A Study On Various Investment Options in India
A Study On Various Investment Options in India
A Study On Various Investment Options in India
Master in commerce
Subject: Project report
Submitted By
LEENA SATISH NAIK
1
A PROJECT REPORT ON
STUDY ON VARIOUS INVESTMENT OPTIONS IN INDIA
Project Submitted
Master in commerce
Subject: Project report
Submitted By
LEENA SATISH NAIK
2
CERTIFICATE
This is to certify that MS. LEENA SATISH NAIK has worked and completed her
project work for the degree of MASTER IN COMMERCE in the faculty of
commerce in the subject of ACCOUNTANCONY on title of project work to be
written “STUDY ON VARIOUS INVESTMENT OPTIONS IN INDIA” under
my supervision. It is her own work and facts reported by her personal finding and
investigation.
3
Declaration by student
I the undersigned Ms. LEENA SATISH NAIK hear by, declare that this project
work entitled “STUDY ON VARIOUS INVESTMENT OPTIONS IN INDIA”
is a result of my own research work and has not been previously submitted to any
other university for any other examination. I hear by further declare that all
information of this document has been obtained and presented in accordance with
academic rules and ethical conduct.
Place:
Research
Scholar
4
Acknowledgement
To list who all have helped me in difficult because they are so numerous and the
depth is so enormous. I would like to acknowledge the following as being idealistic
channels and fresh dimensions in the completion of this project. I would like to take
this opportunity to thank all those who have stood by my side, encouraged me and
helped me throughout my study. I owe a lot to everyone who co-operated in making
my project on “STUDY ON VARIOUS INVESTMENT OPTIONS IN
INDIA”has given me extensive practical knowledge related to the course. I would
like to express my gratitude towards my PROF. MOHAMMED NISHAT
SARFARAZ AHMED ANSARI, for giving me an opportunity prepare a project
on “STUDY ON VARIOUS INVESTMENT OPTIONS IN INDIA”. I take
immense pleasure in thanking my thesis PROF. MOHAMMED NISHAT
SARFARAZ AHMED ANSARI. I would like to thank my principal DR. SWATI
WAVHAL for providing the necessary facilities required for the completion of this
project. I take this opportunity to thank the UNIVERSITY OF MUMBAI for
providing for giving me the chance to do this project. I would like to thank my guide
PROF. MOHAMMED NISHAT SARFARAZ AHMED ANSARI for providing
me the necessary guidance in making of this project. I am also thankful to him for
patiently and critically evaluating the content of this project. I would like to take this
opportunity to express my gratitude to all the M.COM STAFF AND STAFF OF
THE LIBRARY for their support. I would like to thank my DAD for this support
and guidance throughout this project. And for always motivating me to take up new
concept and challenges. Last but not the least I, would like to thank my FAMILY
and FRIENDS for their continuous support and help.
DATE:
5
It‘s my pleasure to introduce myself, I am LEENA
SATISH NAIK
I am studies in M.COM PART II (Accountancy) at
ISMAIL YUSUF COLLEGE, JOGESHWARI. My
college roll no. is 20SMA39 in Academic year 2020-
2021.
I explain my project work brief ― In this project I have explain about Various
Investment options available in India , Meaning , Definition , Their importance ,
limitations , advantages and Disadvantages , I also got aware about various
schemes are available to invest our valuable money . I also got to know History ,
And also the Functions, Objectives, Features, Also I conducted a survey on this
topic , the main objective was to learn various Services are their in India in market
that government offered to customers and also their satisfaction regarding the
Various investment schemes
I submitted my project (Black book) & gave viva to my professor. I would like to
express my gratitude towards my PROF. MOHAMMED NISHAT SARFARAZ
AHMED ANSARI.
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Chapter - 1
Introduction
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1.1 Investment
In the financial sense, this includes the purchase of bonds, stocks or real estate
property among several others. Additionally, a constructed building or other facility
used to produce goods can be seen as an investment. The production of goods
required to produce other goods may also be seen as investing. Taking an action in
the hopes of raising future revenue can also be considered an investment. For
example, when choosing to pursue additional education, the goal is often to increase
knowledge and improve skills in the hopes of ultimately producing more income.
Because investing is oriented toward future growth or income, there is risk
associated with the investment in the case that it does not pan out or falls short. For
instance, investing in a company that ends up going bankrupt or a project that fails.
This is what separates investing from saving - saving is accumulating money for
future use that is not at risk, while investment is putting money to work for future
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gain and entails some risk. To invest is to allocate money in the expectation of some
benefit in the future. In finance, the benefit from an investment is called a return.
The return may consist of a gain or loss realised from the sale of property or an
investment, unrealised capital appreciation or depreciation , or investment income
such as dividends, interest, rental income etc., or a combination of capital gain and
income.
The return may also include currency gains or losses due to changes in foreign
currency exchange rates. Investors generally expect higher returns from riskier
investments. When a low risk investment is made, the return is also generally low.
Investors, particularly novices, are often advised to adopt a particular investment
strategy and diversify their portfolio. Diversification has the statistical effect of
reducing overall risk. Investments are important because in today’s world, just
earning money is not enough. You work hard for the money you earn. But that may
not be adequate for you to lead a comfortable lifestyle or fulfill your dreams and
goals. To do that, you need
to make your money work hard for you as well. This is why you invest. Money lying
idle in your bank account is an opportunity lost. You should invest that money
smartly to get good returns out of it. In Short Investment Means:-
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financial planning. While both savings and investments are
important, they have different objectives. The intent or purpose of
keeping the money aside is the first differentiating factor. You
usually save money to keep some money aside for emergencies.
However, investing is when you put this money to work for you in
smart investment avenues, with the hope to generate wealth for the
future. Savings and investments vary in the way your wealth is
accumulated. While savings are considered as a passive way of
wealth accumulation, well-planned investment strategies can help in
accumulating more wealth.
1.2 Meaning
Investors choose to hold group of securities rather than single security that offers
the greater expected returns. They believe that a combination of securities held
together will give a beneficial result if they are grouped in a manner to secure higher
returns after taking into consideration the risk element.
Traditional portfolio analysis has been a very subjective nature, but it has proved
success to some investors who have made their investments by making analysis of
individual securities through evaluation of return and risk conditions. The investors
have been able to get the maximum return at the maximum risk. The normal method
of calculating the return
on individual security is to find out the amount of dividends, price earnings ratios,
common holding period and an estimate of the market value of the securities. The
modern portfolio theory believes in maximization of return through a combination
of securities. it deals with the relationship between different securities and inter
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relationships of risk between them. An investor can achieve a success by making a
choice of investment outlets and combining a security of low risk with another
security of high risk.
