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Each investment alternative/avenue has its own strengths and weaknesses. Some options seek to achieve superior returns (like equity), but with corresponding higher risk. Other provide safety (like PPF) but at the expense of liquidity and growth. Other options such as FDs offer safety and liquidity, but at the cost of return. Mutual funds seek to combine the advantages of investing in arch of these alternatives while dispensing with the shortcomings.
EXPLAINING INVESTMENT MANAGEMENT MEANING -A generic term that most commonly refers to the buying and selling of investments within a portfolio. Investment management can also include banking and budgeting duties, as well as taxes. But the term most often refers to portfolio management and the trading of securities to achieve a specific investment objective. Investment management is the professional asset management of various securities (shares, bonds and other securities) and other assets (e.g., real estate) in order to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations, charities, educational establishments etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds or exchange-traded funds).
INVESTMENT AVENUES- Choosing how and where to invest your money can be a daunting task. Should you take risks or play it safe? Both time and goals play important roles in investment decisions; investors in their 20s and 30s may have very different goals than those nearing retirement. Whether you're saving to buy a home, to fund a college education, to pad your retirement or simply trying to grow your personal wealth, a variety of avenues offer investment options. Contents,1 Bonds,2 Stocks,3 Mutual Funds,4.other various options.
Investment avenues available with salaried investors
MBA(FYIC) ; 4TH
INTRODUCTION TO INVESTMENT AND IT’S
• 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.
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
• 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
• # 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
• 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.
• 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.
- 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.
• 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.
• 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
• 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.
• 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
• 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.
“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.
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.
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 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.
PPF, a statutory scheme by
the central government, is
meant for both salaried and
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
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
# 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
EQUITY/RISK RELATED INVESTMENT
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
• 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
ELSS- EQUITY LINKED SAVING
• 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
• Maturity benefits from the scheme are
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.
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.
• 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.