PERSONEL

INVESTMENT

PLANNING
INVESTMENT
Investment
Parting with ones fund
to be used by another party
(user of the fund)
For a productive
activity.
Investment is the employment of
funds with the aim of earning
income or capital appreciation.
Two main attributes Time
Risk
All the more complicated as the
amount invested Certain
Future Returns Uncertain
Why should one get a return on the investment?
To compensate
a) Saving - Abstaining from current consumption.
b)Parting with the saving Waiting for a future
consumption.
c)Taking the risk
Uncertainty
of the actual
return
Waiting
time
Cost of getting
back the funds
Safety of
funds
Risk of
variability of
the return
What is ANALYSIS?
+PROPER INVESTMENT is one which maximises
return and minimises risk.
+The process of
a) analysing the individual securities and the market as a
whole,
b) estimating the risk and return expected from each
investment avenue
What is PORTFOLIO?
Combination of different investment instruments.
Each investment has its own risk-return Equation.
Collection of all investments made by a person is
PORTFOLIO.

PORTFOLIO MANAGEMENT
Traditional
Portfolio
Management
Modern
Portfolio
Management
Portfolio
Construction
Selection of
Securities
Revision of
Portfolio
Evaluation
Measuring
performance
INVESTMENT ACTIVITY
FINANCIAL
ASSETS
PHYSICAL
ASSETS
Cash
Bank deposits
PF, LIC Schemes
Pension Schemes
P.O. Bank
Certificates and
deposits
House, Land,
Building
Gold, Silver and
other metals.
Consumer
durables
SAVER
becomes
INVESTOR
by acquires
MARKETABLE ASSETS
(the assets)
Shares, Bonds,
Government
securities, Mutual
funds etc,.
STOCK AND CAPITAL
MARKETS
NEW ISSUES STOCK MARKET
CLASSIFICATION OF INVESTMENT
FINANCIAL
INVESTMENT
ECONOMIC
INVESTMENT
Employment
of funds
Object of
earning
Net additions to
the capital stock
of the society
Additional
Income
Appreciation in
the value of
investment
Those goods and
services which are used
in the production of
other goods and
services.
RESULT OF SAVING
Both classes are interrelated
CURRENT PORTFOLIO
Investment
Type
Total A B C/D
% of Portfolio
Primary market
investment
5 9 5 2
Shares in security
market
5 9 5 1
Fixed Deposits 31 27 31 38
MFs other than
UTI
1 2 1 1
UTI Funds 8 9 7 6
Chit Funds 6 4 6 10
Gold 3 4 4 3
Jewellery 6 8 6 4
LIC/NSS/P.O.
Savings
32 28 33 35
Teak plantation/
Orchards
1 1 1 1
By Socio-Economic Classification
INVESTMENT & SPECULATION
FACTORS INVESTOR SPECULATION
Time horizon Longer time Very short time - days or
months
Risk Very moderate risk High risk
Return Moderate return High risk, hence higher
returns
Decision Fundamental factors
regular evaluation
Market forces
GAMBLING
Game of chance.
Period of investment is very short.
Outcomes are based on the roll of a dice or a card.
Purpose of entertainment.
Only artificial risk No commercial risk.
No risk-return off or analysis.
Negative outcomes are possible.
Financial analysis is of no use.
GROWING POPULARITY OF
INVESTMENTS
Healthy industrial climate.
Good investment
opportunities.
Varying interest rates.
Larger incomes.
Burdensome tax rates.
Long life expectancies.
Women venturing into work.
Increase in literacy levels.
Legal protection.
Well organised monetary
system.
Role of financial institutions.
Forms of business.
INVESTMENT OBJECTIVES
Maximisation of the economic welfare of the
investor in the long run
Mobilisation
of Wealth
Liquidity
Cash return
Capital
appreciation
Safety
Other Objectives
Hedge against
inflation
Tax planning
1.RETURN
$ Investment Commitment of funds.
Expectation of some positive rate of return
$ Sacrifice of certain present value for the future reward.
$ Return

$ Rate of Return= End period value-Beginning period value
Beginning period value


$ Rate of Return= Capital appreciation+Dividend
Purchase Price
Semi-annual
Annual
100
OR
100
2.RISK
$ Probability of actual return < Expected return Risk
$ Variability of Return Risk
3.CAPITAL APPRECIATION
$ In the long run Value of the asset should increase in
the market.