The word investment can be defined in many ways according to different theories
and principles. It is a term that can be used in several contexts. However, the
different meanings of “investment” are more alike than dissimilar.
Generally, investment is the application of money or other assets in the hope that in
the future it would appreciate or generate more income. Investment means the
current commitment of funds for a period of time in order to derive a future flow of
funds that will compensate investor for the time the funds are committed, for the
expected rate of inflation and also for uncertainty involved in future flow of funds.”
Investors expect return on his investment which should compensate them for the
risk they take in forgoing current consumption of money for future consumption
and for inflation. “Investment management is the process of managing money,
including investing, budgeting, banking, and taxes also called as money
management”
ECONOMIC
INVESTMENT
CONCEPT OF
INVESTMENT
FINANCIAL
INVESTMENT
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Economic Investment
The concept of economical investment means additions to the capital stock of the
society. The capital stock of society is the goods which are used in the production of
other goods. The term investment implies the formation of new and productive
capital in the form of new construction and producers durable instrument such as
Plant & Machinery,
Inventories and human capital are also included in this concept. Thus, an
investment, in economic terms means an increase in building, equipment, inventory.
when a person Invest his fund for acquisition of some physical asset, say a building
or equipment, such type of investments is called economic investment.
Financial Investment:
This is an allocation of monetary resources to assets that are expected to yield some
gain and return over a given period of investment. It is a general or extended sense
of the term. It means an exchange of financial claims such as shares and bonds, real
estate, etc. Financial investment involves contracts written on pieces of paper such
as shares and debentures. People invest their funds in Shares, Debentures, Fixed
deposits, National Saving certificates, Life Insurance Policies, Provident Funds etc.
In their view, investment is a commitment of funds to derive future income in the
form of interest, dividends, rent, premiums, pension benefits and the appreciation
of the value of their principal capital.
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1.4 History
The Code of Hammurabi (around 1700 BC) provided a legal framework for
investment, establishing a means for the pledge of collateral by codifying debtor
and creditor rights in regard to pledged land. Punishments for breaking financial
obligations were not as severe as those for crimes involving injury or death. In
the early 1900s, purchasers of stocks, bonds, and other securities were described
in media, academia, and commerce as speculators. Since the Wall Street crash
of 1929, and particularly by the 1950s, the term investment had come to denote
the more conservative end of the securities spectrum, while speculation was
applied by financial brokers and their advertising agencies to higher risk
securities much in vogue at that time. Since the last half of the 20th century, the
terms speculation and speculator have specifically referred to higher risk
ventures. The history of investment banking in India traces back to when
European merchant banks first established trading houses in the region in the
19th century. Since then, foreign banks (non-Indian) have dominated
investment and merchant banking activities in the country. In the 1970’s, the
State bank of India entered the business by creating the Bureau of Merchant
Banking and ICICI Securities became the first Indian financial institution to
offer merchant banking services. By 1980, the number of merchant banks had
risen to more than 30. This growth in the financial services industry included
rapid expansion of commercial bank and other financial institutions.
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Deep History
Security trading in India goes back to the 18th century when the East India
Company began trading in loan securities. Corporate shares started being traded
in the 1830s in Bombay (now Mumbai) with the stock of Bank and Cotton
presses. The simple and informal beginnings of stock exchanges in India take
one back to the 1850s when 22 stockbrokers began trading opposite the Town
Hall of Bombay under a banyan tree. The tree still stands in the area which is
now known as Horniman Circle.
The venue then shifted to banyan trees at the Meadows Street junction, which
is now known as Mahatma Gandhi Road, a decade later. The shift continued
taking place as the number of brokers increased, finally settling in 1874 at what
is known as Dalal Street. This yet informal group known as the Native Share
and Stockbrokers Association organized themselves as the Bombay Stock
Exchange (BSE) in 1875. The BSE is the oldest stock exchange in Asia and
was the first to be granted permanent recognition under the Securities Contract
Regulation Act, 1956.The BSE was followed by the Ahmedabad Stock
Exchange in 1894 which focused on trading in shares of textile mills. The
Calcutta Stock Exchange began operations in 1908 and began trading shares of
plantations and jute mills. The Madras Stock Exchange followed, being set up
in 1920.
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Modern History
After the Harshad Mehta scam in 1992, there was a pressing need for another
stock exchange large enough to compete with the BSE and bring transparency
to the stock market. This gave birth to the National Stock Exchange (NSE). It
was incorporated in 1992, become recognized as a stock exchange in 1993, and
trading began on it in 1994. It was the first stock exchange on which trading
took place electronically. In response to this competition, BSE also introduced
an electronic trading system known as BSE On-line Trading (BOLT) in 1995.
The BSE launched its sensitivity index, the Sensex, now known as the S&P
BSE Sensex, in 1986 with 1978–79 as the base year. This is an index of 30
companies and is a benchmark stock index, measuring the overall performance
of the exchange. The index reached the level of 1,000 in July 1990, 2,000 in
January 1992, 4,000 in March 1992, 5,000 in October 1999, and 6,000 in
February 2000. The exchange introduced equity derivatives in 2000. Index
options were launched in June 2001, stock options in July 2001, and stock
futures in November 2001. India’s first free-float index, BSE Teck, was
launched in July 2001. Its competitor, NSE, launched its benchmark exchange,
the CNX Nifty, now known as Nifty 50, in 1996. It comprises of 50 stocks and
functions as the performance measure of the exchange. In terms of electronic
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screen-based trading and derivatives, it beat BSE by launching first of its kind
products and services.
The first organised stock exchange in India was started in 1875 at Bombay and
it is stated to be the oldest in Asia. In 1894 the Ahmedabad Stock Exchange
was started to facilitate dealings in the shares of textile mills there. The Calcutta
stock exchange was started in 1908 to provide a market for shares of plantations
and jute mills. Then the madras stock exchange was started in 1920. At present
there are 24 stock exchanges in the country, 21 of them being regional ones
with allotted areas. Two others set up in the reform era, viz., the National Stock
Exchange (NSE) and Over the Counter Exchange of India (OICEI), have
mandate to have nation-wise trading.
The Stock Exchanges are being administered by their governing boards and
executive chiefs. Policies relating to their regulation and control are laid down by
the Ministry of Finance. Government also Constituted Securities and Exchange
Board of India (SEBI) in April 1988 for orderly development and regulation of
securities industry and stock exchanges.
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1.5 SCOPE OF INVESTMENTS
Investment activity includes buying and selling of the financial assets, physical
assets, and marketable assets in primary and secondary markets. Investment
activity involves the use of funds or savings for further creation of assets or
acquisition of existing assets.
