. This takes the
burden off investors who may not have the time to do in-depth research

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 about various investment possibilities.

• Affordability. Bond mutual funds can be purchased with an initial

investment which is sometimes as low as Rs.1,000, and subsequent
investments are as low as Rs.250. Individual bonds usually require a
minimum investment of Rs. 5,000 and sometimes more, depending on the
type of bond.

• Monthly income. For investors seeking a steady stream of income, bond

mutual funds generally pay monthly dividends, whereas most individual
bonds pay semi-annually. Interest payments from an individual bond are
fixed; monthly dividends from a mutual fund will fluctuate with market
conditions. A mutual fund pays fees to its manager, which does not apply
to holders of individual bonds.

• Easy access to ones money. Mutual funds allow investors to redeem

shares at any time-at the current net asset value.

• No maturity date. Individual bonds eventually mature, leaving the investor

with a lump-sum that must then be reinvested-possibly at a lower interest
rate. Bond funds never mature-portfolio managers constantly roll the
proceeds from maturing securities into new bonds. However, the share
prices of mutual funds fluctuate with market conditions, and investors may
have a gain or loss when shares are sold. Owners of individual bonds are
generally paid their principal investment at maturity.

What are Money Markets and money market instruments?

Money markets allow banks to manage their liquidity as well as provide the
central bank means to conduct monetary policy. Money markets are markets for
debt instruments with a maturity up to one year.

26
The most active part of the money market is the call money market (i.e. market
for overnight and term money between banks and institutions) and the market for
repo transactions. The former is in the form of loans and the latter are sale and
buyback agreements - both are obviously not traded. The main traded
instruments are commercial papers (CPs), certificates of deposit (CDs) and
treasury bills (T-Bills).

Commercial Paper: A Commercial Paper is a short term unsecured promissory

note issued by the raiser of debt to the investor. In India corporate, primary
dealers (PD), satellite dealers (SD) and financial institutions (FIs) can issue these
notes.

It is generally companies with very good ratings which are active in the CP
market, though RBI permits a minimum credit rating of Crisil-P2. The tenure of
CPs can be anything between 15 days to one year, though the most popular
duration is 90 days. Companies use CPs to save interest costs.

Certificates of Deposit: These are issued by banks in denominations of Rs.5

lakhs and have maturity ranging from 30 days to 3 years. Banks are allowed to
issue CDs with a maturity of less than one year while financial institutions are
allowed to issue CDs with a maturity of at least one year.

Treasury Bills: Treasury Bills are instruments issued by RBI at a discount to the
face value and form an integral part of the money market. In India treasury bills
are issued in four different maturities—14 days, 90 days, 182 days and 364 days.

Apart from the above money market instruments, certain other short-term
instruments are also in vogue with investors. These include short-term corporate
debentures, bills of exchange and promissory notes.

Debt market instruments

27
Debt instruments typically have maturities of more than one year. The main types
are government securities called G-secs or Gilts.

Like T-bills, Gilts are issued by RBI on behalf of the Government. These
instruments form a part of the borrowing program approved by Parliament in the
Finance Bill each year (Union Budget). Typically, they have a maturity ranging
from 1 year to 20 years.

Like T-Bills, Gilts are issued through auctions but RBI can sell/buy securities in
its Open Market Operations (OMO). OMOs cover repos as well and are used by
RBI to manipulate short-term liquidity and thereby the interest rates to desired
levels:

- Other types of government securities include:

• Inflation-linked bonds
• Zero-coupon bonds
• State government securities (state loans)

What is the difference between bonds and debentures?

A debenture is a debt security issued by a corporation that is not secured by

specific assets, but rather by the general credit of the corporation. Stated assets
secure a corporate bond, unlike a debenture, but in India these are used
interchangeably.

Bonds are IOUs between a borrower and a lender. The borrowers include public
financial institutions and corporations. The lender is the bond fund or an investor
when an individual buys a bond. In return for the loan, the issuer of the bond
agrees to pay a specified rate of interest over a specified period of time.

Typically bonds are issued by PSUs, public financial institutions and corporate.
Another distinction is SLR (Statutory liquidity ratio) and non-SLR bonds. SLR
bonds are those bonds which are approved securities by RBI which fall under the

28
SLR limits of banks.
Statutory Liquidity Ratio (SLR): It is the percentage of its total deposits a bank
has to keep in approved securities

What affects bond prices?

Bond prices are primarily affected by 2 factors:

• The current interest rate. The price of a bond, and therefore the value of
ones investment fluctuate with changes in interest rates. For example,
investor buys a bond for Rs.1, 000 that pays 5% interest. If he/ she held’s
the bond until maturity, he/ she will get his/ her Rs.1, 000 back plus the
5% interest payments the investor have received from the issuer.
However, between the time investor bought the bond and the date it
matures, the bond won't always be worth Rs.1, 000. If interest rates rise,
investors bond is worth less than Rs.1, 000. If interest rates fall, investors
bond is worth more than Rs.1,000.

• The credit quality of the issuer. If the rating agencies change the credit
rating of the issuer while investor holds the bond, the value of their bond
will be affected. If the credit rating declines, the value of their bond will
also decline. However, if investor holds the bond to maturity and the issuer
doesn't default, investor will get his/ her entire Rs.1,000 back.

• When the bonds are initially priced, the maturity also helps determine the
price. Longer maturities tend to pay higher interest rates than shorter
maturities. That's because investor’s investment is exposed to interest-
rate risk for a longer period of time.

29
What affects interest rates?

The factors affecting interest rates are largely macro-economic in nature:

• Demand/supply of money. When economic growth is high, demand for

money increases, pushing the interest rates up and vice versa.

• Government borrowing and fiscal deficit. Since the government is the

biggest borrower in the debt market, the level of borrowing also
determines the interest rates. On the other hand, supply of money is
controlled by the central bank by either printing more notes or through its
Open Market Operations (OMO).

• RBI. RBI can change the key rates (CRR, SLR and bank rates) depending
on the state of the economy or to combat inflation. RBI fixes the bank rate
which forms the basis of the structure of interest rates and the Cash
Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), which determine
the availability of credit & the level of money supply in the economy.

CRR is the percentage of its total deposits a bank has to keep with RBI in
cash or near cash assets and SLR is the percentage of its total deposits a
bank has to keep in approved securities. The purpose of CRR and SLR is
to keep a bank liquid at any point of time. When banks have to keep low
CRR or SLR, it increases the money available for credit in the system.
This eases the pressure on interest rates and these move down.

Typically a higher inflation rate means higher interest rates. The interest
rates prevailing in an economy at any point of time are nominal interest rates,
i.e., real interest rates plus a premium for expected inflation. Due to inflation,
there is a decrease in purchasing power of every rupee earned; therefore the
interest rates must include a premium for expected inflation.

What is the yield curve?

30
 The relationship between time and yield on securities is called the yield
curve. The relationship represents the time value of money-showing that people
demand a positive rate of return on the money they are willing to part-with today
for a payback into the future.

A yield curve can be positive, neutral or flat.

• A positive yield curve, which is most natural, is when the yield at the
longer end is higher than that at the shorter end of the time axis. This is
because people demand higher returns for longer term investments.

• A neutral yield curve has a zero slope, i.e. is flat across time. This occurs
when people are willing to accept more or less the same returns across
maturities.

• The negative yield curve (also called an inverted yield curve) occurs when
the long-term yield is lower than the short-term yield. It is not often that
this happens and has important economic ramifications when it does. It
generally represents an impending downturn in the economy, where
people are anticipating lower interest rates in the future.

What is yield to maturity?

Yield to maturity is the annualized return an investor would get by holding a fixed-
income instrument until maturity. It is the composite rate of return of all payouts
and coupon.

What is the average maturity period?

It is a weighted average of the maturities of all the debt instruments in a portfolio.

31
LIBOR & MIBOR

• LIBOR. Stands for the London Inter Bank Offered Rate. This is a very
popular benchmark and is issued for US Dollar, GB Pound, Euro, Swiss
Franc, Canadian Dollar and the Japanese Yen. The British Bankers
Association (BBA) asks 16 banks to contribute the LIBOR for each
maturity and for each currency. The BBA weeds out the best four and the
worst 4, calculates the average of the remaining 8 and the value is
published as LIBOR.

• MIBOR. Stands for Mumbai Inter Bank Offered Rate and is closely
modeled on the LIBOR. Currently there are 2 calculating agents for the
benchmark-Reuters and the National Stock Exchange (NSE). The NSE
MIBOR benchmark is the more popular of the two and is based on rates
polled by NSE from a representative panel of 31 banks/institutions/primary
dealers.

What is a credit rating?

Rating organizations evaluate the credit worthiness of an issuer with respect to

debt instruments or its general ability to pay back debt over the specified period
of time. The rating is given as an alphanumeric code that represents a graded
structure or creditworthiness.

Typically the highest credit rating is AAA and the lowest is D (for default). Within
the same alphabet class, the rating agency might have different grades like A,
AA, and AAA and within the same grade AA+, AA- where the "+" denotes better
than AA and "-" indicates the opposite. For short-term instruments of less than
one year, the rating symbol would be typically "P" (varies depending on the rating

32
agency).

4 rating agencies in India

 CRISIL

 ICRA

 CARE

 Fitch

What is the "SO" in a rating?

Sometimes, debt instruments are so structured that in case the issuer is unable
to meet repayment obligations, another entity steps in to fulfill these obligations.
A bond backed by the guarantee of the Government of India may be rated AAA
(SO) with the SO standing for structured obligation.

How is a currency valued?

