Project

EXECUTIVE SUMMARY
When there are surplus funds available in the organization it is always a very prudent
decision to invest these funds elsewhere to earn some returns on them even if the
funds are available for a very short period of time.
GAIL makes its investment of surplus funds according to the guidelines specified by
the DPE and Ministry of Finance. As per the guidelines all the CPSEs (Central public
Sector Enterprises) should invest only in Treasury Bills, G-Secs, Term Deposits, CDs,
Commercial Papers, Inter-Corporate Deposits and public Sector Mutual Funds.
GAIL for investing its surplus funds considers only term deposits and CLTD a/c as
there is zero risk factor involved in them.
In this research project, I have studied the returns which GAIL is earning with its
current investment policy. My motive here was to find out whether GAIL should
continue with its investment policies or whether considering investing in other options
such as Public sector Mutual Funds would help GAIL earn better returns on its idle
funds, even if it is invested for a very short period of time of less than 7 days.
I studied mutual fund investment as an option because they have various schemes
which help to earn steady and reasonable returns on investment, with high level of
liquidity.
Moreover investment can be made for less than 7 days which s not possible with FDs
or CLTDs. And also returns earned on them are also tax free.
I studied and analyzed the risk and the performance of 3 public sector Mutual Funds,
UTI, SBI and LIC.
It was found that there is not much volatility in the performance of these mutual
funds and the risk factor is also very meagre.
GAIL should consider investing in these Funds.
1
RESEARCH OBJECTIVE
1. To the short term surplus investment pattern of GAIL.
2. To study the new avenues of investment for GAIL that are allowed
by Department of Public Enterprises.
3. To determine the risk involved in these investment options.
4. To analyze the returns from the various investment options

available to GAIL.
5. To recommend the optimal investment option that should be

considered by GAIL to earn more returns.
2
RESEARCH DESIGN & METHODOLOGY
A descriptive research is conducted here as the requirement here was to find out the
characteristics, features, advantage, disadvantage, the risk involved and the related
performance of various investible options available to GAIL.
SOURCES OF DATA:
Majority of the data used in this report is secondary in nature, which are collected
from the reports and files and annual report of the company.
Information was also collected from concerned officials of the Company.
I visited the website of GAIL, DPE, Finance Ministry, Investment Commission of

India, Association of Mutual Funds of India etc.
INSTRUMENTS USED:
With the help of MS Excel I prepared the charts and graphs to depict the information
and also to calculate the returns from various investible options.
DATA COLLECTION:
Data was collected from the Secondary sources that is, the websites, reports, articles,
books etc.
LIMITATIONS:
As according to the DPE guidelines GAIL is allowed to invest only in Public sector
MF where it is true that the volatility is less and therefore much less riskier than other
Mutual funds. Had GAIL been allowed to invest in other Mutual funds it could have
earned much higher returns. As a 90 days FD with SBI will help GAIL earn an
interest return of 3% p.a. , But the same amount for the same period if invested in
some other mutual funds would have earned almost double returns.
3
1. INTRODUCTION
ABOUT THE COMPANY
GAIL (India) Limited, is India's flagship Natural Gas company, integrating all aspects
of the Natural Gas value chain (including Exploration & Production, Processing,
Transmission, Distribution and Marketing) and its related services. In a rapidly
changing scenario, Company is spearheading the move to a new era of clean fuel
industrialisation, creating a quadrilateral of green energy corridors that connect major
consumption centres in India with major gas fields, LNG terminals and other cross
border gas sourcing points. GAIL is also expanding its business to become a player in
the International Market.
Table 1.1
Incorporated 16th August ,1984

Turnover (2009-10) Rs. 24,996 crore
Net Profit (2009-10) Rs. 3,140 crore
Employees 3,480
Registered Office 16 Bhikaiji Cama Place, R.K.
Puram, New Delhi 110066
Market Shares 78% Market Share in Natural Gas
Transmission
70% Market share in Natural Gas
Marketing
GAIL (India) Ltd. is involved in activities expanding to Gas Processing for

fractionating LPG, Propane, SBP Solvent and Pentane; transmission of Liquefied
Petroleum Gas (LPG); Petrochemicals like HDPE and LLDPE; leasing bandwidth in
Telecommunications. The company has extended its presence in Power, Liquefied
Natural Gas (LNG) re-gasification, City Gas Distribution and Exploration &
Production through equity and joint venture participations. It is steadily developing its
overseas presence and through this it wants to focus on maintaining its dominant
position in the gas business, especially the transmission segment.
4
HISTORY
GAIL (India) Ltd. (erstwhile Gas Authority of India Ltd), India's principal gas
transmission and marketing company, was set up by the Government of India in
August 1984 to create gas sector infrastructure for sustained development of the
natural gas sector in the country.
The 2800-km Hazira-Vijaipur-Jagdishpur (HVJ) pipeline became operational in 1991.

During 1991-93, three LPG plants were constructed and some regional pipelines
acquired, enabling GAIL to begin its regional gas distribution in various parts of
India.
GAIL began its city gas distribution in Delhi in 1997 by setting up nine CNG stations,
catering to the city's vast public transport fleet.
In 1999, GAIL set up northern India's only petrochemical plant at Pata.
GAIL became the first Infrastructure Provider Category II Licensee and signed the
country's first Service Level Agreement for leasing bandwidth in the Delhi-Vijaipur
sector in 2001, through its telecom business GAILTEL. In 2001, GAIL commissioned
world's longest and India's first Cross Country LPG Transmission Pipeline from
Jamnagar to Loni.
GAIL today has reached new milestones with its strategic diversification into
Petrochemicals, Telecom and Liquid Hydrocarbons besides gas infrastructure. The
company has also extended its presence in Power, Liquefied Natural Gas re-
gasification, City Gas Distribution and Exploration & Production through equity and
joint ventures participations. Incorporating the new-found energy into its corporate
identity, Gas Authority of India was renamed GAIL (India) Limited on November 22,
2002.
5
VISION
Be the Leading Company in Natural Gas and beyond, with Global Focus, Committed
to Customer Care, Value Creation for all Stakeholders and Environmental
Responsibility.
MISSION
To accelerate and optimise the effective and economic use of Natural Gas and its
fractions to the benefit of national economy
Key Elements of GAIL's Vision:
Leading Company
Be the undisputed leader in the Natural Gas market in India and a significant player in
the global natural gas industry, by growing aggressively while maintaining the highest
level of operating standards
Natural Gas and Beyond
Focus on all aspects of the Natural Gas value chain and beyond including Exploration,
Production, Transmission, Marketing, Extraction, Processing, Distribution, utilisation
including Petrochemicals and Power and Natural Gas related infrastructure, products
and services
Global Focus
Create and strengthen significant global presence to pursue strategic, attractive

opportunities that leverage GAIL's capabilities while effectively managing business
risks
Customer Care
Anticipate and exceed customer expectations through the provision of highest quality
infrastructure, products and services
Value Creation for All Stakeholders
GAIL will create superior value for all stakeholders including shareholders,
customers, employees, business partners, surrounding communities and the nation
Environmental Responsibility
6
GAIL is committed to operational excellence in all we do with a focus on continuous
efforts to improve environmental performance for ourselves and our customers and
will be sensitive to the needs of the environment in all our actions
Today, GAIL's Business Portfolio includes:
 7,700 km of Natural Gas high pressure trunk pipeline with a capacity to carry
157 MMSCMD of natural gas across the country.
 7 LPG Gas Processing Units to produce 1.2 MMTPA of LPG and other liquid
hydrocarbons.
 North India's only gas based integrated Petrochemical complex at Pata with a
capacity of producing 4,10,000 TPA of Polymers.
 1,922 km of LPG Transmission pipeline network with a capacity to transport

3.8 MMTPA of LPG.
 27 oil and gas Exploration blocks and 3 Coal Bed Methane Blocks.
 13,000 km of OFC network offering highly dependable bandwidth for telecom

service providers.
 Joint venture companies in Delhi, Mumbai, Hyderabad, Kanpur, Agra,

Lucknow, Bhopal, Agartala and Pune, for supplying Piped Natural Gas (PNG)
to households and commercial users, and Compressed Natural Gas (CNG) to
the transport sector.
 Participating stake in the Dahej LNG Terminal and the upcoming Kochi LNG
Terminal in Kerala.
 GAIL has been entrusted with the responsibility of reviving the LNG terminal
at Dabhol as well as sourcing LNG.
 Established presence in the CNG and City Gas sectors in Egypt through equity
participation in three Egyptian companies: Fayum Gas Company SAE, Shell
CNG SAE and National Gas Company SAE.
 Stake in China Gas Holding to explore opportunities in the CNG sector in

mainland China
 A wholly-owned subsidiary company GAIL Global (Singapore) Pte Ltd in

Singapore
7
DOMESTIC BUSINESS INITIATIVES
The Company established a world class National Gas Management Centre (NGMC) with an
objective of round-the-clock marketing and control of transmission assets of the Company
from a single location. NGMC deals with the Company’s natural gas transportation and LPG
transmission business throughout India in which live data is available at a centralized location
for monitoring of pipeline and delivery condition of all major customers’ terminals.
National Gas Management Centre, which is the first of its kind for the gas business in India,
encompasses management of entire gas trading of the Company, transportation and LPG
transmission business throughout India with the availability of live data at centralized location
for monitoring pipeline parameters, delivery conditions at all major customer terminals, gas
reconciliation and accounting for entire gas business.
To ensure efficient real time management and gas nominations, delivery and allocation with
accurate gas reconciliation, a Gas Management System (GMS), a web enabled system, is also
available in NGMC, which integrates all the shippers, suppliers, customers and transporters of
gas to provide better co-ordination and transparency in Gas Transportation business.
The Company is in the process of acquiring 19% equity stake in ONGC Petro-additions
Limited (OPaL) along with co-promoter status. OPaL is setting up a petrochemical complex
at Dahej in Gujarat for producing 1.1 million tonnes per annum of ethylene, which is
scheduled to be commissioned by the end of the year 2012.
Further, the Company has signed Memorandum of Understanding (MoU) with-
- IOCL for evaluating the potential of setting up of petrochemical complex in Barauni, Bihar
and
- IFFCO to evaluate the potential of setting up of gas based power plant& other industries
including chemicals, fertilizers, CNG & PNG in India
In its efforts to reduce Green House Gas (GHG) emissions, the Company has signed an
agreement for sale of steam through waste heat recovery at its Vaghodia processing plant. The
Company has initiated steam conversion project based on waste heat recovery system from
gas turbines. This rare, multi-benefit project would not only utilize Clean Development
Mechanism (CDM) for power generation, but also lead to conservation of gas as well as
increased energy efficiency.1
1
GAIL’s Annual Reports
8
GLOBAL BUSINESS INITIATIVES
The Company is globalizing its business activities with an objective of exploring