Investment activities refer to acquisition of assets like:
FINANCIAL ASSETS
PHYSICAL ASSTES
MARKETABLE ASSETS FROM THE PRIMARY AND SECONDARY
MARKET
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Physical assets are
House, land, building and flat
Gold, silver and other metals
Safety of principal
Stable income
Investors invest their funds in such assets that provide stable income.
Regularity of income is consistent with a good investment programme. The
income should not only be stable but also adequate as well.
Capital growth
Tax implications
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contrary, investors who are not particular about cash income do not consider
tax implications seriously.
Legality
The investor should invest only in such assets which are approved by law.
Illegal securities will land the investor in trouble. Apart from being satisfied
with the legality of investment, the investor should be free from management
of securities. In case of investments in Unit Trust of India and mutual funds of
Life Insurance Corporation, the management of funds is left to the care of a
competent body. It will diversify the pooled funds according to the principles
of safety, liquidity and stability.
Risk Factor
Expectation Of Return
Safety
Investors expect safety for their capital. They desire certainty of return and
protection of their investment or principal amount.
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Liquidity
Liquidity means easily sale or convert the capital or investment into cash
without any loss. So, most investors prefer liquid investments.
Marketability
It is another feature of investment that they are marketable. It means buying and
selling or transferability of securities in the market.
Stability Of Income
Investors invest their capital with high expectation of income. So, return on
their investment should be adequate and stable.
Investing your money can allow you to grow it. Most investment vehicles, such
as stocks, certificates of deposit, or bonds, offer returns on your money over
the long term. This return allows your money to build, creating wealth over
time.
As you are working, you should be saving money for retirement. Put your
retirement savings into a portfolio of investments, such as stocks, bonds, mutual
funds, real estate, businesses, or precious metals. Then, at retirement age, you
can live off funds earned from these investments. Based on your personal
tolerance of risk, you may want to consider being riskier at a younger age with
your investments. Greater risk increases your chances of earning greater
wealth. Becoming more conservative with your investments as you grow older
can be wise, especially as you near retirement age.
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Earn higher returns
In order to grow your money, you need to put it in a place where it can earn a
high rate of return. The higher the rate of return, the more money you will
earn. Investment vehicles tend to offer the opportunity to earn higher rates of
return than savings accounts. Therefore, if you want the chance to earn a
higher return on your money, you will need to explore investing your money.
Investing can help you reach big financial goals. If your money is earning a
higher rate of return than a savings account, you will be earning more money
both over the long term and within a faster period. This return on your
investments can be used toward major financial goals, such as buying a home,
buying a car, starting your own business , or putting your children through
college.
Some employers offer to match the money you invest in your 401(k) plan up to
a certain amount. Of course, the only way you can qualify and earn these
matching funds is if you are actively investing in your 401(k) plan. Thus, many
people invest in their 401(k)s to gain the matching employer funds.
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Support others
Many investors like investing in people, whether they are business owners,
artists, or manufacturers. These investors feel good helping others achieve their
goals.
New ventures need the backing of money, and they look to investors for that
backing. Some investors may like the excitement of investing in a new, cutting-
edge product or service, or being part of something like a business or film that
introduces them to a glamorous world.
An investor may bear a risk of loss of some or all of their capital invested.
Investment differs from arbitrage, in which profit is generated without investing
capital or bearing risk. Savings bear the (normally remote) risk that the financial
provider may default. Foreign currency savings also bear foreign exchange risk:
if the currency of a savings account differs from the account holder's home
currency, then there is the risk that the exchange rate between the two
currencies will move unfavourable , so that the value of the savings account
decreases, measured in the account holder's home currency. In contrast with
savings, investments tend to carry more risk, in the form of both a wider variety
of risk factors, and a greater level of uncertainty.
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If you’re not paying attention to mutual fund expense ratios and sales charges;
they can get out of hand. Be very careful when investing in funds with
expense ratios higher than 1.20%, as they will be considered on the higher
cost end. Be wary of 12b-1 advertising fees and sales charges in general.
There are several good fund companies out there that have no sales charges.
Fees reduce overall investment returns.
2.Management Abuses
3.Tax Inefficiency
Like it or not, investors do not have any choice when it comes to capital gain
payouts in mutual funds. Due to the turnover, redemptions, gains and losses in
security holdings throughout the year, investors typically receive distributions
from the fund that are an uncontrollable tax event.
If you place your mutual fund trade anytime before the cut-off time for same-
day NAV, you’ll get the same closing price NAV is for buy or sell on the
mutual fund. For investors searching for faster execution times, maybe
because of short investment horizons, day trading, or timing the market,
mutual funds provide a weak execution strategy.
5. Volatile Investments
Investment in BSE is subjected to many risks since the market is volatile. The
shares of a company fluctuate so many times in just a single day. These price
fluctuations are unpredictable most of the times and the investor sometimes
have to face severe loss due to such uncertainty.
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6.Brokerage Commissions Kill Profit Margin
Every time an investor purchase or sells his shares; he has to pay some
amount as a brokerage commission to the broker, which kills the profit
margin.
7.Time Consuming
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FACTORS INFLUENCING INVESTMENT DECISION
Factors Affecting
Investment
⦁ Interest rates
Investment is financed either out of current savings or by borrowing. Therefore,
investment is strongly influenced by interest rates. High interest rates make it more
expensive to borrow. High interest rates also give a better rate of return from
keeping money in the bank. With higher interest rates, investment has a higher
opportunity cost because you lose out the interest payments.
The marginal efficiency of capital states that for investment to be worthwhile, it
needs to give a higher rate of return than the interest rate. If interest rates are 5%, an
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investment project needs to give a rate of return of at least 5% or more. As interest
rates rise, fewer investment projects will be profitable. If interest rates are cut, then
more investment projects will be worthwhile.
⦁ Economic growth
Firms invest to meet future demand. If demand is falling, then firms will cut back
on investment. If economic prospects improve, then firms will increase investment
as they expect future demand to rise. There is strong empirical evidence that
investment is cyclical. In a recession, investment falls, and recover with economic
growth.
⦁ Confidence
Investment is riskier than saving. Firms will only invest if they are
confident about future costs, demand and economic prospects. Keynes
referred to the ‘animal spirits’ of businessmen as a key determinant of
investment. Keynes noted that confidence that wasn’t always rational.
Confidence will be affected by economic growth and interest rates, but
also the general economic and political climate. If there is uncertainty
(e.g. political turmoil) then firms may cut back on investment decisions
as they wait to see how event unfold.