$ Investment
Physical
Financial
Before investing see
which is suitable
4.SAFETY
$ Hard earned money.
$ Securities Safe Calculated and moderate risks
are present.
$ Securities Safe Repay its principal amount and
returns thereon.
$ Legal problems Grievance redressal.
5.LIQUIDITY
$ Degree of its ready marketability.
$ Ready encash-ability.
6.HEDGE AGAINST INFLATION
$ Seeking protection against inflation.
$ Rate of return Cover The rate of inflation.
$ Unless this is ensured Investors will lose in real terms
7.TAX PLANNING
$ Tax on interest / dividend / return.
$ Tax on Capital gains.
ESSENTIAL FEATURES OF AN
INVESTMENT PROGRAMME
Consistent with the objectives of the investors.
Ingredients of a good investment programme:
a) Safety of principal- protection against any possible loss
under changing conditions.
b) Careful review


c) Extensive diversification
INDUSTRIAL trends
ECONOMIC trends
Vertical
Diversification
Horizontal
Diversification
LIQUIDITY & COLLATERAL VALUE
Converted into cash immediately without monetary loss.
Funds are required investors should be able to sell the securities
or use it as a collateral security.
STABLE INCOME
Regularity of income
Adequacy of income
CAPITAL GROWTH
A company flourishes Industry is sound.
Investors should be smart to understand the connection between
the industry growth and capital appreciation.
RIGHT SECURITY IN THE RIGHT INDUSTRY IN THE RIGHT
TIME.
TAX IMPLICATIONS
Tax on dividend and capital gains.
STABILITY OF PURCHASING POWER
Comparison of present value Future gains

Inflation
Purchasing power
LEGALITY
Legal securities Customer protection management of
mutual funds.
INVESTMENT PROCESS
Invest ment
policy
Analysis
(Scrutiny)
Valuation Portfolio
Construction
Portfolio
Evaluation
1) Investible
funds
a) Savings,
b) Borrowed.
1) Market
analysis
(boom &
depression, entry
& exit points can
be fixed, general
economic scene)
Intrinsic value
(Book value
</>
market value)
Diversification of
funds to meet
the goods.
1)Managed
efficiently
i) Income
a) Fixed income
(Debentures,
bonds, pref.
shares)
b) Variable
income (Equity
shares)
ii) Source
a) Government,
b) Semi-govt.,
c) Corporate.
a) Diversification