growth opportunities and entering new markets. The Company is continuously
pursuing gas sector business opportunities abroad.
The Company has been successful in Myanmar, Egypt, China and Oman in securing
participation in gas sector related projects and also has participating interest in two
offshore blocks (A-1 & A-3) in Myanmar and one onshore block (Block 56) in Oman.
The Company has secured participating interest in three retail gas companies in Egypt
and one retail gas company in China.
Further, GAIL India Ltd. has a wholly owned subsidiary company namely GAIL
Global (Singapore) Pte Ltd; at Singapore for pursuing overseas business of the
Company. In addition The Company has recently formed a Joint Venture with China
Gas Global Energy Holdings Limited wherein The Company and China Gas are equal
partners. In order to have long term association with China Gas and also to expand
business in the fast growing downstream Chinese gas sector, the Joint Venture(JV)
will pursue opportunities in CNG, City Gas, Pipeline, CBM, LNG and E&P projects.
In addition, The Company has been nominated as a nodal agency from Indian side by
Government of India for pursuing ran-Pakistan –India (IPI) natural gas pipeline
project and Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline
project for supply of gas to India from Iran and Turkmenistan respectively.
The Company signed a Memorandum of Understanding (MoU) with Delta

Compressor of Argentina for pursuing CNG opportunities abroad and SIBUR Holding
for pursuing gas processing& gas based petrochemical opportunities in Russia.2
2
9
Figure 1.1 PROJECTED CAPEX – Rs.49155 Cr
Figure 1.2 PROJECTED BORROWINGS – Rs.28700 Cr
3
GAIL investor presentation, November 09
10
Figure 1.3 GAIL’S EXISTING INFRASTRUCTURE4
MILESTONES
4
GAIL investor presentation, November 09
11
2009-10
1. GAIL signs an MoU with Kerala State Industrial Development Corporation Limited
(KSIDC), Government of Kerala for Natural Gas Infrastructure and City Gas
Distribution in Thiruvananthpuram.
2. GAIL approves an investment of Rs. 8,000 crore for setting up of new pipelines and
augmenting capacity of an existing pipeline.
3. GAIL signs a Gas Co-operation Agreement with Infrastructure Development

Department (IDD) Karnataka to develop natural gas distribution and city gas
infrastructure, to develop the use of eco-friendly fuels, especially Natural
Gas/CNG/PNG/R-LNG and to promote a Joint Venture (JV) for domestic, industrial
and transport sectors in the state of Karnataka.
4. GAIL is awarded Oil and Gas Pipeline Transportation Company for the year 2007-08
in recognition for leading performance growth of infrastructure, optimal utilization
during hydrocarbon transportation in India while meeting norms of health, safety and
environment protection.
5. GAIL signs agreement with Rajasthan Rajya Vidyut Utpadan Nigam for Gas based
power plant for supply of natural gas for 160 MW gas power plant of RRVUNL at
Ramgarh.
6. GAIL signed two contracts for sourcing of natural gas from PY-1 field for supply to a
power plant in Tamil Nadu to develop the natural gas distribution and city gas
infrastructure, to develop the use of eco-friendly fuels, especially Natural
Gas/CNG/PNG/R-LNG and to promote a Joint Venture (JV) for domestic, industrial
and transport sectors in the state of Kerala.
7. GAIL gets SCOPE Meritorious Award for Corporate Governance for the year 2007-
08.
12
FUTURE PLANS:
The company is expanding its pipeline network substantially to add another 6,600 km of
pipelines within the next three years. In addition, it is investing in its E&P blocks besides
investing in its joint venture projects such as Brahmaputra Cracker and ONGC Petro
Additions. The projected capital expenditure for the next five years is Rs 49,155 crore -
almost thrice its current gross block.
In the near term, the rising production from Reliance Industries’ KG basin fields will bring in
additional transmission revenues for the company, while any E&P success could add to future
growth visibility. But rest of its projects will take long to generate returns.
FINANCIALS:
Over the last three years, the company has spent an average of Rs 270 crore annually on the
E&P business towards survey and dry well expenditure. So far, in the first nine months of
FY10, it has written off Rs 108 crore. As a result, the company is likely to write-off another
Rs 150 crore in the March ‘10 quarter. The company has been cash rich with over Rs 3,000
crore of annual operating cash flows.
However, its ambitious investment plans for the next five years will necessitate it to raise debt
of Rs 28,700 crore in the next five years. Since FY04, Gail is sharing subsidy on LPG and has
so far contributed Rs 8,200 crore on a cumulative basis. Subsidy sharing has always remained
the most influential factor for Gail’s profits and which will remain equally uncertain in future
as in the past.
13
A reduction in subsidy burden was the key driver of Gail’s good performance in the
December ‘09 quarter. Over the last five years, the company’s net sales have grown at a
cumulative annual growth rate (CAGR) of 15% and net profit at a CAGR of 10%. In the nine
months ended December ‘09, the company’s profits are only marginally higher than that of
the year-ago period.
2. FINANCIAL PERFORMANCE5
Table 2.1 INCOME
NET SALES (Rs. In crores)

2008-09 2007-08 % increase
Rs. 23,776 Rs. 18,008 32%
Table 2.2 SEGMENT WISE TURNOVER

(Rs. In crores)
S.No Particulars 2008-09 2007-08
1 Transmission services
a) Natural Gas 2,216 2,026
b) LPG transmission 380 382
2 Gas trading 15,435 10,332
3 Petrochemicals 2,705 2,569
4 LPG &other Liquid 2,964 2,641
Hydrocarbons
5 GAILTEL 24 28
6 Unallocated 52 30
Total Sales 23,776 18,008
Table 2.3 TOTAL INCOME

(Rs. In crores)
2008-09 2007-08 % increase
Rs. 24,578 Rs. 18,594 32%
Table 2.4 COST OF SALES
Cost of sales including depreciation and interest (Rs. In crores)

2008-09 2007-08 % increase
Rs. 20,369 Rs. 14,709 38%
5
14
GAIL’S FINANCIAL PERFORMANCE IN THE PAST 5 YEARS
Table 2.5
FINANCIA 2004-05 2005-06 2006-07 2007-08 2008-09

L
Gross 12927.07 14875.49 16545.85 18580.21 24292.24

sales
Profit 1953.91 2310.07 2386.67 2601.46 2803.70

after tax
Net worth 8559.65 9874.81 11,262.42 12,842.38 14,575.12
Figure 2.1
The Gross sales and profits have been showing an increasing trend over the past five
years.
6
GAILs Annual Report 2008-09
15
16
RESERVES AND SURPLUS
Table 2.6
Year Reserve and Percentage

surplus change
2004-05 7780.46 17.895%
2005-06 9127.64 17.315%
2006-07 10547.26 15.553%
2007-08 12159.23 15.283%
2008-09 13501.15 11.036%
Figure 2.2
The reserves and surplus were at Rs. 13,501crores at the end of the FY 2008-09as
compared to Rs. 12,159 crores at the end of the last FY 2007-08.
7
17
INVESTMENTS AND EARNINGS IN THE LAST 5 YEARS8
Table 2.7
Years Investments Dividend Interest income

income on on investment
investment
2004-05 783.95 119.34 146
2005-06 1443.35 174.44 221.86
2006-07 1463.84 190.8 249.55
2007-08 1490.88 201.16 268.57
2008-09 1737.27 216.29 384.54
Figure 2.3
GAIL (India) will invest Rs 8,000 crore in laying over 2,400 km of pipelines in
three years.
The company, at present, operates about 7,100 km gas pipelines and is working
on doubling its network by Mar 2012 at an investment of around Rs 28,000
crore.
It can be seen that over the years, the income from the interest earned on investment
has increased in a much steeper way than the income from the dividend of investment.
3. TYPES OF INVESTMENTS
8
18
There are a variety of different types of investments available today. There are short-term
investments, long-term investments, and as many different investment strategies as there are
investors.
SHORT-TERM VS. LONG-TERM: A COMPARISON
Obviously, there are differences between short-term and long-term investments. Short-term
investments are designed to be made only for a little while, and hopefully show a significant
yield, whereas long-term investments are designed to last for years, showing a slow but
steady increase so that there is a significant yield at the end of the term.
ADVANTAGES OF SHORT-TERM INVESTMENTS
The main advantages to short-term investments are the potential for fast growth and the fact
that the term may only last a few weeks to a few months. Though there tends to be more
fluctuation in many forms of short-term loans, these loans allow more control over the money
and it usually isn't out of the possession for very long.
DISADVANTAGES OF SHORT-TERM INVESTMENTS
As mentioned above, short-term investments tend to be a bit riskier and show a much higher
rate of fluctuation than their long-term counterparts. While there is a good chance that you'll
make money with a short-term investment, there is also a chance that you'll lose money.
This is especially the case when dealing with the stock market, since many of the short-term
investments made with stocks and bonds involve precision timing to sell when the stocks or
bonds are at their peak just before they begin to drop.
ADVANTAGES OF LONG-TERM INVESTMENTS
Just the opposite of short-term investments, long-term investments have the ability to gain
small amounts of money over a longer period of time. The slow-but-steady pace of long-term
investments allow for a much greater degree of stability and a much lower risk than short-
term investments.
They also are ideal for making the savings or retirement fund grow. The investments usually
continue to grow over the years, maturing just as you need them.
DISADVANTAGES OF LONG-TERM INVESTMENTS
Of course, the main disadvantage of long-term investments is that they increase in value
slowly and can take years to mature.
For those individuals who need a high yield in a short period of time, long-term investments
are definitely not the way to go... between the fees that are associated with some types of
investment and the small fluctuations that any investment will experience, many long-term
investments might actually go down in value before they begin to climb over time.
Additionally, with many of the long-term investments that you'll find, you tend to have much
less control over the money until the investment matures. There are usually penalties or fines
for early withdrawal or selling stocks and bonds through long-term investment programs.
4. INDIAN STOCK MARKET IN 2010
19
The prevailing economic conditions, both domestic and global, suggest the Indian
stock market is poised to continue to rally in 2010 even though US and European
Markets have yet to recover from recession effect. Key factor remains the impact of
Q4 results and strong GDP growth of around 8%. However point of caution needs to
be the phase wise withdrawal of financial support given by Indian government to the
market. So far, the recovery in India has been driven by domestic consumption and
government expenditure. However, corporate investment is expected to surge in 2010
due to the strong GDP growth which will increase capacity utilisation.

