ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 1
Optima Money Managers Pvt Ltd.
Optima Money Managers Pvt. Ltd. is managed by business professionals like Chartered Accountant,
Certified Financial Planners & MBAs with several years of experience focused on Financial
Planning, Wealth Management, Estate Planning, Business Management, Internal Audit, Consulting,
Training, Coaching & Tax and advisory services for Individuals, Trusts and SMEs. We are
committed to work with our clients to deliver the solutions that help them to achieve their objectives.
Optima Money Managers provide customized solutions like Tax planning, Management consulting and
Advisory services to SMEs to ensure that these enterprises are better equipped to meet the growing
demand of business, manage cost, eliminate risks and excel in customer service. Sound financial planning
is necessary to enjoy secure financial future. A formal financial plan is a long- term strategy that aims to
create and maintain your wealth, protect and manage it throughout your life. Optima Money Managers
assist people and businesses from all walks of life in reaching their financial goals. We pride ourselves on
the quality of our advice and of the service levels that supports that advice. Our Financial Planners are
fully trained professionals, governed by strict industry standards, with the experience and expertise to help
you develop and implement innovative solutions to your financial challenges. We also design and deliver
customized training program for group of individuals and corporate.
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To be a leader and role model in a broad based and integrated financial services business.
To help people mitigate risks of life, accident, health, and money at all stages and under all
Enhance the financial future of our including enterprises
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India’s competitiveness from a natural and human resources standpoint is making it the
destination of choice for investors. India is a fast-growing economy with a dynamic and robust financial
system. Being a democracy ensures a stable policy environment and its independent institutions guarantee the
rule of law.
This highly diversified economy has shown rapid growth and remarkable resilience since 1991,
when economic reform were initiated with the progressive opening of the economic to international trade and
investment. Events such as the Asian currency crisis, the dotcom bust and rising oil prices have had no
significant impact on India’s growth, with the economy recording an average annual GDP growth of over
6.5% in the past decade. Going forward, the country is targeting an average GDP growth rate of over 8% per
India is in the global arena for increased foreign investment - both through the Equity markets -
termed Foreign Institutional Investment (FII) and Foreign Direct Investment (FDI). While its size and growth
potential make India attractive as a market, the most compelling reason for investors to be in India is that it
provides a high return on investment. India is a free-market democracy with a legal and regulatory framework
that rewards free enterprise, entrepreneurship and risk taking.
One of the largest economies in the world.
Strategic location - access to the vast domestic and South Asian market.
A large and rapidly growing consumer market up to 300 million people, constitute the market for
branded consumer goods - estimated to be growing at over 8% per annum. Demand for several
consumer products is growing at over 12% per annum.
Foreign investment is welcome; approval is required but is automatic in sixty categories
Skilled man-power and professional managers are available at competitive cost.
One of the largest manufacturing sectors in the world, spanning almost all areas of manufacturing
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One of the largest pools of scientists, engineers, technicians and managers in the world.
Rich base of mineral and agricultural resources.
Long history of market economy infrastructure
Sophisticated financial sector. Vibrant capital market with over 9,000 listed companies
and market capitalization of US $600 billion.
Well-developed R&D infrastructure and technical and marketing services.
Policy environment that provides freedom of entry, investment, location, choice of technology,
production, import and export. Well balanced package of fiscal incentives.
Free and full repatriation of capital, technical fee, royalty and dividends.
Foreign brand names are freely used.
No income tax on profits derived from export of goods.
Complete exemption from Customs Duty on industrial inputs and Corporate Tax Holiday for five
years for 100 per cent Export Oriented units and units in Export Processing Zones.
Corporate Tax applicable to the foreign companies of a country, with which agreement
for avoidance of Double Taxation exists, can be one which is lower between the rates prevailing in
any one of the two countries and the treaty rate.
A stable parliamentary democracy.
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Objective & Scope:
Developing a basic understanding and potential of the Indian market, envisaging and developing
knowledge of offering various investment idea of the equity share market and other investment options
Scope of this study project is limited to the Indian listed companies in the
To know about investors' investment preferences.
To check awareness level of people about Investments
To analyze the return and its consistency in each sector.
To analyze the risk that is associated with each sector.
To work out potential market for mutual funds.
To access the satisfaction level of mutual funds investors and to find out the
reasons for dissatisfaction.
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Investment Avenues for an Indian Investor and
Safe/Low Risk Investment Avenue: High Risk Investment Avenue:
Bank Fixed Deposits
Public Provident Fund
Post Office Savings
Moderate Risk Investment Avenues:
Bonds & Debentures
Equity Share Market
Traditional Investment Avenues:
Traditional Investment Avenues:
Real Estate (property):
These are a type of property investments wherein we can invest our money in buying a house or
a piece of land. We can use the real estate for personal residential or commercial use or can rent or lease
it for commercial or residential purposes. Here we get a good profit margin and at the same time
our assets are increased.
A survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) and
Ernst & Young has predicted that Indian real estate industry is poised to emerge as one of the most
preferred investment destinations for global realty and investment firms in the next few years. It is
attracting investors by offering a possibility of stable income yields, moderate capital appreciations, tax
structuring benefits and higher security in comparison to other investment options.
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Another emerging trend in real estate sector in India is investment in the hospitality or hotel
industry. The exceptional boom in inbound tourism and the IT sector has also led to an unprecedented
shortage of rooms, with hotels all over the country witnessing their highest-ever occupancy rates.
Gold & Silver:
Gold is valued in India as a savings and investment vehicle and is the second preferred
investment after bank deposits.
India is the world's largest consumer of gold in jewelry as investment.
In July 1997 the RBI authorized the commercial banks to import gold for sale or loan to jewelers
and exporters. At present, 13 banks are active in the import of gold. This reduced the disparity
between international and domestic prices of gold from 57 percent during 1986 to 1991 to
8.5 percent in 2001.
The gold hoarding tendency is well ingrained in Indian society.
Domestic consumption is dictated by monsoon, harvest and marriage season. Indian jewellry off
take is sensitive to price increases and even more so to volatility.
In the cities gold is facing competition from the stock market and a wide range of consumer
Facilities for refining, assaying, making them into standard bars in India, as compared to the rest
of the world, are in significant, both qualitatively and quantitatively.
Silver imports into India for domestic consumption in 2002 was 3,400 tons down 25 % from
record 4,540 tons in 2001.
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Open General License (OGL) import are the only significant source of supply to the Indian
In India silver price volatility is also an important determinant of silver demand as it is for gold.
India is the largest consumer of gold jewellery in the world, Accounts for about 20% of world
India is the fastest growing jewellery market in the world
Branded jewellery likely to be the fastest growing segment in domestic sales
Expected to grow at 40% p.a. to US$2.2 billion by 2010
Exports expected to grow from US$17 billion in 2006 to over US$25 billion by
Safe/Low Risk Investment Avenues:
Savings Account and Bank Fixed Deposits
These accounts are one of the most popular deposits for individual accounts. These accounts
provide cheque facility and a lot of flexibility for deposits and withdrawal of funds from the
account. Most of the banks have rules for the maximum number of withdrawals in a period and the
maximum amount of withdrawal, but no bank enforces these. However, banks have every right to
enforce such boundaries if it is felt that the account is being misused as a current account. At present the
interest on these accounts is regulated by Reserve Bank of India. Presently Indian banks are
offering3.50% p.a. interest rate on such deposits. This account gives the customer a nominal rate of
interest and he can withdraw money as and when the need arises. The position of account is depicted in a
small book known as 'Pass Book'. The returns on the money kept in Savings Bank account will be less
but the freedom to withdraw is the highest
In general, almost 95-98% people do invest in these, since the Expected Rate of Return is much
higher than any other investment options, irrespective of the amount of risk is very high in some of the
This investment option is most popular and safest option available in the market. With almost every
working people invest in fixed deposits; this investment option leads the chart of four investment options
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because of its safety and popularity. Though the amount of return is much lesser than the other three
options, this option heads the table as it has almost no risk of losing the invested amount. Also, it is the
oldest among the other three, so the trust factor of people is very high.
Every Banks offer fixed deposits schemes with a wide range of tenures for periods from 7days to 10
years. Therefore, the depositors are supposed to continue such Fixed Deposits for the duration of time
for which the depositor decides to keep the money with the bank. However, in case of need, the
depositor can ask for closing the fixed deposit in advance by paying a penalty. Soon some banks have
even introduced variable interest fixed deposits. The rate of interest in such deposits will keep on
varying with the prevalent market rates i.e. it will go up if market interest rate goes and it will come
down if the market rates fall. The rate of interest for Fixed Deposits (FD) differs from bank to bank.