Reduction of risk
i) Debt/equity
ii) Industry
diversification
iii) Company
diversification
2) Objective
a) Risk averse
b) Risk lover
2) Industry
analysis
(economic
signals, growth
patterns etc,.)
3) Knowledge of
the market
a) Risk return,
b) Tax,
c) functioning of
the stock
exchange,
d) Brokerage
Future value
(Book value
</>
market value)
3) Company
analysis
(profitability,
operating
efficiency etc,.)
INVESTMENT
AVENUES/ALTERNATIVES
REAL OR
TANGIBLE
INVESMTENTS
CONTINGENT
INVESTMENTS
TITULAR
INVESTMENTS
Land, Buildings,
Jewellery,
Precious stones,
Gold and Silver.
Insurance
policies
Certificates,
Deposits, promissory
notes, PF, Mutual
funds, Shares and
Debentures.
FEATURES OF INVESTMENT
AVENUES
Feature High Low
1) Risk
Period
Longer the maturity period. Shorter the maturity period.
Credit Worthiness Lesser the credit worthiness. More the credit worthiness.
Nature of the security Risk of loss of money equity
shares.
Risk of loss of money
debentures
Variability of income Equity shares. Debentures and Preference
Shares.
2) Tax implication Shares NSC, Government bonds, UTI
Bonds etc.
RISK-RETURN RELATIONSHIPS
Bank
UTI units, MF
PSU Bonds
NCD
CD
ES
Company Deposits
Venture Funds
RETURNS
RISK
REAL INVESTMENT OR TANGIBLE
INVESTMENT
Physical tangible existence.
Eg: Land, House, Jewellery, Precious stones, Gold, Silver,
Property, Antiques, Non-financial investments.
REAL ESTATE
1) High capital appreciation.
2) Easy availability of loans.
3) Tax rebate on interest paid
on loans + principal.
4)Psychologically a secure
feeling.
5) Higher income groups also
invest in,
a) Time share plans,
b) Holiday resorts.
5) Usually people dont invest
in more than two houses
because,
a) Large capital,
b) Malpractices,
c) Land ceiling act,
d) Lack of liquidity.
CAUTIONS
Plan approved by the local authority,
Possibility of capital appreciation.
Originality of title deeds.
Plinth area to be verified.
Credibility of the broker.
ARTS & ANTIQUES
Paintings Aesthetic sense Coins, Sculptures,
Manuscripts Archaeological society.
Western countries Guard against Jake.
CONTINGENT INVESTMENTS
Insurance
4Main features Value is related to a contingent - Death,
accident, injury etc.
4Contingent arises considerable amount is paid to meet the
loss arising due to the contingency.
4Contract Insurance
company
Insured
Primarily to cover the wish
Specified time / Life time
Now, its a good investment
vehicle
4 Advantages:
a)Protection
b)Facility of savings
c)Liquidity
d)Tax benefits
SCHEMES OF LIC
Whole life policy
Endowment assurance plan
Jeevan anurag
Jeevan nidhi
Jeevan pramukh
Jeevan mitra
Jeevan saral
Jeevan aadhar
Money back policy
Bina plus
TITULAR INVESTMENT
DEPOSITS
Sum of money placed with a borrower for a specified
period of time in return for a periodic interest either
explicitly paid or added to the principal.
1.BANK DEPOSITS
a)Savings Bank accounts
1) Promote savings.
2) Millions of low and middle class
people.
3) Bank formalities.
4) Pass book and cheque book.
5) Frequent withdrawals are not permitted.
6) Interest 3.5% on minimum balance between 10
th
and last day
of the month.
b) Current account
1) Running account.
2)Business enterprises.
3)Frequent withdrawals are permitted.
4)Normally no interest paid.
c) Recurring deposits
1) Investor pay a specified
amount every month for a stipulated
period.
2)After lapse of specified time,
accumulated money along with
interest is returned back.
3) Period of payment 1 year to 10 years.
4)Since there is regular inflow without
withdrawals,

LIQUIDITY OF THE BANK
d) Fixed Deposits
1) Deposit with a bank for a fixed period.
2)



3) Win - Win
Minimum Maximum
Period 15 days
(7days > 25 lakhs)
120 months
Amount 1000 Unlimited
Investors
Better Interest
Bank
Greater liquidity
I. Novel Deposit Scheme
1) Premium savings Account:
Minimum balance of 10,000.
Excess of 10,000 is automatically converted into FD 180 days
1000
If money is required FD is withdrawn prematurely.
II. Special premium savings account
High earnings with easy liquidity.
Minimum balance is 20,000 and same as above.
III. Vikas Cash Certificate
Money multiplier.
Minimum 100 Multiples of 100.
Period 6 months to 120 months.
Interest is compounded quarterly.
IV. Special Security deposit
Monthly on quarterly income plan.
Minimum 1000 Multiple of 100.
Period 1 year to 10 years in completed quarters.
Monthly interest at discounted value or interest accruing at
the end of the quarter will be paid.
V. Quick Money Deposit
FD with an OD facility.
Minimum deposit 25,000, multiples of 1000.
12 months to 60 months.
OD 80% of deposit.
Premature withdrawals Penalty
VI. Senior citizens security deposit
Higher income for age above 60.
1000 in multiples of 1000.
12 months to 120 months.
Interest is 0.5 % than normal.
No penalty on premature withdrawals.
VII. Suvidha deposits
FD with partial withdrawals.
VIII. Corporate Suvidha Deposit
Large deposits.
5 crores Multiples of 1 crore.
IX. Cumulative Education deposit
Education loans can be taken on the deposit already
made.

