Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Savings form an important part of the economy of any nation. With the savings invested in various
options available to the people, the money acts as the driver for growth of the country. Indian financial
scene too presents a plethora of avenues to the investors. Though certainly not the best or deepest of
markets in the world, it has reasonable options for an ordinary man to invest his savings.
The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the
savings idle you may like to use savings in order to get return on it in the future. This is called
Investment.
One needs to invest to and earn return on your idle resources and generate a specified sum of money for a
specific goal in life and make a provision for an uncertain future One of the important reasons why one
needs to invest wisely is to meet the cost of Inflation. Inflation is the rate at which the cost of living
increases.
The cost of living is simply what it costs to buy the goods and services you need to live. Inflation causes
money to lose value because it will not buy the same amount of a good or service in the future as it does
now or did in the past. The sooner one starts investing the better. By investing early you allow your
investments more time to grow, whereby the concept of compounding increases your income, by
accumulating the principal and the interest or dividend earned on it, year after year. The three golden rules
for all investors are:
• Invest early
• Invest regularly
• Invest for long term and not short term
This project will also help to understand the investors facet before investing in any of the investment tools
and thus to scrutinize the important aspects for the investors before investing that further helped in
analyzing the relation between the features of the products and the investors’ requirements.
INTRODUCTION
OBJECTIVES OF THE PROJECT:
The purpose of the study was to determine the saving behavior and investment preferences of
customers. Customer perception will provide a way to accurately measure how the customers think about
the products and services provided by the company. Toda y’s trying economic conditions have forced
difficult decisions for companies. Most are making conservative decisions that reflect a survival mode in
the business operations. During these difficult times, understanding what customers on an ongoing basis
is critical for survival. Executives need a 3 party understanding on where customer loyalties stand. More rd
than ever management needs ongoing feedback from the customers, partners and employees in order to
continue to innovate and grow. The main objective of the project is to find out the needs of current and
future customers. For this report ,customer perception and awareness level will be measured in many
important areas like:
To understand all about different investment avenues available in India.
To find out how the investors get information about the various financial instrument
To find out how the investor wants to invest i.e. on his own or through a broker.
To find out the saving habits of the different customers and the amount they invest in various financial
instruments.
In which type of financial instrument they like to invest.
How long they prefer to keep their money invested.
What is the return that they expect from the investment.
What are the various factors that they consider before investing.
To find out the risk profile of the investor.
To give a recommendation to the investors that where they should invest.
To give a suggestion to my company where our fund lacks in the market & how it should be rectified.
After all as a management trainee I will try to get some valuable knowledge from my seniors in the
organization as well as from my faculty guide which will help me in the future.
To evaluate the consumer attitude towards saving and decision making regarding investments.
This report will be developed in order to empower companies with detailed primary market
research needed to make well informed decisions and it will provide independent measurement and
validation of the health of company’s relationship with their customers. These are the various advantages
which will give some value addition to the company in understanding the awareness level of the customer
about the various investment options and what is the perception of the investors with regard to the
investments they want to make.
This project has been a great learning experience for me, at the same time it gave me enough scope to
implement my analytical ability. This project as a whole can be divided into two parts:
The first part gives an insight about the different investment avenues available in India and its various
aspects. It is purely based on whatever I learned at KARVY STOCK BROKING.
All the topics have been covered in a very systematic way. The language has been kept simple so that a
layman could understand .
The second part will consist of data and their analysis, will be collected through a survey done on 200
people. Hope the research findings and conclusions will be of use. It has also covered why people don’t
want to go in invest? The advisors can take further steps to approach more and more people and indulge
them for taking their advices.
METHODOLOGY :
Source of Data:-
Primary Data : Questionnaire, visiting organization.
Secondary Data : Information from the Company, Websites, journals and magazines.
Sample Size : 100.
Sampling technique : Random sampling.
SAMPLING METHODOLOGY
SamplingTechnique: Initially, a rough draft was prepared keeping in mind the objective of the research.
A pilot study was done in order to know the accurac y of the Questionnaire. The final Questionnaire was
arrived only after certain important changes were done. Convenience sampling technique will be used for
collecting the data from the Karvy Stock Broking customers. The consumers are selected by the
convenience sampling method . The selection of units from the population based on their easy
availability and accessibility to the researcher is known as convenience sampling. Convenience sampling
is at its best in surveys dealing with an exploratory purpose for generating ideas and hypothesis.
Sampling Unit:
The respondants who were asked to fill out questionnaires are the sampling units. These comprise of
employees of MNCs, Govt. Employees, Self Employeds and existing customers of Karvy Stock broking
Ltd
Sample size:
The sample size was restricted to only 100, which comprised of mainly peoples from different regions of
Chandigarh due to time constraints.
Sampling Area:
The area of the research was Chandigarh, Mohali
Data Collection
Questioning & observing are the two basic methods of collecting primary data. Questionnaire studies
are more relevant than observation studies
Importance of Questionnaire
When information is to be collected by asking questions to people who ma y have the desired data, a
standardized form called questionnaire is prepared which helps to bring the data as such required for the
research work. The questionnaire is a list of questions to be asked to the respondents. Each question is
worded exactly as it is to be asked & the questions are listed in an established sequence. Spaces in which
to record answers are provided in questionnaire.
Milestone of Karvy
INCEPTION 1979
Corporate Registry services 1985
Stock Broking & ISCs 1990
Financial Product Distribution 1993
Corporate Finance 1995
Depository Services 1997
ITES & BPO Services 2000
Personal Finance Advisory Services 2001
Secondary Debt & WDM Services 2003
Joint Venture with Computer Share 2004
Comtrade 2004
Having emerged as a leader in the registry business, the first of the businesses
that ventured into, Karvy transferred this business into a joint venture with Computershare Limited of
Australia, the world’s largest registrar. With the advent of depositories in the Indian capital market and the
relationships that have created in the registry business, believing they were best positioned to venture into
this activity as a Depository Participant. Karvy is the early entrants registered as Depository Participant
with NSDL (National Securities Depository Limited), the first Depository in the country and then with
CDSL (Central Depository Services limited). Today, service over 6 lakh customer accounts in this
business spread across over 250 cities/towns in India and are ranked amongst the largest Depository
Participants in the country. With a growing secondary market presence, we have transferred this business
to Karvy Stock Broking Limited (KSBL), associate and a member of NSE, BSE and HSE.
IT enabled services :-
Technology Services division forms the ideal platform to unleash technology initiatives and
make our presence felt on the Internet. Past achievements include many quality websites designed,
developed and deployed by it. Karvyalso possess own web hosting facilities with dedicated bandwidth
and a state-of-the-art server farm (data center) with services functioning on a variety of operating
platforms such as Windows, Solaris, Linux and Unix. The corporate website of the company,
“ www.karvy.com ”, gives access to in-depth information on financial matters including Mutual Funds,
IPOs, Fixed Income Schemes, Insurance, Stock Market and much more. A link called ‘Resource Center’,
devoted solely to research conducted by our team of experts on various financial aspects like ‘Sector
Research’, deals exclusively with in-depth analysis of the key sectors of the Indian economy. Besides, a
host of other links like ‘My Portfolio’ which acts as a personalized and customized financial measure,
makes this site extremely informative about investment options, market trends, news as also about our
company and each of the services offered here.
Member - National Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and
The Hyderabad Stock Exchange (HSE).Karvy Stock Broking Limited, one of the cornerstones of the
Karvy edifice, flows freely towards attaining diverse goals of the customer through varied services.
Creating a plethora of opportunities for the customer by opening up investment vistas backed by research-
based advisory services. Here, growth knows no limits and success recognizes no boundaries. Helping the
customer create waves in his portfolio and empowering the investor completely is the ultimate goal.
To further tap the immense growth potential in the capital markets we enhanced the
Karvy – the Finapolis, scope of our retail brand, thereby providing planning
and advisory services to
the mass affluent. Here understanding the customer needs and lifestyle in the context of present earnings
and provide adequate advisory services that will necessarily help in creating wealth. Judicious planning
that is customized to meet the future needs of the customer deliver a service that is exemplary. The
market-savvy and the ignorant investors, both find this service very satisfactory. The edge that has over
competition is portfolio of offerings and professional expertise. The investment planning for each
customer is done with an unbiased attitude so that the service is truly customized. Monthly magazine,
Finapolis, provides up-dated market information on market trends, investment options, opinions etc. Thus
empowering the investor to base every financial move on rational thought and prudent analysis and
embark on the path to wealth creation.