When the interest rates were regulated by RBI all banks used to have the same interest rate
structure. The present trends indicate that private sector and foreign banks offer higher rate of interest
While opening a fixed deposit account, the bank must issue a fixed deposit that should state the
following things on its face:
Date of issue
Rate of interest
Period of deposit
Amount at maturity
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Public Provident Fund, Post Office Savings:
Public Provident Fund, popularly known as PPF, is a savings cum tax saving instrument PPF is a long-
term, government-backed small savings scheme of the Central government started with the aim of
providing old age income security to the workers in the unorganized sector and self-employed
individuals. Currently, there are nearly 30lakh PPF account holders in India across banks and post
offices. Any individual (salaried or non-salaried) can open a PPF account. He/ She may also subscribe
on behalf of a minor, HUF, AOP and BOI. Even NRIs can open PPF account.
An individual can have only one PPF account. Also, two adults cannot open a joint PPF account. The
aggregate annual contribution by an individual on account of himself, his minor child and
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HUF/AOP/BOI (of which individual is member) cannot exceed Rs.70, 000 otherwise the excess amount
will be returned without any interest.
Currently, the interest rate offered through PPF is around 8 per cent, which is compounded annually.
Interest is calculated on the lowest balance between the fifth day and last day of the calendar month and
is credited to the account on March 31 every year. So to derive the maximum, the deposits should be
made between 1st
day of the month. People who are interested in liquidity or small-term gains
would not be excited about PPF because the duration for the investment is 15 years. However, the
effective period works out to 16 years i.e., the year of opening the account and adding 15 years to it. The
contribution made in the 16th
financial year will not earn any interest but one can take advantage of the
The account holder has an option to extend the PPF account for any period in a block of five years after
the minimum duration elapses. The account holder can retain the account after maturity for any period
without making any additional deposits. The balance in the account will continue to earn interest at
normal rate as admissible on PPF account till the account is closed.
A Government security is a tradable security issued by the Central Government or the State
Governments, acknowledging the Government’s debt obligation. Such securities can be short term
(usually called Treasury Bills, with original maturities of less than 1 year) or long term (usually called
Government bonds or dated securities with original maturity of one year or more). In India, the Central
Government issues both Treasury Bills and bonds or dated securities while the State Governments issue
only bonds or dated securities, which are called the State Development Loans (SDLs). Government
securities carry practically no risk of default and, hence, are called risk-free instruments. Government of
India also issue savings instruments (Savings Bonds, National Saving Certificates (NSCs), etc.) or
special securities (Oil bonds, FCI bonds, fertilizer bonds, power bonds, etc.) but they are usually not
fully tradable and are not eligible for meeting the SLR requirement
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Benefit of Government Securities:
Holders of certain bonds are eligible to claim deduction from their taxable income. A list of such
deposits is mentioned hereunder:
Interest on Government Securities, National Savings Certificate (issues VI, VII and
VIII),Development Bonds, Development Bonds and 7 year National Rural Development Bonds
Interest on Post Office Term Deposits, Recurring Deposits Accounts and National Savings
Schemes (as referred to in National Savings Scheme Rules, 1992)
Dividends received from a co-operative society
Income from investments in UTI (up to assessment year 1999-2000)
Interest on deposits with a banking company or a co-operative bank
Interest on deposits with a co-operative society made by a member of the society
Interest on deposits with housing boards
Interest from deposits made under A.E. (C, D.) Act & C.D.S. (I.T.P.) Act
Interest on notified debentures of any co-operative society, any institution or any public
Interest on deposits with a financial corporation which is engaged in providing long-term finance
for industrial development in India and which is entitled for
Deduction under section 36(1) (viii) [up to assessment year 1999-2000, the corporation is
approved by Central Government.
Interest on deposits with a public company formed and registered in India with the major object
of carrying on the business of providing long-term finance for construction or purchase of houses
in India for residential purposes and which is eligible for deduction under Section 36(l) (viii) [up
to assessment year 1999-2000, the company is approved by the Central Government under
Section 36(l) (viii)].
Interest on deposits with Industrial Development Bank of India.
Interest on deposits under National Deposit Scheme. Income in respect of units of mutual fund
specified under Section 10(23D).
Interest on deposits under Post Office (Monthly Income Account) Rules.
Issued at face value
No default risk as the securities carry sovereign guarantee.
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Ample liquidity as the investor can sell the security in the secondary market
Interest payment on a half yearly basis on face value
No tax deducted at source
Can be held in D-mat form.
Rate of interest and tenor of the security is fixed at the time of issuance and is not subject to
change (unless intrinsic to the security like FRBs).
Redeemed at face value on maturity
Maturity ranges from of 2-30 years.
Securities qualify as SLR investments (unless otherwise stated)
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Moderate Risk Investment Avenues:
Mutual Fund 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). Mutual Funds in India are financial
instruments. These funds are collective investments which gather money from different investors to invest
in stocks, short-term money market financial instruments, bonds and other securities and distribute
the proceeds as dividends. The Mutual Funds in India are handled by Fund Managers, also referred as the
portfolio managers. The Securities Exchange Board of India regulates the Mutual Funds in India. The
share value of the Mutual Funds in India is known as net asset value per share (NAV). The NAV is
calculated on the total amount of the Mutual Funds in India, by dividing it with the number of shares
issued and outstanding shares on daily basis.
Understanding Mutual funds is easy as it's such a straightforward concept. A mutual fund
is a company that pools the money of many investors, its shareholders to invest in a variety of
differentsecurities.Investments may be in stocks, bonds, money market securities or some
combination of these. For the individual investor, mutual funds propose the benefit of having
someone else manage your investments and diversify your money over many different securities
that may not be available or affordable to you otherwise. A mutual fund, by its very nature, is
diversified its assets are invested in many differentsecurities. Beyond that, there are many differe
nt types of mutual funds withdifferent objectives and levels of growth potential, furthering your
odds to diversify.
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Mutual Fund flow chart---
Mutual Funds in India follow a 3-tier structure:
• The First tier, who thinks of starting a mutual fund
• SEBI checks whether the person is of integrity, whether he has enough experience in the
financial sector and his network.
• The sponsor creates a Public Trust (Second tier) as per the Indian Trusts Act, 1882
• Trusts have no legal identity in India and cannot enter into contracts, hence the trustees
are the people authorized to act on behalf of the Trust. Contracts are entered into in the
name of the Trustees.
• Once the Trust is created, it is registered with SEBI after which this trust is known as the
• Trustees appoint the Asset Management Company(AMC-third tier), to manage investor's
• The AMC function under the supervision of it's Board of Directers , and also under the
direction of the trystees and SEBI.
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Types of mutual fund:
These do not have a fixed maturity. You deal with the Mutual Fund for your investments and
redemptions. The key feature is liquidity. You can conveniently buy and sell your units at Net Asset
Value (NAV) related prices, at a any point of time.
Schemes that have a stipulated maturity period (ranging from 2 to 15 years) are called close
ended schemes. You can invest in the scheme at the time initial issue and thereafter you can buy or sell
the units of the scheme on the stock exchanges where they are listed. Market price at the stock exchange
could vary from the scheme’s NAV on account of demand and supply situation, unit Regulations ensure
that at least one of the two exit routes is provided to the investor under the close ended schemes.
These combine the features of open-ended schemes and close-ended schemes. They may be
traded on the stock exchanges or may be open for sale or redemption during predetermined intervals at
NAV related prices.
By Investment Objectives
Aim to provide capital appreciation over the medium to long term. These schemes normally
invest a majority of their funds in equities and are willing to bear short term decline in value for possible
future appreciation. These schemes are not for investors seeking regular income or needing their money
back in the short term. Ideal for: Investor in their prime earning years and seeking growth over the long
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Aim to provide regular and steady income to investors. These schemes generally invest in fixed
income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be
limited. Ideal for: Retired people and other with need for capital stability and regular income. Investors
who need some income to supplement their earning.
Aim to provide both growth and income by periodically distributing a part of the income and
capital gains they earn. They invest in both shares and fixed income securities in the proportion
indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally
keep pace or fall equally when the market falls. Ideal for: Investors looking for a combination of income
and moderate growth.
Money Market/ Liquid Schemes
Aim to provide easy liquidity, preservation of capital and moderate income. These schemes
generally invest in safer, short term instruments such as treasury bills, certificates of deposit,
commercial paper and interbank call money. Return on these schemes may fluctuate, depending upon the
interest rates prevailing in the market. Ideal for: Corporate and individual investors as a means to park
their surplus funds for short periods or awaiting a more favorable investment alternative.