Inflation
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Productivity of capital
Availability of finance
In the credit crunch of 2008, many banks were short of liquidity so had
to cut back lending. Banks were very reluctant to lend to firms for
investment. Therefore, despite record low-interest rates, firms were
unable to borrow for investment – despite firms wishing to do that.
Another factor that can influence investment in the long-term is the level
of savings. A high level of savings enables more resources to be used for
investment. With high deposits – banks are able to lend more out. If
the level of savings in the economy falls, then it limits the amounts of
funds that can be channeled into investment.
Wage costs
Depreciation
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Public sector investment
Government policies
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CHAPTER 2 :-
RESEARCH
METHODOLOGY
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3.1 Research Methodology
The project consists of theoretical as well as practical knowledge. Also it
contains ideas and information imparted by the guide. In this research
data is collected by through two sources
Primary Research
Secondary Research
In primary data collection method you collect the data yourself using
methods such as interviews and questionnaires. The key point here is that
the data you collect is unique to you and your research and, until you
publish , no one else has access to it . There are many methods to collect
primary data and the main methods include:
Structured Questions:-
Interviews
Data Collection
Observations
PRIMARY DATA
SAMPLE SIZE: 35
SAMPLE INSTRUMENT :
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• Observation
• Google Forms
Secondary data is collected by someone other than the user. Common sources
of secondary data include censuses, survey, organizational record, or data
collected through qualitative methodologies or qualitative research.
SECONDARY DATA:-
Newspaper
Internet
Secondary data analysis saves time that would otherwise be spent collecting
data and particularly in the case of quantitative data , provides larger and
higher- quality data base than would be unfeasible for any individual
researcher to collect on their own .In addition to that , analysts of social and
economic change consider secondary data essential, since it is impossible to
conduct a new survey that can adequately capture past change / or
developments.
SAMPLING INSTRUNMENTS
INTERNET
AREA OF STUDY
MUMBAI
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3.2 Objectives Of Study
3.3 Hypothesis
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CHAPTER 3
Review
of literature
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The emerging economic environment of competitive markets signifying
individuals’ sovereignty has profound implications for the savings and their
investment in India. The term investment refers to funds invested in various
saving schemes, consisting of deposit in banks, post office, Government and
Semi-Government securities, loans, mutual funds shares and debentures of
companies. The financial and economic meaning of investment is related to each
other, because investment is a part of savings of individuals, which flows into the
capital market either directly or through institutions divided into new and
secondary capital financing. According to F. Amling- ‘Investment may be
defined as the purchase by an individual or institutional investor of a financial or
real assets that produces a return proportional to the risk assumed over some
future investment period.
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knowledge of various kinds of investment opportunities available in the financial
market and appraisal of investment for avoiding loss.
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investors was taken for the study. Most of the investors were making conservative
decisions that reflecting a survival mode in the business operation. During these
difficult times, understanding what investors decide on an ongoing basis is critical
for survival. Therefore, the study is identified that people like to invest in stock
market as compared to any other markets, even if they face huge losses.
Giridhari et al (2011) have carried out a study on “Investment Preferences among
Urban Investors in Orissa”. They discuss that people were irrational in their decision
making about investment in securities. They make cognitive or emotional mistakes
in decision making. It happens due to various biases which are being discussed in
the field of behavioral finance. It explains that investment decisions and risk
tolerance of investors depend on age, sex, income, marital status, education, family
background, occupation and also the environment on which people lived. The
investors of urban areas were targeted for this research study. This research study
also cleared that male investors are more risk seeker and more active than compare
to female investors. The types of investors are also discussed in this study. Structured
Questionnaire and statements used for conducting this research and the sample size
was 210. The results of study show that individuals invest to full fill their needs and
also take other benefits like safety, tax benefits, high capital gains, liquidity, secured
future and for future needs.
Thirupath (2011) has conducted a study on “Investment Patterns and Tax Planning
of Salaried Class Investors in Vellore District”. The focus of this study is on the
individual salaried class investors. Keeping in view the potential savings of the
salaried class investors, this study outlines the conceptual background with focus
on investment and tax planning, examines the profile and awareness of the salaried
class investors, analyses the attitude and satisfaction of the salaried class investors
towards investments, evaluates the factors motivating the investors for investments
and expected rate of return on investment, analyses the awareness and attitude of
investors towards tax planning and offers suggestions for increasing investments in
Government sectors and on balanced investment patterns for individual investors.
Barua and Srinivasan (1991) worked on the investment decision making process
of individuals has been explored through experiments. They conclude that the risk
perception of individuals is significantly influenced by the skewness of the return
distribution. This implies that while taking investment decisions, investors are
concerned about the possibility of maximum losses in addition to the variability of
returns. Thus the mean variance framework does not fully explain the investment
decision making process of individuals.
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The majority 28.3 % of the respondents felt that Kisan Vikas Patra was providing
high return with interest rate of 8.41%, Next preference was Monthly income
scheme (MIS) by 23.3 % of the respondents. MIS with its handsome 8 percent
returns proved to be a major draw. 15 % of the respondents felt that Recurring
deposit was giving more return on investment. 11.1 % of respondents preferred
Postal life insurance scheme, 8.9 % felt that Time deposit was giving high return, 5
% felt that Public provident fund was providing high return on investment, only 2.9
% felt that Post office savings A/c and 4.4% felt National savings certificate
provides high return on their investment respectively. The majority of respondents
preferred reasons for post office investment, 77.9% of respondents felt that there
was 100% safety for their investment. 10.3% had invested in Post office as a small
saving as they do consider the interest rate. 2.9% were availing tax benefits.
Puneet (2014) has carried out a study to analyse the awareness level and investment
behaviour of salaried individuals towards financial products. All those salaried
individuals of Himachal Pradesh were considered as the population for this study.
A sample of 516 respondents was used for the purpose of this study. Results of the
study suggest that respondents are quite aware about traditional and safe financial
products whereas awareness level of new age financial products among the
population is low. Also majority of the respondents park their money in traditional
and safe investment avenues.