Advisory Services:-
Under retail brand ‘Karvy – the Finapolis', delivers advisory services to a cross-section of
customers. The service is backed by a team of dedicated and expert professionals with varied experience
and background in handling investment portfolios. They are continually engaged in designing the right
investment portfolio for each customer according to individual needs and budget considerations with a
comprehensive support system that focuses on trading customers' portfolios and providing valuable
inputs, monitoring and managing the portfolio through varied technological initiatives. This is made
possible by the expertise that has gained in the business over the years.
Merchant Banking:-
Recognized as a leading merchant banker in the country, registered with SEBI as
category one merchant banker. This reputation was built by capitalizing on opportunities in corporate
consolidations, mergers and acquisitions and corporate restructuring, which have earned the reputation of
a merchant banker. Raising resources for corporate or Government Undertaking successfully over the past
two decades have given us the confidence to renew focus in this sector. Quality professional team and
work-oriented dedication have propelled to offer value-added corporate financial services and act as a
professional navigator for long term growth of our clients, who include leading corporate, State
Governments, foreign institutional investors, public and private sector companies and banks, in Indian
and global markets. Karvyalso emerged as a trailblazer in the arena of relationships, both at the customer
and trade levels because of unshakable integrity, seamless service and innovative solutions that are tuned
to meet varied needs. Team of committed industry specialists, having extensive experience in capital
markets, further nurtures this relationship. Financial advice and assistance in restructuring, divestitures,
acquisitions, de-mergers, spin-offs, joint ventures, privatization and takeover defense mechanisms have
elevated relationship with the client to one based on unshakable trust and confidence.
Karvy has traversed wide spaces to tie up with the world’s largest transfer agent, the leading
Australian company, Computershare Limited. The company that services more than 75 million
shareholders across 7000 corporate clients and makes its presence felt in over 12 countries across 5
continents has entered into a 50-50 joint venture with us. With management team completely transferred
to this new entity, we will aim to enrich the financial services industry than before. The future holds new
arenas of client servicing and contemporary and relevant technologies as we are geared to deliver better
value and foster bigger investments in the business. The worldwide network of Computershare will hold
in good stead as expect to adopt international standards in addition to leveraging the best of technologies
from around the world. Excellence has to be the order of the day when two companies with such similar
ideologies of growth, vision and competence, get together.
Mutual Fund Services:-
Karvy attained a position of immense strength as a provider of across-the-board transfer
agency services to AMCs, Distributors and Investors. Nearly 40% of the top-notch AMCs including
prestigious clients like Deutsche AMC and UTI swear by the quality and range of services that we offer.
Besides providing the entire back office processing, providing the link between various Mutual Funds and
the investor, including services to the distributor, the prime channel in this operation. Carrying the
‘limitless' ideology forward, Karvy have explored new dimensions in every aspect of Mutual Fund
servicing right from volume management, cost effective pricing, delivery in the least turnaround time,
efficient back-office and front-office operations to customized service. They have been with the AMCs
every step of the way, helping them serve their investors better by offering them a diverse and customized
range of services. Service enhancements such as ‘Karvy Converz' a full-fledged call center, a top-line
website (www.karvymfs.com), the ‘m-investor' and many more, creating a galaxy of customer
advantages.
Issue Registry:-
In voyage towards becoming the largest transaction-processing house in the Indian
Corporate segment, Karvy have mobilized funds for numerous corporate, Karvy has emerged as the
largest transaction-processing house for the Indian Corporate sector. With an experience of handling over
700 issues, Karvy toda y, has the ability to execute voluminous transactions and hard-core expertise in
technology applications have gained us the No.1 slot in the business. Karvy is the first Registry Company
to receive ISO 9002 certification in India that stands testimony to its stature Karvy has the backing of
skilled human resources complemented by requisite technological packages to ensure a faster processing
capability. Karvy has the benefit of a good synergy between depositories and registry that enables faster
resolution to related customer queries. Apart from its unique investor servicing presence in all the phases
of a public Issue, it is actively coordinating with both the main depositories to develop special models to
enable the customer to access depository (NSDL, CDSL) services during an IPO. Karvy trust-worthy
reputation, competent manpower and high-end technology and infrastructure are the solid foundations on
which success is built.
The specialist Business Process Outsourcing unit of the Karvy Group. The
legacy of expertise and experience in financial services of the Karvy Group serves well as enter the global
arena with the confidence of being able to deliver and deliver well. Here it offers several delivery models
on the understanding that business needs are unique and therefore only a customized service could
possibly fit the bill. Service matrix has permutations and combinations that create several options to
choose from. Be it in re-engineering and managing processes or delivering new efficiencies, service meets
up to the most stringent of international standards , outsourcing models are designed for the global
customer and are backed by sound corporate and operations philosophies, and domain expertise.
Providing productivity improvements, operational cost control, cost savings, improved accountability and
a whole gamut of other advantages. Karvy operate in the core market segments that have emerging
requirements for specialized services, wide vertical market coverage includes Banking, Financial and
Insurance Services (BFIS), Retail and Merchandising, Leisure and Entertainment, Energy and Utility and
Healthcare. Karvy horizontal offerings do justice to our stance as a comprehensive BPO unit and include
a variety of services in Finance and Accounting Outsourcing Operations, Human Resource Outsourcing
Operations, Research and Analytics outsourcing Operations and Insurance Back Office Outsourcing
Operations.
www.karvyglobal.com
At Karvy Commodities, focused on taking commodities trading to new dimensions of
reliability and profitability. Karvy have made commodities trading, an essentially age-old practice, into a
sophisticated and scientific investment option .Here it enable trade in all goods and products of
agricultural and mineral origin that include lucrative commodities like gold and silver and popular items
like oil, pulses and cotton through a well systematized trading platform, technological and infrastructural
strengths and especially street-smart skills make an ideal broker. Service matrix is holistic with a gamut of
advantages, the first and foremost being legacy of human resources, technology and infrastructure that
comes from being part of the Karvy Group. Karvy wide national network, spanning the length and
breadth of India, further supports these advantages. Regular trading workshops and seminars are
conducted to hone trading strategies to perfection. Every move made is a calculated one, based on reliable
research that is converted into valuable information through daily, weekly and monthly newsletters, calls
and intrada y alerts. Further, personalized service is provided here by a dedicated tea m committed to
giving hassle-free service while the brokerage rates offered are extremely competitive. Commitment to
excel in this sector stems from the immense importance that commodity broking has to a cross-section of
investors & farmers, exporters, importers, manufacturers and the Government of India itself.
www.karvycomtrade.com
At Karvy Insurance Broking Pvt. Ltd. provide both life and non-life insurance products to
retail individuals, high net-worth clients and corporate. With the opening up of the insurance sector and
with a large number of private players in the business, they are in a position to provide tailor made
policies for different segments of customers. In journey to e merge as a personal finance advisor, it will be
better positioned to leverage relationships with the product providers and place the requirements of
customers appropriately with the product providers. With Indian markets seeing a sea change, both in
terms of investment pattern and attitude of investors, insurance is no more seen as only a tax saving
product but also as an investment product. Karvys wide national network, spanning the length and breadth
of India, further supports these advantages. Further, personalized service is provided here by a dedicated
team committed in giving hassle-free service to the clients.
Achievements
Among the top 5 stock brokers in India (4% of NSE volumes)
India's No. 1 Registrar & Securities Transfer Agents
Among the top 3 Depository Participants
Largest Network of Branches & Business Associates
ISO 9002 certified operations by DNV
Among top 10 Investment bankers
Largest Distributor of Financial Products
Adjudged as one of the top 50 IT uses in India by MIS Asia
Fully Fledged IT driven operations
PROJECT DESCRIPTION
Mutual Fund:-
Mutual fund is a pool of money collected from investors and is invested according to
stated investment objectives Mutual fund investors are like shareholders and they own the fund. Mutual
fund investors are not lenders or deposit holders in a mutual fund. Everybody else associated with a
mutual fund is a service provider, who earns a fee. The money in the mutual fund belongs to the investors
and nobody else. Mutual funds invest in marketable securities according to the investment objective. The
value of the investments can go up or down, changing the value of the investor’s holdings.NAV of a
mutual fund fluctuates with market price movements. The market value of the investors’ funds is also
called as net assets. Investors hold a proportionate share of the fund in the mutual fund. New investors
come in and old investors can exit, at prices related to net asset value per unit.