Stocks in the infrastructure and power sectors may be the front runners in 2010 as
they receive strong policy support from the Indian government. But one must be
cautious that the interest rate cycle might start moving up with the strong GDP
performance and relatively high inflation. If it does, banking stocks will be affected
severely as was seen in the past.We have witnessed a global financial crisis in 2008-
09 which is still very much an unforgettable incident and taught us good lessons.

During the bull rally (2003-2007) there was considerable exuberance. This was the
time when interest rates were low. Credit was available and that too cheaply. Not just
that, corporate profits were growing at a healthy rate. Stock markets were notching
strong gains. But the global credit crisis changed all that. The abundant liquidity, not
surprisingly, led to asset bubbles that finally burst. So if one learned a good lesson
should go for companies with less debt, enough cash and strong return ratios. These
are the ones who will be able to tide over the crisis and generate strong returns to
shareholders in the long term beyond 2010.9
5. INVESTMENT POLICY
9
http://www.merinews.com/topic/indian-stock-market.shtml
20
GAIL (India) Ltd. has to follow the guidelines and policies as prescribed by the Ministry of
Finance, Department of Public Enterprises and Ministry of Petroleum & Natural Gas
regarding investment of its funds.
MINISTRY OF FINANCE10
The Ministry of Finance is an important ministry within the Government of India. It

concerns itself with taxation, financial legislation, financial institutions, capital markets,
centre and state finances, and the Union Budget.
The Union Finance Ministry of India comprises five departments:
 Department of Economic Affairs

 Department of Expenditure
 Department of Revenue
 Department of Disinvestments
 Financial Services
On 1st December, 2008 MOF in an office memorandum pronounced that the Central Govt.
Ministries and departments should place their surplus funds with public sector banks in order
to avoid undesirable competition amongst banks leading to arbitrary hikes in deposit rates,
which have consequences for the economy, the Govt. Decided that the practise of inviting
competitive bids for bulk deposits should be discontinued and all ministries /departments
under their control should place their deposits with the bank with whom they have regular
business.
To control the cost of credit in the circumstances when there was a global slowdown, the
MOF and Ministry of Heavy Industries and Public Enterprises came out with some set of
instruction which were issued to all the CPSEs.
The Finance Minister had a meeting with the Public Sector Banks and CMDs of CPSEs-
Based on the discussion the following instruction were issued.
1. All Public Sector Banks were advised to publish their card rates for bulk deposits of
Rs.1 crore and above.
2. All CPSEs were advised surplus funds may be placed with one or more PSBs
3. CPSEs shall not deploy their funds through a bidding process with any public sector
banks or withdraw the funds from any PSB prematurely for depositing them
elsewhere.
4. Placing of deposits with Public Sector Banks at card rates will deemed to be a
transparent process
DEPARTMENT OF PUBLIC ENTERPRISES
10
http://finmin.nic.in/
21
In their 52nd Report (3rd Lok Sabha), the Estimates Committee referred to the absence of any
organisation in the Government to provide policy and overall guidance to the Central Public
Enterprises (PSEs) and stressed the need for setting up a centralised coordinating unit which
could also make continuous appraisal of the performance of public enterprises. This led to the
setting up of the Bureau of Public Enterprises (BPE) in 1965. BPE was later constituted as an
independent administrative unit within the Ministry of Finance, Department of Expenditure in
1969. As a result of the re-organisation of the Ministries/Departments of the Central
Government in September, 1985, BPE was transferred from Ministry of Finance to the
Ministry of Industry. In May, 1990, BPE was conferred the status of a full-fledged
Department and is now known as the Department of Public Enterprises (DPE) in the
Ministry of Heavy Industries and Public Enterprises.
The Department of Public Enterprises acts as a nodal agency for all PSEs and assists in policy
formulation pertaining to the role of PSEs in the economy as also in laying down policy
guidelines on performance improvement and evaluation, financial accounting, personnel
management and in related areas.
Guidelines for Investment of Surplus Funds by Public Sector

Enterprises11
Principles concerning investments
i. Investments should be made only in instruments with maximum safety.

ii. There should be no element of speculation on the yield obtaining from the
investment.
iii. There should be a proper commercial appreciation before any investment decision of
surplus funds is taken. The surplus availability may be worked out for a period of
minimum one year at any point of time.
iv. Funds should not be invested by the PSE at a particular rate of interest for a particular
period of time while the PSE is resorting to borrowing at an equal or higher rate of
interest for its requirements for the same period of time.
v. Investment decision should be based on sound commercial judgement. The
availability should be worked out based on cash flow estimates taking into account
working capital requirements, replacement of assets and other foreseeable demands.
vi. The remaining period of maturity of any instrument of investment should not exceed
one year from the date of investment where the investment is made in an instrument
already issued. Where investment is made in an instrument newly issued, the final
maturity of the instrument should not exceed one year. However, only in the case of
term deposits with banks, it can be up to three years.
Eligible Investments

Investments may be made in one or more of the following instruments, subject to
11
http://dpe.nic.in/
22
principles outlined in the previous paragraph:
1. Term deposits with any scheduled commercial bank [i.e., banks incorporated in India]
and with a paid up capital of at least Rs. 100 Crores, fulfilling the capital adequacy
norms as prescribed by the R.B.I. from time to time. These adequacy norms should be
reflected in the last published balance sheet.
2. Instruments which have been rated by an established Credit Rating Agency and have
been accorded the highest credit rating signifying highest safety e.g. certificates of
deposits, deposits schemes or similar instruments issued by scheduled commercial
banks/term lending institutions including their subsidiaries, as well as commercial
paper of corporate..
3. Inter-corporate loans are permissible to be lent only to Central PSEs, which have
obtained highest credit rating awarded by one of the established Credit Rating
Agencies for borrowings for the corresponding period.
4. Any debt instrument, which has obtained highest credit rating from an established
Credit Rating Agency.
Authority Competent to Invest
i. Decisions on investment of surplus funds shall be taken by the Public Sector PSU
Board. However, decisions involving investing short-term surplus funds up to one
year maturity may be delegated up to prescribed limits of investment, to a designated
group of Director[s], which should invariably include CMD & Director
(Finance)/Head of Finance internally. Where such delegation is made, the delegation
order should spell out the levels of approval and the powers of each official, which
should be strictly observed. Where such delegation is exercised, there should be a
proper system of automatic internal reporting to the Board at its next meeting in all
cases.
ii. PSEs should ensure that all investment decisions are in accordance with the
regulations as per the Company Law & Government of India instructions and any
other relevant legislation and rules as applicable. Any investment already made,
which is not in conformity with the above guidelines should not be renewed after
maturity.
Amendments made to the DPE guidelines over the years

1st November, 1995
23
1. PSUs will not be allowed to invest their surplus funds in UTI and other public and
private mutual funds as they are equity based and are, therefore, inherently risky.
2. Public enterprises can select treasury bills and Government of India securities up to
three years maturity period for the investment of surplus funds.
3. Instead of the condition of Rs.100 Crores as paid up capital there will be a condition
of Rs.100 Crores as ‘net worth’ of the bank, i.e. the paid up capital plus free reserves
of the bank should not be less than Rs.100 Crores.
4. It is clarified that credit ratings issued by rating agencies are broadly classified as
investment grade and non-investment grade. Since "highest credit rating" would mean
the top most in the investment grade, which would limit choice and probably lower
the overall yield, PSUs will now be free to invest in instruments falling under
investment credit rating.
11th March, 1996
 PSUs were advised that the investment of surplus funds in UTI and other public and
private sector mutual funds should not be made as they are inherently risky. The
existing holdings of PSUs in various schemes of UTI and similar mutual funds
schemes of other public sector and private sector mutual funds may be phased out
over a period of three years.
2nd July, 1996
 Finance sector PSUs, get registered with RBI as NBFCs, in case where it is not
already done and completely falls in line with the directive/monitoring process of
RBI. The NBFCs in Public Sector registered with RBI will be outside the purview of
the above referred guidelines issued by DPE.
14th February, 1997
 Taking into account the various factors regarding the establishment and investment
activities of UTI and recognition of Units as eligible securities under the Indian
Trusts Act, 1882, and the regulatory frame work of SEBI, it has been decided to
remove the existing restrictions on investment of surplus funds of PSEs in the
Units/Schemes of UTI as contained in the above mentioned guidelines.
25th November, 1999
 The public sector enterprises may be allowed to invest their surplus funds in
the call money deposits after taking individual approvals from the Reserve
Bank of India.
29th September, 2005
 Allow CPSEs to invest their surplus funds in the Call Money Market.
31st August, 2007
24
 Only Navratna and Miniratna CPSEs are permitted to invest in SEBI regulated public
sector mutual funds.
 Navratna and Mini-ratna CPSEs to invest in equity schemes of SEBI regulated Public
Sector Mutual Funds up to 30% of available surplus funds of the concerned CPSEs.
11th April,2008
 It has been accordingly decided that at least to the extent of 60% of funds under the
control of Ministries/Departments/other agencies/entities etc. be placed with Public
Sector Banks. Moreover, in order to avoid undesirable competition amongst banks
leading to arbitrary hikes in deposit rates (even for short periods) which have
consequences for the economy, it has been decided that the practice of inviting
competitive bids for bulk deposits should be discontinued forthwith.
15th April, 2008
 It is clarified that the limit of 30% of available surplus funds is for investment in
Public Sector Mutual Funds as a whole and not for only equity schemes of Public
Sector Mutual Funds.
24th Feb 2009
 CPSEs should not invite bids from the private sector banks also for placing their bulk
deposits, and
 All CPSEs parking their funds with banks should renew all deposits maturing upto
30.06.2009 with the same bank, with which they have placed deposits, at the
published bulk deposit card rates
Ministry of Petroleum and Natural Gas