The floating exchange rate system is a confluence of various demand and supply
factors prevalent in an economy such as:

• Current account balance. The trade balance is the difference between

the value of exports and imports. If India is exporting more than it is
importing, it would have a positive trade balance with USA, leading to a
higher demand for the home currency. As a result, the demand will
translate into appreciation of the currency and vice versa.

• Inflation rate. Theoretically, the rate of change in exchange rate is equal

to the difference in inflation rates prevailing in the 2 countries. So,
whenever, inflation in one country increases relative to the other country,

33
 its currency falls.

• Interest rates. The funds will flow to that economy where the interest
rates are higher resulting in more demand for that currency.

• Speculation. Another important factor is the speculative and arbitrage

activities of big players in the market which determines the direction of a
currency. In the event of global turmoil, investors flock towards perceived
safe haven currencies like the US dollar resulting in a demand for that
currency.

The implications of currency fluctuations on debt markets?

Depreciation of a currency affects an economy in 2 ways, which are in a way

counter to each other. On the one hand, it makes the exports of a country more
competitive, thereby leading to an increase in exports. On the other hand, it
decreases the value of a currency relative to other currencies, and hence imports
like oil become dearer resulting in higher deficits.

Real Effective Exchange Rate (REER) and currency over valuation

When RBI says that the rupee is overvalued, they mean that it has been
appreciating against other major currencies as they weaken against the dollar,
which might impact the competitiveness of India's exports.

REER is the change in the external value of the currency in relation to its main
trading partners. It is rupee's value on a trade-weighted basis. It takes into
account the rupee's value not only in terms of major currencies such as the US
dollar, Euro, Yen and Pound Sterling.

34
The exchange rates versus other major currencies are average weighted by the
value of India's trade with the respective countries and are then converted into a
single index using a base period which is called the nominal effective exchange
rate. But the relative competitiveness of Indian goods increases even when the
nominal effective exchange rate remains unchanged when the rate of price
increases of the trading partner surpasses that of India's. Taking this into
account, prices are adjusted for the nominal effective exchange rate and this rate
is called the "real effective exchange rate."

Assured Return Schemes: Some investors look for investment options which
guarantee them a fixed amount of return year after year because they believe
they stand to gain without taking any risk. However, they could be exposing
themselves to a much bigger risk - the risk of not keeping ahead of inflation. This
is why it may be wise to have an investment portfolio that consists of more than
just guaranteed return schemes.

Consider Fixed-Income Funds: Fixed-income funds have the potential to earn a

rate of interest commensurate with market interest rates.

Credit ratings of companies are rapidly changing. Well-diversified incomes funds

are able to spread this risk as research analysts are were equipped to track
company credit rating changes.

Investing through a bond/ fixed income fund does not mean giving up liquidity as
is normally required with fixed deposits such as assured returns schemes.

For steady and regular income, mutual funds that invest primarily in bonds and
other fixed income instruments may be the right addition to ones portfolio. Bonds
have traditionally provided higher current income than bank fixed deposits, and
they are also considered to be more conservative and less volatile than stocks in
general. That is why many investors select fixed income/ bond funds to balance
their investment portfolio.

35
Bear in mind though, that fixed income fund returns and NAV prices can fluctuate
with changes in the debt market conditions. Historically, however, fixed income/
bond funds have offered a higher degree of price stability than stock funds.

Money Market Funds: Money funds provide investors with current income and
are managed to maintain a stable share price. Because of their stability, money
funds are often used for cash reserves or money that might be needed right
away.

Money funds typically invest in short-term, high-quality, fixed-income securities,

such as Treasury bills, short-term bank certificates of deposit (CDs), banker's
acceptances and commercial paper issued by corporations. The average
maturity of a money fund's portfolio must be 90 days or less to help protect
against interest rate risk. The income money funds provide is generally
determined by short-term interest rates.

Choosing Funds: When it comes down to it, the decision to invest in a mutual
fund is one that investor have to make on his own. When he/ she try to choose
an investment, however, it is a good idea to seek the guidance of a financial
advisor who will review its objective to make sure it supports his/ her financial
goal.

As an investor, individual’s goals are unique, and a financial advisor can help
match them with the best funds. However, when investors are choosing funds, to
consider how much risk they are comfortable with and when they'll need the
money. If they have the time to weather the market's ups and downs, they may
want to consider equity investments.

Before selecting a mutual fund, it is essential to read the prospectus carefully to

learn all about the fund's performance, investment goals, risks, charges and
expenses.

36
Decision-making Factors: Before looking at the mutual funds available to an
investor, it may be best to decide the mix of stock, bond, and money market
funds they prefer. Some experts believe this is the most important decision in
investing. Here are some general points to keep in mind when deciding what
their investment strategy should be.

Diversify: It is a good idea to spread ones investment among mutual funds that
invest in different types of securities. Stocks, bonds, and money market
securities work differently. Each offers different advantages and disadvantages.
One may also want to diversify within the same class of securities. Diversifying
can keep investor from putting all his/ her eggs in one basket and therefore, may
increase their returns over a long period of time.

Consider the effects of inflation. Since the money investor set aside today may
be intended to be used several years down the road, one need to look at
inflation. Inflation measures the increase of general prices over time.

Conservative investments like money market funds often may be popular

because they are managed to keep a steady value. But their return after
accounting for the inflation rate can be very low, perhaps even negative. For
example, a 4% inflation rate over a period of many years could erase a money
market fund's 3% yield over the same period of time. So even though such an
investment may give some safety of principal, it may not be able to grow enough
in value over the years or even keep up with the rate of inflation.

Patience is a virtue. It's no secret—the prices of common stocks can change

quite a bit from day to day. Therefore, the part of ones account invested in stock
funds would likely fluctuate in value much the same way.

If investor don't need his money right away (for at least 5 years), he/ she
probably don't need to panic if the stock market declines or he/ she finds that his/
her quarterly statement shows the value of his/ her investment has fallen. In the
past, the stock market has regained lost value over time. Although investors are

37
not assured it will do so in the future, try to be patient and allow their stock funds
time to recover.

Remember the saying, "Buy low, sell high." Switching out of a stock mutual fund
when prices are low is usually not the way to make the most of ones investment.
Of course, if a fund continues to under-perform over a period of time as well as
investors other fund choices, he/ she may want to consider changing funds.

Look at investor’s age. Younger investors may be more at ease with stock funds,
because they have time to wait out the short-term ups and downs of stock prices.
By investing in a stock fund, they might be able to receive high returns over the
long-term.

On the other hand, people who are closer to retirement may be more interested
in protecting their money from possible drops in prices, since they'll need to use it
soon. In this case, it may be wise to place a greater percentage of money in bond
and/ or money market funds, which may not have such large changes in value.

How can investor determine an investment mix appropriate for his/ her
age?

One way is to subtract investor’s age from 100. The answer they come up with
may be a good number to start with in deciding what portion of their total
investments to put into stock mutual funds.

Risk: When investors are choosing funds, be sure to consider how much risk
they are comfortable with and how close they are to retirement. If retirement is
around the corner, they may want a portfolio with very little risk. On the other
hand, if they are younger, and have the time to weather the market's ups and
downs, they may want to choose a more aggressive investment strategy.

38
Read Fund Documents

Investors’ primary source of data concerning the mutual fund will be the
prospectus. It is a legal document illustrating the rules and regulations that a
mutual fund must follow and contains information on the fund's goal and strategy,
risks, performance, financial highlights fees and expenses, and a wide variety of
information that investor should know before investing.

Fund's goal and strategy

Goals vary from fund to fund, and they're important to understand so investor can
decide if they match his/ her personal objectives. Some funds generate income
for their shareholders, while others concentrate on capital appreciation. Some
focus on a combination of the two, and others are oriented towards tax benefits
or preservation of capital.

Funds also implement differing strategies to help accomplish their goals. The
Goals and Strategies section of a prospectus details the types of securities in
which fund managers can invest and how managers analyze them

Funds can be limited to domestic investments, focus on a certain country or

region, or invest anywhere in the world. In addition, some funds invest only in
specific industries or in particular types of companies. Others invest in large-,
medium- or small-capitalization companies.

The risks

As with all investments, each fund, whether domestic, international or sector

specific, carries different risks. The Main Risks section of a prospectus explains
which ones are associated with the securities in that particular fund, which may
help the investors to decide what level of risk they're comfortable having in their
investment portfolio.

39
A fund’s performance

While historical performance doesn't predict how a fund will do in the future,
investor may be interested in how it performed in past market environments.
Depending on the age of the fund, a prospectus will provide its 1- 5- and 10-year
average annual returns, including a comparison to its benchmark index over the
same period.

Financial highlights

In this section a prospectus lists 5 years of annual financial information, if a fund

is less than 5 years old, provides data since inception. Information includes net
asset values at the beginning and end of each year, and details the gains or
losses, dividends and distributions that account for any changes.

Financial Highlights also show fund asset information such as net assets ratios to
average net assets for expenses and net investment income, and portfolio
turnover rates.

The expenses of a fund

Operating a fund entails some costs one should be aware of. The Fees and
Expenses section breaks out these costs and who pays them. In addition, an
example of fund expenses is provided to help investor compare the cost of
investing in one fund versus another.

Managing the fund

In the Management section, a prospectus gives a brief biography of a fund's

managers, including how long they've worked on the fund and their overall
industry experience.

40
Why should one invest in mutual funds?

These days between work, family, and friends, most of the people do not have
the time to make or monitor personal investment decisions on a regular basis.
Mutual funds have qualified professionals who do all this for the investor. This is
the reason why, the world over, they have become the most popular means of
investing.