Emergence of Mutual Funds:-
Mutual Funds now represent perhaps the most appropriate investment opportunity for most
small investors. As financial markets become more sophisticated and complex, investor need a financial
intermediary who provides the required knowledge and professional expertise on successful investing. It
is no wonder then that in the birthplace of mutual funds-the U.S.A.-the fund industry has already
overtaken the banking industry, with more money under Mutual Fund management than deposited with
banks.
The Indian Mutual Fund industry has already opened up many exciting investment opportunities
to Indian investors. Despite the expected continuing growth in the industry, Mutual Fund is a still new
financial intermediary in India.
History of Mutual Funds :-
In the second half of 19 century, investor in UK considered the stock market th
is good for the investment. But for small investor it is not possible to operate in the market effectively.
This led to establishment of an investment company which led to the small investor to invest in equity
market. The first investment company was the Scottish-A merican Investment Company, set up in London
in 1860.
Mutual Fund Industry in India :-
Mutual Fund is an instrument of investing money. Nowadays, bank rates have fallen down and
are generally below the inflation rate. Therefore, keeping large amounts of money in bank is not a wise
option, as in real terms the value of money decreases over a period of time. One of the options is to invest
the money in stock market. But a common investor is not informed and competent enough to understand
the intricacies of stock market. This is where mutual funds come to the rescue. A mutual fund is a group
of investors operating through a fund manager to purchase a diverse portfolio of stocks or bonds. Mutual
funds are highly cost efficient and very easy to invest in. By pooling money together in a mutual fund,
investors can purchase stocks or bonds with much lower trading costs than if the y tried to do it on their
own. Also, one doesn't have to figure out which stocks or bonds to buy. But the biggest advantage of
mutual funds is diversification.
Diversification means spreading out money across many different types of
investments. When one investment is down another might be up. Diversification of investment holdings
reduces the risk tremendously.
In 1963, the government of India took the initiative by passing the UTI act, under which the
Unit Trust of India (UTI) was set-up as a statutory body. The designated role of UTI was to set up a
Mutual Fund. UTI’s first scheme, called. In 1987 the other public sector institutions set up their Mutual
Funds. In 1992, government allowed the private sector players to set-up their funds. In 1994 the foreign
Mutual Funds arrives in Indian market. In 2001 there is a crisis in UTI and in 2003 UTI splits up into UTI
1and UTI 2. The history of Indian Mutual Fund industry can be explained easily by various phases :-
Benefits of Investing in Mutual Funds
Professional Management: -
Mutual Funds provide the services of experienced and skilled professionals, backed by a
dedicated investment research team that analyses the performance and prospects of companies and selects
suitable investments to achieve the objectives of the scheme.
Diversification: -
Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad
deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time
and make investing easy and convenient.
Return Potential : -
Over a medium to long-term, Mutual Funds have the potential to provide a higher return as
they invest in a diversified basket of selected securities.
Low Costs: -
Mutual Funds are a relatively less expensive way to invest compared to directly investing
in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into
lower costs for investors.
Liquidity: -
In open-end schemes, the investor gets the money back promptly at net asset value
related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at
the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related
prices by the Mutual Fund.
Transparency : -
You get regular information on the value of your investment in addition to disclosure on
the specific investments made by your sche me, the proportion invested in each class of assets and the
fund manager's investment strategy and outlook.
Flexibility: -
Through features such as regular investment plans, regular withdrawal plans and dividend
reinvestment plans, you can systematically invest or withdraw funds according to your needs and
convenience.
Affordability: -
Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual
fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.
Choice of Schemes : -
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.
Well Regulated
All Mutual Funds are registered with SEBI and they function within the provisions of
strict regulations designed to protect the interests of investors. The operations of Mutual Funds are
regularly monitored by SEBI.
Professional Management : -
Some funds doesn’t perform in neither the market, as their management is not dynamic enough to
explore the available opportunity in the market, thus many investors debate over whether or not the so-
called professionals are any better than mutual fund or investor himself, for picking up stocks.
Costs : –
The biggest source of AMC income is generally from the entry & exit load which they
charge from investors, at the time of purchase. The mutual fund industries are thus charging extra cost
under layers of jargon.
Dilution: –
Because funds have small holdings across different companies, high returns from a few
investments often don't make much difference on the overall return. Dilution is also the result of a
successful fund getting too big. When money pours into funds that have had strong success, the manager
often has trouble finding a good investment for all the new money.
Taxes: -
When making decisions about your money, fund managers don't consider your personal tax
situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects
how profitable the individual is from the sale. It might have been more advantageous for the individual to
defer the capital gains liability.
Interval Funds:-
Interval funds combine the features of open-ended and close-ended schemes. They are
open for sale or redemption during pre-determined intervals at NAV related prices.
No-Load Funds:-
A No-Load Fund is one that does not charge a commission for entry or exit. That is, no
commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the
entire corpus is put to work.
Equity Funds : -
Equity funds are considered to be the more risky funds as compared to other fund types,
but the y also provide higher returns than other funds. It is advisable that an investor looking to invest in
an equity fund should invest for long term i.e. for 3 years or more. There are different types of equity
funds each falling into different risk bracket. In the order of decreasing risk level, there are following
types of equity funds:-
Sector Funds:-
Equity funds that invest in a particular sector/industry of the market are known as Sector Funds.
The exposure of these funds is limited to a particular sector (say Information Technology, Auto, Banking,
Pharmaceuticals or Fast Moving Consumer Goods) which is why they are more risky than equity funds
that invest in multiple sectors.
Foreign Securities Funds:-
Foreign Securities Equity Funds have the option to invest in one or more foreign companies.
Foreign securities funds achieve international diversification and hence they are less risky than sector
funds. However, foreign securities funds are exposed to foreign exchange rate risk and country risk.
Mid-Cap or Small-Cap Funds:-
Funds that invest in companies having lower market capitalization than large capitalization
companies are called Mid-Cap or Small-Cap Funds. Market capitalization of Mid-Cap companies is less
than that of big, blue chip companies (less than Rs. 2500 crore but more than Rs. 500 crore) and Small-
Cap companies have market capitalization of less than Rs. 500 crore. Market Capitalization of a company
can be calculated by multiplying the market price of the company's share by the total number of its
outstanding shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as of
Large-Cap Companies which gives rise to volatility in share prices of these companies and consequently,
investment gets risky.
Option Income Funds:-
While not yet available in India, Option Income Funds write options on a large fraction of
their portfolio. Proper use of options can help to reduce volatility, which is otherwise considered as a
risky instrument. These funds invest in big, high dividend yielding companies, and then sell options
against their stock positions, which generate stable income for investors.
DIVERSIFIED EQUITY FUNDS: -
Except for a small portion of investment in liquid mone y market, diversified equity funds
invest mainly in equities without any concentration on a particular sector(s). These funds are well
diversified and reduce sector-specific or company-specific risk. However, like all other funds diversified
equity funds too are exposed to equity market risk. One prominent type of diversified equity fund in India
is Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of investments by
ELSS should be in equities at all times. ELSS investors are eligible to claim deduction from taxable
income (up to Rs 1 lakh) at the time of filing the income tax return. ELSS usually has a lock-in period and
in case of any redemption by the investor before the expiry of the lock-in period makes him liable to pay
income tax on such income(s) for which he may have received any tax exemption(s) in the past.
Equity Index Funds: -
Equity Index Funds have the objective to match the performance of a specific stock market
index. The portfolio of these funds comprises of the same companies that form the index and is
constituted in the same proportion as the index. Equity index funds that follow broad indices (like S&P
CNX Nifty, Sensex) are less risky than equity index funds that follow narrow sectoral indices (like
BSEBANKEX or CNX Bank Index etc). Narrow indices are less diversified and therefore, are more risky.
VALUE FUNDS:-
Value Funds invest in those companies that have sound fundamentals and whose share prices
are currently under-valued. The portfolio of these funds comprises of shares that are trading at a low Price
to Earnings Ratio (Market Price per Share / Earning per Share) and a low Market to Book Value
(Fundamental Value) Ratio. Value Funds may select companies from diversified sectors and are exposed
to lower risk level as compared to growth funds or specialty funds. Value stocks are generally from
cyclical industries (such as cement, steel, sugar etc.) which make them volatile in the short-term.
Therefore, it is advisable to invest in Value funds with a long-term time horizon as risk in the long term,
to a large extent, is reduced.