Chavare (2013) has undertaken a study to know the investment practices of senior
college teachers in Western Maharashtra. The findings reveal that, the investors
were having high level of knowledge about various investment avenues. Also, most
of the investors have taken the assistance of investment planners during the decision
making of investment. The investors have mostly preferred low risk avenues
comparative to others. They wanted to invest their funds in safer avenues and want
to live comfortable. Researcher has found that, there was a relationship between
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annual income and terms of investments. But, an age of investors and the amount
of investment is not interrelated. Although a majority of the investors were having
a high level of knowledge, it is suggested that, the investors should have thorough
knowledge before making investment in different avenues
• Low-risk investments
These are instruments which pay fixed income – irrespective of the changes in
the business or economy. Bonds, debentures and fixed deposits come under this
category. Also, special investment vehicles – PPF, EPF, SCSS, Sukanya
Samriddhi, National Savings Scheme and other small Post Office Schemes
which are created by a government statute for specific purposes are low risk as
they guarantee the returns. The returns are periodic and pre-determined. Low-
risk investments are not linked to the stock market movements and are usually
governed by the interest rate movements of the financiers. However, there is
always the returns are always guaranteed. Government bonds and life insurance
policies provide good returns, however, they have long lockin periods. So, you
will have to wait for a long time to earn substantial returns from these
investment options. Fixed deposit is one of the very few low-risk investments
that offer stable, high returns and immediate liquidity.
• Medium-risk investments
These are investments which might have a certain percentage of risk but these
also pay higher returns to investors willing to invest in them. Debt funds,
balanced mutual funds, and index funds fall in this category. Such instruments
do have an element of debt and stability, but they have their volatility linked to
the markets which can hamper your principal amount. The irregularity in
earnings can make any fixed income from such investment impossible.
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• High-risk investments
These are investments where there is no limit to the upside along with the
downside of risk-returns. These are stocks of companies, equity mutual funds,
even stocks, and derivatives. The return on these instruments can give huge
returns as well as chances of losses depending on various external factors to the
company and internal ones.
The quantity and timing of returns on these instruments are not fixed. Hence,
they are at high risk.
The Indian investor has a number of investment options to choose from. Some
are traditional investments that have been used across generations, while some
are relatively newer options that have become popular in recent years. Here are
some popular investment options available in India.
• Mutual Funds
• Fixed Deposits
• Bonds
• Stock
• Recurring Deposit
• Public Provident Fund (PPF)
• Gold/Silver
• Equities
• Real Estate (Residential/Commercial Property)
• Precious stones
1. Mutual Funds
Mutual Fund have been around for the past few decades but they have gained
popularity only in the last few years. These are investment vehicles that pool
the money of many investors and invest it in a way to earn optimum returns.
Different types of mutual funds invest in different securities. Equity mutual
funds invest primarily in stocks and equity-related instruments, while debt
mutual funds invest in bonds and papers. There are also hybrid mutual funds
that invest in equity as well as debt. Mutual funds are flexible investment
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vehicles, in which you can begin and stop investing as per your convenience.
Apart from Tax Saving Mutual Fund, you can redeem investments from mutual
funds any time as well. Mutual funds are financial instruments that are
professionally managed and that invest money on behalf of any investor in
different securities. These mutual funds are classified into various types based
on the type of securities that they invest in. some of the most popular mutual
fund types are balanced funds, stock funds, open-ended funds etc. These funds
are classified based on their percentage allocation in different securities. So an
equity fund invests popular is equity and is a high risk high return product while
a debt fund invests purely in debt and money market instruments and is hence
a low risk low return financial product.
Mutual funds are a popular and easily understood investment vehicle for many
investors. For investors with limited knowledge and time or money. Mutual
funds can provide simplicity and other benefits. To help you decide whether
investing in mutual funds is the right choice for you or not .Mutual funds are
financial instruments that are professionally managed and that invest money on
behalf of any investor in different securities.
These mutual funds are classified into various types based on the type of
securities that they invest in. some of the most popular mutual fund types are
balanced funds, stock funds, open-ended funds etc. These funds are classified
based on their percentage allocation in different securities. So an equity fund
invests popular is equity and is a high risk high return product while a debt fund
invests purely in debt and money market instruments and is hence a low risk
low return financial product.
Mutual funds are a popular and easily understood investment vehicle for many
investors. For investors with limited knowledge and time or money. Mutual
funds can provide simplicity and other benefits. To help you decide whether
investing in mutual funds is the right choice for you or not.
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One of the advantages of a mutual fund is it allows you to capture the
returns of an entire segment of the market without having to buy and sell
individual stocks and bonds. This ability to diversify across many
investments with the purchase of a single fund is one of the main reasons
mutual funds are so popular.
Mutual funds are able to take advantage of their buying and selling
volume to reduce transaction cost for investors. When you buy a mutual
fund, you are able to diversify without the numerous commission
charges. Imagine if you had to buy each of the 10-20 stocks needed for
diversification. The commission charges alone would eat up a good
chunk of your investment. With mutual funds you can make transaction
on much larger scale for lesser money.
Many investors don't have the exact sums of money to buy round lots of
securities. Investors can purchase mutual funds in smaller
denominations. Smaller denominations of mutual funds give investors
the ability to make periodic investments through monthly purchase plans.
So rather than having to wait until you have enough money to buy higher-
cost investments you can get in right away with mutual funds. This
provides an additional advantage.
Another advantage of mutual funds is that you can get in and out with
relative ease. In general, you are able to sell your mutual funds in a short
period of time without there being much difference between the sale price
and the most current market valued.
When you buy a mutual fund, you are also choosing a professional
money manager. This manager will use the money that you invest to buy
and sell stocks that he or she has carefully researched. Therefore rather
than having to thoroughly research every investment before you decide
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to buy or sell you have a mutual fund's money manager to handle it for
you.
Returns:
Mutual funds cannot guarantee returns to investors as they are linked to market
performance. So, if the market is on a bull run and it does exceedingly well, this
is reflected in the value of your fund. However, a poor performance in the
market could negatively impact your investments. Unlike traditional
investments ,mutual funds do not assure capital protection. Hence investors
should do their research and invest in funds that can help you meet your
financial goals.
⦁ Market risk
The risk that you will lose some or all of your principal. As markets fluctuate,
there is always a possibility that the mutual funds you hold might be caught in
a decline.
⦁Inflation risk
The risk of losing purchasing power. If your mutual funds gain 5% in a year
and the cost of living goes up by 2%, you are left with a real return of only 3%.
The risk that rising interest rates will cause your mutual funds to decline in
value. When interest rates rise, bond prices decline and bond mutual funds may
also decline as a result.
⦁Currency risk
The risk that a decline in the exchange rate will reduce your gains (or add to
losses). Even if the value of a foreign-currency-denominated fund goes up, a
decline in the foreign currency can reduce your returns when they are
exchanged back into Canadian dollars.
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⦁ Credit risk
The risk that the issuer of a bond or other security won't have enough money to
make its interest payments or to redeem the bonds for face value when they are
due. Securities with a higher risk of default tend to pay higher returns.
2. Fixed Deposits
Fixed deposits are investment vehicles that are for a specific, predefined
time period. They offer complete capital protection as well as guaranteed
returns. They are ideal for conservative investors who stay away from
risks. Fixed deposits are offered by banks and for different time periods.