Mutual funds minimize risk by creating a diversified portfolio while providing the
necessary liquidity. Additionally, investor benefit from the convenience of not
having to bother with too much paperwork or repeat transactions. It is provider’s
belief that investors differ in their investment needs based on their personal
financial goals.

It is recommended that investor should, at the very beginning, identify their own
financial goals, be it planning for a comfortable retired life or children's education.
After defining the financial goals, investor need to plan for them in an organized
manner and look at investments that help achieve these goals.

Mutual funds vary in their investment objectives, thus providing an investor with
the flexibility to create an investment plan based on individual financial goals.
Investment experts recommend growth investments such as equity funds and
stocks as a good choice for funding needs that are five years or more away,
income funds to meet medium-term needs and liquid funds for short-term
requirements.

What is net asset value?

Net asset value (NAV) represents the market value of all assets per unit, held by
the fund. For an investor, it simply signifies the current value of his or her
investment in the fund. The NAVs of all the Templeton Funds are determined at
the end of every business day.

41
The NAV is computed by dividing the fund's net assets by the number of units
outstanding on the validation date and is illustrated below:

Market value of the fund's investment + Other current assets + Deposits - All
Current Liabilities except Unit Capital, Reserves and Profit & Loss Account

No. of Units outstanding: Since, the value of the various securities keep
changing, the NAV also changes on a daily basis. NAVs are updated daily on our
website and are available from any of the Investor Service Centres or one can
subscribe to receive daily NAVs through e-mail.

In-person purchase or redemption requests received up to 3 p.m on any

business day will be priced on the basis of the same day's closing NAV.
Requests received after 3 p.m will be treated as having been received on the
next business day, and will therefore be priced based on the next business day's
NAV.

Purchase or redemption requests received by mail will be priced based on the

closing NAV of the day on which the request was received.

What does an investor get as proof of his/ her holdings?

Investor gets an "account statement" which is similar to a bank passbook. The

account statement is a non-transferable document which shows details of all
purchases and sales, along with the price at which the purchase or sale was
made. It will also show the, amount invested and redeemed to date and the
number of units held, helping him/ her track his/ her investments.

A fresh account statement will be sent to the investor reflecting the updated
holdings of the unit holder after every transaction. Under normal circumstances,
the account statement will be sent within 3 working days after the date of receipt
of the purchase or redemption request at any of the Investor Service Centre. If an
applicant so desires, the Asset Management Company can issue a non-

42
transferable unit certificate to the applicant within 6 weeks of the receipt of
request for the Certificate.

Can an investor follow his/ her investments in the daily paper?

Yes. Most mutual funds and publicly traded stocks are listed in the business
section of local newspaper or in financial publications such as the Economic
Times. Mutual funds are listed in a separate section and are categorized by the
stock exchange on which they trade (e.g. the BSE Sensex).

Will investor have a switching facility between funds?

Unitholders will have an option to switch all or part of their investment in one fund
to another which is available for investment at that time. The Asset Management
Company would currently not charge any fees for such switching.

To process a switch, a unit holder must provide clear instructions. Such

instructions may be provided by completing a form and lodging it on any
business day with any of the Investor Service Centers or the office of the
Registrar and Transfer Agent. The form may also be sent by post.

An account statement reflecting the new holdings will be sent to the unit holder
within 3 days of completion of the transaction.

Tax implications for the mutual fund

Tax benefit to the Fund. Templeton Mutual Fund is registered with SEBI and as
such, the entire income of the Fund is exempt from income-tax under Section
10(23D) of the Act and is entitled to receive income without any deduction of tax
at source.

43
Financial Basics Overview

Individual investors are not alone if they feel like they have missed the class in
school that taught financial basics. Even long-term investors occasionally want to
brush up on the fundamentals. The bedrock concepts covered in this section can
provide a sturdy foundation for meeting financial goals. Without a basic
understanding of financial concepts, investors will find it difficult to make good
investing decisions.

Start with financial goals

Before investor chooses investments, he should write down his financial goals-
retirement children's education and so forth. For each goal, be sure to consider:

• Risk tolerance
• Time frame

The more time investor has to reach his goal, the more choices he has. It's much
easier to tolerate risk when he has plenty of time to ride out short-term volatility—
the ups and downs in the value of his investment. A long time frame means he
can choose to go after the higher long-term returns that equities have historically
delivered.

Another advantage of a long time frame is that the more years an investors
money compounds, the less he needs to save to reach his goal.

Understanding the investment options

While there are hundreds of mutual funds to choose from, they mostly fall into 3
categories.

• Equities (also called stocks)

44
• Fixed-income (also called bonds)
• Cash equivalents (a type of liquid investment such as a MMF.)

The risk of losing money with cash-equivalent investments is low, but so is the
long-term return as compared with equities. With equities, the risk of losing
money in the short run is much higher, but the potential for higher long-term
returns is also there.

The best asset mix is a very personal decision. One size definitely doesn't fit all
investors. Being a long-term investor, investing solely in cash equivalents could
leave the investor open to the risk of inflation. Short-term investors on the other
hand, need to be more concerned with the risk posed by volatility.

STRATEGIES FOR REDUCING RISK

Successful investors use several strategies to reduce their investment risk

including:

• Diversification
• Asset allocation
• Rupee-cost averaging

Diversification is a big word that means it's not a good idea to put all your eggs in
one basket. It’s not the same as asset allocation which is how one divides his
money between stocks, bonds and liquid investments. The best asset allocation
will give him the return he needs while not having more risk than he can tolerate.

Even though his investment strategy is in place, he might be hesitant to start

investing. Maybe the financial markets are ready to tumble. No one wants to
invest at the wrong time, but investment professionals will tell that there are no
ways to know the perfect time. That's where rupee-cost averaging comes in. It is
an automatic investing technique-one put in the same amount at a regular
frequency (monthly, for example).

45
INVESTMENT RISKS

At least 10 types of investment risk exist, and there's no way to eliminate all of
them. Playing it safe can be risky too, however. So the question isn't whether to
take a risk, but what kind to take.

Risk tolerance varies from person to person and can change over time with
changes in investors personal and financial circumstances. Investor needs to
assess his risk profile by evaluating whether he considers himself to be
conservative, moderate or aggressive in his approach to investing.

Types of investment risk

Of the many kinds of investment risk, most investors only worry about one: the
risk of losing money. With all the media hype about financial markets and the
ease of checking on his/ her returns, it's easy to see why investors can become
fixated on market swings.

Market risk: Market risk is the risk of losing money when the financial markets
go down. When investors think of losing money, they're thinking about volatility.
Volatility can be especially uncomfortable when prices fall steeply or remain
down for a long time.

There are 3 strategies for combating market risk: diversification, asset allocation
and rupee-cost averaging.

Inflation risk: Inflation is a loss in the value of what a rupee will buy. And the fact
that one can't see inflation eroding their principal makes it all the more
dangerous.

For long-term goals such as retirement or child's college education, biggest risk
may be inflation. If the money doesn't grow enough, investors won t be able to
stay ahead of inflation. If the investors are conservative and solely select

46
investments whose primary objective is to preserve rather than grow capital, they
are especially at risk.

The main strategy for combating inflation risk is to include stocks in ones
portfolio, which means accepting some volatility. Growth and volatility go hand in
hand—one can't have one without the other. Falling short of ones target for a
long-term goal can be worse than living through market ups and downs.

Financial professionals see risk differently

Mutual fund managers, on the other hand, look at risk more broadly. To them,
risk is more about the factors that contribute to volatility, such as:

Business risk: Anything that can harm a company's profitability, from poor
management to obsolete products, can be called a business risk.

Credit risk: When bond issuers fail to make their promised interest payments or
don't repay principal when it comes due, investors are experiencing credit risk.

Interest rate risk: Rising interest rates are bad news for fixed-income
investments. Interest rate risk measures how sensitive an investment's price is to
interest rate fluctuations.

Currency risk: The possibility that international investments will suffer because
the rupee (or dollar depending on the fund) gains strength against the currencies
of other countries is known as currency risk.

Country risk: Political instability, financial woes and other problems that weaken
a country's economy can spell trouble for money managers who invest there.

47
Why do people take investment risks?

Often called the risk-return tradeoff, investors accept greater investment risk
because they are seeking higher returns. If investors wish to reduce risk, they
must be willing to accept lower returns. They just can't get a high return from a
low-risk investment.

How much risk can investor accept?

The amount of investment risk one can tolerate is a personal matter. If

investment risk worries won't let one get a good night's sleep, he may have taken
on more risk than one can live with.

An investment advisor can help an investor develop realistic expectations of risk-

adjusted returns by discussing with him the risks and rewards of each of his
investments while matching his goals and objectives with appropriate mutual
funds.

Mutual funds can help to reduce risk

Mutual funds have experienced and skilled professionals who determine and
monitor risks on an ongoing basis. In addition, various bodies evaluate mutual
fund returns by the risks they carry.

Diversification is one of the risk-reducing strategies mentioned above. Mutual

funds are an excellent way to diversify ones portfolio. Each fund invests in more
companies and industries than one could probably own by oneself. The fund
managers carefully research the individual companies and industries before
adding them to the fund's holdings.

Volatility reflects the daily ups and downs in the value of investments. Much
maligned by investors and the media when prices plummet, volatility is welcomed
when investment values head upward. Yet, when was the last time one heard
anyone use the word "volatile" to describe prices going up?

48
How volatility differs from a roller coaster

Volatility is often equated with riding a roller coaster, but there's one key
difference. When investors roller coaster ride ends, he is exactly where he
started from.