EQUITY INCOME OR DIVIDEND YIELD FUNDS: -
The objective of Equity Income or Dividend Yield Equity Funds is to generate high
recurring income and steady capital appreciation for investors by investing in those companies which
issue high dividends (such as Power or Utility companies whose share prices fluctuate comparatively
lesser than other companies' share prices). Equity Income or Dividend Yield Equity Funds are generally
exposed to the lowest risk level as compared to other equity funds.
DEBT / INCOME FUNDS:-
Funds that invest in medium to long-term debt instruments issued by private companies,
banks, financial institutions, governments and other entities belonging to various sectors (like
infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk profile funds
that seek to generate fixed current income (and not capital appreciation) to investors. In order to ensure
regular income to investors, debt (or income) funds distribute large fraction of their surplus to investors.
Although debt securities are generally less risky than equities, they are subject to credit risk (risk of
default) by the issuer at the time of interest or principal payment. To minimize the risk of default, debt
funds usually invest in securities from issuers who are rated by credit rating agencies and are considered
to be of "Investment Grade". Debt funds that target high returns are more risky. Based on different
investment objectives, there can be following types of debt funds:-
GILT FUNDS:-
Also known as Government Securities in India, Gilt Funds invest in government papers (named
dated securities) having medium to long term maturity period. Issued by the Government of India, these
investments have little credit risk (risk of default) and provide safety of principal to the investors.
However, like all debt funds, gilt funds too are exposed to interest rate risk. Interest rates and prices of
debt securities are inversely related and any change in the interest rates results in a change in the NAV of
debt/gilt funds in an opposite direction.
HYBRID FUNDS:-
As the name suggests, hybrid funds are those funds whose portfolio includes a blend of
equities, debts and money market securities. Hybrid funds have an equal proportion of debt and equity in
their portfolio. There are following types of hybrid funds in India:
Balanced Funds: -
The portfolio of balanced funds includes assets like debt securities, convertible securities,
and equity and preference shares held in a relatively equal proportion. The objectives of balanced funds
are to reward investors with a regular income, moderate capital appreciation and at the same time
minimizing the risk of capital erosion. Balanced funds are appropriate for conservative investors having a
long term investment horizon.
Growth-and-Income Funds: -
Funds that combine features of growth funds and income funds are known as Growth-and-Income
Funds. These funds invest in companies having potential for capital appreciation and those known for
issuing high dividends. The level of risks involved in these funds is lower than growth funds and higher
than income funds.
ASSET ALLOCATION FUNDS: -
Mutual funds may invest in financial assets like equity, debt, money market or non-financial
(physical) assets like real estate, commodities etc.. Asset allocation funds adopt a variable asset allocation
strategy that allows fund managers to switch over from one asset class to another at any time depending
upon their outlook for specific markets. In other words, fund managers may switch over to equity if they
expect equity market to provide good returns and switch over to debt if they expect debt market to
provide better returns. It should be noted that switching over from one asset class to another is a decision
taken by the fund manager on the basis of his own judgment and understanding of specific markets, and
therefore, the success of these funds depends upon the skill of a fund manager in anticipating market
trends.
COMMODITY FUNDS:-
Those funds that focus on investing in different commodities (like metals, food grains, crude
oil etc.) or commodity companies or commodity futures contracts are termed as Commodity Funds. A
commodity fund that invests in a single commodity or a group of commodities is a specialized
commodity fund and a commodity fund that invests in all available commodities is a diversified
commodity fund and bears less risk than a specialized commodity fund. "Precious Metals Fund" and Gold
Funds (that invest in gold, gold futures or shares of gold mines) are common examples of commodity
funds.
EQUITY SHARES
ABOUT SHARES:-
At the most basic level, stock (often referred to as shares) is ownership, or equity, in a company. Investors
buy stock in the form of shares, which represent a portion of a company's assets (capital) and earnings
(dividends).
As a shareholder, the extent of your ownership (your stake) in a company depends on the number of
shares you own in relation to the total number of shares available For example, if you buy 1000 shares of
stock in a company that has issued a total of 100,000 shares, you own one per cent of the company.
While one per cent seems like a small holding, very few private investors are able to accumulate a
shareholding of that size in publicly quoted companies, many of which have a market value running into
billions of pounds. Your stake may authorize you to vote at the company's annual general meeting, where
shareholders usually receive one vote per share.
In theory, every stockholder, no matter how small their stake, can exercise some influence over company
management at the annual general meeting. In reality, however, most private investors' stakes are
insignificant. Management policy is far more likely to be influenced by the votes of large institutional
investors such as pension funds.
a) STOCKS SYMBOLS:-
A stock symbol, or 'Epic' symbol, is the standard abbreviation of a stock's name. You can find stock
symbols wherever stock performance information is published - for example, newspaper stock listings
and investment websites. Company names also have abbreviations called ticker symbols. However, it's
worth remembering that these may vary at the different exchanges where the company is quoted.
b) PERFORMANCE INDICATORS:-
Here is a list of the standard performance indicators
Closing price The last price at which the stock was bought or sold
High and low The highest and lowest price of the stock from the previous trading day
52 week range The highest and lowest price over the previous 52 weeks
Volume The amount of shares traded during the previous trading da y High and low
Net change The difference between the closing price on the last trading day andthe
closing price on the trading day prior to the last
Insurance
People need insurance in the first place.An insurance polic y is primarily meant to protect the income of
the family’s breadearners. The idea is if any one or both die their dependents continue to live
comfortably.The circle of life begins at birth follower by education , marraige and eventually after a
lifetime of work we look forward to life of retirement . Our finances too tend to change as we go through
the various phases of life. In the first twenty of our life, we are financially and emotionally dependents on
our parents and their are no financial committments to be met.In the next twenty years we gain financial
independence and provide financial independence to our families. This is also the stage when our income
may be unable to meet the growing expenses of a young household. In the next twenty as we see our
investments grow after our children grow and become financially independent. Insurance is a provision
for the distribution of risks that is to say it is a financial provision against loss from unavoidable disasters.
The protection which it affords takes form of a gurantee to indemnify the insured if certain specified
losses occur. The principle of insurance so far as the undertaking of the obligation is concerned is that for
the payment of a certain sum the gurantee will be given to reimburse the insured. The insurer in accepting
the risks so distributes them that the total of all the amounts is paid for this insurance protection will be
sufficient to meet the losses that occur. Insurance then provide divided responsibilty. This principle is
introduced in most stores where a division is made between the sales clerk and the cashiers department
the arrangement dividing the risks of loss. The insurance principle is similarly applied in any other cases
of divided responsibilty. As a business however insurance is usually recognized as some form of securing
a promise of indemnity by the payment of premium and the fulfillment of certain other stipulations
Types of insurance
Term insurance plans
Term insurance is the cheapest form of life insurance available. Since a term insurance contract only pays
in the event of eventuality the life cover comes at low pre mium rates . Term insurance is a usefu tool to
purchase against risk of early death and protection of an asset.
Endowment plans
Endowment plans are savins and protection plans that provide a dual benifit of protection as well as
savings. Endowment plans pay a death benifit in the event of an eventuality should the customer survive
the benifit period a maturity benifit is paid to the life insured.
Whole of life plans
A whole of life plan provides life insurance cover to an individua upto a specified age . A whole of life
plan is suitable for an individual who is looking for an extended life insurance cover and /or wants to pay
premium over as long as tenure as possible to reduce the amount of upfront premium payment.
Pension plans
Pension plans allow an individual to save in a tax deffered manner. An individual can either contribute
through regular premiums or make a single premium investments. Savings accumulate over the deferment
period. Once the contract reaches the vesting age , the individual has the option of choosing an annuity
plan from a life insurance company. An annuity is paid till the life the lifetime of the insured or a pre-
determined period depending upon the annuity option chosen by the life insured.
Unit Linked Insurance Plans
Unit linked insurance plan (ULIP) is life insurance solution that provides for the benefits of risk
protection and flexibility in investment. The investment is denoted as units and is represented by the value
that it has attained called as Net Asset Value (NAV). The policy value at any time varies according to the
value of the underlying assets at the time.
In a ULIP, the invested amount of the premiums after deducting for all the charges and premium for risk
cover under all policies in a particular fund as chosen by the policy holders are pooled together to form a
Unit fund. A Unit is the component of the Fund in a Unit Linked Insurance Policy.
The returns in a ULIP depend upon the performance of the fund in the capital market. ULIP investors
have the option of investing across various schemes, i.e, diversified equity funds, balanced funds, debt
funds etc. It is important to remember that in a ULIP, the investment risk is generally borne by the
investor.