Tax Saving schemes (Equity Linked Saving Scheme-ELSS)
These schemes offer tax incentives to the investors under tax laws as prescribed from time to
time and promote long term investments in equities through Mutual Funds. Ideal for: Investors seeking
This category includes index schemes that attempt to replicate the performance of a particular
index such as the BSE Sensex, the NSE 50 (NIFTY) or sector specific schemes which invest in specific
sectors such as Technology, Infrastructure, Banking, Pharma etc. Besides, there are also schemes which invest
exclusively in certain segments of the capital market, such as Large Caps, Mid-Caps, Small Caps, Micro Cap,
‘A’ group shares, shares issued through Initial Public Offerings (IPO), etc. Index fund schemes are ideal for
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investors who are satisfied with a return approximately equal to the of an index. Sectorial fund schemes are
ideal for investors who have already decided to invest in a particular sector or segment.
Fixed Maturity Plans
Exchange Traded Funds are essentially index funds that are listed and traded on exchanges like
stocks. Globally, ETFs have opened a whole new panorama of investment opportunities to retail as well as
institutional investors. ETFs enable investors to gain broad exposure to entire stock markets as well as in
specific sectors with relative ease, on a real-time basis and at a lower cost than many other forms of investing.
An ETF is a basket of stocks that reflects the composition of an index, like S&P CNX Nifty, BSE Sensex,
CNX Bank Index, CNX PSU Bank Index, etc. The ETF’s trading value is based on the net asset value of the
underlying stocks that it represents. It can be compared to a stock that can be bought or sold on real time basis
during the market hours. The first ETF in India, Benchmark Nifty Bees, opened for subscription on December
12, 2001 and listed on the NSE on January 8, 2002.
Capital Protection Oriented Schemes
Capital Protection Oriental Schemes are schemes that Endeavour to protect the capital as the primary
objective by investing in high quality fixed income securities and generate capital appreciation by investing in
equity/ equity related instruments as a secondary objective. The first Capital Protection Oriental Fund in India,
Franklin Templeton Capital Protection Oriental Fund opened for subscription on October 31, 2006.
Gold Exchange Traded Funds (GETFs)
Gold Exchange Traded Funds offer investors an innovative, cost-efficient and secure way to access the gold
market. Gold ETFs are intended to offer investors a means of participating in the gold bullion market by
buying and selling units on the Stock Exchanges, without taking physical delivery of gold. The first Gold ETF
in India, Benchmark GETF, opened for subscription on February 15, 2007 and listed on the NSE on April 17,
Funds Investing Abroad
With the opening up of the Indian economy, Mutual Funds have been permitted to invest in foreign securities/
American Depository Receipt (ADRs)/ Global Depository Receipt (GDRs). Some of such schemes are
dedicated funds for investment abroad while other invest partly in foreign securities and partly in domestic
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securities. While most such schemes invest in securities across the world there are also schemes which are
country specific in their investment approach.
Fund of Funds (FOFs)
Fund of Funds are schemes that in other mutual fund schemes. The portfolio of these schemes comprises only
of unit of other mutual fund schemes and cash/ money market securities/short term deposits pending
deployment. The first FOF was launched by Franklin Templeton Mutual Fund on October 17, 2003. Fund of
Funds can be Sector specific e.g. Real Estate FOFs, Theme specific e.g. Equity FOFs, Objective specific e.g.
Life States FOFs or Style specific e.g. Aggressive/ Cautious FOFs etc. Please bear in mind that any one
scheme may not meet all your requirements for all time. You need to place your money judiciously in
different schemes to be able to get the combination of growth, income and stability that is right for you.
Remember, as always, higher the return you seek higher the risk you should be prepared to take.
• Open-Ended Schemes
• Close-Ended Schemes
• Interval Schemes
• Growth Schemes
• Income Schemes
• Balanced Schemes
• Money Market/ Liquid Schemes
• Tax Saving Schemes (Equity linked Saving Schemes- ELSS)
• Schemes that attempt to replicate the performed of a
particular index such as the BSE Sensex, the NSE 50 (NIFTY) or
sector speecific schemes which invest in specific sector such
as Technology, Infrastucture, Banking, Pharma.
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Advantages of investment in a Mutual Fund
1. Professional management: You avail of the service of experienced and skilled professionals
who are backed by a dedicated investment research team which analysis the performance and
prospects of companies and selects suitable investments to achieve the objectives of the
2. Diversification: Mutual funds invest in a number of company’s across-section of industries
and sectors. This diversification reduces the risk because seldom do all stocks decline at the
same time and in the same proportion. You achieve this diversification through a Mutual Fund
with far less money than you can do on your own.
3. Convenient Administration: Investing in a Mutual Fund reduces paperwork and helps you
avoid many problems such as bad deliveries, delayed payments and unnecessary follow up
with brokers and companies. Mutual Funds save your time and make investing easy and
4. 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.
•Offer investors a means of participating in the gold
bullion market by buying and selling units on the
Stock Exchange, without taking physical delivery
Gold Exchange Traded
•Invest in foriegn securities/ American Depository
Receipts (ADRs)/ Global Depository Receipt
Funds Investing Abroad
•Schemes that invest in other mutual fund schemes.
Fund of Funds
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 21
5. 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.
6. Liquidity: In open-ended schemes, you can get your money back promptly at Asset
Value Net (NAV) related prices from the Mutual Fund itself. With close-ended schemes, you
can sell your units on a stock exchange at the prevailing market price or avail of the facility of
repurchase through Mutual Funds at NAV related prices which some close-ended and interval
schemes offer you periodically.
7. Transparency: You get regular information on the value of your investment in addition to
disclosure on the specific investments made by your scheme, the proportion invested in each
class of assets and the fund manager’s investment strategy and outlook.
8. Flexibility: Through features such as Systematic Investment Plans (SIP), Systematic
Withdrawal Plans (SWP) and dividend reinvestment plans, you can systematically invest or
withdraw funds according to your needs and convenience.
9. Choice of Schemes: Mutual Funds offer a variety of schemes to suit your varying needs over
10. 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.
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Top Ranked Mutual Fund
As on: Quarter ended March 2014
Large Cap Crisil Rank NAV
1 yr. Return
AUM (Rs. cr.)
Birla SL Long Term Advan. (G)
Birla Sun Life Top 100 (G)
ICICI Pru Top 100 Fund (G)
Quantum Long-Term Equity (G)
Small & Mid Cap Crisil Rank NAV
1 yr. Return
AUM (Rs. cr.)
Franklin (I) Smaller Cos (G)
Mirage Emerging Blue-chip Fund (G)
SBI Magnum Midcap Fund (G)
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 23
The business of insurance is related to the protection of the economic values of the assets.
Every asset has a value. The asset would have been created through the efforts of the owner. The asset
is valuable to the owner, because he expects some benefits from it. It is a benefit because it meets
some of his needs. But every asset is expected to last for a certain period of time during which it will
provide the benefits. After that the benefit may not be available. The owner is aware of this and he can
so manage his affairs that by the end of that period or life-time, a substitute made available. Thus he
makes sure that the benefit isn’t lost. Here comes the thought of insurance.
Purpose and needs of Insurance:
Assets are insured, because they are likely to be destroyed or made non-functional before the
expected life time, through accidental occurrences are called perils. Fire, floods, breakdowns, lightning,
and earthquakes such things are called perils. If such perils can cause damage to the assets, we say that
the asset is exposed to that risk. Perils are the events. Risks are the consequential losses or damages.
The risk only means that there is a possibility of loss or damage. The damage
mayor may not happen, but the word ‘possibility’ implies uncertainty. Insurance isrelevant only if there
are uncertainties. If there is no uncertainty about theoccurrence of an event, it can’t be insured against.
Insurance doesn’t protect the asset. It does not prevent its loss due to the peril. The peril can’t be
avoided through the insurance. The risk can sometimes be avoided, through better safety and damage
control measures. Insurance only tries to reduce the impact of the risk on the owner of the asset and
those who depend on that asset. They are the ones who benefit from the asset and therefore, would lose,
when the asset is damaged. Insurance only compensates for the losses-and that too, not fully.
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An example of how insurance works:
In a village, there are 4000 houses, each valued at Rs.20000. Every year, on an average, 4 houses get
burnt, resulting into a total loss of Rs.80000.if all the 400 owners come together and contribute Rs.200
each, the common fund would be Rs. 80000. This would be enough to pay Rs.20000 to each of the 4
owners whose houses got burnt. Thus the loss of Rs.20000 each of 4 owners is shared by 400house-
owners of the village, bearing Rs.200 each. This works out to 1% of the value of the house, which is
the same as the probability of risk (4 out of 400 houses).
The insurer is in the position of a trustee as it is managing the common fund, for and on
behalf of the community of policyholders. It has to ensure that nobody
isallowed to take undue advantage of the arrangement. That means that themanagement
of the insurance business requires care to prevent entry (into the group) of people whose
risks are not of the same kind as well as playing claims
onlosses that are not accidental. The decision to allow entry is the process of underwritin
g of risk. Underwriting includes assessing the risk, which means, making an evaluation
of how much is the exposure to risk. The premium to be charged depends on this
assessment of the risk. Both underwriting and claim settlements have to be done with
Life Insurance Product:
There are various products available in the market. Life insurance products are usually referred
to as ‘plans’ of insurance. These plans have two basic elements. One is the ‘death cover’ providing for
the benefit being paid on the death of the insured person within a specific period. The other is the
‘survival benefit’ providing for the benefit being paid on survival of a specific period.