Stock values have trended higher over the long term despite steep periodic
declines. From a long-term perspective the declines don't look nearly as steep as
they probably felt at the time.

Living with volatility's downside

Most people can get reasonably comfortable with volatility by using 4 basic
investment strategies:

• Focus on the long term

• Invest regularly
• Diversify investments
• Keep in touch with financial advisor

Focus on the long term. One key to living with volatility is focusing on long-term
results rather than the daily bumps along the way. This can be especially difficult
during prolonged market declines fed by daily injections of bad news.

Invest regularly. Also called rupee-cost averaging, an automatic investment

program is another strategy for living with volatility's downside and taking
advantage of its upside. Investors don't need to worry about the best time to
invest when he puts away the same amount every month, but like most investing
strategies, it doesn't guarantee a profit or prevent losses and some people find it
difficult to continue buying shares through prolonged market slumps.

49
Diversify investments. None of the asset categories does well all the time, so it
can be a good idea to put your eggs in a variety of baskets. If some of the
investments are down, others may be up.

Keep in touch with financial advisor. The last strategy for putting volatility in
perspective may be the most important. Financial advisors are trained to focus
on the financial goals, time frame and comfort with volatility of the investor.

Why evaluate a fund's volatility?

Volatility is how risk manifests itself, so all the common "risk" measurements that
are seen below actually gauge how volatile an investment has been in the past
not how "risky" it is.

It's not enough to evaluate a fund based on performance alone. Financial

professionals must also look at its risk-adjusted return, especially for clients with
time frames of less than 10 years or those who are very uncomfortable with
volatility. That's why advisors also look at common volatility measures such as R-
squared, beta Sharpe ratio and standard deviation.

Common measures of volatility

R-squared. It is the statistical measure of how closely the portfolio's performance

correlates with the performance of a benchmark index. R-squared is a proportion
that ranges between 0.00 and 1.00. For example, an R-squared of 1.00 indicates
perfect correlation to the benchmark index, while an R-squared of 0.00 indicates
no correlation. Therefore, a lower R-squared indicates that fund performance is
significantly affected by factors other than the market.

Let's take an example: A fund has an R-squared of 1(typically an index fund) with
the S&P CNX 500 index. This means that when the index has gone up, so has
the fund, and when it has gone down, the fund has too.

50
A fund which doesn't try to track an index, will have an R-squared less than 1.
The behavior of this fund will not match the index. All diversified equity funds
have high correlation with their respective benchmark indices, but not perfect
correlation. The reason for this is simple-the stocks and their individual
weightings in fund portfolios are not identical to their benchmark indexes.

All our diversified equity funds have high correlation with their respective
benchmark indices, but not perfect correlation. The reason for this is simple—the
stocks and their individual weightings in fund portfolios are not identical to their
benchmark indexes.

Beta: It is the statistical measure of a portfolio's sensitivity to market movements.

For example, a benchmark index such as the BSE Sensex or S&P CNX 500 has
a beta of 1.0. A beta of more or less than 1.0 shows that a fund's historical
returns have fluctuated more or less than the relevant benchmark.

For example, if a fund has a beta of 1.1 and the market index declines 10%, one
could expect the security to decline 11% (on average). A fund with a beta less
than 1.0 is less volatile than the market, and could be expected to rise and fall at
a slower rate.

Typically one needs to use beta in conjunction with R-squared for a better
understanding of the fund's risk-adjusted performance. The lower the R-squared
(which means less correlation between the fund and the benchmark utilized), the
less reliable beta is as a measure of volatility.

Sharpe Ratio: It is the statistical measure of a portfolio's historic "risk-adjusted"

performance and is calculated by dividing a fund's excess return (ones
investment's annualized return in excess of the risk-free rate of return available-
the extra return received by assuming some risk) by the standard deviation of

51
those returns, as a measure of reward per unit of total risk, the higher the ratio,
the better.

The main drawback of the Sharpe ratio is that it is expressed as a raw number.
Consequently, it's difficult for one to evaluate the Sharpe ratio of an individual
fund by itself. It is known that the higher the Sharpe ratio the better, but given no
other information, we don't know whether a Sharpe ratio of 1.5 is good or bad.
Only when one compares one fund's Sharpe ratio with that of another fund (or
group of funds) one can get a feel for its risk-adjusted return relative to other
investment options.

Standard deviation: It is a statistical measure of the historic volatility of a

portfolio. It measures the dispersion of a fund's periodic returns (often based on
36 months of monthly returns), the wider the dispersions, the larger the standard
deviation and the higher the risk.

For example: Fund ‘A’ posts annual returns of 8%, 10%, and 12%. Over the 3
years, it earns an average annual return of 10%, with a standard deviation of
1.63.

Fund ‘B’ returns 1%, 9%, and 20%. It, too, earns an average return of 10%, but
its standard deviation is 7.79.

Thus it is known that Fund ‘B’ has been more volatile than Fund ‘A’.

Standard deviation, like the other measures, cannot be used in isolation, one
need to check the standard deviations of other funds to get a better picture of the
fund's relative volatility. A problem with standard deviation is that it rewards
consistency above all else and hence, even if a fund loses money but does it so
very consistently it can have a very low standard deviation.

52
Given the investment objective of a diversified equity funds, Bluechip Fund is the
least volatile as it invests in large-cap stocks that tend to be less volatile. Prima
Fund, which invests in mid-cap and turnaround stocks, has high volatility given
that such stocks are more sensitive to market sentiments and speculation.

Conclusion

All risk measures have limitations. First, they are based on past performance.
Second, no single measure paints a complete picture of risk. Investors should
also consider qualitative risk factors such as investment style and portfolio
concentration.

Keeping in mind that investing is not solely about numbers. Nor is it about
"avoiding" risk. These measures are intended to help one understand risk.

Diversification

Simply put, diversification means choosing several baskets for ones investment
eggs. Sure, one could hit it big during good times by investing solely in one stock
or sector. But this strategy can be devastating if the market crashes and leaves
one with a basket of broken eggs.

Diversification is a little like buying insurance. By investing in multiple asset

categories-stocks, bonds, cash and real estate to name a few – investor is less
likely to get hurt if one fares poorly.

Different ways to diversify

Investor can diversify within an asset category, across asset categories and
investment styles, and globally.

53
Diversifying within an asset category:

By diversifying, one can reduce the impact on his investments when a specific
security does poorly. Investor could do this by purchasing many bonds, for
example, instead of one or two.

Investor is not really diversified, however, if all those bonds have short maturities.
Diversification means owning different types of bonds-long term, short term,
government, corporate and possibly high yield.

Diversifying among asset categories:

Diversifying can also reduce the risk that an entire asset category, such as
stocks, will do poorly for an extended period of time. One can select investments
from several asset categories-stocks, bonds, cash and real estate.

For example: Diversifying across investment styles. Value and growth stocks do
not usually move in tandem. In one year, one style typically outperforms the
other. It's somewhat like shopping, sometimes there's nothing better than a
bargain and other times it's better to spend a little more for something special.

Growth stocks tend to be more volatile than value stocks and are associated with
higher levels of risk and return.

Diversifying globally:

Another advantage of diversifying is that investors reduce the risk that local
financial markets will suffer an extended bear market. While global investing
includes some additional risks, such as currency fluctuations and political
uncertainty, diversifying globally can help offset overall portfolio volatility.

54
Mutual funds-the easiest way to diversify

Many people simply don't have enough money to invest in a broad array of
individual stocks, bonds and other assets, much less the time and energy to
research and monitor them. For these investors, mutual funds may represent the
most sensible option.

Mutual funds are, by definition, diversified. A single fund can hold securities from
hundreds of issuers. Funds are professionally managed providing an easy and
cost-effective way to invest within asset categories, across asset categories and
investment styles, and globally.

Asset Allocation

Studies have shown that proper asset allocation is more important to long-term
returns than specific investment choices. But since guessing which asset
category will do best at a certain time is very difficult, it can make sense to divide
ones investments among asset categories. Understanding this strategy can be a
key to investment success.

What is Asset Allocation?

Asset allocation means diversifying investor’s money among different types of

investment categories, such as stocks, bonds and cash. The goal is to help
reduce risk and enhance returns.

This strategy can work because different categories behave differently, Stocks,
for instance, offer potential for both growth and income, while bonds typically
offer stability and income. The benefits of different asset categories can be
combined into a portfolio with a level of risk one find acceptable.

Establishing a well-diversified portfolio may allow one to avoid the risks

associated with putting all your eggs in one basket.

55
What allocation is right for an individual investor?

Asset allocation decisions involve tradeoffs among 3 important variables:

• Time frame
• Risk tolerance
• Personal Circumstances

Depending on investor’s age, lifestyle and family commitments, their financial

goals will vary. One needs to define his investment objectives—buying a house,
financing a wedding, paying for ones children's education or retirement. Besides
defining his objectives, one also needs to consider the amount of risk one can
tolerate.

For example, when one retires and are no longer receiving a paycheck, he/ she
might want to emphasize bonds and cash for income and stability. On the other
hand, if one won't need his money for 25 years and are comfortable with the ups
and downs of the stock market, a financial advisor might recommend an asset
allocation of 100% stocks.

56
SAMPLE ASSET ALLOCATIONS

Here are examples of 3 model portfolios that can give a sense of how to
approach selecting an own asset mix. When reviewing the sample portfolios,
consider risk tolerance and other assets, income and investments.

Figure No 3.2

Aggressive portfolio:

This portfolio emphasizes growth, suggesting 65% in stocks or equity funds, 25%
in bonds of fixed-income funds and 10% in short-term money market funds or
cash equivalents. Investment experts recommend this portfolio for people who
have a long investment time frame. The portfolio provides for short-term
emergencies and a mid-term goal such as building a home, but otherwise
assumes the investor has long-term goals such as retirement in mind.