In a ULIP, investors have the choice of investing in a lump sum (single premium) or making premium
payments on an annual, half-yearly, quarterly or monthly basis. Investors also have the flexibility to alter
the pre mium amounts during the polic y's tenure. For example, if an individual has surplus funds, he can
enhance the contribution in ULIP. Conversely an individual faced with a liquidity crunch has the option of
paying a lower amount (the difference being adjusted in the accumulated value of his ULIP). ULIP
investors can shift their investments across various plans/asset classes (diversified equity funds, balanced
funds, debt funds) either at a nominal or no cost.
Mortality Charges:
These are charges for the cost of insurance coverage and depend on number of factors such as age,
amount of coverage, state of health etc.
Fund Management Fees:
Fees levied for manage ment of the fund and is deducted before arriving at the NAV.
Administration Charges:
This is the charge for administration of the plan and is levied by cancellation of units.
Surrender Charges:
Deducted for premature partial or full encashment of units.
GOVERNMENT SECURITIES
Government securities(G-secs) are sovereign securities which are issued by the Reserve Bank of India on
behalf of Government of India,in lieu of the Central Government's market borrowing programme.
The term Government Securities includes:
• Central Government Securities.
• State Government Securities
• Treasury bills
The Central Government borrows funds to finance its 'fiscal deficit'.The market borrowing of the Central
Government is raised through the issue of dated securities and 364 days treasury bills either by auction or
by floatation of loans.
In addition to the above, treasury bills of 91 days are issued for managing the temporary cash mismatches
of the Government. These do not form part of the borrowing programme of the Central Government
Types of Government Securities
Government Securities are of the following types:-
Dated Securities : are generally fixed maturity and fixed coupon securities usually carrying
semi-
annual coupon. These are called dated securities because these are identified by their date of maturity and
the coupon, e.g., 11.03% GOI 2012 is a Central Government security maturing in 2012, which carries a
coupon of 11.03% payable half yearly. The key features of these securities are:
• They are issued at face value.
• Coupon or interest rate is fixed at the time of issuance, and remains constant till
redemption of the security.
• The tenor of the security is also fixed.
• Interest /Coupon payment is made on a half yearly basis on its face value.
• The security is redeemed at par (face value) on its maturity date.
Zero Coupon bonds are bonds issued at discount to face value and redeemed at par. These were
issued first on January 19, 1994 and were followed by two subsequent issues in 1994-95 and 1995-
96
respectively. The key features of these securities are:
They are issued at a discount to the face value. •
The tenor of the security is fixed. •
The securities do not carry any coupon or interest rate. The difference between the issue price •
(discounted price) and face value is the return on this security.
The security is redeemed at par (face value) on its maturity date. •
Partly Paid Stock is stock where payment of principal a mount is made in installments over a given
time frame. It meets the needs of investors with regular flow of funds and the need of Government
when
it does not need funds immediately. The first issue of such stock of eight year maturity was made on
November 15, 1994 for Rs. 2000 crore. Such stocks have been issued a few more times thereafter. The
key features of these securities are:
• They are issued at face value, but this amount is paid in installments over a specified
period.
• Coupon or interest rate is fixed at the time of issuance, and remains constant till
redemption of the security.
• The tenor of the security is also fixed.
• Interest /Coupon payment is made on a half yearly basis on its face value.
• The security is redeemed at par (face value) on its maturity date.
Floating Rate Bonds are bonds with variable interest rate with a fixed percentage over a benchmark
rate. There may be a cap and a floor rate attached thereby fixing a maximum and minimum interest rate
payable on it. Floating rate bonds of four year maturity were first issued on September 29, 1995,
followed
by another issue on December 5, 1995. Recently RBI issued a floating rate bond, the coupon of w hich
is benchmarked against average yield on 364 Days Treasury Bills for last six months. The coupon is
reset every six months . The key features of these securities are:
• They are issued at face value.
• Coupon or interest rate is fixed as a percentage over a predefined benchmark rate at the
time of issuance. The benchmark rate may be Treasury bill rate, bank rate etc.
• Though the benchmark does not change, the rate of interest may vary according to the
change in the benchmark rate till redemption of the security.
The tenor of the security is also fixed.
• Interest /Coupon payment is made on a half yearly basis on its face value.
• The security is redeemed at par (face value) on its maturity date.
Bonds with Call/Put Option: First time in the history of Government Securities market RBI
issued a
bond with call and put option this year. This bond is due for redemption in 2012 and carries a coupon of
6.72%. However the bond has call and put option after five years i.e. in year 2007. In other words it
means that holder of bond can sell back (put option) bond to Government in 2007 or Government can buy
back (call option) bond from holder in 2007. This bond has been priced in line with 5 year bonds.
Capital indexed Bonds are bonds where interest rate is a fixed percentage over the wholesale
price
index. These provide investors with an effective hedge against inflation. These bonds were floated on
December 29, 1997 on tap basis. They were of five year maturity with a coupon rate of 6 per cent over the
wholesale price index. The principal redemption is linked to the Wholesale Price Index. The key features
of these securities are:
• They are issued at face value.
• Coupon or interest rate is fixed as a percentage over the wholesale price index at the time
of issuance. Therefore the actual amount of interest paid varies according to the change in
the Wholesale Price Index.
• The tenor of the security is fixed.
• Interest /Coupon payment is made on a half yearly basis on its face value.
• The principal redemption is linked to the Wholesale Price Index.
Features of Government Securities
Nomenclature
The coupon rate and year of maturity identifies the government security.
Example: 12.25% GOI 2008 indicates the following:
12.25% is the coupon rate, GOI denotes Government of India, which is the borrower, 2008 is the year of
maturity.
Eligibility
All entities registered in India like banks, financial institutions, Primary Dealers, firms, companies,
corporate bodies, partnership firms, institutions, mutual funds, Foreign Institutional Investors, State
Governments, Provident Funds, trusts, research organisations, Nepal Rashtra bank and even individuals
are eligible to purchase Government Securities.
Availability
Government securities are highly liquid instruments available both in the primary and secondary
market.
They can be purchased from Primary Dealers. PNB Gilts Ltd., is a leading Primary Dealer in the
government securities market, and is actively involved in the trading of government securities.
Minimum Amount
In terms of RBI regulations, government dated securities can be purchased for a minimum amount
of Rs.
10,000/-only.Treasury bills can be purchased for a minimum amount of Rs 25000/- only and in multiples
thereof. State Government Securities can be purchased for a minimum amount of Rs 1,000/- only.
Repayment
Government securities are repaid at par on the expiry of their tenor. The different repayment
methods are
as follows :
• For SGL account holders, the maturity proceeds would be credited to their current
accounts with the Reserve Bank of India.
• For Gilt Account Holders, the Bank/Primary Dealers, would receive the maturity proceeds
and they would pay the Gilt Account Holders.
• For entities having a demat acount with NSDL,the maturity proceeds would be collected
by their DP's and they in turn would pay the demat Account Holders.
Day Count
For government dated securities and state government securities the day count is taken as 360 days
for a
year and 30 days for every completed month. However for Treasury bills it is 365 da ys for a year.
Example : A client purchases 7.40% GOI 2012 for face value of Rs. 10 lacs.@ Rs.101.80, i.e. the
client pays Rs.101.80 for every unit of government security having a face value of Rs. 100/- The
settle ment is due on October 3, 2002. What is the amount to be paid by the client?
The security is 7.40% GOI 2012 for which the interest payment dates are 3rd May, and 3 November rd
every year.
The last interest payment date for the current year is 3 May 2002. The calculation would be made as rd
follows:
Face value of Rs. 10 lacs.@ Rs.101.80%.
Therefore the principal amount payable is Rs.10 lacs X 101.80% =10,18,000
Last interest pa yment date was May 3, 2002 and settlement date is October 3, 2002. Therefore the interest
has to be paid for 150 days (including 3 May, and excluding October 3, 2002) rd
(28 days of May, including 3 May, up to 30 May + 30 days of June, July, August and September + 2 rd th
days of October). Since the settlement is on October 3, 2002, that date is excluded.
Interest payable = 10 lacs X 7.40% X 150 = Rs. 30833.33.
360 X 100
Total amount pa yable by client =10,18,000+30833.33=Rs. 10,48,833.33
Benefits of Investing in Government Securities
No tax deducted at source
• Additional Income Tax benefit u/s 80L of the Income Tax Act for Individuals
• Qualifies for SLR purpose
• Zero default risk being sovereign paper
• Highly liquid.