Plans of insurance that provide only death cover are called ‘term assurance’ plans. Those that provide
only survival benefits are called ‘pure endowment’ plans.
All traditional life insurance plans are combinations of these two basic plans. A term assurance plan
with an unspecified period is called a ‘whole life policy’ under which the sum assured is paid on death,
whenever it may occur. In recent times, ‘linked’ policies have become popular. These are very different
from the traditional plans of insurance.
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 25
Unit Linked Insurance Plan:
In India investments in ULIP are covered under Section 80C of IT Act. ULIP is life insurance solution
that provides for the benefits of 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). Unit Linked
Insurance Plan - is a financial product that offers your life insurance as well as an investment like a
mutualfund.Part of the premium you pay goes towards the sum
assured(amount you get in a life insurance policy) and the balance will be invested in whichever investm
ents you desire - equity, fixed-return or a mixture of both. As times progressed the plans were also
successfully mapped along with life insurance need to retirement planning. In today's times,
ULIP provides solutions for insurance planning, financial needs, and many types of financial planning
including children’s marriage planning. A marriage endowment plan has nothing to do with the
contingency of the marriage. It only stipulates the date on which the sum assured will be paid, even
if the life insured dies early. That date can be chosen to coincide with the age of a son or daughter, for
whose marriage the sum assured would come in handy. Similarly, the educational annuity plan
is not an annuity. It is an ordinary endowment plan, which states that the sum assured would be paid on
installments, commencing from a date, which may be chosen as the likely date when the child may be
old enough for higher education.
Types of Funds under ULIPs
Most insurers offer a wide range of funds to suit one’s investment objectives, risk profile and
time horizons. Different fund have different risk profiles. The potential for returns also varies from fund
to fund. The following are some of the common types of funds available along with an indication of their
1) Equity Funds (Medium to High risk) - Primarily invested in company stocks with the general aim of capital
2) Income, Fixed Interest and Bond Funds (Medium risk) - Invested in corporate bond, government securities
and other fixed income instruments
3) Cash Funds (Low risk) - Sometimes known as Money Market Funds — invested in cash, bank deposits and
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 26
money market instruments
4) Balanced Funds (Medium risk) - Combining equity investment with fixed interest instruments.
Description Nature of Investment Risk
Equity Funds Primarily invested in company stocks Medium to
With the general aim of capital appreciation
Fixed interest and Invested in corporate bonds, government Medium
Bond Funds securities and other fixed income instruments
Cash Funds Sometimes known as Money Market Funds- Low
Invested in cash, bank deposits and money market
Balanced Funds Combining equity investment with fixed interest Medium
Advantages of Life Insurance:
Life insurance has no competition from any other business. Many people think that life
insurance is an investment or a means of saving. This is not the correct view. When a person saves, the
amount of fund available at any time is equal to the amount of money set aside in the past, plus
interest. This is so in the fixed deposit in a bank, in national savings certificate, in mutual funds or any
other savings instruments. If the money is invested in buying shares and stocks, there is the risk of the
money being lost in the fluctuations of the stock market. Even if there is no loss, the available money at
any time is the amount invested plus appreciation. In life insurance, however, the fund available is not
the total of the savings already made (premiums paid), but the amount one wished to have at the end of
the savings period (which is next 20/30 years). The final fund is secured from the very beginning. One is
paying for it over the years, out of the savings. One has to pay for it only as long as one life or for a
lesser period, if so chosen. The assured fund is not affected. There is no other scheme which provides
this kind of benefit. Therefore life insurance has no substitute.
A comparison with other forms of savings will show that life insurance has the following advantages:
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 27
In the event of death, the settlement is easy. The heirs can collect the moneys quicker, because of
the facility of nomination and assignment. The facility of nomination is now available for
some bank accounts, provident fund etc…
There is a certain amount of compulsion to go through the plan of the savings. In other forms, if
one changes the original plan of savings, there is no loss. In insurance, there is a loss.
Creditors can’t claim the life insurance moneys. They can be protectedagainst the attachments by
There are tax benefits, both in income tax and in capital gains.
Marketability and liquidity are better. A life insurance policy is property and can be transferred or
mortgaged. Loans can be raised against the policy.
It is possible to protect a life insurance policy from being attached bydebtors. The beneficiaries’
interest will remain secure.
The following tenets help agents to believe in the benefits of the life insurance. Such faith will enhance
their determination to sell and their perseverance.
Life insurance is not only the best possible way for family protection. There is no other way.
Insurance is the only way to safeguard against the unpredictable risks of the future. It is
The terms of life are hard. The term of insurance is easy.
The value of human life is far greater than the value of any property. Onlylife insurance can
Life insurance is not surpassed by any other savings or investmentinstrument, in terms of
security, marketability, stability of value or liquidity.
Insurance, including life insurance, is essential for the conservation of many businesses, just as
it is in the preservation of homes.
Life insurance enhances the standards of living.
Life insurance helps people live financially solvent lives.
Life insurance perpetuates life, life, liberty and the pursuit of happiness.
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 28
ULIP of Different Companies
HDFC life click2invest
Zero charge structure*
8 fund options to choose from as per your investment style
Premium Payment options of
Limited: 5 years, 7 years, 10 years
Regular: same as your policy term
Flexibility to choose your policy term from 5 to 20 years
under Section 80C and Sec 10(10D) of Income Tax Act 1961
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 29
On survival till the end of policy term, you will receive your Fund Value as Maturity Benefit.
In case of the Life Assured’s unfortunate demise, we will pay to the nominee the highest of the following:
o Sum Assured,
o Fund Value,
o 105% of the premium(s) paid.
The policy will terminate thereafter and no more benefits will be payable.
o Premium allocation charge – Nil. 100% of your premiums are invested.
o Policy administration charge – Nil.
o Fund Management Charge – 1.35% p.a. of the fund value charged daily.
o Mortality Charge – levied every month for providing you with the death benefit in your policy. This
charge will be taken by cancelling units proportionately from each of the fund(s) you have chosen
o Discontinuance charge – Nil. Please note it is always advisable to pay premiums for the full premium
paying term and stay invested for the full policy term in order to enjoy maximum benefits.
SBI Smart Elite
•Pay premiums only for a limited term of 5, 8 or 10 years or a Single Payment, as
per your need and enjoy benefits throughout the chosen policy term.
•No Premium Allocation Charges from 6th policy year onwards, thereby enhancing
your fund value
•Two protection options available: Gold Option & Platinum Option
•Invest in wide range of funds and manage them as per your convenience.
•Life Insurance coverage with minimum Sum Assured of 10 or 7 times of your
Annual Premium (AP), based on your age.
•Switch and redirection facility, to pilot your investments.
•Option to increase/decrease your Sum Assured from 6th policy year onwards.
•Accidental Death and Accidental Total and Permanent Disability (Accidental TPD)
benefit automatically comes to you as an integral part of the plan
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 30
Product Snapshot :
Age* at Entry Min: 18 years Max: 60 years
Age* at Maturity 65 years
Policy Term 5 to 20 years (both inclusive)
Premium Payment Term
For Limited Premium Payment Term (LPPT) - 5 or 8 or 10 years.
For Single Premium - Single Payment.
Minimum Limited Premium
Amount (X 100)
Minimum Single Premium
Amount (X 100)
Premium Amount (X 100)
Yearly Rs 150,000
Half-yearly Rs 75,000
Quarterly Rs 37,500
Monthly Rs 12,500
Premium Modes Single /Yearly /Half-yearly /Quarterly / Monthly
Sum Assured Minimum:
For LPPT -
For Ages below 45 yrs : 10* Annual Premium (AP)
For Ages 45yrs & above: 7* AP
For Single Premium (SP) -
For Ages below 45 yrs : 1.25 * SP
For Ages 45yrs & above: 1.10 * SP
For LPPT - For All Ages - 20 x AP
For SP – For All Ages - 5 x SP
• Maturity Benefit: On completion of Policy Term, Fund Value will be paid.
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 31
• Death Benefit:
• For Gold Option: Higher of Fund Value or Sum Assured# is payable; with a
minimum of 105% of total premiums paid till the time of death.
• For Platinum Option: Fund Value plus Sum Assured is payable; with a
minimum of 105% of total premiums paid till the time of death.