57
Figure No 3.3

Moderate portfolio:

The portfolio seeks to balance growth and stability. It recommends 50% in stocks
or equity funds, 30% in bonds or fixed-income funds and 20% in short-term
money market funds or cash equivalents. This portfolio would seek to provide
regular income with moderate protection against inflation. The equity
component provides the potential for growth, whereas the component in bonds
and short-term instruments helps balance out fluctuations in the stock market.

58
Figure No 3.4

Conservative portfolio:

This portfolio suggests 25% in stocks or equity funds, 50% in bonds or fixed-
income funds, and 25% in money market funds or cash equivalents. This
portfolio appeals to people who are very risks averse or who are retired. The
25% equity component is intended to help investors stay ahead of inflation.

Asset allocation plans change with time

While an asset allocation plan eliminates a lot of the day-to-day decisions

involved in investing, it doesn't mean that an investor should just "set it and forget
it." Reviewing the portfolio regularly with financial advisor to monitor and
rebalance asset allocation can help make sure to stay on track to meet goals.

The savings programs chosen, it's important to review portfolio every 6-12
months to assess progress. Financial advisor can provide with expert help in
determining the best way to allocate assets.

59
Investment Strategy

Finding the right investment has become quite a challenge. Investors fall prey to
buying the latest top performers and accumulating a few shares of this and that
without really considering financial goals, timeframe and tolerance for risk.

Whether planning for individual retirement, investing to meet the expenses of

child's higher education, or simply building cash reserves, it is important to match
financial goals with a mix of assets that may help meet those goals.

To build a successful investment strategy one should carefully structure his plan
to achieve his goals without taking more risk than one can afford or are
comfortable with. One also needs to consider in how much time he have to reach
his various goals.

What financial goals does an investor want to achieve?

The first step is to define financial goals. The choice of investments should
always be driven by what investor wants his money to do for him, and when. One
may want to invest to fulfill specific needs such as buying a house or a car,
paying children's education costs or simply building a comfortable retirement nest
egg. Goals may be more general—like building cash reserves or accumulating
wealth. Either way, spending time to determine ones financial goals will help one
choose the most appropriate investments.

When does an investor hope to reach them?

The next step is to identify the approximate time frame within which one wish to
achieve the goals he have listed. For example, does investor aim to buy a house
in five years, or retire in the next twenty years? Setting time frames for ones
goals is critical.

60
Different time frames require different investment strategies. The sooner is the
need to spend the money now invested; the greater is the need to invest for
principal stability and liquidity. Conversely, the longer one can leave his money
invested, the less he needs to worry about short-term price fluctuations and the
more he can focus on earning a high return over time.

Risk, return and timing are all related. Generally, the riskier an investment, the
higher its potential return over time and the more suitable it is for an investor with
a long time frame.

How much money will one need to invest to achieve his goals?

Investors fail to take into account inflation and taxes. Therefore, it would be
advisable to spend some time and take into consideration, the future cost of the
goal. Can one achieve his goals with amounts that he have already invested?

How much risk can one afford to take?

Each and every individual has a personal tolerance for risk and in order to set an
investment course that one will be comfortable with—and will not abandon
prematurely—one need to think about his willingness to accept fluctuations in the
value of his investments.

As one assesses his own risk tolerance, he will need to consider how soon he
needs to reach every investment goal. Long-term goals allow one to pursue more
aggressively and potentially more rewarding strategies because the investment
has time to recover from market setbacks.

Financial goals that need to be met sooner, rather than later call for lower or
moderate risk approaches. Whatever the investment profile may be, one of the
best ways to reduce overall risk is to diversify investments.

61
Does the investor need to rethink his investments periodically?

No single asset class (stocks, bonds, or money market instruments) is

appropriate for all of ones goals. At any given point in ones life, he will probably
want to keep part of his money secure and accessible, part invested for income
and part invested for growth. But the proportions will change as he prepare for
and achieve successive investment objectives.

It is a good idea to review goals and investments once a year, keeping in mind
the objectives each time a new investment is made. As circumstances change,
so will investing strategy.

Start Early

The key to building wealth is to start investing early and regularly. Regular
investments, however small, can grow into a substantial amount of wealth over
the long-term. Most of the investors tend to delay investing till the last moment.
But the longer the delay, the more they'll need to put away in order to reach their
goal.

The Cost of Delaying

Sunita, Anil and Sunil begin their careers together at the age of 25 but have
different attitudes towards savings. Sunita is a conservative spender and
believes in saving. Anil and Sunil believe that with good careers ahead of them it
does not really matter when they start saving.

Sunita gets into the habit of saving regularly from day one. She successfully
saves Rs.10,000 in the first year. She continues saving Rs.10,000 per year for 35
years till her retirement.

Anil gets married at the age of 27. With new responsibilities ahead of him, he
gets into the habit of saving Rs.10,000 every year and continues saving
Rs.10,000 per year for 33 years till his retirement.

62
Sunil is the last one to start saving. He gets married and becomes a father at the
age of 30. He, too, realises that he cannot delay his savings decision any more.
He gets into the habit of saving Rs.10,000 every year and continues with this for
30 years till his retirement.

Sunita began at age 25 and saved Rs.350,000; Anil began at age 27 and saved
Rs.330,000 and Sunil began at age 30 and saved Rs.300,000.

Figure No 3.5

63
It seems quite obvious who saved more and who would have more wealth on
their retirement. But consider this. If each of them got a compounded return of
15% per year on their savings, Sunita would have over Rs.1 Crore, Anil
approximately Rs.75 lacs and Sunil approximately Rs.49 lacs.

It does matter when one start saving… the earlier the better!

COMMON INVESTMENT MISTAKES

Investing wisely?

Knowing about some common investment mistakes can help prevent them from
happening to common investors.

1. Investing without a clear plan of action. Many people neglect to take the time
to think about their needs and long-term financial goals before investing.
Unfortunately, this often results in their falling short of their expectations. One
should decide whether one is interested in price stability, growth, or a
combination of these. Determine investment goals. Then, depending on
timeframe and tolerance for risk, select mutual funds with objectives similar to
that.

2. Meddling with ones account too often. One should have a clear understanding
of his investments so that he is comfortable with its behaviour. If one keep
transferring investments in response to downturns in prices, he may miss the
upturns as well. Even in the investment field, the "tortoise" who is more patient,
may win over the "hare". While past performance does not necessarily guarantee
future performance, ones understanding of the behaviour of various investments
over time can help prevent him from becoming short-sighted about his long-term
goals.

64
3. Losing sight of inflation. While one may be aware of the fact that the cost of
goods and services is rising, people tend to forget the impact inflation will have
on investments in the long-term. One have to keep in mind that inflation will eat
into his savings faster than he can imagine.

4. Investing too little too late. People do not "pay themselves first". Most people
these days have too many monthly bills to pay, and planning for their future often
takes a backseat. Regardless of age or income, if one does not place long-term
investing among his top priorities, he may not be able to meet his financial goals.
The sooner one starts, the less he has to save every month to reach his financial
goals.

5. Putting all your eggs in one basket. When it comes to investing, most of the
investors do not appreciate the importance of diversification. While it is known
that, one should not "put all his eggs in one basket", investors often do not relate
this concept to stocks and bonds. Investors should take the time to discuss the
importance of diversifying investments among different asset categories and
industries with the financial advisor. When one diversifies, one do not have to
rely on the success of just one investment.

6. Investing too conservatively. Because they are fearful of losing money, many
people tend to rely heavily on fixed-income investments such as bank fixed
deposits and company deposits. By doing this, however, one exposes self to the
risk of inflation. Consider diversifying with a combination of investments. Include
stock funds, which may be more volatile, but have the potential to produce higher
returns over the long term.

65
Rupee-Cost Averaging

Understanding rupee-cost averaging

Some investors like to speculate on the right moment to invest. But predicting
whether the market is going to move up, down or sideways is difficult even for
professionals. With rupee-cost averaging one can opt out of the guessing game
of trying to buy low and sell high.

With rupee-cost averaging, one invests a specific dollar amount at regular

intervals regardless of the investment's share (unit) price. By investing on a
regular schedule, one can take advantage of market dips without worrying about
when they'll occur. Investors money buys more shares when the price is low and
fewer when the price is high, which can mean a lower average cost per share
over time.

The most important element of rupee-cost averaging is commitment. How

frequently one invests (monthly, quarterly or even annually) is less important than
sticking to his investment schedule.

Does it work when prices are rising and falling?

The purpose of rupee-cost averaging is to take the guesswork out of investing by

providing one with an average cost per share that's lower over the long term.
Examples: to see what average price per share would be when prices are rising
and when prices are falling.

When unit price is rising: Rs.500 is invested in a mutual fund on the first of each
month. The investor is this example would methodically acquire 109.89 units at
an average cost of Rs.27.83 each. And there's no guesswork or worry about
what the price is about to do.

Rupee-Cost Averaging when Unit Prices Rise:

66
 Table No: 3.1

MONTH AMT. INVESTED UNIT PRICE NO. OF UNITS

PURCHASED
01 – JAN Rs. 500/- Rs. 22/- 22.73
01 – FEB Rs. 500/- Rs. 26/- 19.23
01 – MAR Rs. 500/- Rs. 26/- 19.23
01 – APR Rs. 500/- Rs. 28/- 17.86
01 – MAY Rs. 500/- Rs. 31/- 16.13
01 - JUN Rs. 500/- Rs. 34/- 14.71
TOTAL: Rs. 3000/- Avg. Cost: Rs. TOTAL: 109.89
27.83/-
Source: Secondary Data

When unit price is falling: Rupee-cost averaging in this scenario can reduce loss
compared to making a lump-sum investment. Rs.500 is invested in a mutual fund
on the first of each month. The investor in this scenario would have bought 98.63
units at an average cost per unit of Rs.30.83. The investment's value at the end
of the period would be Rs.2 564.38.