25
The Ministry of Petroleum & Natural Gas is a branch of the Government of India. It
has the responsibility of exploration and production of oil and natural gas, their
refining, distribution and marketing, import, export, and conservation of petroleum
products and liquefied natural gas in India.
The Ministry of Petroleum & Natural Gas along with The Department of Public
Enterprises makes guidelines for the different public sector enterprises.
Given below are some of the circulars sent by Ministry of Petroleum & Natural Gas
and the DPE:
1. On 31st January 2008, a circular was issued that preference should be given to
Public Sector Banks for handling government transactions & there should be
no discontinuation of bids by the Public Sector Enterprises to avoid
competition among banks to get the investment.
The banks raise their interest rates to get the PSU to deposit its money there
and this leads to increase in bank rates, which is a very unhealthy situation
especially in the present scenario of recession where RBI is trying to control
the rates.
2. On 2nd January 2009, another circular was released in which it was mentioned
that CPSEs should place surplus funds with PSBs to the extent of 60% or more
and at the same time prohibiting them to invite bids for the same.
3. On 12th January 2009, a circular was issued which has led to t he removal of
the prohibition on investment of surplus funds of CPSEs in mutual funds.
6. INVESTMENT PRIORITY OF GAIL
1. Conformance to DPE guidelines

26
2. Security & safety
3. Transparency
4. Maximization of returns
INVESTMENT OPTIONS AVAILABLE TO GAIL
Table 6.1
Investment Issued By Residual Maturity
instrument
Treasury Bills GOI Up to 1year
GOI securities GOI Up to 3 year
Term deposits Scheduled commercial Up to 3 year
banks
Certificate of deposits/ Scheduled commercial Up to 1 year
Deposit schemes banks
Commercial Papers Corporates Up to 1 year
Inter-Corporate Central PSUs Up to 1 year
deposits/Loans
Any other Debt Instrument Up to 1 year
Besides all these instrument GAIL is also allowed to invest in Public Sector Mutual
funds as per the amendment to the DPE guideline o 14th February, 1997.
In the 182nd board meeting of GAIL, held on 9th October, 2002. The BOD granted
opening of Corporate Liquid Term Deposit Account (CLTD a/c) with SBI.
In the 230th meeting held on 27th October, 2005 Dir(Finance) was authorized to
open/close & operate CLTD a/c with HDFC bank, ICICI bank or any other
nationalized or scheduled commercial banks in India.
CLTD a/c shall enable GAIL to earn interest on the funds received during the
second-half of the day.
Currently, GAIL invests only in Fixed Deposits and Corporate Liquid Term Deposits
(CLTD).
TERM/FIXED DEPOSITS
A deposit held at a financial institution that has a fixed term. These are generally short-term
with maturities ranging anywhere from a month to a few years. When a term deposit is
27
purchased, the lender (the customer) understands that the money can only be withdrawn after
the term has ended or by giving a predetermined number of days notice.
Term deposits are an extremely safe investment and are therefore very appealing to
conservative, low-risk investors. By having the money tied up you'll generally get a higher
rate with a term deposit compared with a demand deposit.
ADVANTAGES OF TERM DEPOSITS:
 Short term deposits are convenient because they do not require you to lock in The
funds for the long term. These term deposits generally have tenure of a few months to
a couple of years. The customer can generally choose the exact term that he is most
comfortable with based on various options provided by the bank.
 Short term deposits offer a relatively higher rate of interest and therefore are better
than leaving money in the savings account, where you receive a relatively lesser
amount.
 In fact short term deposits are the perfect blend of high interest rates without the
necessity of blocking money for a long period of time.
The current deposit rates of SBI are:
Table 6.2
SBI card Rates12
The revised interest rates on Domestic Term Deposits of Rs One

Crore & above with effect from 27.03.2010 would be as under:
Interest Rates for Deposits of Rs. One Crore & Above (% p.a.)
Tenors Rates Revised
w.e.f. w.e.f. 27.03.2010

03.03.2010
7 days to 14 days 1.50 1.50
15 days to 30 days 2.00 2.00
31 days to 45days 2.25 2.25
46 days to 90 days 3.00 3.00
91 days to 180 days 3.50 3.50
181 days to 270 4.50 4.50

days
1 year and above 6.00 6.00
CORPORATE LIQUID TERM DEPOSIT (CLTD)
12
http://www.statebankofindia.com/
28
13
Corporate Liquid Term Deposit (CLTD) scheme is a deposit scheme for corporates,
Institutions & Firms with its unique facility of the partial withdrawals (unitized break
up) to the depositors without the need for premature encashment of the entire deposit.
Thus the product provides liquidity to the depositors with high return and
convenience.
 Customer has the flexibility to choose the period of deposit from 15 days to 3 years.
 Rate of interest for CLTD will be the card rate applicable for the contracted tenure of
the deposit. No differential rate of interest is applicable.
 Minimum amount of deposit to be maintained is Rs.25000/-.Subsequent deposit in

multiples of Rs.5000/- with a minimum of Rs.25000/- . Max cap is Rs.4.95 crores.
 Whenever any cheque is presented by the customer in case of inadequate balance in

the current account for payment of the cheque the shortfall amount is broken in
multiples of Rs.5000/- in’ last in first out’ basis from the CLTD and the cheque is
honoured without any hassle to the customer.
 No loan /overdraft facility is available under the scheme.
 Rules applicable for premature withdrawal for fixed deposit are applicable for the
part amount of deposit broken for withdrawal.
 Usual formalities applicable for opening current account and TDR/STDR account
including KYC procedure are applicable for opening accounts under the scheme.
Table 6.3
CLTD Rates
Name of the Bank Interest Rate

SBI 2%
HDFC 3.75%
13
http://www.indorebank.org/cltd.htm
29
AMOUNT DEPOSITED IN SHORT TERM DEPOSITS BY GAIL14
Table 6.4
Year CLTD Short term

deposit
2004-05 17.79 2426.21
2005-06 58.73 3667.52
2006-07 78.6 2133.55
2007-08 44.4 3323.88
2008-09 82.20 1838.63
Figure 6.1 Figure 6.2
CLTD
100
80
60
40
20
0
CLTD
14
GAILs annual report 2008-09
30
TREASURY BILLS
These are money market instruments to finance the short term requirements of the
Government of India. These are discounted securities and thus are issued at a discount to face
value. The return to the investor is the difference between the maturity value and issue price.
TYPES OF TREASURY BILLS:
There are different types of Treasury bills based on the maturity period and utility of the
issuance like, ad-hoc Treasury bills, 3 months, 6 months and 12months Treasury bills etc. In
India, at present, the Treasury Bills are issued for the following tenors 91-days, 182-days and
364-days Treasury bills.
BENEFITS OF INVESTMENT IN TREASURY BILLS:
 No tax deducted at source

 Zero default risk being sovereign paper
 Highly liquid money market instrument
 Better returns especially in the short term
 Transparency
 Simplified settlement
 High degree of tradability and active secondary market facilitates meeting unplanned
fund requirements.
TREASURY BILLS - AN EFFECTIVE CASH MANAGEMENT PRODUCT:
Treasury Bills are very useful instruments to deploy short term surpluses depending upon the
availability and requirement. Even funds which are kept in current accounts can be deployed
in treasury bills to maximise returns. Treasury bills can be purchased for any number of days
depending on the requirements. This helps in deployment of idle funds for very short periods
as well. Further, since every week there is a treasury bills auction, one can purchase treasury
bills of different maturities as per requirements so as to match with the respective outflow of
funds.
At times when the liquidity in the economy is tight, the returns on treasury bills are much
higher as compared to bank deposits even for longer term. Besides, better yields and
31
availability for very short tenors, another important advantage of treasury bills over bank
deposits is that the surplus cash can be invested depending upon the staggered requirements
GOVERNMENT SECURITIES (G-SECS)
These are sovereign securities which are issued by the Reserve Bank of India on behalf of
Government of India, in lieu of the Central Government's market borrowing programme.
The term Government Securities includes:

 Central Government Securities.
 State Government Securities
 Treasury bills
The Central Government borrows funds to finance its 'fiscal deficit '.The market borrowing of
the Central Government is raised through the issue of dated securities and 364 days treasury
bills either by auction or by floatation of loans.
GOVERNMENT SECURITIES ARE OF THE FOLLOWING TYPES:
 Dated Securities are generally fixed maturity and fixed coupon securities usually
carrying semi-annual coupon.
 Zero Coupon bonds are bonds issued at discount to face value and redeemed at par.
 Partly Paid Stock is stock where payment of principal amount is made in instalments
over a given time frame. It meets the needs of investors with regular flow of funds
and the need of Government when it does not need funds immediately.
 Floating Rate Bonds are bonds with variable interest rate with a fixed percentage over
a benchmark rate. There may be a cap and a floor rate attached thereby fixing a
maximum and minimum interest rate payable on it.
 Bonds with Call/Put Option
 Capital indexed Bonds are bonds where interest rate is a fixed percentage over the
wholesale price index. These provide investors with an effective hedge against
inflation.
BENEFITS OF INVESTING IN GOVERNMENT SECURITIES:
 No tax deducted at source