• In-built Benefit:
• Accidental Death and Accidental Total and Permanent Disability
(Accident Benefit):Provides an additional benefit for Accidental Death or
• Tax Benefits
• Tax deduction under Section 80 C is available. However in case the premium
paid during the financial year, exceeds 10% of the sum assured, the benefit will
be limited up to 10% of the sum assured.
• Tax exemption under Section 10(10D) is available at the time of
maturity/surrender, subject to the premium not exceeding 10% of the sum
assured in any of the years during the term of the policy. However, death
proceeds are completely exempt.
• Tax benefits, are as per the provisions of the Income Tax laws & are subject to
change from time to time. Please consult your tax advisor for details.
IRDA REGULATION ON ULIP
IRDA has, from time to time, taken various initiatives for protecting the interests of policyholders by bringing
out Regulations, Guidelines, Circulars etc. applicable to insurers and intermediaries covering the various
stages in the lifecycle of an insurance product, commencing from solicitation, sale, policy servicing, to claims
servicing and grievance redressel.
With expansion of the insurance sector and more and more innovative insurance products, in particular the
Unit Linked Insurance Products coming into the life insurance market, IRDA has been sensitive to the
changing scenario and the challenges that go with it. In particular, IRDA has been conscious of how these
changes have been impacting the policyholder and has taken several steps to bring in changes in the
regulatory framework to address various concerns of the policyholder.
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 32
IRDA had stipulated that insurers must provide the prospect/policyholder all relevant information regarding
amounts deducted towards various charges for each policy year so that the prospect could take an informed
decision. Insurers were required to provide Benefit Illustrations giving two scenarios of interest rates, 6% and
10% respectively. The prospect was required to sign on the illustration while signing the proposal form. This
was done to ensure transparency and proper disclosures by the insurers.
It is necessary to demystify complex products and ensure that proper product disclosures are made to the
prospect/policyholder. Towards this end, IRDA has already come out with an exposure draft on need to
issue Key Features Documents. Responses received by the Authority are under examination and the initiative
will be taken forward further. Similarly, Needs Analysis is another initiative identified by IRDA as a step in
curbing wrong advice and mis-selling. An exposure draft on this requirement is already circulated and
responses are coming in. Whilst on mis-selling, IRDA has identified Distance Marketing as yet another area
of concern and draft guidelines in this regard have been put up as an exposure note for all stakeholders to
Mention must be made of what is perhaps the most important step that the Authority has taken keeping in
view the interests of policyholders. IRDA set up an exclusive Consumer Affairs Department that focuses on
consumer related issues and initiatives including grievance redressal and consumer education through
Insurance Awareness Campaigns. With a view to creating a central repository of industry-wide insurance
grievance data and facilitating monitoring of disposal of grievances by insurers, IRDA is on the verge of
implementing the Integrated Grievance Management System (IGMS). IGMS will not only help monitor the
redress systems of insurers but also create a gateway for policyholders to register complaints with insurance
companies first and if need be escalate them to the IRDA Grievance Cells. The Consumer Affairs department
goes beyond facilitation and works towards taking grievances to their logical end by calling for explanations
where required, carrying out enquiries and inspections etc. It is proposed to make the institution of the
Insurance Ombudsman handle all types of complaints including those relating to policy sale and servicing
rather than just restricting it to claims. IRDA is also shortly making its Call Centre operational for
policyholders to lodge their grievances and also seek their status over phone/e-mail.
Further, keeping in view the need for efficient functioning of the insurance sector for protecting the interests
of policyholders, it is necessary to have reliable, timely and accurate data relating to insurance. In order to
ensure that proper data is collected, processed and disseminated in the manner required, IRDA has set up an
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 33
independent body, namely the Insurance Information Bureau (IIB). The IIB has started functioning and has
already made good progress.
RECENT REGULATORY INITIATIVES
More recently, IRDA has taken a holistic view of the features of ULIPs and addressed issues impacting the
policyholders including the way such products are sold/bought; how ULIPs can be better financial instruments
for providing risk coverage; how sale by unlicensed personnel and several other malpractices existing in this
market may be curbed by plugging legal loopholes and tightening of the regulatory ambit; legal mandate to
initiate direct penal action against Corporate Agents etc. IRDA therefore initiated exposure drafts covering
these areas and received considerable feedback from various stakeholders on the issues put forth. The issues
were then presented to and discussed with the members of the Insurance Advisory Committee as well as the
members of the Board of the Authority. The following regulatory initiatives have been approved by the
Authority during the Board meeting on 31.05.10.
I. Distribution channel related changes:
1. IRDA has amended the IRDA (Insurance Advertisements and Disclosure) Regulations to remove
any scope for the involvement of unlicensed personnel/entities in the sale of insurance products.
2. IRDA has amended the IRDA (Licensing of Corporate Agents) Regulations to further tighten the
Code of Conduct of corporate agents to ensure that the prospect does not deal with any unlicensed
person. The Regulations have also been amended to ensure that there is no scope for any kind of
remuneration other than commission where sale has been effected. This measure will reduce the
expenses of the insurer, thereby lowering premiums to be paid by the policyholder.
3. Regulations for referrals: IRDA has also addressed the issue of Referrals by bringing out
separate Regulations leaving no scope for misuse of the system. Companies which wish to share
their database of customers with insurers would need to get approval from IRDA after having
conformed to the requirements as laid down in the Regulations. Further, there are restrictions on
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 34
the business activities of the referral company to ensure that there is no misuse of the system. For
instance, the referral company shall not be in any business of extending loans and advances or
accepting deposits etc though there are exceptions such as for Regional Rural Banks, Co-operative
banks etc. The Regulations cast obligations on the referral company as well as the insurer
including submission of data as and when called for by the Authority.
II. ULIP STRUCTURE RELATED CHANGES:
(1) Lock in period increased to five years:
IRDA has increased the lock-in period for all Unit Linked Products from three years to five years, including
top-up premiums, thereby making them long term financial instruments which basically provide risk
(2) Level Paying Premiums:
Further, all regular premium /limited premium ULIPs shall have uniform/level paying premiums. Any
additional payments shall be treated as single premium for the purpose of insurance cover.
(3). Even Distribution of Charges:
Charges on ULIPs are mandated to be evenly distributed during the lock in period, to ensure that high front
ending of expenses is eliminated.
(4). Minimum Premium Paying Term Of Five Years:
All limited premium unit linked insurance products, other than single premium products shall have premium
paying term of at least five years.
(5). Increase In Risk Component:
Further, all unit linked products, other than pension and annuity products shall provide a mortality cover or a
health cover thereby increasing the risk cover component in such products.
(i) The minimum mortality cover should be as follows:
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 35
Minimum Sum assured for age at
entry of below 45 years
Minimum Sum assured for age at entry of
45 years and above
Single Premium (SP) contracts: 125
percent of single premium.
Regular Premium (RP) including
limited premium paying (LPP)
contracts: 10 times the annualized
premiums or (0.5 X T X annualized
premium) whichever is higher. At no
time the death benefit shall be less
than 105 percent of the total
premiums (including top-ups) paid.
Single Premium (SP) contracts: 110 percent
of single premium
Regular Premium (RP) including limited
premium paying (LPP) contracts: 7 times the
annualized premiums or (0.25 X T X
annualized premium) whichever is
higher. At no time the death benefit shall be
less than 105 percent of the total premiums
(including top-ups) paid.
(In case of whole life contracts, term (T) shall be taken as 70 minus age at entry)
(ii)The minimum health cover per annum should be as follows:
Minimum annual health cover for
age at entry of below 45 years
Minimum annual health cover for age at
entry of 45 years and above
Regular Premium (RP) contracts: 5
times the annualized premiums or Rs.
100,000 per annum whichever is
Regular Premium (RP) contracts: 5times the
annualized premiums or Rs. 75,000 per
annum whichever is higher.
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 36
At no time the annual health cover
shall be less than 105 percent of the
total premiums paid.
At no time the annual health cover shall be
less than 105 percent of the total premiums
(6). MINIMUM GUARANTEED RETURN FOR PENSION PRODUCTS:
As regards pension products, all ULIP pension/annuity products shall offer a minimum guaranteed return of
4.5% per annum or as specified by IRDA from time to time. This will protect the life time savings for the
pensioners, from any adverse fluctuations at the time of maturity.
(7). RATIONALISATION OF CAP ON CHARGES:
With a view to smoothening the cap on charges, the capping been rationalized to ensure that the difference in
yield is capped from the 5th
year onwards. This will not only reduce the overall charges on these products, but
also smoothen the charge structure for the policyholder.