X. Pigmy deposits
Small amounts.
Doorstep collection.
POST OFFICE SCHEMES
Very popular Govt. of India has collected crores of
money through this mode.
a) Post office monthly scheme
1500 to 4,50,000 ( 6,00,000 in case of joint account).
5 years.
8.2% bonus on maturity.
Tax benefit Sec.80 L

b) Kisan Vikas Patra
Most popular.
100, 1000, 5000 and 10,000 year.
Compounded interest.
Amount doubles in 8 years to 7 months.
Minimum holding period is 2 years and 6 months.
Not transferable.
c) National Savings Certificate
CI of 8%.
Principal + Interest Maturity.
100 = 150.90 After 5 years.
Tax rebate Sec. 88 and 80 L.
d) Public Provident fund
Head post office/SBI/ Nationalised banks.
Interest 8.6%.
Maximum limit - 1,00,000 per annum.
Period 15 years.
Interest Sec. 10
Amount of investment Rebate Sec. 88.
e) Post office Recurring deposit
5 years.
Minimum 10 Maximum no limit.
10 per month = 738.62 After 5 years.
f) Post office time deposit
FD 1 year and 5 years.
Interest 7.70% to 8.30%.
g) Deposit schemes for retired Govt. employees or
Public sector undertakings
Retired employees Govt. securities and PSUs.
7% interest.
Retirement benefits to be invested within 3 years from
retirement.
h) Post office savings account
Individual investors.
Maximum of 1,00,000.
Cheque facility.
Interest Exempt Sec. 10 of the IT act.
Minimum balance of 50.
i)Savings schemes for Seniors citizens
60 years.
VRS.
1000 to 15,00,000.
9% interest quarterly.
Deposit period 5 years
Extended by 3 years.
Transferable One PO to another PO.