 Additional Income Tax benefit u/s 80L of the Income Tax Act for Individuals.
 Qualifies for SLR purpose.
32
 Zero default risk being sovereign paper
 Highly liquid.
 Transparency in transactions and simplified settlement procedures through
CSGL/NSDL
CERTIFICATE OF DEPOSIT (CD)
CD is a fixed-deposit investment option offered by banks and lending institutions. It offers

higher interest rates than conventional savings accounts because it requires investors to
deposit funds for a specified term ranging from one month to more than five years. However,
like savings accounts, CDs are a secure form of investment, as they are insured by
government agencies.
This scheme was introduced in July 1989, to enable the banking system to mobilise bulk
deposits from the market, which they can have at competitive rates of interest.
The major features are:
Who can issue: Scheduled commercial banks (except RRBs) and All India Financial
Institutions within their `Umbrella limit’.
CRR/SLR:
Applicable on the issue price in case of banks
Investors:
Individuals (other than minors), corporations, companies, trusts, funds, associations etc
Maturity:
Min: 7 days Max: 12 Months (in case of FIs minimum 1 year and maximum 3 years).
Amount:
Min: Rs.1 Lac, beyond which in multiple of Rs.1 Lac
Interest rate:
Market related. Fixed or floating
Loan:
Against collateral of CD not permitted
Pre-mature cancellation:
Not allowed
Transfer Endorsement & delivery:
Any time
Nature Usance Promissory note:
Can be issued in Dematerialisation form only w.e.f June 30, 2002
other conditions
• If payment day is holiday, to be paid on next preceding business day
33
• Issued at a discount to face value
• Duplicate can be issued after giving a public notice & obtaining indemnity
COMMERCIAL PAPER
Commercial paper is an unsecured and discounted promissory note issued to finance the
short-term credit needs of large institutional buyers. Banks, corporations and foreign
governments commonly use this type of funding.
1. An unsecured, short-term debt instrument issued by a corporation, typically for the

financing of accounts receivable, inventories and meeting short-term liabilities.
Maturities on commercial paper rarely range any longer than 270 days. The debt is
usually issued at a discount, reflecting prevailing market interest rates.
2. An unsecured and unregistered short-term obligation issued by an institutional

borrower to investors who have temporarily idle cash.
3. Short-term, unsecured, discounted, and negotiable notes sold by one company to

another in order to satisfy immediate cash needs.
CP, as a privately placed instrument, was introduced in India in 1990 with a view to enabling
highly rated corporate borrowers to diversify their sources of short-term borrowings and to
provide an additional instrument to investors.
34
INTER-CORPORATE DEPOSITS
Inter-corporate deposits are deposits made by one company with another company, and
usually carry a term of six months. They are unsecured loans extended by corporate with
excess funds to other corporate bodies. The rates in this market are higher as compared to that
of other markets.
The three types of inter-corporate deposits are: three month deposits, six month deposits, and
call deposits.
The inter-corporate deposits market shows a number of interesting

characteristics:
1. The biggest advantage of inter-corporate deposits is that the transaction is free from
bureaucratic and legal hassles. The business world otherwise is regulated by a
number of rules and regulations. The existence of the inter-corporate deposits market
shows that the corporate world can be regulated without rules.
2. The market of inter-corporate deposits maintains secrecy. The brokers in this market
never reveal their lists of lenders and borrowers, because they believe that if proper
secrecy is not maintained the rate of interest can fall abruptly.
3. The market of inter-corporate deposits depends crucially on personal contacts. The
decisions of lending in this market are largely governed by personal contacts.
35
7. GAILS INVESTMENT POLICY PRESENT SCENARIO
Figure 7.1
*Not considered currently
Currently GAIL invests its temporary surplus funds in term deposits with schedule
commercial banks and in CLTD a/c, fulfilling the requirement as specified in DPE
guidelines.
GAIL is not considering the option of Inter Corporate Deposits as not many
companies in the public sector are AAA rated, which is a pre-requisite for the option
to take place and another thing is those companies which are in need of funds or are
ready to accept the deposits from GAIL require it for more than 365 days.
GAIL does not consider Mutual Fund investment because the company is not given
any guarantee on the principal amount or the returns. Moreover it is subject to market
risk and it is more of a speculation which is taking place.
As mutual funds are not considered by GAIL, in the following pages I will try to
study more about the mutual funds, how much and what is the risk involved in
them, are the returns worthy enough if the risk is undertaken, will it be beneficial
for GAIL if it considers investing in them in future.
36
37
8. MUTUAL FUNDS
A mutual fund is a professionally-managed investment that offers diversity,

liquidity and convenience. Each mutual fund is made up of individual stocks, bonds,
or money market securities. Because a mutual fund pools the money of many
individuals, it has the buying power to invest in hundreds of different securities at
once. In exchange for The money invested in a mutual fund, the fund gives you
units in the fund that represent The participation in the fund.
The flow chart below describes broadly the working of a mutual fund:
ORGANISATION OF A MUTUAL FUND
There are many entities involved and the diagram below illustrates the organisational set up
of a mutual fund:
38
TYPES OF MUTUAL FUNDS
 SCHEMES ACCORDING TO MATURITY PERIOD:
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme
depending on its maturity period.
 Open-ended Fund
An open-ended Mutual fund is one that is available for subscription and repurchase on a
continuous basis. These Funds do not have a fixed maturity period. Investors can
conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared
on a daily basis. The key feature of open-end schemes is liquidity.
 Close-ended Fund
A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is open
for subscription only during a specified period at the time of launch of the scheme. Investors
can invest in the scheme at the time of the initial public issue and thereafter they can buy or
sell the units of the scheme on the stock exchanges where the units are listed. These mutual
funds schemes disclose NAV generally on weekly basis.
 FUND ACCORDING TO INVESTMENT OBJECTIVE:
A scheme can also be classified as growth fund, income fund, or balanced fund considering
its investment objective. Such schemes may be open-ended or close-ended schemes as
described earlier. Such schemes may be classified mainly as follows:
 Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long- term.
Such schemes normally invest a major part of their corpus in equities. Such funds have
comparatively high risks. These schemes provide different options to the investors like
dividend option, capital appreciation, etc. and the investors may choose an option depending
on their preferences. Growth schemes are good for investors having a long-term outlook
seeking appreciation over a period of time.
 Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors. Such schemes
generally invest in fixed income securities such as bonds, corporate debentures, Government
securities and money market instruments. Such funds are less risky compared to equity
schemes. These funds are not affected because of fluctuations in equity markets. However,
opportunities of capital appreciation are also limited in such funds. The NAVs of such funds
are affected because of change in interest rates in the country. If the interest rates fall, NAVs
of such funds are likely to increase in the short run and vice versa. However, long term
investors may not bother about these fluctuations.
39
 Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes
invest both in equities and fixed income securities in the proportion indicated in their offer
documents. These are appropriate for investors looking for moderate growth. They generally
invest 40-60% in equity and debt instruments. These funds are also affected because of
fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to
be less volatile compared to pure equity funds.
 Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation of
capital and moderate income. These schemes invest exclusively in safer short-term
instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank
call money, government securities, etc. Returns on these schemes fluctuate much less
compared to other funds. These funds are appropriate for corporate and individual investors
as a means to park their surplus funds for short periods.
 Gilt Fund
These funds invest exclusively in government securities. Government securities have no

default risk. NAVs of these schemes also fluctuate due to change in interest rates and other
economic factors as is the case with income or debt oriented schemes.
 Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P
NSE 50 index (Nifty), etc. These schemes invest in the securities in the same weightage
comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise
or fall in the index, though not exactly by the same percentage due to some factors known as
"tracking error" in technical terms. Necessary disclosures in this regard are made in the offer
document of the mutual fund scheme. There are also exchange traded index funds launched
by the mutual funds which are traded on the stock exchanges.
 FUNDS BASED ON SIZE OF THE COMPANIES INVESTED IN:
 Large cap funds: Funds that invest in companies whose total market cap is
above Rs40bn.
 Mid cap funds: Funds that invest in companies whose market cap is between
Rs20-40bn.
 Small cap funds: Funds that invest in companies whose market cap is below
Rs20bn
40
What is NET ASSET VALUE?
Value or purchase price of a share of stock in a mutual fund. NAV is calculated each day by
taking the closing market value of all securities owned plus all other assets such as cash,
subtracting all liabilities, and then dividing the result (total net assets) by the total number of
shares outstanding. Calculating NAVs - Calculating mutual fund net asset values is easy.
Simply take the current market value of the fund's net assets (securities held by the fund
minus any liabilities) and divide by the number of shares outstanding. So if a fund had net
assets of Rs.50 lakh and there are one lakh shares of the fund, then the price per share (or
NAV) is Rs.50.00.
WHAT ARE THE BENEFITS OF MUTUAL FUNDS?
1. Convenience: Investors who have the time and the money can build their portfolio by
buying one security at a time. But identifying, researching and monitoring securities
can be a full-time job that requires a lot of commitment. Alternatively, investors can
simply buy a mutual fund in the market that will save them a lot of time and regular
monitoring of the performance of the individual securities that make up the fund.
2. Diversification: A single fund can hold securities from 100s of different issuers or
companies, far more than what an individual investor can realistically manage to hold
in their individual portfolios. This diversification reduces the risk of a loss due to
problems in one particular company or industry.
3. Professional management: A mutual fund is managed by professional investors who

do this full time. The resources available to them like traders who have practical
experience in when to buy and sell securities, research team and access to company
management is far more than what an individual investors can achieve on his own.
4. Liquidity: Like shares, mutual funds are also liquid investments that can be bought
or sold freely so that investors have access to their money when needed. However,
certain shares might not trade freely because there is not market for them, and then
the investor is stuck. Mutual funds do not face this problem of illiquidity.
15
DISADVANTAGES OF MUTUAL FUNDS
1. Cost: Mutual funds don't exist solely to make your life easier - all funds are in
it for a profit. The mutual fund industry is masterful at burying costs under layers
of jargon. These costs are very complicated.
2. Dilution. It's possible to have too much diversification. Because funds have
small holdings in so many different companies, high returns from a few
investments often don't make much difference on the overall return. Dilution is
15
http://www.yousaytoo.com/20-advantages-and-4-disadvantages-of-mutual-funds/83574
41
also the result of a successful fund getting too big. When money pours into funds
that have had strong success, the manager often has trouble finding a good
investment for all the new money.
3. Taxes. When making decisions about the money, fund managers don't consider
investor’s personal tax situation. For example, when a fund manager sells a
security, a capital-gains tax is triggered, which affects how profitable the
individual is from the sale. It might have been more advantageous for the
individual to defer the capital gains liability.
9. SWOT Analysis
1. Fixed Deposits
Strengths
 Investment is secure and there is no risk involved.
 Returns are assured.

42
 Returns are not affected by market fluctuations.
Weaknesses
 Low rate of return.
 The principal has to be deposited for a fixed period up to maturity

of the scheme. Some penalty is levied if it is withdrawn before the
due date.
 Investment cannot be instantly liquefied.
Opportunities
 Due to the assured returns it provides, Fixed Deposits are favoured

by risk averse people & no risks are involved in it.
 When stock market conditions are volatile, Fixed Deposits are

preferred.
Threats
 Other forms of investment instruments have come in the market,

like: stocks, bonds, mutual funds, forex, etc. that provide higher
returns.
 They offer less returns than other instruments.
2. Corporate Liquid Term Deposits
Strengths
 Returns are comparable with Fixed Deposits.
 Interest is earned on investment every seventh day.
 Funds can be liquefied as and when required without any charges.