III. DISCONTINUANCE OF CHARGES:
IRDA has also addressed the issue of discontinuance of charges for surrender of ULIPs. The IRDA
(Treatment of Discontinued Linked Insurance Policies) Regulations brought out by IRDA in this regard
ensure that policyholders do not get overcharged when they wish to discontinue their policies for any
emergency cash requirement. The Regulations stipulate that an insurer shall recover only the incurred
acquisition costs in the event of discontinuance of policy and that these charges are not excessive. The
discontinuance charges have been capped both as percentage of fund value and premium and also in absolute
value. The Regulations also clearly define the Grace Period for different modes of premium payment. Upon
discontinuance of a policy, a policyholder shall be entitled to exercise an option of either reviving the policy
or completely withdrawing from the policy without any risk cover. Further, the regulations also enable IRDA
to order refund of discontinuance charges in case they are found excessive on enquiry.
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 37
These regulations are applicable to all new ULIP products approved by IRDA after these regulations are
J Hari Narayan
Bonds & Debentures
Debt instrument represents a contract whereby one party lends money to another on pre-
determined terms with regards to rate and periodicity of interest, repayment of principal amount by the
borrower to the lender. In Indian securities markets, the term ‘bond’ is used for debt instruments issued
by the Central and State Governments and public sector organization and term ‘debenture’ is used for
instruments issued by private corporate sector. Each debt instrument has three features: Maturity, coupon
Maturity of a bond refers to the date, on which the bond matures, which is the date on which
the borrower has agreed to repay the principal. Term-to-Maturity refers to the number of years remaining
for the bond to mature. The Term-to-Maturity changes every day, from date of issue of the bond until its
maturity. The term to maturity of a bond can be calculated on any date, as the distance between such a
date and the date of maturity. It is also called the term or the tenure of the bond
Coupon refers to the periodic interest payment that are made by the borrower (who is also the issuer of
the bond) to the lender (the subscriber of the bond). Coupon rate is the rate at which interest is paid, and
is usually represented as a percentage of the value of a bond.
Principal is the amount that has been borrower, and is also called the par value or face value of the
bond. The coupon is the product of the principal and the coupon rate. There are three main segments in
the debt markets in markets in India;
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 38
1) Government securities,
2) Public sector Units (PSU) bonds, and
3) Corporate securities.
The market for Government securities comprises the center, state and state-sponsored securities. In the
recent past, local bodies such as municipalities have also begun to tap the debt markets for funds. Some
of the PSU bonds are tax free, while most bonds. These bonds typically are structured to suit the
requirements of investors and the issuing corporate, and include a variety of trailer-made features with
respect to interest payment and redemption. Most Bond/Debenture issues are rated by specialized credit
rating agencies. Credit rating agencies in India are CRISIL, CARE, ICRA and Fitch. The yield on a bond
varies inversely with its credit (safety) rating. The safer the instrument, the lower is the rate of interest
offered. There are two types of debentures:
1) Convertible debentures, which are convertible bonds or bonds that can be converted
into equity shares of the issuing company after a predetermined period of time.
“Convertibility” is a feature that corporations may add to the bonds they issue to make them
more attractive to buyers. In other words, it is a special feature that a corporate bond may
carry. As a result of the advantage a buyer gets from the ability to convert; convertible bonds
typically have lower interest rates than non-convertible corporate bonds.
2) Non-convertible debentures, which are simply regular debentures, cannot be converted
into equity shares of the liable company. They are debentures without the convertibility
feature attached to them. As a result, they usually carry higher interest rates than
their convertible counterparts.
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 39
High Risk Investment Avenues
Equity Share Market:
The Indian Equity Market is more popularly known as the Indian Stock Market. The
forces of the market depend on the monsoons, global funding flowing into equities in the market and
the performance of various companies. The market of equities is transacted on the basis of two
major stock indices, National Stock Exchange of India Ltd. (NSE) and The Bombay Stock Exchange
(BSE), the trading being carried on in a dematerialized form. The physical stocks are in liquid form
and cannot be sold by the investors in any market.
An equity share, commonly referred to a ordinary share, represents the form of fractional ownership
in a business venture. When you buy a share of a company you become a shareholder in that
company. Shares are also known as Equities. Equities have the potential to increase in value over
time. It also provides your portfolio with the growth necessary to reach your long term investment
goals. Research studies have proved that the equities have outperformed most other forms of
investments in the long term. Since 1990 till date, Indian stock market has returned about 17% to
investors on an average in term of increase in share prices or capital appreciation annually, besides
that on average stock have paid 1.5% dividend annually. Dividend is a percentage of the face value of
a share that a company returns to its shareholders from its annual profits. Compared t most other form
of investment, investing in equity shares offers the highest rate of return, if invested over a longer
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 40
In the investment world we come across term such as Growth stocks & Value
stocks. Companies, whose potential for growth in sales and earnings age excellent, are growing faster
than other companies in the market or other stocks in the same industry are called the growth Stocks.
These companies usually pay little or no dividends and instead prefer to reinvest their profit in their
business for further expansions.
The task here is to look for stocks that have been overlooked by other investors and
which may have a ‘hidden value’. These companies may have been beaten down in price because of
some bad event, or may be in an industry that’s not fancied by most investors. However, even a
company that has seen its stock price decline still has assets to its name- buildings, real estate,
inventories, subsidiaries, and so on. Many of these assets still have value, yet that value may not be
reflected in the stock’s price. Value investors look to buy stocks that are undervalued, and then hold
those stocks until the rest of the market realizes the real value of the company’s assets. The value
investors tend to purchase a company’s stock usually based on relationship between the current
market price of the company and certain business fundamentals. They like P/E ratio being below a
certain absolute limit; dividend yields above a certain absolute limit; Total sales at a certain level
relative to the company's market capitalization, or market value etc.
Shares are usually valued much higher than the face value and this initial investment in the
company by shareholders represents their paid-in capital in the company. The company then generates
earnings from its operating, investing and other activities. A portion of these earnings are distributed
back to the shareholders as dividend, the rest retained for future investments. The sum total of the
paid-in capital and retained earnings is called the book value of equity of the company.
FCRA Forward Contracts (Regulation) Act, 1952 defines “goods” as “every kind of
movable property other than actionable claims, money and securities”. Futures’ trading is organized
in such goods or commodities as are permitted by the Central Government. At present, all goods
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 41
and products of agricultural (including plantation), mineral and fossil origin are allowed for futures
trading under the auspices of the commodity exchanges recognized under the FCRA. Commodity
derivatives market trade contracts for which the underlying asset is commodity. It can be an
agricultural commodity like wheat, soybeans, rapeseed, cotton, etc. or precious metals like gold,
silver, etc. A Commodity Exchange is an association, or a company of any other body corporate
organizing futures trading in commodities. In a wider sense, it is taken to include any organized
market place where trade is routed through one mechanism, allowing effective competition
among buyers and among sellers – this would include auction- type exchanges, but not wholesale
market, where trade is localized, but Effectively takes place through many non-related individual
transactions between different permutations of buyers and sellers.
Having started operations in November 2003, today, MCX holds a market share of over 80%of the
Indian commodity futures market, and has more than 2000 registered members operating through over
100,000 trader work stations, across India. The Exchange has also emerged as the sixth largest and
amongst the fastest growing commodity futures exchange in the world.
National Stock Exchange (NSE) of India:
Integrated in November 1992, the National Stock Exchange of India (NSE) was initially
a tariff forfeiting association. In 1993, the exchange was certified under Securities Contracts
(Regulation) Act, 1956 and in June 1994 it started its business functioning in the Wholesale Debt Market
(WDM). The Equities division of NSE began its operations in 1994 while in 2000 the corporation
incorporated its Derivatives division.
Some NSE Figures and Facts
The equities division of NSE covers around 300 Indian cities, while its derivate section covers
The number of securities accessible for buying and selling in NSE exchange in its equities and
derivate section are 1,383 and 3,143 respectively.
The total amount of Settlement warranty fund in NSE equities division and derivate section are
Rs 2,085.25crores and Rs 6,018.30crores respectively.
The daily turnover of NSE equities division is Rs 10,336.52crores, for derivate segment is Rs
32,809.96crores and for Whole sale debt division is Rs 13,911.57crores.
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 42
NSE uses satellite communication expertise to strengthen contribution from around 400Indian
The exchange administers around 1 million of buying and selling on daily basis.
It is one of the biggest VSAT incorporated stock exchange across the world.
Currently more than 8,500 customers are doing online exchange business on NSE application.
Bombay Stocks Exchange (BSE) of India:
The oldest stock market in Asia, BSE stands for Bombay Stock Exchange and was
initially known as “The Native Share Brokers Association.” Incorporated in the 1875, BSE became
the first exchange in India to be certified by the administration. It attained a permanent authorization
from the Indian government in 1956 under Securities Contracts (Regulation) Act, 1956.
Over the year, the exchange company has played an essential part in the expansion of Indian
investment market. At present the association is functioning as corporatized body integrated under the
stipulation of the Companies Act, 1956.
