INVESTMENT AVENUES

AN
ASSIGNMENT
ON
INVESMENT AVENUES

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 INVESTMENT AVENUES

AN ASSIGNMENT ON INVESTMENT
AVENUES

SUBMITTED BY:-

SR NO. GROUP MEMBER ROLL NO.

1 JARIVALA NIMESH S. 13
2 MAISURIYA NIRAJ R. 23
3 MAISURIYA NIRAV R. 24
4 PATEL DIVYESH J. 46
5 PATEL NIKHIL M. 56

SUBMITTED TO:-

KHUSHBU MAM

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INDEX

SR NO. NAME OF TOPIC PAGE NO.

1 What is investment avenues 4

2 Types of investors 4

3 Characteristics of investing 9

4 Investment avenues 11

5 Growth of sources 12

6 Allocation of assets 15

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WHAT IS INVESTMENT AVENUE

Different investment avenues are available to investors. Mutual funds also offer good
investment opportunities to the investors.

Like all investments, they also carry certain risks. The investors should compare the
risks and expected yields after adjustment of tax on various instruments while taking
investment decisions. The investors may seek advice from experts and consultants
including agents and distributors of mutual funds schemes while making investment
decisions.

Types of investor
In continuation of the lessons I’ve learned from Rich Dad Poor Dad author, Robert
Kiyosaki, I will discuss today what he called “Types of Investors.”

According to him, there are two main types of investors: Average Investors and
Professional Investors.

Average investors buy packaged securities such as mutual funds, treasury bills, or
real-estate-investment trusts.

Professional investors are more aggressive—they create investment opportunities or

get in on the ground floor of new offerings, build businesses and marketing networks,
assemble groups of financiers to fund deals too large for them to undertake alone, and
pick the companies with the most promise for initial public offerings of stock.

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There are five different types of professional investors:

The Accredited Investor

As defined by Robert Kiyosaki, accredited investors are individual investor that earns at
least $200,000 in annual income ($300,000 for a couple) and/or has a net worth of $1
million. An accredited investor has access to many lucrative investments that, because
of their risk may be legally off-limits to people of lesser income. Although usually
financially educated, accredited investors are not necessarily fully literate. They may be
content with security and comfort rather than wealth, and may rely on advisors to
develop and implement their financial plans.

The Qualified Investor

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This investor is well versed in either fundamental or technical investing and so there
are two types of qualified investors - the fundamental investor and technical
investor.

Fundamental investing requires the ability to assess a company’s potential by reviewing

financial statements, tracking the industry the company represents, and calculating how
changes in interest rates and the economy as a whole could affect profitability. The
fundamental investor uses financial ratios, which you’ll learn all about later, to assess
the strength of a company he or she is considering as an investment.

Technical investing is different—it is based on knowledge of the sales history of a

company’s stock, the mood of the market in general, and techniques such as short
selling and options. The fundamental investor is typically an S in the CASHFLOW
Quadrant because he or she will usually operate alone in evaluating stocks, either
through examining fundamentals or using technical analysis in evaluating potential
investments.

Unlike a fundamental investor, a technical investor (often a stock trader) does not
necessarily look for well-run, profitable corporations. If people are rushing to invest in a
certain type of industry, say dot-com companies, the technical investor may jump on the
bandwagon, regardless of whether these companies are showing earnings, let alone
profits. Technical investing is thus more speculative than fundamental, but it can yield
greater rewards. Regardless of investment style, qualified investors know how to make,
or at least preserve, money in an up or down market.

The Sophisticated Investor.

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The goal of this investor is to build wealth by developing a foundation of assets that can
generate high cash returns with minimum payment of taxes. Armed with the three Es—
education, experience, and excess cash—the sophisticated investor takes advantage of
tax, corporate, and securities laws to protect capital and maximize earnings. When
operating from the B quadrant, the investor can choose the best structure or entity
through which to create assets. This entity provides some degree of control over the
investment and also serves as a firewall between personal and business finances in the
event of a lawsuit.

Sophisticated investors exercise control over the timing of taxes and the character of
their income. They know, for example, to defer paying taxes on capital gains from real
estate by rolling over profits to more expensive property. They look at economic
downturn as an opportunity to pay bargain basement prices for quality securities, and
they create deals instead of simply waiting for the right one to come along.

Sophisticated investors take risks but abhor gambling, hate losing but are not afraid to,
are financially intelligent yet rely on experts to teach them more, own little in their names
yet command great wealth. Although they become partners in real-estate ventures and
large shareholders in corporations, they lack one essential strength: management
control over their assets.

The Inside Investor.

Building or owning a profitable business is the primary goal of this investor. Whether as
an officer of a corporation or owner of a majority of its shares of stock, the inside
investor exercises some degree of management control.

By running business systems from the inside, he or she learns how to analyze them
from the outside and thereby becomes a sophisticated investor as well. Although inside
investors have financial intelligence, they do not necessarily have financial resources
and thus may not meet the definition of an accredited investor. If inside investors mind

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their own business and succeed, however, they can become not only accredited
investors but ultimate investors as well.