By comparison, someone who invested the entire Rs.3 000 in January at Rs.38
per unit would have owned only 78.94 units, and the investment would have
been worth only Rs.2 052.44 at the end of the period.

Rupee-Cost Averaging when Unit Prices Fall

MONTH AMT. INVESTED UNIT PRICE NO. OF UNITS

PURCHASED
01 – JAN Rs. 500/- Rs. 38/- 13.16
01 – FEB Rs. 500/- Rs. 31/- 16.13
01 – MAR Rs. 500/- Rs. 29/- 17.24
01 – APR Rs. 500/- Rs. 32/- 15.63
01 – MAY Rs. 500/- Rs. 29/- 17.24
67
01 - JUN Rs. 500/- Rs. 26/- 19.23
TOTAL: Rs. 3000/- Avg. Cost: Rs. 30.83/- TOTAL: 98.63
 Table No: 3.2

Source: Secondary Data

Is rupee-cost averaging right for individual investor?

Rupee-cost averaging is popular among people who invest in volatile funds. If a

fund's share price fluctuates a lot, rupee-cost averaging can help reduce the
average cost per share over time when one is investing, and increases his profit
when he is systematically withdrawing his money.

It's not for everyone but many investors believe this systematic approach to
investing and withdrawing is an effective way to accumulate wealth over the long
term.

Rupee-cost averaging doesn't guarantee a profit or eliminate risk, and it won't

protect one from losses if one sells shares at a market low. Before adopting this
strategy, one should consider his ability to continue investing through periods of
low price levels.

ANALYZING THE DATA

MONTHLY INCOME OF THE RESPONDENTS

Table No 4.0
Monthly Income Frequency Percent
Between 5000 - 15000 35 70.0
between 15001 - 25000 13 26.0
between 25001 - 35000 02 04.0
Total 50 100.0
Source: Primary Data

Figure No 4.0

68
 MONTHLY INCOME OF THE RESPONDENTS

40
35
35
30
25
20 Frequency
15 13

10
5 2
0
Between 5000 - between 15001 - between 25001 -
15000 25000 35000

Source: Primary Data

It is clear that 70% of the respondents have monthly income between Rs. 5,000/-
to Rs. 15,000/- , 26% have monthly income between Rs. 15,000/- to Rs.25,000
and rest 4% more than Rs.25000 .

FAMILY INCOME OF THE RESPONDENTS

Table No 4.1
Family Income Frequency Percent
Between 60000 - 180000 18 36.0
Between 180001 – 300000 11 22.0
Between 300001 – 420000 09 18.0
Between 420001 – 540000 07 14.0
Between 540001 – 660000 05 10.0
Above 660000 00 00.0
Total 50 100.0
Source: Primary Data

Figure No 4.1

69
 FAMILY INCOME OF THE RESPONDENTS

20 18
18
16
14
12 11
10 9 Frequency
8 7
6 5
4
2
0
Between Between Between Between Between
60000 - 180001 – 300001 – 420001 – 540001 –
180000 300000 420000 540000 660000

Source: Primary Data

It is clear from the graph that almost 72% of the respondents have annual family
income between Rs. 60,000/- to Rs. 180,000/-. 22% of the respondents have a
family annual income between Rs. 180,001/- to Rs. 300,000/-. 18% of the
respondents have a family income between Rs.300,001/- to Rs.420,000/-.14% of
the respondents have a family income between Rs.420,001/- to Rs.540,000/- and
10% of the respondents have a family income more than Rs.540,000/-.
SAVINGS
Table No 4.2
Savings Frequency Percent
Below 20% 22 44.0
Between 20% - 40% 18 36.0
Between 40% - 70% 08 16.0
Above 70% 02 04.0
Total 50 100.0
Source: Primary Data

Figure No 4.2

70
 Savings

4%
16%
Below 20%
44%
Between 20% - 40%
Between 40% - 70%
Above 70%
36%

Source: Primary Data

It is clear form the bar graph that 44% of the respondents have a savings of
below 20%, 36% of the respondents save between 20% ad 40%, 16% of the
respondents save between 40% and 70% and 4% of the respondents save more
than 70%.

INVESTMENT
Table No 4.3
Investment Frequency Percent
Below 20% 18 36.0
Between 20% - 40% 24 24.0
Between 40% - 70% 07 08.0
Above 70% 01 04.0
Total 50 100.0
Source: Primary Data

Figure No 4.3

71
 Investment

14% 2%
36% Below 20%
Between 20% - 40%
Between 40% - 70%
Above 70%
48%

Source: Primary Data

It is evident from the pie above that 36% of the respondents invest below 20% of
their savings.48% of the respondents invest between 20% & 40% of their
savings, 14% 0f the respondents invest between 40% & 70% of their savings and
2% invest above 70% of their savings.

PRESENT RETURNS
Table No 4.4
Returns Frequency Percent
between 0.0 - 5% 08 16.0
between 5 -10% 28 56.0
between 10 - 15% 09 18.0
above 15% 05 10.0
Total 50 100.0
Source: Primary Data

Figure No 4.4

72
 PRESET RETURNS

30

25

20

15
Frequency
10

0
between 0.0 between 5 - between 10 above 15%
- 5% 10% - 15%

Source: Primary Data

It is clear from the figure that 56% of the respondents have invested for a return
between 5% & 10%. There are16% respondents who are getting returns on their
investments as low as 0% to 5%.

RISK
Table No 4.5

Risk Frequency Percent

Yes 22 44.0

No 26 52.0
Not sure 02 04.0
Total 50 100.0
Source: Primary Data

Figure No 4.5

73
 Risks

4%

44% Yes
No
Not sure
52%

Source: Primary Data

The above pie clearly states that 44% of the respondents are willing to take risk
while 52% of the respondents are not willing to take risk.

INVESTMENT MODES SELECTED

The investors were given a choice of selecting various investment modes

from the market, to know where they invest the most.

The following figures give us the clear idea about there investment pattern.

EQUITY
Table No 4.6
Equity Frequency Percent
not invested 46 92.0
invested 04 08.0
Total 50 100.0

74
Source: Primary Data

Figure No 4.6

Equity

8%

not invested
invested

92%

Source: Primary Data

8% of the total respondents has invested into equity, thus making it quite
unpopular investment for this segment.

BOND / FIXED INCOME SECURITIES

Table No 4.7

Bond/fixed Income Frequency Percent

Not invested 47 94.0

Invested 03 06.0
Total 50 100.0
Source: Primary Data

Figure No 4.7

75
 Bond/Fixed Income

6%

not invested
invested

94%

Source: Primary Data

6% of the total respondents showed their interest to invest into bonds or fixed
income securities, thus making it quite unpopular investment for this segment.

INSURANCE

Table No 4.8
Insurance Frequency Percent

Not invested 19 38.0

Invested 31 62.0

Total 50 100.0

Source: Primary Data

Figure No 4.8

76
 Insurance

38%
Not invested
Invested
62%

Source: Primary Data

The above pie chart clearly shows that 62% of the respondents have invested in
to insurance segment.

MUTUAL FUND
Table No 4.9

Mutual Fund Frequency Percent

Not invested 34 68.0

Invested 16 32.0

Total 50 100.0

Source: Primary Data

77
 Figure No 4.9

Mutual Fund

32%

Not invested
Invested

68%

Source: Primary Data

Mutual Funds from the above figure show a limited interest of the respondents in
this security .

REAL ESTATE
Table No 4.10

Real Estate Frequency Percent

Not invested 50 100.0

Invested 0 00.0

Total 50 100.0

Source: Primary Data

78
 Figure No 4.10

Real Estate

0%

Not invested
Invested

100%

Source: Primary Data

The investors have totally ignored this segment.

CHIT FUNDS
Table No 4.11

Chit Funds Frequency Percent

Not invested 43 86.0

Invested 07 14.0

Total 50 100.0
Source: Primary Data

79
 Figure No 4.11

Chit Funds

14%

Not invested
Invested

86%

Source: Primary Data

14% of the investors have invested into chit funds but most of them have not
shown interest in this mode of investment.

POST OFFICE SAVINGS

Table No 4.12

Post Office Savings Frequency Percent

Not invested 40 80.0

Invested 10 20.0

Total 50 100.0

Source: Primary Data

Figure No 4.12

80
 Post Office Savings

20%

Not invested
Invested

80%

Source: Primary Data

Post Office Savings is one of the desired investment modes but due to the
availability of insurance and higher return bank deposits it has not been able to
attain the interest of the investors at a higher degree. Just 20% of the
respondents are looking forward to this mode of savings.

DEPOSITS
Table No 4.13

Deposits Frequency Percent

Not invested 24 48.0

Invested 26 52.0
Total 50 100.0

Source: Primary Data

81
 Figure No 4.13

Deposits

48%
Not invested
Invested
52%

Source: Primary Data

The most liquid form of investment that can be realized even at odd hours today
is deposits (savings). The security provided and the guarantee makes it desiring
investment for 52% of the respondents.