43
Weaknesses
 Returns are fixed but lesser than some other investment instrument
like mutual funds.
Opportunities
 As they give interest after seven days, they are a good investment
instrument for very short periods.
Threats
 They are threatened by mutual funds liquefied schemes that

provide higher returns than them.
3. Mutual Funds
Strengths
 High returns on investments than Fixed Deposits.
 Investment does not have a maturity date – the open ended funds
and liquid funds.
44
 Funds can be liquefied as and when required.
 They provide interest on very short term investments, also less than
a week.
Weaknesses
 Returns are not fixed but variable.
 Some risk factor is ignored.
 There is uncertainty in returns at times.
Opportunities
 As they give high returns, they are preferred by most of the

investors.
 Some schemes offer tax benefits also in form of dividends.
Threats
 Due to uncertain returns, some people shy away from them.
FUND HOUSES
According to the guidelines issued by DPE and the amendments made to it thereafter,
GAIL is allowed to invest its surplus funds only in the SEBI regulated Public sector
Mutual funds.
DPE clarifies Public Sector Mutual Funds as Mutual Fund registered with and
regulated by SEBI where the Government of India, its financial institutions and public
sector banks holds/hold individually or collectively more than 50% of equity/shares in
the Asset Management Company of that Mutual Fund.
45
I have taken here three fund houses considering the guidelines prescribed by DPE.
46
For Mutual funds investment, I am considering liquid funds as a good option,
because they match our purpose of investing for short term.
10. LIQUID FUNDS
Liquid funds are ultra short-term debt funds, which invest in money market instruments such
as certificates of deposit, commercial papers and treasury bills, on an overnight basis or for
few days or months.
Liquid funds basically invest in short-term debt with maturities of less than a year, treasury
securities and money market instruments. These instruments are held for a period of three to
six months or even lower time period such as for few days or months. This type of funds does
not invest in the debt securities having maturity period of more than one year.
Many investors find these funds attractive as they provide the prevailing yield in the market,
good liquidity and low interest rate risk because of 10% or less mark-to-market component as
per SEBI guidelines.
Some of the key advantages of this type of mutual funds can be summarized as below.
 Investors can park their short term cash in this funds to earn good return.
 Lower tax on interest earned by the investors.
 No entry and exit load is charged on the investment amount.
 Low annual fee of 0.30 to 0.70 per cent is applicable to manage the funds.
 Redemption time within 1 day.
 Minimum investment requirement is Rs 5000.
LIQUID FUND VS FD:
Liquid or liquid plus funds are attractive for the investors wishing to earn a good return in
short time periods.
Now the key question is whether liquid or liquid plus funds are safe than the bank savings
accounts. In case of liquid plus funds, neither the principal is protected nor there is any fixed
percentage of return. Liquid plus funds have higher exposures ( 30% ) in long term debt
securities, which have the interest rate risk and also the credit risk. So, liquid plus funds are
more risky than the bank FD.
Again, liquid funds are short-term debt funds that invest their corpus in T-Bills, Money
Market Instruments, Certificate of Deposits, Commercial Papers, Corporate bonds and
Debentures. These instruments are traded in the market and hence, their prices fluctuate. So
they are somewhat riskier, but at the same time they offer higher returns than a bank savings
account.
But there are certain advantages of investing in liquid funds over FD in short
term periods.
Investors can park there idle cash balances in liquid funds for earning interest for very short
time periods like 7 - 20 days. But this is not possible with Bank FD. Even bank savings
account provides interest on average quarterly balances maintained in the savings account.
But in case of liquid fund investor can earn the interest on daily basis upon the exact balances
maintained in the fund. As there is no entry or exit load one can withdraw fund whenever
requirement arises or can put more money into the fund if there is short term cash surplus.
47
UTI Mutual Fund
UTI Mutual Fund came into existence on 1st February 2003. Bank of Baroda (BOB),
Punjab National Bank (PNB) and State Bank of India (SBI) and Life Insurance
Corporation of India (LIC) are the sponsors of the UTI Mutual Fund. UTI Mutual
Fund is managed by UTI Asset Management Company Private Limited (AMC). UTI
AMC is a registered portfolio manager under the SEBI (Portfolio Managers)
Regulations, 1993 for undertaking portfolio management services and also acts as the
manager and marketer to offshore funds.
UTI Mutual Fund has a nationwide network consisting 70 UTI Financial Centers
(UFCs) and UTI International offices in London, Dubai and Bahrain. The fund has a
track record of managing a variety of schemes catering to the needs of every class of
citizenry.
I have selected UTI liquid fund- cash plan and UTI treasury advantage fund for
analysis.
UTI LIQUID FUND - CASH PLAN - GROWTH
The UTI Liquid Cash Plan is positioned as a low-risk, low-volatility fund which aims
at offering reasonable returns to investors looking to park short-term surpluses. The
fund attaches importance to low credit risk, portfolio diversification and stability of
returns.
The scheme aims to generate steady and reasonable income, with low risk and high
level of liquidity from a portfolio of money market securities and high quality debt.
Figure 9.116
16
http://www.mutualfundsindia.com/fundfactsheet.asp
48
UTI TREASURY ADVANTAGE FUND - IP – GROWTH
The fund plans to generate income through investments in quality oriented debt and
Money Market Instruments.
Figure 9.2
49
SBI Mutual Fund
SBI Mutual Fund is India's largest bank sponsored mutual fund with an investor base
of over 3 million. SBI Mutual Fund is a joint venture between the State Bank of India,
India's largest banking enterprise and Societe Generale Asset Management of France,
one of the world's leading fund management companies.
Since its inception SBI Mutual Fund has launched thirty-two schemes and
successfully redeemed fifteen of them. SBI Mutual Fund schemes have consistently
outperformed benchmark indices. SBI Mutual is the first bank-sponsored fund to
launch an offshore fund - Resurgent India Opportunities Fund.
Presently, SBI Mutual Fund manages over Rs. 17000 crores of assets. The fund has a
network of 100 collection branches, 26 investor service centres, 28 investor service
desks and 40 district organisers.
SBI MAGNUM INSTA CASH FUND

To provide the investors an opportunity to earn returns through investment in debt &
money market securities, while having the benefit of a very high degree of liquidity to
meet unexpected needs of cash.
Figure 9.317
LIC Mutual Fund

17
50
LIC Mutual Fund was set up by Life Insurance Corporation of India on 19th June
1989 with a corpus of Rs. 2 crores. LIC Mutual Funds are managed by LIC Mutal
Fund Asset Management Company Ltd which was formed on 20th April 1994 in
compliance with the Securities and Exchange Board of India (Mutual Funds)
Regulations, 1993.
LIC MF LIQUID FUND
LIC MF Liquid Fund seeks to generate reasonable returns with low risk and high
liquidity through investments primarily in money market securities.
Figure 9.418
18
51
11. Comparative Calculation of Returns on the Investible Options
Available to GAIL
Let us consider that Gail has some surplus funds available with it of Rs.100 Crore.
I will try to calculate the income which these surplus funds can generate for the short
period of time they are lying unutilised.
Following the Guidelines of DPE, I will focus on three major investment options for
investing this surplus fund.
a. Fixed/Term Deposits
b. CLTD
c. Public Sector Mutual fund.
For Calculating the interest earned on these funds, Formula of simple interest is
considered.
The simple interest formula is as follows:
Interest = Principal × Rate × Time
Where:
'Interest' is the total amount of interest earned,
'Principal' is the amount Deposited,
'Rate' is the interest rate (%) per annum.
'Time' is the time period.
52
FOR LESS THAN 7 DAYS
Table 11.1
 Investing in Mutual Funds Of UTI ,SBI and LIC
Rate of Duratio
Principal name of the scheme return n Amount Profit
1,00,00,00,00 1,00,00,30,13
0 UTI Liquid cash Plan- Growth 0.011 1days 7 30,137
1,00,00,00,00 1,00,00,32,87
0 UTI Liquid cash Plan- IP- Growth 0.012 1 days 7 32,877
1,00,00,00,00 1,00,01,20,54
0 UTI Liquid cash Plan- Growth 0.022 2 days 8 1,20,548
1,00,00,00,00 1,00,01,36,98
0 UTI Liquid cash Plan- IP- Growth 0.025 2 days 6 1,36,986

1,00,00,00,00 1,00,07,39,72
0 UTI treasury Advantage fund 0.054 5 days 6 7,39,726

1,00,00,00,00 SBI Magnum Insta Cash- Cash 1,00,00,35,61
0 Plan 0.013 1 days 6 35,616
1,00,00,00,00 1,00,00,38,35
0 LIC MF Liquid fund- Growth 0.014 1 days 6 38,356
* Treasury advantage fund is Liquid plus fund which has a minimum lock in period of 5
days
 Investment in Term deposits and CLTD can't be made for less

than 7 days
53
RETURN FOR SEVEN DAYS
Table 11.2.1
Rate of
Principal name of the scheme return Duration Amount Profit
1,00,00,00,00 1,00,15,57,26
0 UTI Liquid cash Plan- Growth 0.0812 7 days 0 15,57,260
1,00,00,00,00 UTI Liquid cash Plan- IP- 1,00,29,84,11
0 Growth 0.1556 7 days 0 29,84,110
1,00,00,00,00 1,00,16,60,82
0 UTI treasury Advantage fund 0.0866 7 days 2 16,60,822
0 Plan 0.0928 7 days 6 17,79,726
1,00,00,00,00 1,00,18,43,01
0 LIC MF Liquid fund- Growth 0.0961 7 days 4 18,43,014
Table 11.2.2
 Investment in Term deposits

name of the
Principal Bank Interest Rate Duration Amount Tax (33.99%) PAT
1,00,00,00,000 SBI 0.015 7 days 1,00,02,87,671 97779.45205 1,89,892
1,00,00,00,000 HDFC 0.035 7days 1,00,06,71,233 228152.0548 4,43,081
 Deposit in CLTD a/c can’t be made for 7 days. The minimum