Fixed deposit interest rates change as per economic conditions and are
decided by the banks themselves. Fixed deposits are typically locked-in
investments, but investors are often allowed to avail loans or overdraft
facilities against them. There is also a tax-saving variant of fixed deposit,
which comes with a lock-in of 5 years. Fixed deposits are a high-interest
-yielding Term deposit and offered by banks in India.
The most popular form of Term deposits are Fixed Deposits while other
forms of term Deposits are recurring deposit and flexi fixed deposit the
latter is actually a combination of Demand deposit and Fixed deposit. A
fixed deposit is a financial instrument provided by banks or NBFCs
which provides investors a higher rate of interest than a regular saving
account until the given maturity date. It may or may not require the
creation of a separate account. It is known as a term deposit or time
deposit in Canada, Australia, New-Zealand and the United States and as
a bond in the United Kingdom and India. for a fixed deposit is that the
money cannot be withdrawn from the fixed deposit as compared to
recurring deposit or a demand deposit before maturity. Some banks may
offer additional services to fixed deposit holders such as loans against
fixed deposit certificates at competitive interest rates. It's important to
note that banks may offer lesser interest rates under uncertain economic
conditions.
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The interest rate varies between 4 and 7.25 percent. The tenure of an
fixed deposit can vary from 7-15 or 45 days to 1.5 years and can be as
high as 10 years. These investments are safer than Post Office Schemes
as they are covered by the deposit insurance and credit guarantee
corporation (DICGC). They also offer income tax and wealth benefits.
To compensate for the low liquidity fixed deposits offer higher rates of
interest than saving accounts. The longest permissible term for fixed
deposits is 10 years. Generally the longer the term of deposit, higher is
the rate of interest but a bank may offer lower rate of interest for a longer
period if it expects interest rates, at which the Central Bank of a nation
lends to banks (repo rates) will dip in the future.
Usually in India the interest on fixed deposits is paid every three months
from the date of the deposit. (example: if FD a/c was opened on 15th
Feb., first interest installment would be paid on 15 May). The interest is
credited to the customers' Savings bank account or sent to them by
cheque. This is a simple fixed deposit. The customer may choose to have
the interest reinvested in the fixed deposit account. In this case, the
deposit is called the cumulative fixed deposit or compound interest. For
such deposits, the interest is paid with the invested amount on maturity
of the deposit at the end of the term.
Although banks can refuse to repay fixed deposits before the expiry of
the deposit, they generally don't. This is known as a premature
withdrawal. In such cases, interest is paid at the rate applicable at the
time of withdrawal. For example, a deposit is made for 5 years at 8%,
but is withdrawn after 2 years. If the rate applicable on the date of
deposit for 2 years is 5 per cent, the interest will be paid at 5 per cent.
Banks can charge a penalty for premature withdrawal. Banks issue a
separate receipt for every fixed deposit because each deposit is treated
as a distinct contract. This receipt is known as the fixed deposit receipt
that has to be surrendered to the bank at the time of renewal or
encashment. Many banks offer the facility of automatic renewal of fixed
deposits where the customers do give new instructions for the matured
deposit. On the date of maturity, such deposits are renewed for a similar
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term as that of the original deposit at the rate prevailing on the date of
renewal.
The only reason why our parents and many in our generation also have
this single concept of investment is because of its safety features. Also it
is easy to raise a loan against your FD. One can borrow up to 90 per cent
of the FDs amount.
. The next advantage is the flexible maturity date, it is for this feature that
you can invest for a time frame that is as less as 6 months to as long as
10 years or even more.
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Investing in a fixed deposit earns you a higher interest rate than
depositing your money in a saving account.
Risk involved:
Liquidity risk
A fixed deposit makes the availability of funds easy. However, not all fixed
deposits may be easily liquidated. For example, a tax-saver FD whose tenure
is five years, can’t be liquidated before its term. If you have an FD at a bank
that doesn’t permit online liquidation, you may have to visit a branch and
fill out their paperwork, and it may be a few days before you get your money.
Return risk:
There are several returns-related risks in FDs. First of all, FDs may offer
you a moderate rate of return between 6-8 per cent in most cases. At the
lower end of this returns spectrum, your interest earning may not be enough
to compete with returns from small savings or Mutual Fund SIPs.
Default risk:
Bank defaults are very rare. However, theoretically, it’s a possibility. Your
deposits – both principal and interest – at commercial and cooperative banks
are guaranteed up to Rs 1 lakh per bank. Therefore, if a bank were to default
and unable to repay your deposit, the Deposit Insurance & Credit Guarantee
Corporation were to cover you up to Rs 1 lakh. If your losses are bigger than
Rs 1 lakh per bank, you may receive no compensation.
Tax risk:
Your FD interest earnings may be completely taxable unless you’re over 60,
where up to Rs 50,000 is exempt under Section 80 TTB. Your interest
earnings are combined with your income and taxed as per your slab.
Therefore, if you’re in the 30 per cent tax slab, a 7 per cent FD may
effectively be providing you only 4.9 per cent -- returns further diminished
by rising inflation.
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Inflation risk:
Low returns from FDs may not beat even the prevalent rate of inflation. For
example, if your FD provides 6 per cent returns while the inflation rate had
crept up to 7 per cent, your capital has actually eroded. In recent quarters,
the inflation rate has been around 5 per cent. Therefore, as a person in the
30 per cent slab investing in a 7 per cent FD, you’ve effectively earned 4.9
per cent, thus earning less than the rate of inflation.
Concentration risk :
Credit risk:
When you invest in corporate fixed deposits, you have to watch for credit risks.
A corporate FD is assigned a credit rating by research agencies – FAAA, FAA,
FA, etc. These signify a high chance of you getting your principal and promised
interest back in time. However, companies with lower credit ratings – FB, FC,
FD etc. – may have greater difficulties in repaying your debt.
3. Bonds
Converged under the general class called ‘settled pay’ securities, the expression
“bond” is ordinarily used to allude to any established on obligation. When you
purchase a security, you are giving credit (loaning) out your cash to an organization
or government. Consequently, they consent to give you enthusiasm on your cash and
in the long run pay you back the sum you loaned out. The primary fascination of
bonds is their wellbeing. On the off chance that you are purchasing bonds from a
consistent government, your investment is for all intents and purposes ensured (or
“chance free” in contributing speech). The security and steadiness, be that as it may,
included some major disadvantages. Since there is little hazard, there is minimal
potential return.