The Ultimate Investor.

The goal of the ultimate investor is to own a business that is so successful that shares
are sold to the public. Making an initial public offering (IPO) is expensive and full of
risks, yet it allows business owners to cash in on the equity they have built up in the
company, while also raising money to pay down debt and fund expansions. The ultimate
investor is one who has mastered every rule and enjoys playing the game for its own
sake.

Which type of investor do you belong? As for me, I am not even a professional investor.
I am just an average investor. But with the continuous learnings that I feed my mind, I
hope to become a professional investor someday and be able to reach the ‘ultimate
investor’ status.

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CHARACTERISICS OF INVESTMENT
Certain features characterize all investments. The following are the main characteristics
features if investments: -

1.Return: -

All investments are characterized by the expectation of a return. In fact, investments are
made with the primary objective of deriving a return. The return may be received in the
form of yield plus capital appreciation. The difference between the sale price & the
purchase price is capital appreciation. The dividend or interest received from the
investment is the yield. Different types of investments promise different rates of return.
The return from an investment depends upon the nature of investment, the maturity
period & a host of other factors.

2.Risk: -

Risk is inherent in any investment. The risk may relate to loss of capital, delay in
repayment of capital, nonpayment of interest, or variability of returns. While some
investments like government securities & bank deposits are almost risk less, others are
more risky. The risk of an investment depends on the following factors.

0 The longer the maturity period, the longer is the risk.

1 The lower the credit worthiness of the borrower, the higher is the risk.
The risk varies with the nature of investment. Investments in ownership securities like
equity share carry higher risk compared to investments in debt instrument like
debentures & bonds.

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3. Safety: -

The safety of an investment implies the certainty of return of capital without loss of
money or time. Safety is another features which an investors desire for his investments.
Every investor expects to get back his capital on maturity without loss & without delay.

4. Liquidity: -

An investment, which is easily saleable, or marketable without loss of money & without
loss of time is said to possess liquidity. Some investments like company deposits, bank
deposits, P.O. deposits, NSC, NSS etc. are not marketable. Some investment
instrument like preference shares & debentures are marketable, but there are no buyers
in many cases & hence their liquidity is negligible. Equity shares of companies listed on
stock exchanges are easily marketable through the stock exchanges.

An investor generally prefers liquidity for his investment, safety of his funds, a good
return with minimum risk or minimization of risk & maximization of return.

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INVESTMENT AVENUES IN INDIA

There are a large number of investment instruments available today.

To make our lives easier we would classify or group them under 4 main types of
investment avenues. We shall name and briefly describe them.

1. Financial securities: These investment instruments are freely tradable and

negotiable. These would include equity shares, preference shares, convertible
debentures, non-convertible debentures, public sector bonds, savings certificates, gilt-
edged securities and money market securities.

2. Non-securitized financial securities: These investment instruments are not

tradable, transferable nor negotiable. And would include bank deposits, post office
deposits, company fixed deposits, provident fund schemes, national savings schemes
and life insurance.

3. Mutual fund schemes: If an investor does not directly want to invest in the markets,
he/she could buy units/shares in a mutual fund scheme. These schemes are mainly
growth (or equity) oriented, income (or debt) oriented or balanced (i.e. both growth and
debt) schemes.

4.Real assets: Real assets are physical investments, which would include real estate,
gold & silver, precious stones, rare coins & stamps and art objects.

Before choosing the avenue for investment the investor would probably want to
evaluate and compare them. This would also help him in creating a well diversified
portfolio, which is both maintainable and manageable.
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GROWTH OF SOURCES

GROWTH OF INDIAN EQUITY MARKET

The Indian Equity Market is more popularly known as the Indian Stock Market. The
Indian equity market has become the third biggest after China and Hong Kong in the
Asian region. According to the latest report by ADB, it has a market capitalization of
nearly $600 billion. As of March 2009, the market capitalization was around $598.3
billion (Rs 30.13 lakh crore) which is one-tenth of the combined valuation of the Asia
region. The market was slow since early 2007 and continued till the first quarter of 2009.

GROWTH OF MUTUAL FUND IN INDIA

By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is
estimated that by 2010 March-end, the total assets of all scheduled commercial banks
should be Rs 40,90,000 crore.

The annual composite rate of growth is expected 13.4% during the rest of the decade.
In the last 5 years we have seen annual growth rate of 9%. According to the current
growth rate, by year 2010, mutual fund assets will be double.

Let us discuss with the following table:

Aggregate deposits of Scheduled Com Banks in India (Rs.Crore)

Mar-
Month/Year Mar-98 Mar-00 Mar-01 Mar-02 Mar-03 Sep-04 4-Dec
04
60541 85159 98914
Deposits 1131188 1280853 - 1567251 1622579
0 3 1
Change in %
15 14 13 12 - 18 3
over last yr
Source - RBI

Mutual Fund AUM’s Growth

Month/Year Mar- Mar- Mar- Mar- Mar- Mar-04 Sep-04 4-Dec

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98 00 01 02 03
13762 15114
MF AUM's 68984 93717 83131 94017 75306 149300
6 1
Change in % over
26 13 12 25 45 9 1
last yr
Source - AMFI

Some facts for the growth of mutual funds in India

 100% growth in the last 6 years.