Some BSE Figure and Facts
BSE exchange was the first in India to launch Equity Derivatives, Free Float Index, and USD
adaptation of BSE Sensex and Exchange facilitated Internet buying and selling policy.
BSE exchange was the first in India to acquire the ISO authorization for supervision, clearance &
BSE exchange was the first in India to have launched private service for economic training.
Its On-Line Trading System has been felicitated by the internationally renowned standard of
Information Security Management System.
Securities and Exchange Board of India (SEBI):
SEBI is the regulator for the securities market in India. It was formed officially by the Government of
India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Chaired by C B Bhave, SEBI
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 43
is headquartered in the popular business district of Bandra-Kurla complex in Mumbai, and has Northern,
Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmadabad.
Functions and responsibilities
SEBI has to be responsive to the needs of three groups, which constitute the market:
The issuers of securities
The market intermediaries.
SEBI has three functions rolled into one body quasi-legislative, quasi-judicial and quasi-
executive. It drafts regulations in its legislative capacity, it conducts investigation and enforcement
action in its executive function and it passes rulings and orders in its judicial capacity. Though this
makes it very powerful, there is an appeals process to create accountability. There is a Securities
Appellate Tribunal which is a three-member tribunal and is presently headed by a former Chief Justice
of a High court - Mr. Justice NK Sodhi. A second appeal lies directly to the Supreme Court.SEBI has
enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick
movement towards making the markets electronic and paperless rolling settlement onT+2 basis). SEBI
has been active in setting up the regulations as required under law. SEBI has also been instrumental in
taking quick and effective steps in light of the global meltdown and the Satyam fiasco.
It had increased the extent and quantity of disclosures to be made by Indian corporate promoters. More
recently, in light of the global meltdown, it liberalized the takeover code to facilitate investments by
removing regulatory strictures.
Company Fixed Deposits versus Mutual Funds:
Fixed deposits are unsecured borrowings by the company accepting the deposit? Credit rating of the fixed
deposit program is an indication of the inherent default risk in the investment. The moneys of investors in
a mutual fund scheme are invested by the AMC in specific investments under that scheme. These
investments are held and managed in-trust for the benefit of scheme’s investors. On the other hand, there
is no such direct correlation between a company’s fixed deposit mobilization, and the avenues where these
resources are deployed. A corollary of such linkage between mobilization and investment is that the gains
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 44
and losses from the mutual fund scheme entirely flow through to the investors. Therefore, there can be no
certainty of yield, unless a named guarantor assures a return or, to a lesser extent, if the investment is in a
serial gilt scheme. On the other hand, the return under a fixed deposit is certain, subject only to the default
risk of the borrower.
Both fixed deposits and mutual funds offer liquidity, but subject to some differences: The provider of
liquidity in the case of fixed deposits is the borrowing company. In mutual funds, the liquidity provider is
the scheme itself (for open-end schemes) or the market (in the case of closed-end schemes)
The basic value at which fixed deposits are enchased is not subject to a market risk. However, the value at
which units of a scheme are redeemed depends on the market. If securities have gained in value during the
period, then the investor can even earn a return that is higher than what he anticipated when he invested.
But he could also end up with a loss. Early encashment of fixed deposits is always subject to a penalty
charged by the company that accepted the fixed deposit. Mutual fund schemes also have the option of
charging a penalty on “early” redemption of units (through by way of an ‘exit load’) If the NAV has
appreciated adequately, then even after the exit load, the investor could earn a capital gain on his
Bank Fixed Deposits verses Mutual Fund:
Bank fixed deposits are similar to company fixed deposits. The major difference is that banks are
generally more stringently regulated than companies. They even operate under stricter requirements
regarding Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR).While the above are causes for
comfort, bank deposits too are subject to default risk. However, given the political and economic impact
of bank defaults, the government as well as Reserve Bank of India (RBI) try to ensure that banks do not
fail. Further, bank deposits up to Rs 100,000 are protected by the Deposit Insurance and Credit Guarantee
Corporation (DICGC), so long as the bank has paid the required insurance premium of 5 paisa per annum
for every Rs 100 of deposits. The monetary ceiling of Rs100, 000 is for all the deposits in all the branches
of a bank, held by the depositor in the same capacity and right.
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 45
Banks Mutual funds
Returns Low Better
Administrative Expenses High Low
Risk Low Moderate
Investment options Less More
Network High Penetration Low but Improving
Liquidity At a Cost Better
Quality of assets Not Transparent Transparent
Interest Calculation Quarterly i.e. 3rd
Guarantor Is Needed Not Needed
Account Needed Not Needed
Bonds and Debentures versus Mutual Funds:
As in the case of fixed deposits, credit rating of the bond / debenture is an indication of the inherent
default risk in the investment. However, unlike FD, bonds and debentures are transferable securities.
While an investor may have an early encashment option from the issuer (for instance through a “put”
option), generally liquidity is through a listing in the market.
Implications of this are:
•If the security does not get traded in the market, then the liquidity remains on paper. In this respect, an
open-end scheme offering continuous sale / re-purchase option is superior.
• The value that the investor would realize in an early exit is subject to market risk. The investor could
have a capital gain or a capital loss. This aspect is similar to a MF scheme. It is possible for a professional
investor to earn attractive returns by directly investing in the debt market, and actively managing the
positions. Given the market realities in India, it is difficult for most investors to actively manage their debt
portfolio. Further, at times, it is difficult to execute trades in the debt market even when the transaction
size is as high as Rs 1crore. In this respect, investment in a debt scheme would be beneficial. Debt
securities could be backed by a hypothecation or mortgage of identified fixed and / or current assets
(secured bonds / debentures). In such a case, if there is a default, the identified assets become available for
meeting redemption requirements. An unsecured bond /debenture is for all practical purposes like a fixed
deposit, as far as access to assets is concerned. The investments of a mutual fund scheme are held by a
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 46
custodian for the benefit of investors in the scheme. Thus, the securities that relate to a scheme are ring-
fenced for the benefit of its investors.
Advantages of Mutual Funds over Stocks:
• A mutual fund offers a great deal of diversification starting with the very first dollar invested, because a
mutual fund may own tens or hundreds of different securities. This diversification helps reduce the risk of
loss because even if anyone holding tanks, the overall value doesn’t drop by much. If you’re buying
individual stocks, you can’t get much diversity unless you have $10K or so.
• Small sums of money get you much further in mutual funds than in stocks. First, you can setup an
automatic investment plan with many fund companies that lets you put in as little as$50 per month.
Second, the commissions for stock purchases will be higher than the cost of buying no-load fund (Of
course, the funds various expenses like commissions are already taken out of the NAV). Smaller sized
purchases of stocks will have relatively high commissions on a percentage basis, although with the $10
trade becoming common, this is a bit less of a concern than it once was.
• You can exit a fund without getting caught on the bid/ask spread.
• Funds provide a cheap and easy method for reinvesting dividends.
• Last but most certainly not least, when you buy a fund you’re in essence hiring a professional to manage
your money for you. That professional is (presumably) monitor in the economy and the markets to adjust
the fund’s holdings appropriately.
Advantages of Stock over Mutual Funds:
•The opposite of the diversification issue: If you own just one stock and it doubles, you are up 100%. If a
mutual fund owns 50 stocks and one doubles, it is up 2%. On the other hand, if you own just one stock and
it drops in half, you are down 50% but the mutual fund is down1%. Cuts both ways.
• If you hold your stocks several years, you aren’t nicked a 1% or so management fee every year (although
some brokerage firms charge if there aren’t enough trades).
• You can take your profits when you want to and wont inadvertently buy a tax liability.(This refers to the
common practice among funds of distributing capital gains around November or December of each year.
See the article elsewhere in this FAQ for more details.)
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 47
•You can do a covered write option strategy. (See the article on options on stocks for more details.)
• You can structure your portfolio differently from any existing mutual fund portfolio.(Although with the
current universe of funds I’m not certain what could possibly be missing out there!)
• You can buy smaller cap stocks which aren’t suitable for mutual funds to invest in.
• You have a potential profit opportunity by shorting stocks. (You cannot, in general, short mutual funds.)
• The argument is offered that the funds have a "herd" mentality and they all end up owning the same
stocks. You may be able to pick stocks better.
Life Insurance versus Mutual Fund:
Life insurance is a hedge against risk – and not really an investment option. So, it would be wrong to
compare life insurance against any other financial product. Occasionally on account of market
inefficiencies or miss-pricing of products in India, life insurance products have offered a return that is
higher than a comparable “safe” fixed return security – thus, you are effectively paid for getting insured!
Such opportunities are not sustainable in the long run.