period of deposit is 15 Days.
54
RETURNS FOR MORE THAN 7 DAYS
Table 11.3.1
Rate of
1,00,00,00,00
0 UTI Liquid cash Plan- Growth 0.35 1 month 1,02,87,67,123 2,87,67,123
1,00,00,00,00
0 UTI Liquid cash Plan- IP- Growth 0.39 1,03,20,54,795 3,20,54,795
1,00,00,00,00
0 UTI treasury Advantage fund 0.43 1,03,53,42,466 3,53,42,466
1,00,00,00,00 SBI Magnum Insta Cash- Cash
0 Plan 0.4 1,03,28,76,712 3,28,76,712
1,00,00,00,00
0 LIC MF Liquid fund- Growth 0.39 1,03,20,54,795 3,20,54,795
Rate of
1,00,00,00,00
0 UTI Liquid cash Plan- Growth 0.99 3months 1,24,41,09,589 24,41,09,589
1,00,00,00,00
0 UTI Liquid cash Plan- IP- Growth 1.11 1,27,36,98,630 27,36,98,630
1,00,00,00,00
0 UTI treasury Advantage fund 1.23 1,30,32,87,671 30,32,87,671
1,00,00,00,00 SBI Magnum Insta Cash- Cash
0 Plan 1.14 1,28,10,95,890 28,10,95,890
1,00,00,00,00
0 LIC MF Liquid fund- Growth 1.06 1,26,13,69,863 26,13,69,863
Rate of
1,00,00,00,00
0 UTI Liquid cash Plan- Growth 1.83 6 months 1,90,24,65,753 90,24,65,753
1,00,00,00,00 1,02,08,21,91
0 UTI Liquid cash Plan- IP- Growth 2.07 2,02,08,21,918 8
1,00,00,00,00 1,17,36,98,63
0 UTI treasury Advantage fund 2.38 2,17,36,98,630 0
0 Plan 2.03 2,00,10,95,890 0
1,00,00,00,00 1,04,05,47,94
0 LIC MF Liquid fund- Growth 2.11 2,04,05,47,945 5
55
Table 11.3.2
 Investment in Term deposits
name of the Interest

Principal Bank Rate Duration Amount Tax(33.99%) PAT
1,00,00,00,000 SBI 0.02 30 days 1642710.47 558357.2888 1084353.18
0.03 90 days 7392197 2512607.76 4879589.24
0.035 180 days 17248459.96 5862751.54 11385708.4
0.045 270 days 33264887.06 11306735.11 21958151.9
5.25 350 days 50308008 17099691.92 33208316.1
 Rate of interest for CLTD will be the same card rate applicable
for the contracted tenure of the deposit as of the bank. No
differential rate of interest is applicable.
56
12. Risk in Mutual Funds
Every type of investment, including Mutual Funds, involves risk.
Risk refers to the possibility that an investor might lose money, either principal or
earnings or both. A fund’s investment objective and its holdings are influential
factor in determining how risky a fund is. Reading the prospectus helps an investor
to understand the risk associated with that particular fund.
Risk and potential returns are directly related.
This is the risk/return trade-off. Higher risks are usually taken with the expectation of
higher returns at the cost of increased volatility. While a fund with higher risk has the
potential for higher return, it also has the greater potential for losses or negative
returns. The longer an investment time horizon is, the less affected one is by short-
term volatility.
In the offer document of Mutual Funds, there is a clause mentioned “MUTUAL

FUNDS ARE SUBJECT TO MARKET RISKS”. This means that mutual funds
never take the guarantee that there will be assured returns. This is especially true in
case of equity mutual funds (because they provide higher returns, so greater risk is
associated with them).
Different mutual fund categories have inherently different risk characteristics and they
cannot be compared. A bond fund with below average risk, for example, should not
be compared to a stock fund with below average risk. Even though both funds have
low risk for their respective categories, stock funds overall have a higher risk/return
potential than bond funds.
a. Of all the asset classes, cash investment (i.e. money markets) offer the greatest
price stability but have yielded the lowest long-term returns. Bonds typically
experience more short-term price swings, and in turn have generated long-term
returns.
b. Stocks historically have been subject to the greatest short-term price