 Number of foreign AMC's are in the que to enter the Indian markets like Fidelity
Investments, US based, with over US$1trillion assets under management
worldwide.

 Our saving rate is over 23%, highest in the world. Only channelizing these
savings in mutual funds sector is required.

 We have approximately 29 mutual funds which is much less than US having

more than 800. There is a big scope for expansion.

 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are
concentrating on the 'A' class cities. Soon they will find scope in the growing
cities.

 Mutual fund can penetrate rurals like the Indian insurance industry with simple
and limited products.

 SEBI allowing the MF's to launch commodity mutual funds.

 Emphasis on better corporate governance.

 Trying to curb the late trading practices.

 Introduction of Financial Planners who can provide need based advice.

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GROWTH OF INSURANCE INDUSTERY IN INDIA

 With an annual growth rate of 15-20% and the largest number of life insurance
policies in force, the potential of the Indian insurance industry is huge. Total
value of the Indian insurance market (2004-05) is estimated at Rs. 450 billion
(US$10 billion). According to government sources, the insurance and banking
services’ contribution to the country's gross domestic product (GDP) is 7% out of
which the gross premium collection forms a significant part. The funds available
with the state-owned Life Insurance Corporation (LIC) for investments are 8% of
GDP.

 The life insurance industry in India grew by an impressive 36%, with premium
income from new business at Rs. 253.43 billion during the fiscal year 2004-2005,
braving stiff competition from private insurers. This report, “Indian Insurance
Industry: New Avenues for Growth 2012”, finds that the market share of the state
behemoth, LIC, has clocked 21.87% growth in business at Rs.197.86 billion by
selling 2.4 billion new policies in 2004-05. But this was still not enough to arrest
the fall in its market share, as private players grew by 129% to mop up Rs. 55.57
billion in 2004-05 from Rs. 24.29 billion in 2003-04.

 There are presently 12 general insurance companies with four public sector
companies and eight private insurers. According to estimates, private insurance
companies collectively have a 10% share of the non-life insurance market.

 Though the total volume of LIC's business increased in the last fiscal year (2004-
2005) compared to the previous one, its market share came down from 87.04 to
78.07%. The 14 private insurers increased their market share from about 13% to
about 22% in a year's time.

Birla Asset Allocation Plan - Conservative: Invest

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With the stock market seeming ripe for correction, are you looking for a relatively safe
fund in which to park your profits from equity funds? The Conservative option of Birla
Sun Life's Asset Allocation Fund may fit this role admirably. This Fund of Funds product
(it redirects your investment into other funds) mixes and matches debt and equity funds
within the Birla Sun Life fold to provide the investor with a conservative portfolio.

The fund aims to allocate 75-80 per cent of its portfolio to debt funds and 25-30 per cent
to equity funds. Though the fund has the leeway to park up to 30 per cent in non-Birla
Sun Life schemes, it has seldom used this leeway in the past. The fund appears to have
managed healthy returns within the confines of this mandate, with a five-year
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compounded annualised return of over 12 per cent and a one year return of over 22 per
cent.

Suitability: The Birla Sun Life Asset Allocation Fund- Conservative option loosely follows
the Monthly Income Plan structure in its asset allocation, without the monthly dividend
payout feature, of course. The lack of monthly payouts may be an advantage, as it
removes the need for the fund to churn its portfolio and book profits at monthly intervals
to meet dividend commitments.

Though the Fund of Funds structure does result in a slight duplication of costs (each
fund, including this product, will suffer an annual management charge), the fund house
has kept the expense ratio for this fund low at 0.35 per cent a year.

That Birla Sun Life Mutual Fund has a long and consistent record in managing debt
funds in the Indian context, also makes this fund a good choice.

Performance: The fund's track record shows that it has been quite dynamically
managed with a focus on containing losses to the investor. Consider this.

Over the past ten years, the worst yearly returns from this fund came when its NAV lost
6.5 per cent (in 2008, when both debt and equity options took a hit). But its best yearly
show saw its NAV appreciate by over 24 per cent (2009) — a good risk-reward ratio!

The fund has managed this show by actively shuffling the debt portion of its portfolio,
even while picking the more defensive equity funds (the Index Fund, MNC Fund and
Dividend Yield Fund) from the Birla repertoire for the equity portion.

The fund has made quite a few good timing calls in the portfolio. In November 2008,
when both equity and debt markets were in turmoil, the fund had 36 per cent of its
assets in Birla's Short Term Debt Fund with a large cash holding of 45 per cent. This
was deployed in the subsequent months.

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By March 2009, just ahead of the equity rally, the fund acquired a larger equity
exposure through funds such as Birla Sun Life Index Fund, Birla Sun Life Dividend Yield
Fund and the Midcap Fund.

Fund facts: The fund has a current NAV per unit of Rs 19.3 and is managed by Mr
Satyabarata Mohanty.

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