PPF versus Mutual fund
High Tax-Free Return: At a time when the interest rates are falling and are expected to fall further in the
coming months and the tax-free bonds are yielding around 7% to 7.25% in the secondary markets, PPF
gives you an assured return of 8.70% per annum in the current financial year i.e. 2013-14. As mentioned
above, these returns are tax-free also i.e. at the time of maturity, you are not liable to pay any tax on the
maturity proceeds (principal investment + interest income). For an investor in the 30% tax bracket, it
works out to an effective return of 12.59% annually. Tax Benefit u/s 80C: PPF investment also enjoys tax
benefit under section 80C. So, it is not only the interest income which is tax-free, but your invested
amount also would get the tax benefit. That ways it is a double bonanza for the investors. Safety: When
you invest your money with a company or a bank, there is always a risk of not getting the due interest
payments on time or even not getting back your principal investment itself. PPF ensures a very high safety
of your hard-earned invested money as it is guaranteed by the government of India. Zero Volatility: If you
have ever burnt your fingers with your mutual fund or stock investments and thus do not like to have any
volatile investments in your portfolio anymore, then PPF is an ideal investment for you. Once applicable
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 48
effective April 1st, the interest rates do not change for the rest of the year. Inflation-Linked: All of the post
office small saving schemes are now benchmarked to the interest rates on government securities of similar
maturities and as these rates move in tandem with the general inflationary conditions in the market, we can
say that PPF interest rates are now inflation-linked. So, it is one such instrument which the investors can
consider in order to beat inflation. Flexibility: As an investor, you can invest a minimum of Rs. 500 and a
maximum of Rs. 1, 00,000 in your PPF account in one financial year. You can make your investment in
installments also but there is a cap of 12 transactions every year. Though one transaction every year is
compulsory for PPF, but if you forget to do the same, it is not very difficult to bring your account back
into an active mode. Loan/withdrawal facility: Your PPF account gives you the flexibility of availing a
loan of up to 25% of your deposit money from the 3rd financial year till the 5th financial year, while a
withdrawal can be made up to 50% of the deposit from 6th financial year onwards. The interest rate
charged is 2% per annum over and above the interest rate you earn on your deposits. PPF investment made
on or before 5th of a month is eligible to earn interest for that month. So, if you have not made any deposit
in your PPF account this financial year, just do that by 5th of July to earn interest for next month and
enjoy all the benefits mentioned above.
Why Should You Invest in Mutual Funds?
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 49
When considering investment opportunities, the first challenge that almost every investor faces is a plethora of
options. From stocks, bonds, shares, money market securities, to the right combination of two or more of
these, however, every option presents its own set of challenges and benefits.
So why should investors consider mutual funds over others to achieve their investment goals?
Mutual funds allow investors to pool in their money for a diversified selection of securities, managed by a
professional fund manager. It offers an array of innovative products like fund of funds, exchange-traded
funds, Fixed Maturity Plans, Sectorial Funds and many more.
Whether the objective is financial gains or convenience, mutual funds offer many benefits to its investors.
Mutual Funds help investors generate better inflation-adjusted returns, without spending a lot of time and
energy on it.While most people consider letting their savings 'grow' in a bank, they don't consider that
inflation may be nibbling away its value.
Suppose you have Rs. 100 as savings in your bank today. These can buy about 10 bottles of water. Your bank
offers 5% interest per annum, so by next year you will have Rs. 105 in your bank.
However, inflation that year rose by 10%. Therefore, one bottle of water costs Rs. 11. By the end of the year,
with Rs. 105, you will not be able to afford 10 bottles of water anymore.
Mutual Funds provide an ideal investment option to place your savings for a long-term inflation adjusted
growth, so that the purchasing power of your hard earned money does not plummet over the years.
Backed by a dedicated research team, investors are provided with the services of an experienced fund
manager who handles the financial decisions based on the performance and prospects available in the market
to achieve the objectives of the mutual fund scheme.
Mutual funds are an ideal investment option when you are looking at convenience and timesaving
opportunity. With low investment amount alternatives, the ability to buy or sell them on any business day and
a multitude of choices based on an individual's goal and investment need, investors are free to pursue their
course of life while their investments earn for them.
Probably the biggest advantage for any investor is the low cost of investment that mutual funds offer, as
compared to investing directly in capital markets. Most stock options require significant capital, which may
not be possible for young investors who are just starting out.
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 50
Mutual funds, on the other hand, are relatively less expensive. The benefit of scale in brokerage and fees
translates to lower costs for investors. One can start with as low as Rs. 500 and get the advantage of long term
Going by the adage, 'DO NOT PUT ALL YOUR EGGS IN ONE BASKET', mutual funds help mitigate
risks to a large extent by distributing your investment across a diverse range of assets. Mutual funds offer a
great investment opportunity to investors who have a limited investment capital.
Investors have the advantage of getting their money back promptly, in case of open-ended schemes based on
the Net Asset Value (NAV) at that time. In case your investment is close-ended, it can be traded in the stock
exchange, as offered by some schemes.
Higher Return Potential
Based on medium or long-term investment, mutual funds have the potential to generate a higher return, as you
can invest on a diverse range of sectors and industries.
Fund managers provide regular information about the current value of the investment, along with their
strategy and outlook, to give a clear picture of how your investments are doing.
Moreover, since every mutual fund is regulated by SEBI, you can be assured that your investments are
managed in a disciplined and regulated manner and are in safe hands.
Every form of investment involves risk. However, skilful management, selection of fundamentally sound
securities and diversification can help reduce the risk, while increasing the chances of higher returns over
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 51
From this study it is observed that few people like to invest in the Mutual Funds because of ignorance, lack of
knowledge or due to loss in faith. About half of the people invest more of their income in various investments
avenues. Saving accounts and fixed deposits are the most preferred investment avenues followed by the Post
Office Savings. People are aware of the fact that Mutual Fund is also a source of investing their money and
people have actually invested in Mutual Funds. Most of the people like to invest in the open-ended type of
Mutual Funds. The tax benefits under sec 80c and liquidity and flexibility factors involved persuade most of
the people to invest in Mutual funds along with the factors like fixed and regular income. Most of the people
considered that to invest in Mutual Funds is a very risky task. Some of the people know that they can avail
rebate under sec. 88 and some of the people have the knowledge that they can earn regular income by
investing in Mutual funds.
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 52
LIMITATIONS OF THE STUDY
Total number of financial instrument in the market is so large that it needs a lot of resources to analyze
them all. There are various companies providing these financial instruments to the public.
Handling and analyzing such a varied and diversified data needs a lot of time and resources
The size of each and every sector varies in an investment market
The market fluctuation of the portfolio would also differ from each other.
Some external factors that affect the performances to each investment market
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 53
MY WORK IN INTERNSHIP
Initial days of my internship sir taught me about mutual funds and other investment option available in market
I met more than 15 client during my internship and response of that client were different some of were
existing and others were new client and they all are working professionals and some were having their own
business I visited more than 4 colleges for new project financial learning center that we have worked I have
also done cold calling to more than 50 client for NFO of ICICI Prudential mutual fund and other schemes
also. I have also learned about financial planning. I have also done client handling regarding their queries for
account statement and redemption of funds
Mutual fund were sold on the basis of portfolio maintained by the Optima money managers. In that portfolio
we had all the records of our client from which we came to know about that which scheme is best suitable for
that client on the basis of their portfolio and current market performances and their history of performances.
For example: if a particular client is earning average and don’t want to pay taxes and instead he wants to
invest that money so we suggested them a scheme which is best for tax saving, like tax saver plan and ELSS
schemes Birla Sun life Tax Relief 96 fund , ICICI Prudential Tax Plan, Edelweiss ELSS Fund
One of the client who is C.A by professional, wanted to secure his daughter future so according to his need we
sold ICICI PRUDENTIAL MUTUAL FUND new fund offer which was best suitable to satisfy his need as it
gives regular dividend every year.
He bought this fund in his daughter’s name for her future education planning.
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 54
I sold few mutual funds to existing clients of optima money managers with increased SIP like someone is
investing monthly through systematic invest plan we have offered him to increase their monthly SIP
according to their income and savings and their need.one of our client introduced her friends they want to
invest for tax saving, so as our sir suggested and gave me 2 plans for him according to their need one is Birla
Sun life tax relief 96 fund and other was Edelweiss ELSS fund so I told them about both the schemes how
they performing and what is returns and what is the lock in period of that particular schemes
Suggestions and Recommendations
Return on Investment is must but the risk also should be minimizing at the same time.
No one loves to lose his hard earned money therefore it should be invested in safer place.
Services are must for them and therefore the company must also concentrate on this aspect.
Good advisory services, secrecy of the data given to the company as well as every people must treated
as they all are equal i.e. no biasness.
Charges of the services provided to them should be reasonable and viable.
ADITYA INSTITUTE OF MANAGEMENT STUDIES & RESEARCH 56
Journals & other references:
The Economic Times
Security analysis and portfolio management – work book
Fact sheet and statements of various fund houses.