• Transparency in transactions and simplified settlement procedures through CSGL/NSDL
Methods of Issuance of Government Securities
Government securities are issued by various methods, which are as follows:
Auctions:
Auctions for government securities are either yield based or price based.
• In an yield based auction, the Reserve Bank of India announces the issue size(or notified
amount) and the tenor of the paper to be auctioned. The bidders submit bids in terms of the
yield at which they are ready to buy the security.
• In a price based auction, the Reserve Bank of India announces the issue size(or notified
amount), the tenor of the paper to be auctioned, as well as the coupon rate. The bidders
submit bids in terms of the price. This method of auction is normally used in case of
reissue of existing government securities.
The basic features of the auctions are given below:
• Method of auction: There are two methods of auction which are followed-
• Uniform price Based or Dutch Auction procedure is used in auctions of dated government
securities. The bids are accepted at the same prices as decided in the cut off.
How to Invest
National Savings Certificates are available at all post-offices. The application can be made either in
person or through an agent. Post office agents are active in nooks and corners of the country. Following
types of NSC are issued:
Single Holder Type Certificate: This can be issued to: (a) An adult for himself or on behalf of a minor
(b) A Trust.
Joint 'A' Type Certificate: Issued jointly to two adults payable to both holders jointly or to the survivor.
Joint 'B' Type Certificate: Issued jointly to two adults pa yable to either of the holders or to the survivor.
Who can Invest
An adult in his own name or on behalf of a minor
A trust
Two adults jointly
Denomiations and Limit
National Savings Certificates are available in the denominations of Rs. 100 Rs 500, Rs. 1000, Rs. 5000, &
Rs. 10,000. There is no maximum limit on the purchase of the certificates. So it is for you to decide how
much you want to put in the NSCs. This is of course a huge benefit for you can decide as much as your
budget allows.
Maturity
Period of maturity of a certificate is six years. Presently interest paid is 8 % per annum half yearly
compounded. Maturity value of a certificate of any other denomination is at proportionate rate. Premature
encashment of the certificate is not permissible except at a discount in the case of death of the holder(s),
forfeiture by a pledgee and when ordered by a court of law.
Tax Benefits
Interest accrued on the certificates every year is liable to income tax but deemed to have been reinvested.
Income Tax rebate is available on the amount invested and interest accruing under Section 88 of Income
Tax Act, as amended from time to time.
Income tax relief is also available on the interest earned as per limits fixed vide section 80L of Income
Tax, as amended from time to time.
Tabs on Investment
Minimum deposit required in a PPF account is Rs. 500 in a financial year. Maximum deposit limit is Rs.
70,000 in a financial year. Maximum number of deposits is twelve in a financial year.
Maturity
The maturity period of the account is 15 years.
Rate of interest is 8% compounded annually.
One deposit with a minimum amount of Rs.500/- is mandatory in each financial year.
The amount of deposit can be varied to suit the convenience of the account holders.
The account holder can retain the account after maturity for any period without making any further
deposits. In this case the account will continue to earn interest at normal rate as admissible till the account
is closed.
The account holder also has an option to extend the PPF account for any period in a block of 5 years at
each time, after the maturity period of 15 years.
Lapse in Deposits
If deposits are not made in a PPF account in any financial year, the account will be treated as
discontinued. The discontinued account can be activated by payment of the minimum deposit of Rs.500/-
with default fee of Rs.50/- for each defaulted year.
Tax Benefits
Deposits in PPF are eligible for rebate under section 80-C of Income Tax Act.
The interest on deposits is totally tax free.
Deposits are exempt from wealth tax.
BONDS
debt security A bond is a , in which the authorized issuer owes the holders a debt and, depending on
the
interest coupon terms of the bond, is obliged to pay (the ) and/or to repay
the principal at a later date,
maturity termed . It is a formal contract to repa y borrowed money with interest at fixed intervals. [ 1]
loan Thus a bond is like a : the issuer is the borrower, the bond holder is the lender, and the
coupon is the
investments interest. Bonds provide the
borrower with external funds to finance
long-term , or, in the
Certificates of deposit commercial case of government
bonds, to finance current expenditure. (CDs) or
paper money market are considered to be instruments and not bonds. Bonds must be repaid at fixed
intervals over a period of time
supranational Bonds are issued by public
authorities, credit institutions, companies and
institutions in the
primary markets underwriting . The most common process of issuing bonds is through
. In underwriting,
syndicate one or more securities firms or banks, forming a , buy
an entire issue of bonds from an issuer
and re-sell them to investors. The security firm takes the risk of being unable to sell on the issue to end
investors. However government bonds are instead typically auction. The most important features of a
bond are:
Nominal, principal or face amount — the amount on which the issuer pays interest, and which has to be
repaid at the end.
Issue price — The price at which investors buy the bonds when they are first issued, which will typically
be approximately equal to the nominal amount. The net proceeds that the issuer receives are thus the issue
price, less issuance fees.
M aturity date — The date on which the issuer has to repay the nominal amount. As long as all pa yments
have been made, the issuer has no more obligations to the bond holders after the maturity date. The length
of time until the maturity date is often referred to as the term or tenor or maturity of a bond. The maturity
can be any length of time, although debt securities with a term of less than one year are generally
designated mone y market instruments rather than bonds. Most bonds have a term of up to thirty years.
Some bonds have been issued with maturities of up to one hundred years, and some even do not mature at
all. In early 2005, a market developed in euros for bonds with a maturity of fifty years. In the market for
U.S. Treasury securities, there are three groups of bond maturities:
short term (bills): maturities up to one year;
medium term (notes): maturities between one and ten years;
long term (bonds): maturities greater than ten years.
Co upon — The interest rate that the issuer pays to the bond holders. Usually this rate is fixed throughout
the life of the bond. It can also vary with a money market index, such as LIBOR , or it can be even more
exotic. The name coupon originates from the fact that in the past, physical bonds were issued which had
coupons attached to them. On coupon dates the bond holder would give the coupon to a bank in exchange
for the interest pa yment.
The quality of the issue, which influences the probability that the bondholders will receive the amounts
promised, at the due dates. This will depend on a whole range of factors.
Indentures and Covenants — An indenture is a formal debt agreement that establishes the terms of a
bond issue, while covenants are the clauses of such an agreement. Covenants specify the rights of
bondholders and the duties of issuers, such as actions that the issuer is obligated to perform or is
prohibited from performing. In the U.S., federal and state securities and commercial laws apply to the
enforcement of these agreements, which are construed by courts as contracts between issuers and
bondholders. The terms may be changed only with great difficulty while the bonds are outstanding, with
amendments to the governing document generally requiring approval by a majority (or super-majority)
vote of the bondholders.
High yield bonds are bonds that are rated below investment grade by the credit rating agencies . As these
bonds are more risky than investment grade bonds, investors expect to earn a higher yield. These bonds
are also called junk bonds .
coupon dates — the dates on which the issuer pa ys the coupon to the bond holders. In the U.S. and also in
the U.K. and Europe, most bonds are semi-annual, which means that they pay a coupon every six months.
Optionality: Occasionally a bond may contain an embedded option; that is, it grants option-like features
to the holder or the issuer:
Callability — Some bonds give the issuer the right to repay the bond before the maturity date on the call
dates ; see call option . These bonds are referred to as callable bonds . Most callable bonds allow the issuer
to repa y the bond at par . With some bonds, the issuer has to pay a pre mium, the so called call premium .
This is mainly the case for high-yield bonds. These have very strict covenants, restricting the issuer in its
operations. To be free from these covenants, the issuer can repay the bonds early, but only at a high cost.
Putability — Some bonds give the holder the right to force the issuer to repay the bond before the
maturity date on the put dates; see put option . (Note: "Putable" denotes an embedded put option;
"Puttable" denotes that it may be putted .)
call dates and put dates—the dates on which callable and putable bonds can be redeemed early. There are
four main categories.
A Bermudan callable has several call dates, usually coinciding with coupon dates.
A European callable has only one call date. This is a special case of a Bermudan callable.
An American callable can be called at any time until the maturity date.
A death put is an optional redemption feature on a debt instrument allowing the beneficiary of the estate
of the deceased to put (sell) the bond (back to the issuer) in the event of the beneficiary's death or legal
incapacitation. Also known as a "survivor's option".
sinking fund provision of the corporate bond indenture requires a certain portion of the issue to be retired
periodically. The entire bond issue can be liquidated by the maturity date. If that is not the case, then the
remainder is called balloon maturity. Issuers may either pay to trustees, which in turn call randomly
selected bonds in the issue, or, alternatively, purchase bonds in open market, then return them to trustees.
convertible bond lets a bondholder exchange a bond to a number of shares of the issuer's common stock.
exchangeable bond allows for exchange to shares of a corporation other than the issuer.