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Therefore, the rate of profit for securities is by and large lower than different
securities. A bond is a fixed income instrument that represents a loan made by an
investor to a borrower (typically corporate or governmental). A bond could be
thought of asan I.O.U. between the lender and borrower that includes the details of
the loan and its payments. Bonds are used by companies, municipalities, states, and
sovereign governments to finance projects and operations. Owners of bonds are debt
holders, or creditors, of the issuer. Bond details include the end date when the
principal of the loan is due to be paid to the bond owner and usually includes the
terms for variable or fixed interest payments made by the borrower.
Governments (at all levels) and corporations commonly use bonds in order to borrow
money. Governments need to fund roads, schools, dams or other infrastructure. The
sudden expense of war may also demand the need to raise funds.
Similarly, corporations will often borrow to grow their business, to buy property and
equipment, to undertake profitable projects, for research and development or to hire
employees. The problem that large organizations run into is that they typically need
far more money than the average bank can provide. Bonds provide a solution by
allowing many individual investors to assume the role of the lender. Indeed, public
debt markets let thousands of investors each lend a portion of the capital needed.
Moreover, markets allow lenders to sell their bonds to other investors or to buy bonds
from other individuals—long after the original issuing organization raised capital.
Any corporate and government bonds are publicly traded; others are traded only
over- the-counter (OTC) or privately between the borrower and lender.
When companies or other entities need to raise money to finance new projects,
maintain ongoing operations, or refinance existing debts, they may issue bonds
directly to investors. The borrower (issuer) issues a bond that includes the terms
of the loan, interest payments that will be made, and the time at which the
loaned funds (bond principal) must be paid back (maturity date). The interest
payment (the coupon)is part of the return that bondholders earn for loaning their
funds to the issuer. The interest rate that determines the payment is called the
coupon rate. The initial price of most bonds is typically set at par, usually $100
or $1,000 face value per individual bond. The actual market price of a bond
depends on a number of factors: the credit quality of the issuer, the length of
time until expiration, and the coupon rate compared to the general interest rate
environment at the time. The face value of the bond is what will be paid back
to the borrower once the bond matures.
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Most bonds can be sold by the initial bondholder to other investors after they
have been issued. In other words, a bond investor does not have to hold a bond
all the way through to its maturity date. It is also common for bonds to be
repurchased by the borrower if interest rates decline, or if the borrower’s credit
has improved, and it can reissue new bonds at a lower cost.
TYPES OF BONDS
Fixed rate bonds have a coupon that remains constant throughout the life
of the bond a variation are stepped coupon bonds whose coupon
increases the life of the bond.
High yield bonds are bonds that are rated below investment grade by the
credit agencies. As these bonds are riskier than investment grade bonds,
investors or common man expect to earn a higher yield.
Convertible bonds let a bondholder exchange a bond to a number of
shares of the issuer's common stock. These are known as hybrid
securities because they combine equity and debt features.
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CHARACTERISTICS OF BONDS:
Most bonds share some common basic characteristics including: ⦁ Face value is
the money amount the bond will be worth at maturity; it is also the reference
amount the bond issuer uses when calculating interest payments.
Coupon rate is the rate of interest the bond issuer will pay on the face value of
the bond, expressed as a percentage.
Coupon dates are the dates on which the bond issuer will make interest payments.
Payments can be made in any interval, but the standard is semi annual payments.
Maturity date is the date on which the bond will mature and the bond issuer will
pay the bondholder the face value of the bond.
Issue price is the price at which the bond issuer originally sells the bonds.
Pricing Bonds
The market prices bonds based on their particular characteristics. A bond's price
changes on a daily basis, just like that of any other publicly-traded security, where
supply and demand in any given moment determine that observed price. But there is
a logic to how bonds are valued. Up to this point, we've talked about bonds as if
every investor holds them to maturity. It's true that if you do this you're guaranteed
to get your principal back plus interest; however, a bond does not have to be held to
maturity. At any time, a bondholder can sell their bonds in the open market, where
the price can fluctuate, sometimes dramatically.
The price of a bond changes in response to changes in interest rates in the economy.
This is due to the fact that for a fixed-rate bond, the issuer has promised to pay a
coupon based on the face value of the bond – so for a $1,000 par, 10% annual coupon
bond, the issuer will pay the bondholder $100 each year. Say that prevailing interest
rates are also 10% at the time that this bond is issued, as determined by the rate on a
short-term government bond. An investor would be indifferent investing in the
corporate bond or the government bond since both would return $100. However,
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imagine a little while later, that the economy has taken a turn for the worse and
interest rates dropped to 5%.
Now, the investor can only receive$50 from the government bond, but would still
receive $100 from the corporate bond. This difference makes the corporate bond
much more attractive. So, investors in the market will bid up to the price of the bond
until it trades at a premium that equalizes the prevailing interest rate environment—
in this case, the bond will trade at a price of$2,000 so that the $100 coupon represents
5%. Likewise, if interest rates soared to 15%, then an investor could make $150 from
the government bond and would not pay$1,000 to earn just $100. This bond would
be sold until it reached a price that equalized the yields, in this case to a price of
$666.67.
This is why the famous statement that a bond’s price varies inversely with interest
rates works. When interest rates go up, bond prices fall in order to have the effect of
equalizing the interest rate on the bond with prevailing rates, and vice versa.
Risk Factor:
The most well-known risk in the bond market is interest rate risk – the risk that bond
prices will fall as interest rates rise. By buying a bond, the bondholder has committed
to receiving a fixed rate of return for asset period. Should the market interest rate
rise from the date of the bond's purchase, the bond's price will 19fallaccordingly.
The bond will then be trading at a discount to reflect the lower return that an investor
will make on the bond.
Market interest rates are a function of several factors, including the demand for and
supply of money in the economy, the inflation rate, the stage that the business cycle
is in, and the government's monetary and fiscal policies.
From a mathematical standpoint, interest-rate risk refers to the inverse relationship
between the price of a bond and market interest rates. To explain, if an investor
purchased a 5% coupon, a 10-year corporate bond that is selling at par value,the
present value of the $1,000 par value bond would be $614. This amount represents
the amount of money that is needed today to be invested at an annual rate of 5% per
year over a 10-year period, in order to have $1,000 when the bond reaches maturity.
Now, if interest rates increase to 6%, the present value of the bond would be $558,
because it would only take $558 invested today at an annual rate of 6% for 10 years
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to accumulate $1,000. In contrast, if interest rates decreased to 4%, the present value
of the bond would be $676. As you can see from the difference in the present value
of these bond prices, there truly is an inverse relationship between the price of a bond
and market interest rates, at least from a mathematical standpoint.
