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Investment avenues available with salaried investors

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power point presentation on investment management and investment options.

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Investment avenues available with salaried investors

  3. 3. INTRODUCTION TO INVESTMENT AND IT’S AVENUES • Investment is a commitment of funds for earning additional income. In other words, investment is considered the sacrifice of certain present value of money in anticipation of a reward for future value , the current commitment of funds for a period of time in order to derive a future flow of funds that will compensate the investing unit. • For the time the funds are committed • For he expected rate of inflation. • For the uncertainty / risk involved in the future flow of funds • Investment is the employment of funds on assets with aim of earning income or capital appreciation. Investment has two attributes namely time and risk. Present consumption is scarified to get a return in the future. The sacrifice that has to be borne in certain but the return in the future may be uncertain.
  4. 4. 3 MAJOR CONCEPTS_INVESTMENT • ECONOMIC INVESTMENT: According to Economists, the term investment refers to the additions to the capital stock of the society. The capital stock includes goods which are used in the production of other goods (buildings, equipment, investment etc.) • BUSINESS INVESTMENT: This refers to putting money or money held in a private business. • FINANCIAL INVESTMENT: This refers to putting money into securities, i.e. shares debentures, Mutual Funds, bonds, life insurance, postal, bank deposit schemes etc. • GAMBLING: Gambling is an act of creating artificial and unnecessary risks for expected increased return.
  5. 5. BRIEF INTRODUCTION_AVENUES • # SAVINGS-Savings form an important part of the economy of any nation and the money acts as the driver for growth of the country. Indian financial scene too presents reasonable options for an ordinary man to invest his savings certainly not the best or deepest of markets in the world. • BANKS- Banks are considered as the safest of all options; indeed played an important role in the rural upliftment, safest investment avenue for ordinary person. The interest rate structure in the country is headed southwards, offering little above 8 percent in their fixed deposits for one year, the yields have come down substantially in recent times. • Add to this, the inflationary pressures in economy and one has a position where the savings are not earning. The inflation is creeping up, to almost 8 percent at times, and this means that the value of money saved goes down instead of going up.
  6. 6. CONTINUE. • POST OFFICES- offer financial assistance as well as the basic requirements of communication, offering the highest interest rates, and investments are safe with the department being a Government of India entity. Return safety and quantum of returns is taken care of. • PUBLIC PROVIDENT FUNDS- Public Provident Funds act as options to save for the post retirement period for most people and have been considered good option largely due to the fact that returns were higher than most other options and also helped people gain from tax benefits under various sections. • THE FIXED DEPOSIT SCHEMES FLOATED BY COMPANIES- Companies have used fixed deposit schemes as a means of mobilizing funds for their operations and have paid interest on them. The safer a company is rated, the lesser the return offered has been the thumb rule. Potential roadblocks such as danger of financial position of the company liquidity can be a major problem.
  7. 7. - STOCK MARKETS- provide an option to invest in a high risk, high return game. However, as enticing as it might appear, people generally are clueless as to how the stock market functions and in the process can endanger the hard-earned money. - MUTUAL FUNDS-Mutual Funds are essentially investment vehicles where people with similar investment objective come together to pool their money and then invest accordingly. Each unit of any scheme represents the proportion of pool owned by the unit holder (investor). Appreciation or reduction in value of investments is reflected in net asset value (NAV) of the concerned scheme, which is declared by the fund from time to time. - Mutual fund schemes are managed by respective Asset Management Companies (AMC). Different business groups/ financial institutions/ banks have sponsored these AMCs, either alone or in collaboration with reputed international firms.
  8. 8. PORTFOLIO MANAGEMENT • The portfolio management deals with the process of selection of investment from the number of opportunities / avenues with different expected returns and carrying different levels of risk and selection the investment is made with a view to provide the investors the maximum yield for a given level of risk or ensure minimum be risk for a given level of return. Hence, investment and portfolio management has emerged as one of the important and specialized branches of financial management.
  9. 9. RETURN FACTOR • The return expecting from investments in securities are of two types- • PERIODIC CASH RECEIPTS-Cash dividends are payable as and when the company’s after tax earnings that its board of directors divides to distribute to the shareholders. In care of debentures, bonds, bank deposits, public deposits etc., and It is payable at the end of each specified period. • CAPITAL GAIN- The second component of return is the change in the price of the investment called the capital gain or loss. This element of return is the different between the purchase of price and the price at which the asset can be or is sold. Therefore, it can be a gain or loss. The combination of the periodic cash receipts and capital gain made on the investments constitutes the total return on particulars investment
  10. 10. RETURN CONTINUED. • CAPITAL APPRECIATION-Objective of investment is appreciation of capital invested over a period. In three ways – • Conservative growth :seek to build an investment portfolio that will make money over the long-term by capital appreciation known as wealth building over time. • Aggressive growth: Investor with a goal to achieve short-term and long-term capital gains opts for aggressive growth in stock. Current income from dividends is of a low priority and the investors are risk seekers. • Speculation: It is said that speculation requires investment and investments are to some extent speculative. As speculation involves high risks, in order to take advantage of price fluctuations, stock brokers furnish a separate list of securities for speculation purposes alone.