OTHERS
Table No 4.14

Others Frequency Percent

Not invested 49 98.0

Invested 1 2.0

82
Total 50 100.0

Source: Primary Data

Figure No 4.14

Others

2%

Not invested
Invested

98%

Source: Primary Data

The investors have identified one more mode of investment which is totally risk
free. 2% of the respondents felt provident funds as one of the interesting option
they have to avoid risk.

SUMMARY OF FINDINGS, CONCLUSION & SUGGESTIONS

5.1 FINDINGS:
• 70% of the respondents have a monthly income between
Rs. 5,000/- & Rs. 15,000/-.
• 36% of the respondents have a total family income between
Rs. 60,000/- & Rs. 180,000/-

83
 • 44% of the respondents make a savings of below 20%.
• 36% of the respondents make an investment of below 20%.
• 56% of the respondents are getting a return between 5% & 10%
on their investment.
• 44% of the respondents are willing to take a maximum risk .

5.2 CONCLUSION:
Looking at the interpretation made for every piece of data it is concluded
that employees in banking sectors are risk averters. Now to address the need of
this segment, appropriate portfolio is created with low risk and average returns
with small amounts of investments.

5.3 SUGGESTIONS:
To cater the need of this segment the following modes of investments are
suggested.

1. Banking.
2. Post Office Savings.
3. Insurance.

It is out of these above mentioned modes of investment, it is suggested that the

respondents can select the area of investment they want to invest into. Here the
following portfolio is suggested based on their risk and return factors that suits
the respondent’s choice and ability to invest into to get maximum returns.

84
BANKING

Since the respondents are risk averters, bank deposits are suggested to invest
into.
Saving Bank Account Rate in both Private and Public Sector is 3.5%.
The following table shows the interest rates on domestic bank deposits.

INTEREST RATES ON DOMESTIC DEPOSITS (%)

85
Table No: 5.1 Interest Rate on Deposits

INTEREST RATES
PERIOD / DEPOSITS
BELOW
15LACS
RS INT RATE
LACS
15-50 FOR
CITIZEN
SENIOR

7 days to 14 days 0 3.75 0

15 days to 45days 4.5 4.75 4.5

46 days to less 3 months 5.25 5.5 5.25

3 months to less than 4 months 5.5 5.75 5.5

4 months to less than 6 months 5.5 5.75 5.5

6 months to less than 9 months 6.25 6.4 7.25

9 months to less than 1 year 6.25 6.4 7.25

1 year to less than 2 years 6.5 6.75 7.5

3 Years to less than 5 years 7 7 8

2 years to less than 3 years 6.75 6.75 7.75

5 Years upto 10 years 7 8 8

POST OFFICE DEPOSITS AT A SNAPSHOT

Another attractive portfolio for the respondents is post office deposits

which provide regular return with low risk.

The following table provides the various schemes available in post office
deposits.
Table No 5.2

86
SCHEME WHO CAN INVESTMENT INTEREST MATURITY PREMATURE TAX
INVEST WITHDRAWL BENEFITS
MIN. MAX
(Rs.) (Rs.)

NSC Individuals 100 No limit 8% 6 YEARS AFTER 4 YES,SEC.

or on compounded YEARS 88, SEC 80
behalf of semi- (L)
minors, annually
trusts

KISAN Individuals, 100 NO 8% 8 YEARS & YES (WITH A NONE

VIKAS and on LIMIT compounded 7 MONTHS FINE
PATRA behalf of annually ATTACHED )
minors,
trusts

MONTHLY Individuals 6000 3 8% P.A. 6 YEARS YES (WITH A YESSEC.8

INCOME LACS +10% FINE 8
SCHEMES BONUS ATTACHED )

RECURRING Individuals, 10 NO 8%compound 5 YEARS AFTER 1 YESSEC.

DEPOSIT trusts, LIMIT ed annually YEAR UPTO 80 L
welfare and 50%
regiment
funds

PO All 20 1 LAC. 6.25- 1-5 YEARS Cheque facility YESSEC.

SAVINGS categories 7.5%Compou available; 80 L
DEPOSIT of investors nded accepted by
quarterly scheduled
banks

NATIONAL SAVINGS CERTIFICATES (NSC)

National Savings Certificates (NSC) is an assured return scheme, armed with

powerful tax rebates under Section 88 of the Income Tax Act, 1961. Interest is
payable at 8 per cent, compounded half-yearly for a duration of 6 years.

NSC combines growth in money with reductions in tax liability as per the
provisions of the Income Tax Act, 1961. The scheme offers a coupon of 8 per

87
cent, compounded semi-annually. So, Rs 1,000 invested in NSCs become Rs
1,586.87 on maturity after 6 years.

Who can invest?

NSC application forms are available at all post-offices. The application can be
made either in person or through an agent of small savings schemes. The
following types of certificates are issued:

1. Single Holder Type Certificate: - This can be issued to:

i) An adult for himself or on behalf of a minor.
ii) A Trust.
2. Joint 'A' Type Certificate: This may be issued jointly to two adults payable
to both holders jointly or to the survivor.
3. Joint 'B' Type Certificate: This may be issued jointly to two adults
payable to either of the holders or to the survivor.

Investment and range of investment in NSC

NSCs are issued in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and

Rs 10,000. There is no prescribed upper limit on investment in NSCs.

Interest:

Interest is payable at 8 per cent, compounded half-yearly for a duration of 6

years.

Maturity:

The maturity period (duration) of a NSC scheme is 6 years.

Premature withdrawal:

NSCs do not offer any scope of premature withdrawal except on death or

forfeiture by pledge or by court order. However, NSCs can be transferred from

88
one person to another through the post office on the payment of a prescribed fee.
They can also be transferred from one post office to another. If a certificate is
lost, destroyed, stolen or mutilated, a duplicate can be issued by the post-office
on payment of the prescribed fee.

Borrowing:

One can borrow against his NSC by pledging it after the permission of the
concerned post-master.
One can pledge his NSC to any of the following:
· The President of India or Governor of a State in his official capacity.
· The RBI or a scheduled bank or a co-operative society (including a co-operative
bank).
· A corporation or a government company.
· A local authority
· A Housing Finance Company approved by the National Housing Bank and
notified by the Central Government.

Tradable:

NSCs cannot be traded in the secondary market. But they can be transferred
from one person to another through the post office on payment of a prescribed
fee.

MODE OF HOLDING:

NSCs are held physically in the form of Certificates issued to the investors by the
post office.

Tax Implications:

89
NSCs offer tax benefits as per the provisions of the Income Tax Act, 1961.
Rebates are available under Section 88 of the Income Tax Act, 1961 on both the
principal as well as the interest income. Under the provisions of this Section, an
investor can reduce his tax liability by Rs 12,000 by investing the maximum
permissible sum of Rs 60,000 in one financial year. Moreover, the annual interest
income (till five years) is deemed reinvested under Section 88, and is eligible for
tax rebate as indicated below:

Table No 5.3

Gross Total Income (Rs) Rebate

0 - 150,000 20%
150,001 - 500,000 15%
500,001 & Above Nil

Moreover, the annual interest income (till five years) is deemed reinvested under
Section 88, and is eligible for a 20 per cent tax rebate. The rebate is calculated
@ 30 per cent if ones gross annual salary is upto Rs 1,00,000. However, the
interest income at the end of the sixth year is not eligible for tax breaks. The
interest income every year also qualifies for exemption under Section 80L of the
Income Tax Act, which means that interest income upto Rs 12,000 is tax-exempt.
Thus, while one can claim 20 per cent tax rebate on reinvested interest income,
the entire interest income will be tax-free if it is lower than Rs 9,000. An added
advantage is that TDS (Tax Deductible at Source) is not applicable on the NSC.
Since NSC offers regular assured returns and tax benefits, it is suggested to
invest respondent funds in this scheme. Besides NSC the respondents can
invest their funds in the following post office schemes, which offers regular
assured returns with low risk.

KISAN VIKAS PATRA

90
Kisan Vikas Patra (KVP) doubles ones money in 8 years and 7 months with the
advantage of premature withdrawal. KVP is sold through all Head Post Offices
and other authorized post offices throughout India. The rate of return is 8.41 per
cent, compounded annually. Interest rates affect the decision to buy, hold, or sell
(encash prematurely) relating to KVP. The Government of India has reduced the
interest rates on KVP and other post office schemes in the Budget 2003-04.
Consequently, the tenure of this "Double Your Money" scheme has been
increased from 7 years 8 months to 8 years and 7 months.

Who can invest?

KVP is not meant for regular income. It is for those looking for a safe avenue of
investment without the pressing need for a regular source of income.

Investment:

The minimum investment in KVP is Rs 100. Certificates are available in

denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000, Rs 10,000 and Rs
50,000. The denomination of Rs 50,000 is sold through head post offices only.
There is no limit on holding of these certificates. Any number of certificates can
be purchased. A KVP is sold at face value; the maturity value is printed on the
Certificate.

Maturity:

The KVP has tenure of 8 years and 7 months, in which time your principal
investment doubles in value. However, there are options for premature
encashment, subject to certain rules and loss of interest.

Premature Withdrawal:

91
--If the premature encashment takes place within a period of one year from the
date of purchase of the certificate, only the face value of the certificate shall be
payable. No interest is payable in this case.

--After the expiry of one year, but before two years and six months from the date
of the issue of the certificate, the face value of the certificate together with simple
interest at the specified rate for the completed months for which the certificate
has been held, shall be payable.

--If a certificate is encashed any time after expiry of two-and-a-half years, the
amount payable is as specified by the government from time to time.

Borrowing Facility:

Depending on whether the finance company or the bank from where you are
raising the loan accepts it or not, some banks accept it for raising house loans.