Fixed rate bonds have a coupon that remains constant throughout the life of the bond.
Floating rate notes (FRNs) have a coupon that is linked to an index. Common indices include: money
market indices , such as LIBOR or Euribor , and CPI (the Consumer Price Index). Coupon examples: three
month USD LIBOR + 0.20%, or twelve month CPI + 1.50%. FRN coupons reset periodically, typically
every one or three months. In theory, any Index could be used as the basis for the coupon of an FRN, so
long as the issuer and the buyer can agree to terms.
Zero-coupon bonds don't pay any interest. They are issued at a substantial discount to par value . The bond
holder receives the full principal amount on the redemption date. An example of zero coupon bonds are
Series E savings bonds issued by the U.S. government. Zero-coupon bonds may be created from fixed
rate bonds by a financial institutions separating "stripping off" the coupons from the principal. In other
words, the separated coupons and the final principal payment of the bond are allowed to trade
independently. See IO (Interest Only) and PO (Principal Only).
Inflation linked bonds , in which the principal amount and the interest payments are indexed to inflation.
The interest rate is normally lower than for fixed rate bonds with a comparable maturity (this position
briefly reversed itself for short-term UK bonds in December 2008). However, as the principal amount
grows, the payments increase with inflation. The government of the United Kingdom was the first to issue
inflation linked Gilts in the 1980s. Treasury Inflation-Protected Securities (TIPS) and I-bonds are
exa mples of inflation linked bonds issued by the U.S. government.
Other indexed bonds, for example equity-linked notes and bonds indexed on a business indicator (income,
added value) or on a country's GDP .
Asset-backed securities are bonds whose interest and principal payments are backed by underlying cash
flows from other assets. Examples of asset-backed securities are mortgage-backed securities (MBS's),
collateralized mortgage obligations (CMOs) and collateralized debt obligations (CDOs).
Subordinated bonds are those that have a lower priority than other bonds of the issuer in case of
liquidation . In case of bankruptcy, there is a hierarchy of creditors. First the liquidator is paid, then
government taxes, etc. The first bond holders in line to be paid are those holding what is called senior
bonds. After they have been paid, the subordinated bond holders are paid. As a result, the risk is higher.
Therefore, subordinated bonds usually have a lower credit rating than senior bonds. The main examples
of subordinated bonds can be found in bonds issued by banks, and asset-backed securities. The latter are
often issued in tranches . The senior tranches get paid back first, the subordinated tranches later.
Perpetual bonds are also often called perpetuities . The y have no maturity date. The most famous of these
are the UK Consols, which are also known as Treasury Annuities or Undated Treasuries. Some of these
were issued back in 1888 and still trade today, although the amounts are now insignificant. Some ultra
long-term bonds (sometimes a bond can last centuries: West Shore Railroad issued a bond which matures
in 2361 (i.e. 24th century)) are virtually perpetuities from a financial point of view, with the current value
of principal near zero.
Bearer bond is an official certificate issued without a named holder. In other words, the person who has
the paper certificate can claim the value of the bond. Often they are registered by a number to prevent
counterfeiting, but may be traded like cash. Bearer bonds are very risky because they can be lost or stolen.
Especially after federal income tax began in the United States, bearer bonds were seen as an opportunity
to conceal income or assets. U.S. corporations stopped issuing bearer bonds in the 1960s, the U.S. [2 ]
Treasury stopped in 1982, and state and local tax-exempt bearer bonds were prohibited in 1983. [ 3]
Registered bond is a bond whose ownership (and any subsequent purchaser) is recorded by the issuer, or
by a transfer agent. It is the alternative to a Bearer bond . Interest payments, and the principal upon
maturity, are sent to the registered owner.
Municipal bond is a bond issued by a state, U.S. Territory, city, local government, or their agencies.
Interest income received by holders of municipal bonds is often exempt from the federal income tax and
from the income tax of the state in which they are issued, although municipal bonds issued for certain
purposes may not be tax exempt.
Book-entry bond is a bond that does not have a paper certificate. As physically processing paper bonds
and interest coupons became more expensive, issuers (and banks that used to collect coupon interest for
depositors) have tried to discourage their use. Some book-entry bond issues do not offer the option of a
paper certificate, even to investors who prefer them. [4]
Lottery bond is a bond issued by a state, usually a European state. Interest is paid like a traditional fixed
rate bond, but the issuer will redeem randomly selected individual bonds within the issue according to a
schedule. Some of these redemptions will be for a higher value than the face value of the bond.
War bond is a bond issued by a country to fund a war.
Serial bond is a bond that matures in installments over a period of time. In effect, a $100,000, 5-year
serial bond would mature in a $20,000 annuity over a 5-year interval.
Revenue bond is a special type of municipal bond distinguished by its guarantee of repayment solely from
revenues generated by a specified revenue-generating entity associated with the purpose of the bonds.
Revenue bonds are typically "non-recourse," meaning that in the event of default, the bond holder has no
recourse to other governmental assets or revenues.
[ edit ] Investing in bonds
Bonds are bought and traded mostly by institutions like pension funds , insurance companies and banks .
Most individuals who want to own bonds do so through bond funds . Still, in the U.S., nearly 10% of all
bonds outstanding are held directly by households.
Sometimes, bond markets rise (while yields fall) when stock markets fall. More relevantly, the volatility
of bonds (especially short and medium dated bonds) is lower than that of shares. Thus bonds are generally
viewed as safer investments than stocks , but this perception is only partially correct. Bonds do suffer from
less day-to-day volatility than stocks, and bonds' interest payments are often higher than the general level
of dividend payments. Bonds are liquid – it is fairly easy to sell one's bond investments, though not
nearly as easy as it is to sell stocks – and the comparative certainty of a fixed interest payment twice per
year is attractive. Bondholders also enjoy a measure of legal protection: under the law of most countries,
if a company goes bankrupt , its bondholders will often receive some money back (the recovery amount),
whereas the company's stock often ends up valueless. However, bonds can also be risky:
Fixed rate bonds are subject to interest rate risk , meaning that their market prices will decrease in value
when the generally prevailing interest rates rise. Since the payments are fixed, a decrease in the market
price of the bond means an increase in its yield. When the market interest rate rises, the market price of
bonds will fall, reflecting investors' ability to get a higher interest rate on their money elsewhere —
perhaps by purchasing a newly issued bond that already features the newly higher interest rate. Note that
this drop in the bond's market price does not affect the interest payments to the bondholder at all, so long-
term investors who want a specific amount at the maturity date need not worry about price swings in their
bonds and do not suffer from interest rate risk.
Price changes in a bond will also immediately affect mutual funds that hold these bonds. If the value of
the bonds held in a trading portfolio has fallen over the da y, the value of the portfolio will also have
fallen. This can be damaging for professional investors such as banks, insurance companies, pension
funds and asset managers (irrespective of whether the value is immediately " marked to market " or not). If
there is any chance a holder of individual bonds may need to sell his bonds and "cash out", interest rate
risk could become a real problem. (Conversely, bonds' market prices would increase if the prevailing
interest rate were to drop, as it did from 2001 through 2003.) One way to quantify the interest rate risk on
a bond is in terms of its duration . Efforts to control this risk are called immunization or hedging .
Bond prices can become volatile depending on the credit rating of the issuer - for instance if the credit
rating agencies like Standard & Poor's and Moody's upgrade or downgrade the credit rating of the issuer.
A downgrade will cause the market price of the bond to fall. As with interest rate risk, this risk does not
affect the bond's interest pa yments (provided the issuer does not actually default), but puts at risk the
market price, which affects mutual funds holding these bonds, and holders of individual bonds who may
have to sell them.
A company's bond holders may lose much or all their money if the company goes bankrupt . Under the
laws of many countries (including the United States and Canada), bondholders are in line to receive the
proceeds of the sale of the assets of a liquidated company ahead of some other creditors. Bank lenders,
deposit holders (in the case of a deposit taking institution such as a bank) and trade creditors may take
precedence.