FIXED DEPOSIT SCHEMES IN
COMPANIES
+Public limited company in the private
sector.
+Cumulative / Non-Cumulative.
+Newspaper advertisements.
+Companies rules of 1975.
+All details regarding the Company
Purpose of deposit to be specified.
PROVIDENT FUND SCHEME
Retirement benefit scheme.
Stipulated sum is deducted from the salary.
Like amount contributed by the
Invested in gilt-edged securities.
Interest is credited.
Balance on retirement = (Retirer contribution + Retiree
contribution + Interest on
both)
Encourages personal savings micro level.
Generates resources to be invested at macro level.
Tax benefit under Sec. 88.
Statutory
Provident fund
Recognized fund Unrecognized fund Public fund
Government Establishments
employing more
than 20 people,
12% - Contribution
9.5% - Interest
Retirers contribution is
exempted from tax.
Anybody
Semi Government Retirees contribution is
not exempted from tax.
Rs.500 to
Rs.70,000
Railways Payment received
Retirees contribution->
Exempt from tax
15 years
Universities Interest is taxable under
income from other
sources.
8%
PROVIDENT FUND
MUTUAL FUNDS
On the basis of
execution and
operation
On the basis of
yield and
investment
pattern
Close
ended
Open
ended
Income
fund
Growth
fund
Specialised
mutual
fund
Money
market
fund
Balance
fund
Taxation
fund
BENEFITS
- Safety of principal
- Capital appreciation.
- Interest and dividend.
- Even small investors can have access to investment in top
companies.
- Careful selection of securities over a diversified portfolio
covering large member of companies and industries.
IMPORTANCE
Mobilising the savings
and channelising then
into good investment.
Wide scope for portfolio
investment.
Better yields.
Expert investment advice
at low cost.
Tax benefits
Flexible investment
schedule.
Greater affordability and
liquidity.
Develops the capital
market.
Reduce market cost of new
issues.
Promotes industrial
development.
GOVERNMENT
SECURITIES
PROMISSORY NOTES
4Issued by government
(Central/state/quasi)
4Also known as GILT-EDGED
securities or government
securities or government
guaranteed securities.
4Highly liquid.
4Most popular.
4Negotiable instruments.
4Freely transferable Delivery
through endorsements.
4Registered promise of the
government.
STOCK CERTIFICATES
LIC and PF
a) Legally a minimum
amount to be used for this
purpose.
b) Large resources are
available.
c) Development of economic
status of the country.
CHARACTERISTICS OF
GOVERNMENT SECURITIES
1) Issuing authority : Central/State/Quasi government.
* Central Gold bonds, National defence bonds,
Special rupee bonds, Treasury bills, Special rupee
securities etc.
* State/Local Port trusts, EB Bonds, Financial
institutions : IDBI, IFCI, Housing boards bonds.
2)Purpose
* Mobilising funds for the implementation of priority
programmes it also influences the stock market.
3) Government securities and Commercial Banks
* Commercial banks Loans RBI
by offering government securities in which they
invest as a collateral security.
4)Rate of Interest : Interest as risk
5) Tax Concessions : IT Act 15,000
deduction from GTI. Interest is also exempted from tax in
certain cases.
6)Underwriting
issued by the Debt office of RBI.
issue is open for 2/3 days.
OTC.
No underwriting brokers.
NAME OF SECURITY Rate of interest p.a. INCOME TAX concession
PO Savings Bank a/c 3.5% Sec. 10(15)(ii)
Savings Deposits of Banks 3.5% --do--
Public Provident Fund a/c 8.0% Sec. 80 C
PO Time Deposit a/c 6.25% to 7.5% Sec. 80 L
Bank Fixed Deposits 4% to 8% --do--
PO Recurring Deposits a/c 7.5% (period 5 years) --do--
6-year PO Monthly income
scheme
8.0%
(payable monthly)
Sec. 80 L within limit of Rs.12,000
Kisan Vikas Patra (8 years
and 7 months)
8.41%
(Compounded)
No
NSC VIII Issue (6 years) 8.0% Sec. 80 C
Units of UTI/Schemes of
Mutual funds
Variable Included in 80 L with additional
Rs.3000 rebate
Equity shares of companies Variable Dividend income not taxable.
INVESTMENT AVENUES
NAME OF SECURITY Rate of interest p.a. INCOME TAX concession
Equity Shares of Companies Variable Tax rebate at 20% on
investment in equity linked
schemes of Rs.10,000 max.-
a rebate on Rs.2000
Convertible Debentures Variable Taxable
Non-Convertible Debentures --do-- Taxable
Fixed Deposits of
Companies/NBFCs
Free and Variable
11% to 14%
Taxable
Preference Shares
(Redeemable/Cumulative)
14% to 15% Dividend deductible upto
Rs.12,000 under Sec. 80 L
Cumulative Convertible
Preference Shares (CCP)
10% --do--
Bonds of Public Sector Co. 9% to 10.5% Taxable
Senior Citizens Certificates 9% Taxable
RBI Relief Bonds (since
Discontinued)
8% Not Taxable
INVESTMENT PROFILE OF INDIAN
INVESTORS
Shares, Debentures,
Company deposits
Claims on Govt.
Pension & Insurance
funds
Bank Deposits
0
5
10
15
20
25
30
35
40
45
Proportion
of
Investments
Risk
If an average Indian saves 100,
55 Physical assets
45 Financial assets.
FINANCIAL ASSETS


12.5%
58%
Cash and Currency
Bank Deposits
Riskless
Return 0.6%
30% Contractual savings
Insurance, PF, Pension funds
Risk is less
Return is moderate
1% UTI and Mutual Funds
Voluntary investments
Tax rebates
Risk is little more
Return is 10%
24% Govt. Securities, PO Savings, PSU bonds Risk is moderate
Return depends on tax
concessions
4% Deposits in companies Very risky
Returns are high
1% - 2% Shares and Debentures Riskiest
Returns are very high
Only about 10% - High risk High return
30% - Contractual Savings
60% - Currency and bank deposits




Indirect Investment in Shares and Debentures
through
Banks, UTI, MF, Insurance etc.
Public securities Private Securities Currency
80% 10% 10%
RETURNS