  11. 11. RISK FACTOR • An investors should assure that “High risk - high reward and low-risk, low-reward”; Risk avoidance and risk minimization are the important objectives of securities analysis. • RISK AND UNCERTAINTY-The difference between risk and uncertainty has been than uncertainty cannot be quantified while risk can be quantified of the likelihood of future out comes. • SYSTEMATIC RISK- involves market risk, interest rate risk, and Inflation risk. • UNSYSTEMATI RISK- involves External and Internal business risk(Such as business cycle, govt. policies and firm’s operations etc.), Financial risk and Liquidity.
  12. 12. DIVERSE AVENUES_INVESTMENT “One Has To Look For Alternate Sources Of Income Or Something That Transforms Savings Into Wealth. That Something Is Called Investment.” #1 ULIP - A unit link insurance plan is a product that provides dual benefit of insurance and investment to the consumers. Some part of the premium paid is utilized to offer insurance cover to the policy holder while the remaining portion is invested in various equity and debt schemes. Tax Implications - Premiums paid towards a life insurance policy is eligible for tax deductions under Section 80C with a limit of 1 lakh in a financial year.
  13. 13. TRADITIONAL PLANS_INSURANCE TERM PLANS Term insurance is the basic form of insurance as it provides risk cover in the exchange of yearly paid premiums. In the event of death of the policyholder, sum assured is paid out to the nominee. Besides offering protection, term plan also makes one eligible for tax deduction. ENDOWMENT PLANS Unlike whole life plans, the tenure in Endowment Plans is decided for particular period say 15, 20, 25 or 30 years. In case of death of insured, insurer settles the claim by paying Sum assured along with bonus. In case of survival, the insured receives guaranteed maturity benefits plus bonus announced by the insurer. WHOLE LIFE PLANS Whole Life Plans are the ones which typically run till the insured is alive, irrespective of the premium payment term. On surviving the policy term, the maturity proceeds are paid and the Sum Assured is retained.
  14. 14. NON-RISKY INVESTMENT_AVENUES PPF/EPF PPF, a statutory scheme by the central government, is meant for both salaried and self-employed individuals. EPF, on the other hand, is a financial aid for retirement designed exclusively for salaried employees. PPF and EPF are eligible for tax exemption under section 80C NATIONAL SAVINGS CERTIFICATE A saving bond, mainly used for small saving and income tax saving investment in India, part of the Postal Saving System of Indian Postal Service (India Post). The holder gets the tax benefit under section 80C of Income Tax act, 1961 MIS / BONDS AND DEBENTURES # Investors interested in generating monthly income can sign up for this account and get an assured monthly income. #A debenture is a debt instrument which is not supported by any specific security; instead the credit of the company issuing the same is the underlying security. Government treasuries are usually the ones which use this as a tool to gather medium- to long-term funds.
  15. 15. EQUITY/RISK RELATED INVESTMENT AVENUES EQUITY OR STOCK MARKET • Risk involved is high but the prospects of a high potential returns (In comparison to the less risky avenues) makes them an attractive proposition for the people with a high risk appetite. • This option is quite suitable for investors who are aggressive. People investing in stocks must have sufficient knowledge of share market in order to make potentially positive decisions. ELSS- EQUITY LINKED SAVING SCHEME • Equity Linked savings scheme is a kind of mutual fund. This scheme offers dual benefit of capital appreciation and tax saving. There is a lock in period of 3 years, starting from the date of investment. • Maturity benefits from the scheme are tax exempted.
  16. 16. NATIONAL PENSION SCHEME  National Pension Scheme is a fixed contribution based pension system implemented by Government of India ; allowing investor to contribute his funds towards both equity and debt and free to choose the percentage amount that has to go towards debt and equity as well. If he/she is unable to choose on his/her own then the age criteria is used to decide the investment allocation. Till 35 years of age, exposure to equity and debt is 50%. Post 35, after every 5 years equity investment reduces by 10% .  A minimum investment of Rs.500 per month has to be done. On exiting the scheme before 60 years, 80% of the accumulated savings have to be used to buy life annuity from an IRDA regulated insurance provider. The remaining 20% only can be withdrawn as lump sum. If an investor exits the scheme after 60 years of age then 40% of accumulated savings have to be used to buy life annuity.  As per DTC (Direct taxes code) the withdrawn lump sum amount is tax exempted but the maturity proceeds from annuity get taxed.
  17. 17. OTHER INVESTMENT AVENUES 1. ANTIQUES- antiques are a lifestyle investment. They can be high-risk speculative investments, if buyers expect too much return. 2. WINE- Benefit to wine investment is there is less tax pay. Capital gains tax is not paid on wine, as it is classed as a 'wasting' asset. 3. COINS - Rare coins are an excellent inflation hedge. 4. GOLD- Commodities like gold are a hedge against inflation. Investors generally buy gold as a hedge or safe haven against any economic, political, social or currency-based crises. These crises include investment market declines, burgeoning national debt, currency failure, inflation, war and social unrest. 5. ARTS AND PAINTINGS- Includes old master paintings, classical sculptures, ceramics, coins, drawings, antique furniture and other upmarket collectibles.
  18. 18. CONCLUSION • Be very specific of your needs, your understanding about the instrument and your ability to take risks. A certain investment product might offer you decent returns but may not be eligible for tax deduction. If your requirement is tax deduction then choose products that help you save tax. If income is what you expect then invest in ULIPs or equity but keep the risks involved in your mind too. If you mean to protect your life then choose term insurance over all other products. • • Over the years, much of the mystery about financial markets have been removed “layer by layer”. Besides, Indian market are now one of the best regulated markets in the world. Hence, it is also time that along with increasing the overall literacy, we as a country also focus on increasing financial literacy. This would turn India from a country of good savers to a country of wise savers and help build financially strong and secure India.
  19. 19. THAT’S IT.