fluctuations – and have provided the highest long term returns.
Investors looking for a fund which incorporates all asset classes may consider a
balanced or hybrid mutual fund. These funds can be very conservative or very
aggressive.
Asset allocation portfolios are mutual funds that invest in other mutual funds with
different asset classes. At the discretion of the managers, securities are bought, sold,
and shifted between funds with different asset classes according to market conditions.
Mutual funds face risks based on the investment they hold. For example, a bond fund
faces interest rate risk and income risk. Bond values are inversely related to interest
rates.\
57
INTEREST-RATE RISK
Unlike stock market where an upward movement of market leads to upward
movement in stock prices, it is a fall in the market yield that pushes up the prices of
debt securities. This happens because there exists an inverse relationship between the
yield and the price of bond.
So, if there is an upward movement of interest rates after one has invested in a bond
fund, the prices of bonds will go down leading to a corresponding fall in the NAVs of
the bond funds.
The risk is also dependent upon the maturity and duration of the bond and generally,
the longer a fund’s duration or average maturity, the higher its interest-rate risk, or the
more sensitive the NAV of the fund will be to changes in interest rates.
One can reduce the interest rate risk by choosing a bond fund with a shorter
duration or average maturity.
CREDIT RISK
Just like shares where the performance of the company has some bearing on the stock
prices, credibility of the issuer is of importance in debt instruments. The risk of the
issuer not being able to make payments on his liabilities (debt instrument) is termed as
default risk or credit risk.
MARKET RISK
The prices and interest rates start varying a lot if the market conditions are volatile
and not stable. But this change is more pronounced in stocks than bonds.
Bonds are not affected by the volatility of the share markets.
PRICE RISK
Money market funds are primarily exposed to REINVESTMENT RISK- the risk
that money has to be reinvested at a lower rate due to decline in interest rate at times
or the risk that the earnings from the bond might increase after it has been redeemed
by the investor.
This risk can be reduced by investing the funds for extremely small durations so
that investment is safe and not exposed to the volatilities.
58
CONCLUSION:
So from the above calculations and analysis it is clear that Mutual funds help to earn the
investor much greater returns as compared to the other short term investment options.
It is true that there is some inherent risk involved in the case of Mutual funds whereas the
other options are risk free. But the risks in the public sector mutual funds are not very high.
They provide the investor with stable returns at low-risk and also high liquidity. And one
advantage is also that dividend from mutual funds are tax free in the hands of the investor.
FINDINGS:
From the whole study of short term investible options, it can be said that GAIL should
consider investing a part of its surplus funds in the Public Sector Mutual Fund along with
investing in Term deposits and CLTDs.
Public Sector Mutual Fund invests mostly in treasury bills, certificate of deposits and the
commercial papers, where the risk factor is very low. Surplus Funds can earn returns/interest
even if it is deposited for less than 7 days which is not possible in case of FD’s and CLTD’s.
RECOMMENDATIONS:
It is true that investing in Term Deposits are extremely safe and therefore are very appealing
to the conservative and low risk investors. The other investible option followed by GAIL of
CLTD are also good as they are one step better than FD/Term Deposits as it enables GAIL to
earn interest on the Fund Received during the second half of the day (The funds received after
the banking hours can’t be deposited in FDs, which leads to idling of funds in the current a/c).
But in both these options followed by GAIL the returns are limited to the card rates applicable
for the contracted period of deposit. And in FDs the minimum period of deposit is 7days and
in CLTDs it is 15 days. Moreover if amount is withdrawn prematurely, there is a penalty fees
which is charged.
It is here that Mutual Fund investment scores over the earlier ones. Thus I recommend that-
 GAIL should consider investing in Liquid fund schemes of the Mutual Fund as they
invest in debt-money market instruments like CDs, commercial Papers and treasury
bills where the risk content is very low and also helps in earning a reasonable income
in a short period.
 Very short term investments (less than a week) should be done in liquid mutual funds
i.e. 30% of the available funds (maximum amount as allowed by the DPE). The rest
70% amount should be deposited in the Fixed Deposits and CLTDs.
59
 The liquid mutual funds of UTI – The LIQUID CASH PLAN & The TREASURY
ADVANTAGE FUND will serve as a good source of income, especially for very
short period (less than 7 days).
 The surplus cash with GAIL on any particular day can also be invested in the liquid
funds overnight to earn dividend over it.
 The regular payments of GAIL can be invested in Mutual Funds when they are with
company (before payment) & dividend can be earned on them.
For Example, GAIL has to make ONGC payment twice a month. So, the company can invest
the surplus cash that it has in liquid mutual funds for 15 days and redeem it on the 15 th day &
make payment. In this way, dividend can be earned on the money invested which otherwise
would have been lying idle and useless till payment.
Thus considering Mutual funds would be a good decision for GAIL.
Therefore if surplus funds are available for a short duration of less than or equal to 7 days,
Gail should invest them in these liquid funds and thus earn some decent returns on them.
60
APPENDIX
Liquid Funds, Solid Returns19
Savings bank accounts now provide higher effective interest. Even so, liquid funds may
be a better option to park your short-term cash.
A savings bank account is perceived by many investors as the safest option for parking cash,
despite yielding a pitiable return. Lakhs of crores worth of people’s money is sitting in
savings bank accounts; sometimes even highly educated and savvy people believe that there is
no alternative to savings bank accounts of good banks for parking their liquid money. Is there
a better alternative—one that offers slightly higher interest and combines reasonable safety?
No, we are not encouraging you to invest in stocks. There is a better option for earning fairly
good returns—liquid funds, managed by mutual fund companies. Usually companies and high
net worth individuals (HNIs) invest in liquid funds. Retail investors are still averse to parking
their money in such funds, despite the low costs and better returns they offer compared to a
savings account. But they are, indeed, good options. Read on.
Liquid funds invest in debt-and money-market instruments like certificates of deposit (CDs),
commercial paper and treasury bills. Treasury bills are short-term debt instruments issued by
Government of India which carry a tenor of three months, six months or one year. These
funds are benchmarked against the CRISIL Liquid Fund Index. Most liquid funds do not have
any entry or exit load. TP Raman, managing director of Sundaram BNP Paribas Mutual Fund,
says that “liquid funds are an ideal vehicle for parking funds before a final and long-term
investment decision is made. Also, they can be handy if money is needed at short notice. But
they are not ideal for longer terms.” Industry experts believe that 15 days to three months is
the ideal period to remain invested in a liquid fund for optimal returns.
19
http://www.moneylife.in/article/5780.html
61
Earlier, banks were calculating the interest rate on savings accounts at 3.5% per annum on the
lowest available balance between the 11th and the last day of the month. Following a recent
RBI diktat, from 1st April banks are offering you daily interest on the minimum balance
available in the account per day. The interest rate remains at 3.5%. For instance, if you
maintain a daily balance of Rs10,000 for 30 days, you will get Rs349.80 (Rs11.66 per day) as
interest. This will bump up your returns from a savings bank account. Even so, liquid funds
are worth a look. “Liquid funds do offer better returns than bank savings accounts. The
average return given by liquid funds in the recent past was 4% annualised for a one-
month period, where savings accounts do not offer more than 3.5%,” says Ganti N Murthy,
head—fixed income, Peerless Mutual Fund.
However, choosing the best liquid fund can be a tough task, as there are more than 40 liquid
funds offered by various fund houses. “An investor has to look at consistent performance
when comparing the returns of one fund over another. Before investing in such funds, you
should check the background of the promoters of the fund house, the background of the fund
manager and how long he has been managing the fund,” adds Mr Murthy.
Where To Invest?
We have crunched some numbers to help you zero in on one of the better ones. Liquid funds
have yielded an average return of 3.70%, 6.28% and 6.20% in one year, three years and five
years, respectively. JM High Liquidity has given the highest return of 7.78% since inception,
followed by UTI Money Market (7.55%), Birla Sun Life Cash Plus (7.23%), Templeton India
TMA (7.07%), Birla Sun Life Cash Manager (7.03%) and ICICI Prudential Liquid Plan
(7.01%).
We analysed 55 funds launched during 2005 to 2010 (till date). As a group, these funds have
generated an average return of 5.82% since inception. Of these, 21 funds generated returns
higher than the average, ranging from 6% to 7.78%. As many as 15 funds have outperformed
their respective benchmarks, while 40 funds have underperformed their benchmarks since
inception. Reliance Liquid Fund, which posted a 4.98% return since inception, was the worst
performer, followed by ICICI Prudential Sweep Plan (5.15%), HDFC Cash Management
Fund-Call Plan (5.30%), HSBC Cash Fund (5.55%) and IDFC Cash Fund (5.81%).
62
Following the SEBI diktat of 2 February 2010 to all fund companies, liquid funds will be less
volatile from 1 July 2010, as all money-market and debt securities, including floating-rate
securities, with residual maturity of over 91 days will be valued at the weighted average price
at which they are traded on the particular valuation day.
What about the tax aspect? “Liquid fund dividends are tax-free in the hands of the investor
but under the growth option, short-term capital gains will need to be paid if redeemed within a
year,” says Mr Raman of Sundaram BNP Paribas. These funds can be redeemed within 24
hours and carry a very low annual charge ranging from 0.30% to 0.70
LIQUID FUNDS BETTER THAN SHORT-TERM FDs20
20
http://www.mydigitalfc.com/news/liquid-funds-better-short-term-fds-355
63
If you are attracted to invest in bank fixed deposits because of the safety factor, you will do
well to avoid the ultra-short-term fixed deposits and look for avenues such as short-term
liquid schemes offered by mutual funds.
That is because most banks offer a lower rate of interest on term deposits of up to 90 days
than the savings rate of 3.5 per cent.
What it means for an investor is that if you invest in a fixed deposit with tenure of less than
90 days, you will earn a lower return on your investment than other avenues where you could
park your money for a similar tenure. Thus, you will be better off even to keep your liquid
asset lying in your savings account and earn more.
In fact, once the daily rate calculation method in your savings accounts kicks in from April 1
this year, you will gain another 30 to 50 basis points (one basis point is equal to one-hundred
of the percentage) over and above the present 3.5 per cent savings bank interest rate.
Banks such as IDBI Bank, Bank of Baroda, State Bank of India offer an interest rate of 3.25
per cent, 3 per cent and 3.25 per cent respectively on a deposit for a 90-day period.
With short-term yields firming up and likely to hold steady over the next few months,
financial experts advise investors to park their money in liquid funds as an alternative to
savings bank.
Anil Chopra, group chief executive officer, Bajaj Capital, said, “Investors who have money
for a short term, can generally invest in liquid funds because they are by all means better than
deposits. All these funds have given, on an average, the tax-free returns of over 6.5 per cent
per annum.”
Liquid fund as the name suggests are mutual fund schemes that keep money “liquid” (almost
cash). These liquid funds are debt funds that work in money market instruments. It is a market
where short-term borrowing and lending takes place.
“Since there is lack of awareness among retail investors, they tend to park funds in these
short-term deposits. They could on the other hand, invest in short-term liquid funds where
they can earn higher yields and it’s safe also,” said Himanshu Kohli, chief executive officer,
Client Associates Private Wealth Management.
Many liquid mutual funds such as Birla Sun Life Short Term Opportunities, JM Money
Manager and LIC Savings Plus, to name a few, have yielded a return of 7.06 per cent, 6.01
per cent and 5.70 per cent respectively.
“Retail investors normally park their funds in these (under 90-day deposits) to avoid unusual
outflows from their savings account. However, these short-term deposits are largely availed
of by companies. The participation from the retail side is not very large,” said KVS Manian,
group head of retail and branch banking, Kotak Mahindra Bank.
BIBLIOGRAPHY
1. Rustagi R. P., Investment management
2. Rustagi R.P , Financial management
3. Company reports on short-term investment
64
4. GAIL(India) Limited, Annual Report 2008-2009
5. GAIL investor presentation, November 09
6. www.gailindia.com
7. http://www.merinews.com/topic/indian-stock-market.shtml
8. www.dpe.nic.in
9. http://finmin.nic.in/
10. www.investmentcommission
11. http://www.amfiindia.com/
12. http://www.statebankofindia.com/
13. www.livemint.com
14. www.mutualfundsindia.com
15. http://money.rediff.com/
16. http://www.moneylife.in/article/5780.html
17. http://www.bloombergutv.com/stock-market/mutual-funds-news/48661/mf-industry-
assets-grow-by-rs-2-54lk-cr-.html
18. www.statebankofindia.com
19. http://www.amfiindia.com/showhtml.aspx?page=mfindustry
20. http://www.mutualfundsindia.com/fundfactsheet.asp
21. http://in.finance.yahoo.com/personal-finance/mutualfunds_basics/7/more-on-funds/
22. http://www.mydigitalfc.com/news/liquid-funds-better-short-term-fds-355
23. http://www.pnbgilts.com/gsec.asp
24. http://www.investopedia.com/terms/t/termdeposit.asp
25. http://www.articlesbase.com/finance-articles/advantages-of-short-term-deposits-
1842643.html
26. http://www.bankingindiaupdate.com/cd.htm
27. http://rbidocs.rbi.org.in
28. . http://www.indorebank.org/cltd.pdf
29. http://www.ilikeinvesting.com/general-investment-articles/short-term-
investments.php
65
30. http://economictimes.indiatimes.com/features/investors-guide/GAILs-rich-valuations-
indicates-limited-upside-in-short-term/articleshow/5496785.cms
66

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EXECUTIVE SUMMARY

1. To the short term surplus investment pattern of GAIL.

3. To determine the risk involved in these investment options.

4. To analyze the returns from the various investment options

5. To recommend the optimal investment option that should be

Information was also collected from concerned officials of the Company.

I visited the website of GAIL, DPE, Finance Ministry, Investment Commission of

ABOUT THE COMPANY

Incorporated 16th August ,1984

GAIL (India) Ltd. is involved in activities expanding to Gas Processing for

The 2800-km Hazira-Vijaipur-Jagdishpur (HVJ) pipeline became operational in 1991.

In 1999, GAIL set up northern India's only petrochemical plant at Pata.

Key Elements of GAIL's Vision:

Natural Gas and Beyond

Create and strengthen significant global presence to pursue strategic, attractive

Value Creation for All Stakeholders

Today, GAIL's Business Portfolio includes:

 1,922 km of LPG Transmission pipeline network with a capacity to transport

 13,000 km of OFC network offering highly dependable bandwidth for telecom

 Joint venture companies in Delhi, Mumbai, Hyderabad, Kanpur, Agra,

 Stake in China Gas Holding to explore opportunities in the CNG sector in

 A wholly-owned subsidiary company GAIL Global (Singapore) Pte Ltd in

Further, the Company has signed Memorandum of Understanding (MoU) with-

The Company is globalizing its business activities with an objective of exploring

The Company signed a Memorandum of Understanding (MoU) with Delta

Figure 1.2 PROJECTED BORROWINGS – Rs.28700 Cr

3. GAIL signs a Gas Co-operation Agreement with Infrastructure Development

Table 2.1 INCOME

NET SALES (Rs. In crores)

Table 2.2 SEGMENT WISE TURNOVER

Table 2.3 TOTAL INCOME

Table 2.4 COST OF SALES

Cost of sales including depreciation and interest (Rs. In crores)

FINANCIA 2004-05 2005-06 2006-07 2007-08 2008-09

Gross 12927.07 14875.49 16545.85 18580.21 24292.24

Profit 1953.91 2310.07 2386.67 2601.46 2803.70

Net worth 8559.65 9874.81 11,262.42 12,842.38 14,575.12

Year Reserve and Percentage

2004-05 7780.46 17.895%

2005-06 9127.64 17.315%

2006-07 10547.26 15.553%

2007-08 12159.23 15.283%

2008-09 13501.15 11.036%

Years Investments Dividend Interest income

2004-05 783.95 119.34 146

2005-06 1443.35 174.44 221.86

2006-07 1463.84 190.8 249.55

2007-08 1490.88 201.16 268.57

2008-09 1737.27 216.29 384.54

SHORT-TERM VS. LONG-TERM: A COMPARISON

ADVANTAGES OF SHORT-TERM INVESTMENTS

DISADVANTAGES OF SHORT-TERM INVESTMENTS

ADVANTAGES OF LONG-TERM INVESTMENTS

DISADVANTAGES OF LONG-TERM INVESTMENTS

4. INDIAN STOCK MARKET IN 2010

The Ministry of Finance is an important ministry within the Government of India. It

The Union Finance Ministry of India comprises five departments:

 Department of Economic Affairs

Rs.1 crore and above.