There is no guarantee of how much money will remain to repay bondholders. As an example, after an
accounting scandal and a Chapter 11 bankruptcy at the giant telecommunications company World com , in
2004 its bondholders ended up being paid 35.7 cents on the dollar. In a bankruptcy involving
reorganization or recapitalization, as opposed to liquidation, bondholders may end up having the value of
their bonds reduced, often through an exchange for a smaller number of newly issued bonds.
Some bonds are callable, meaning that even though the company has agreed to make payments plus
interest towards the debt for a certain period of time, the company can choose to pay off the bond early.
This creates reinvestment risk , meaning the investor is forced to find a new place for his mone y, and the
investor might not be able to find as good a deal, especially because this usually happens when interest
rates are falling.
COMMODITIES
A commodity is a normal physical product used by everyday people during the course of their lives, or
metals that are used in production or as a traditional store of wealth and a hedge against inflation. For
exa mple, these commodities include grains such as wheat, corn and rice or metals such as copper, gold
and silver. The full list of commodity markets is numerous and too detailed. The best way to trade the
commodity markets is by buying and selling futures contracts on local and international exchanges.
Trading futures is easy, and can be accessed by using the services of any full or on-line futures brokerage
service. Traditionally, there is an expectation when trading commodity futures of achieving higher returns
compared to shares or real estate, so successful investors can expect much higher returns compared to
more conventional investment products.
The process of trading commodities, as mentioned above, must be facilitated by the use of trading liquid,
exchangeable, and standardized futures contracts, as it is not practical to trade the physical commodities.
Futures contracts give the investor ease of use and the ability to buy or sell without delay. A futures
contract is used to buy or sell a fixed quantity and quality of an underlying commodity, at a fixed date and
price in the future. Futures contracts can be broken by simply offsetting the transaction. For example, if
you buy one futures contract to open then you sell one futures contract to close that market position.
The execution method of trading futures contracts is similar to trading physical shares, but futures
contracts have an expiry date and are deliverable.Futures contracts have an expiry date and need to be
occasionally rolled over from the current contract month to the following contract month.
The reason is because the biggest advantage to trading commodity futures, for the private investor is the
opportunity to legally short-sell these markets. Short-selling is the ability to sell commodity futures
creating an open position in the expectation to buy-back at a later time to profit from a fall in the market.
If you wish to trade the up-side of commodity futures, then it will simply be a buy-to-open and sell-to-
close set of transactions similar to share trading.
The commodity markets will always produce rising of falling trends, and with the abundance of
information and trading opportunities available there is no reason for any investor to exclusively trade the
share market when there is potential profits from trading commodity futures.
The increased use of commodity trading vehicles in investment management has led practitioners
to create investable commodity indices and products that offer unique performance opportunities
for investors in physical commodities. As is true for stock and bond performance, as well as investment in
managed futures and hedge fund products, commodity-based products have a
variety of uses. Besides being a source of information on cash commodity and futures
commodity market trends, they are used as performance benchmarks for evaluation of
commodity trading advisors and provide a historical track record useful in developing asset
allocation strategies. However, the investor benefits of commodity or commodity-based products
lie primarily in their ability to offer risk and return trade-offs that cannot be easily replicated
through other investment alternatives. Previous research that
direct stock and bond investment offers little evidence of providing returns consistent with direct
commodity investment. commodity-based firms may not be exposed to the risk of commodity price
movement. Thus for investors, direct commodity investment ma y be the principal means by
which one can obtain exposure to commodity price movements.
Out of the 100 respondents about 50% of them get the information from advertisements on the television
and internet and the rest from the magazines , company sales executives and friends and relatives.
Out of the 100 respondents asked the most preferred financial instrument is fixed deposits and the then
the rest like equity shares with 70 % and insurance.
What is your age?
Out of the respondents that were surveyed the maximum were of the age group of 31-40
What are the factors that you consider while investing in any financial instrument?
Out of the respondents 50% were of the opinion that return and safety are the main reasons behind their
investment decisions .
The respondents were mostly of the opinion that portfolio is the most important factor before investing
and then fundamental analysis done by them or by the financial advisor and then the other factors
• How will you invest your money in any financial instrument?
Most of the respondents surveyed that they mostly invest their money through a broker and then through
sub brokers and agents
What is your annual income?
15
Out the total respondents around 60 %were in the income group of 1- 3lakhs and 22% in the 3-5lakhs 58
bracket
22
Most of the respondents surveyed were mostly those people who invest 10 to 30 % of their money in
these instruments.
Out of the 100 respondents mostly were of the view that they invested there for a money at least for a
period of 1year to 3 years
For the age group of above 50 years , the rish profile would be low moderate,as the term •
is not more than 3 years. Investors have invested in insurance sector but in this age
insurance would not be a good option for investor. Company should try to minimise the
risk tolerence by offering Fixed deposits.
• In the survey there were lot of people who were in the age group of above 60. For this
group of people the company can target Fixed deposits which gives continues return like
monthly interests so that they can keep on getting returns.
OCCUPATION
If we see the survey data it will seen that respondents are majorly Service peopole and Business
Class. Depending upon the data I conclude that the srevice class has a time horizon of 3-5 years
and risk tolerence ‘Low- Moderate’. They invested in FDs, Equity shares, Mutual Fund and
ULIPs.
Recommendation company shoul tap these class by innovative marketing strategies as •
they already invested, and offer FDs, ULIPs. Mutual fund can be a lucrative offer if the
Fund is any moderate fund or debt fund.
For the business class, the risk profile is high-very high. Most investor are with negative •
return acceptability and time horizon is < 3 years. Company should offer Mutual funds
with risk profile High to very high thus investor can get a high return. Apart from this
company should offer to open demat account with them.
Disposible Income
• The disposible income bracket less than Rs.5000 per month are basically safe investors
and have not and do not prefer investing in mutual funds and ULIP. Thus positioning of
these products should be such that people are attracted towards this scheme. Emphasis on
marketing of the products should be given.
• Respondents under disposible income bracket Rs.5,000-Rs.10,000 have mainly invested
in insurance and real estate. But when survey was done and their preferences was asked
these respondents strongly preferred investing in these strategies.
• Disposible Income Bracket of Rs.15,000-Rs.20,000 are the strong contenders for
investing their money and these people have invested in real estate, insurance and fixed
deposits. Moreover there is mixed preferences for their investments thus proper
segmentation of the sample should be done accordingly marketing strategies should be
adopted.
• Though there is a small percentage of respondents in disposible income bracket above
Rs.20,000 who least prefer investing in mutual fund. But this is the segment which can be
well targeted and their portfolio should be such that gives them more returns. The case of
ULIP is different as people strongly prefer investing in this investment strategy. Thus
emphasis for selling ULIP in this income bracket.
REFERENCE
www.karvy.com
www.icicidirect.com
www.mutualfundsindia.com
www.nseindia.com
www.bseindia.com
www.scribd.com
www.mcx.com
www.equitymaster.com
Business Today
The Economic Times
The Mint
Karvy Finapolis
Questionnaire
Name :
Occupation :
Contact No :
Email id :
1. Do you know about the following Financial Instrument?
Mutual Fun Yes No
Bond Yes No
Insurance Yes No
Equity Shares Yes No
Fixed Deposits Yes No
Govt. Securities Yes No
Real Estate Yes No
IPO’ Yes No
Gold Yes No
If any other please specify…….……………………………………………………………
……………..
2. How do you get infor mation regarding these Financial Instrument?
Advertisement
Company Sales force
Friends / Relatives
Magazines /Newspaper
If any other please specify…………………………………………………………………
……………….
3. Please rate the Financial Instruments as per your Preference.
More preferred Moderate Less preferred
Mutual fund
Insurance
Equity Shares
Bonds
Fixed Deposits
Govt.securities
Real estate
IPO’s
Gold
10. How much of your money you invest in any Financial Instrument?
10% to 20%
20% to 30%
30% to 50%
More than 50%
If any other please specify…………………………………………………………………
…………………..
11. How long you prefer to keep your money in any Financial Instrument?
Less than 6 months
6 months to 1 year
1 year to 3 year
More than 3 years
If any other please specify
12. How much return you expect from any Financial Instrument?
10% to 20%
20% to 30%
30% to 50%
More than 50%
If any other please specify…………………………………………………………………
……………………..
13. Will you invest your money for saving the Tax in any Financial Instrument?
Yes No
14. Are you satisfied with your investment decision, Please rate?
Highly satisfied
Satisfied
Less satisfied
No satisfaction
15. Any other comments.
…………………………………………………………………………………………………
……………………………………………………………………………………………………
………
………………………………………………………………………………………………………
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