Transferable:

KVP is not a bearer certificate, and is not easily transferable. Permission of the
postmaster is required for any transfer. These cannot be traded in the secondary
market.

Mode of Holding:

KVP is held physically in the form of certificates that are issued to the investors
by the post office. The option of holding KVP in demat form is not available.

Tax Implications:

Although no TDS is applicable on the interest income from KVP, there are no tax
incentives as per the provisions of the Income Tax Act, 1961.

MONTHLY INCOME SCHEME

92
The post-office monthly income scheme (MIS) provides for monthly payment of
interest income to investors. The post-office MIS gives a return of 8 per cent plus
a bonus of 10 per cent on maturity. However, this 10 per cent bonus is not
available in case of premature withdrawals. It is meant to provide a source of
regular income on a long-term basis.

Who can buy?

It is meant for investors who want to invest a lump-sum amount initially and earn
interest on a monthly basis for their livelihood. The scheme is, therefore, a boon
for retired persons.

Minimum Investment:

The minimum investment in a Post-Office MIS is Rs 6,000 for both single and
joint accounts. The maximum investment for a single account is Rs 3 lakhs and
Rs 6 lakhs for a joint account.

Maturity:

The duration of the MIS is six years.

Premature withdrawal:

Investors can withdraw money before three years, but at a discount of 5 per cent.
No such deduction will be made if an account is closed after three years.
Premature closure of the account is permitted any time after the expiry of a
period of one year of opening the account. Deduction of an amount equal to 5
per cent of the deposit is to be made when the account is prematurely closed.

Borrowing Facility:

Depends, if the banker accepts it as a security.

Mode of Holding:

93
Post office MIS is held physically in the form of a certificate issued by the post
office. In addition, the investor is provided with a passbook to record his
transactions against his MIS.

Tax Implication:

The interest income accruing from a post-office MIS is exempt from tax under
Section 80L of the Income Tax Act, 1961. Moreover, no TDS is deductible on the
interest income. The balance is exempt from Wealth Tax.

RECURRING DEPOSIT

A Post-Office Recurring Deposit Account (RDA) is akin to a Recurring Deposit in

a bank, where you invest a fixed amount on a monthly basis. The deposit has a
fixed tenure, and the scheme is a powerful tool for regular savings. As the name
says, the RDA is a systematic way of saving money. Recurring Deposits

94
accumulate money at a fixed rate of interest (currently 7.5 per cent per annum),
compounded quarterly, and your investment appreciates in five years. The
scheme is meant for investors who want to deposit a fixed amount regularly, in
order to get a tidy sum after five years. If you invest Rs 10 every month, you will
get back Rs 728.90 after 5 years. A post-office RDA can be opened at any post
office in the country by filling up the appropriate forms.

Who can buy?

An RDA can be opened by an individual adult as a single person account, two

adults in a joint mode, or by a guardian on behalf of the minor who has attained
the age of 10 years in his own name. RDA can also be held by a HUF, Trust,
regimental fund, welfare fund, company, banking company, corporation,
association, institution, registered society, or local authority. Accounts can also
be opened in the name of a minor or a person of unsound mind.

Minimum Investment:

The minimum investment in a post-office RDA is Rs 10. There is no prescribed

upper limit on your investment.

Interest:

The advantage with post-office deposits is that it offers a fixed rate of return at
7.5 per cent while banks constantly change their recurring deposit rates
depending on their demand supply position. The only disadvantage is that you
will have to visit the post office every month whereas in the case of banks, the
amount will be automatically deducted from your account.

95
Maturity:

The post-office RDA scheme has tenure of five years. This can be extended for a
further five years if you so desire.

Premature Withdrawal:

Only one withdrawal is allowed after one year of opening a post-office RDA. You
can withdraw upto half the balance lying to your credit. On premature closure
(after one year), interest is payable as per the rate for the Post Office Savings
Bank Account.

Borrowing:

The borrowing facility is not available in the post office RDA scheme.

Tax Implications:

Although the investment in post-office RDA is itself not subject to tax benefits,
interest income upto Rs 12,000 per annum is exempt from tax under Section 80L
of the Income Tax Act, 1961.

TIME DEPOSIT

On opening a Time Deposit, you will receive an account statement stating the
amount deposited and the duration of the account. These are suitable for capital
appreciation in the sense that your money grows at a pre-determined rate. Unlike
certain other investment options, where returns are commensurate with the risks,
the rate of growth is also high; Time Deposits return a lower, but safer, growth in

96
investment. Therefore, Time Deposits are one of the better ways to get a
relatively high interest rate for your savings. The only condition is that they are
bound for some specific period of time.

Who can apply?

All categories of investors are eligible to open an account.

Minimum Investment:

The minimum investment in a Time Deposit could be as low as Rs 50. There is

no upper limit on investment.

Interest:

A Time Deposit is an investment option that pays annual interest rates between
6.25 and 7.5 per cent, compounded quarterly, and is available through post-
offices across the country.

Maturity:

Time Deposits have a term ranging between 1 and 5 years. The scheme pays
annual interest, but it is compounded quarterly, thus giving a higher yield. Time
deposit for 1 year offers a coupon rate of 6.25 per cent, a 2-year deposit offers
an interest of 6.5 per cent, 3 years is 7.25 per cent while a 5-year Time Deposit
offers 7.5 per cent return.

Premature Withdrawal:

While 2, 3, and 5-year Time Deposits can be closed after one year, they entail a
loss in the interest accrued for the time the account has been in operation.

97
Borrowing:

You can borrow against a Time Deposit. The balance in your account can be
pledged as a security for a loan.

Tax Implications:

Interest income upto Rs 9,000 from Time Deposits is exempt under section 80L
of the Income Tax Act, 1961, and no tax is deducted at source, i.e., the interest
income from a Time Deposit is also exempt from TDS

INSURANCE

The most viable schemes for the respondents are Insurance Schemes, which
provide regular return and capital appreciation.
The following tables provide information regarding the various schemes available
which are suitable for the respondent.

98
Balanced Fund
Table No 5.4

Insurer Name of Plan One Last 3 months Last 12 months

month (Feb’07 - Apr’07) (May’06 - Apr’07)
Apr ‘07

HDFC Std life Defensive 2.10% 6.86% 25.36%

Managed

Birla Sunlife Individual 1.31% 4.04% 17.92%

Builder

MetLife Moderator 1.83% 4.25% 17.54%

Max New Conservative 1.37% 4.11% 15.92%

York Fund
ING Vysya Secure Plan 1.37% 3.71% 14.94%

Reliance Life Balanced 1.62% 4.94% 18.58%

Fund
AVIVA Secure Fund 1.45% 3.67% 13.51%

Growth Fund
Table No 5.5
Insurer Name of Plan One Last 3 months Last 12 months
month (Feb’07-Apr’07) (May’06- Apr’07)
Apr ‘07

99
MetLife Balancer 2.63% 8.93% 37.64%

AVIVA Balanced 2.42% 9.74% 36.97%

Fund

Bajaj Allianz Unit Gain 3.13% 8.33% 34.27%

Plus
Balanced
Plus Fund
Max New Balanced 2.16% 7.57% 30.55%
York Fund
ICICI Life Time 2.38% 8.46% 29.36%
Prudential Balancer

ING Vysya Balance Plan 1.37% 5.81% 27.21%

Birla Sunlife Enhancer 1.45% 5.75% 26.81%

Individual

Reliance Life Growth Fund 2.3% 8.4% 32.87%

Equity Fund
Table No 5.6

Insurer Name of Plan One month Last 3 month Last 12

Apr ‘07 (Feb’07- month

100
 Apr’07) (May’06-
Apr’07)
SBI Life Horizon- 3.56% 21.64% 130.70%
Equity Fund
HDFC Stdlife Growth 6.28% 23.27% 102.38%

Bajaj Allianz Unit Gain 7.78% 24.11% 90.39%

Plus Equity
Index

ICICI Life Time 5.71% 21.65% 85.65%

Prudential Maximiser

MetLife Multiplier 4.57% 16.86% 77.87%

Tata AIG Invest 4.67% 16.86% 75.19%

Assure
Equity Fund

Reliance Life Equity Fund 4.35% 18.88% 86.19%

CAPITAL SECURE FUND

Table No 5.7

Insurer Name of Plan One month Last 3 month Last 12

Apr ‘07 (Feb’07- month

101
 Apr’07) (May’06-
Apr’07)

ICICI Prulife Invest Shield 0.89% 1.63% 7.15%

Cash

Kotak Safe Inv Plan 0.65% 1.80% 6.88%

Mahindra Money
Market

Bajaj Allianz Unit Gain 0.57% 1.55% 6.03%

Plus Cash
Plus Fund

HDFC Stdlife Unit Linked 0.47% 1.38% 5.64%

Endow
Liquid Fund

Tata AIG Liquid Fund 0.40% 1.17% 4.92%

Reliance Life Capital 0.50% 1.48% 5.65%

Secure fund

COMBINATION OF FUNDS

102
BIBLIOGRAPHY

Books Referred:
• S. Kavin, Portfolio Management, Edition – February 2001, Prentice
Hall of India Private Limited – New Delhi.

103
 • Punithavathy Pandian, Security Analysis and Portfolio
Management, Edition – 2005, Vikas Publishing House Private
Limited – New Delhi.
• V. K. Bhalla, Investment Management, 10th Edition – 2004, S.
Chand & Company Limited, Ramnagar, New Delhi.

Websites Visited:
www.franklintempleton.com
www.sbi.com
www.ingvysya.com
www.google.com

ANNEXURE

• QUESTIONNAIRE

104