One risk is that the proceeds from a bond will be reinvested at a lower rate than the
bond originally provided. For example, imagine that an investor bought a $1,000
bond that had an annual coupon of 12%. Each year the investor receives $120 (12%
*$1,000), which can be reinvested back into another bond. But imagine that over
time the market rate falls to 1%. Suddenly, that $120 received from the bond can
only be reinvested at 1%, instead of the 12% rate of the original bond.
Another risk is that a bond will be called by its issuer. Callable bonds have call
provisions, which allow the bond issuer to purchase the bond back from the
bondholders and retire the issue. This is usually done when interest rates have fallen
substantially since the issue date. Call provisions allow the issuer to retire the old,
high-rate bonds and sell low-rate bonds in a bid to lower debt costs.
This risk refers to an event wherein the bond's issuer is unable to pay the contractual
interest or principal on the bond in a timely manner, or at all. Credit ratingservices
such as Moody's, Standard & Poor's and Fitch give credit ratings to bond issues,
which helps to give investors an idea of how likely it is that a payment default will
occur.
This risk refers to an event wherein the rate of price increases in the economy
deteriorates the returns associated with the bond. This has the greatest effect on fixed
bonds, which have a set interest rate from inception.
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4. Stocks
Buying shares of companies is a one time investment plan. It is one of the easiest
ways to invest your money in any business. These are part ownership units of the
company which each investor buys. You can trade these shares in a marketplace
called the Stock market where all trades are done electronically. It is one of the most
lucrative and riskiest investment options to buy.Stocks, also known as company
shares, are probably the most famous investment vehicle in India. When you buy a
company’s stock, you buy ownership in that company that allows you to participate
in the company’s growth. Stocks are offered by companies that are publicly listed
on stock exchanges and can be bought by any investor. Stocks are ideal long-term
investments. But investing in stocks should not be equated to trading in the stock
market, which is a speculative activity. When you purchase stocks (or ‘values’), you
turn out to be somewhat a proprietor of the business.
This gives you a privilege to vote at the shareholder’s meeting and enables you to
get any benefits that the organization assigns to its owners–these benefits are alluded
to as profits. While bonds give a consistent stream of wage, stocks are unstable. That
is, they vacillate in an incentive every day. When you buy a stock, you aren’t ensured
anything. Many stocks don’t pay profits, profiting just by expanding in esteem and
going up in price–which won’t not occur. As contrast with bonds, stocks give
moderately high potential returns. Obviously, there is a cost for this potential: you
should accept the danger of losing a few or the greater part of your investment.
5.Recurring Deposits
A recurring deposit (RD) is another fixed tenure investment that allows investors to
put in a specific amount every month for a pre-defined period of time. RDs are
offered by banks and post offices. The interest rates are defined by the institution
offering it. An RD allows the investor to invest a small amount every month to build
a corpus over a defined time period. RDs offer capital protection as well as
guaranteed returns.
Investing money silver and gold as commodity is simple and profitable. Anyone can
learn the easy ways of buying silver and gold as a physical wealth. Since the value
of gold and silver considerably high the precious metal constitutes to be great
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investment option for common people. Investing in gold and silver has more
advantages as compared to any form of currency. Silver is one of the things which
is considered a good investment by many people. Even though silver has a small
market, there are many compelling reasons why silver must be under your
investment list From an investment point of view the precious metals have been a
much-coveted commodity for ages. Silver and gold are highly sought after not only
because of their lustrous beauty, but also because they are a lucrative investment
option. Hence investing in silver can be a wise choice. Gold is one of the oldest
investment solutions that have been preferred by all the investors. Investors from all
around the globe have a theory in their mind that there is no better way of keeping
their money safe than buying gold
There is more than one reason why people prefer to go with gold as compare to
other investment solutions. The gold market has the record of staying high for a
long period of time. Be it any country of the world, the gold markets touches the
peak and continues to stay there for a long period of time which is why people
consider it to be the best way of preserving their wealth.
⦁ Globally accepted:
Gold is acceptable all over the world. Moreover there is certainly no different type
of gold in different parts of the world which mean you can trade it regardless of
your locations. You can simply keep the gold with you and sell it whenever you get
perfect rates for it.
⦁ It is a hard asset:
All the investments you own are not hard assets. More precisely they are not
tangible. You may invest in paper profits, shares, digital trading and a multitude of
similar things. Physical silver is something that you can carry in person all the time
if you want to though it is not recommendable.
It is cheap Silver is not cheap but it is cheaper in relative terms than other
investments. It is 1/70th of the price of gold which can even protect you against
financial crisis. It is much affordable for an average investor. This metal is yet
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considered one of the most precious investment a person can make. It is not
necessary to invest into a full ounce of gold. Rather, silver can be more reasonable
in this terms.
Global demand for silver is at its peak and is continually growing at a dramatic
pace. Major governments have seen record level of sales in recent years and most
are even operating at their peak production right now.
Silver is obviously not that cheaper to buy but can be practical when it comes to
selling. Someday you may face the need to sell your ounce of gold and meet your
financial demands. It is recommendable to do it along with silver. It comes in
smaller denominations that gold which makes it easier for you to sell. It gives you
more flexibility with the sale and allows you to sell only what you want at that time.
⦁ Growth in use:
Almost all products nowadays use silver. From machines to coins and batteries to
solar panels, each and everything uses some quantity of silver. There are certain
characteristics in silver like electrical conductivity and its reflectivity which makes
it a suitable metal for usage in many purposes. Due toits character, the industries
are continually utilizing this metal for their advantage. This makes silver high in
demand. We can reasonably expect the source of demand to remain sturdy.
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DISADVANTAGES OF INVESTING IN GOLD:
⦁ Not regular profit: People usually with lack of knowledge and invest in gold but
sooner or later they realize that investing in gold isn't bringing much advantage to
them. Buying gold and keeping it with you isn't going to bring any benefit at all,
notunless you decide to sell it. There is no interest or income you are getting out of
that gold.
⦁ Not predictable gold market: Moreover, if you check the history of the gold and
its prices, you will realize that despite the fact that the prices of gold stays high for
a long period of time, there are times when the prices out of nowhere starts
dropping which is not at all a good thing for the investor prices out of nowhere
starts dropping which is not at all a good thing for the investor.
7. EQUITY
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shares should the company wish to raise additional capital. In the trading world,
equity refers to stock. In the accounting and corporate lending world, equity (or
more commonly, shareholders’ equity) refers to the amount of capital contributed
by the owners or the difference between a company’s total assets and its total
liabilities.
In the real estate world, equity refers to the difference between an asset’s market
value and the debt owed on the asset. The two most common types of equities
traders encounter are common stock and preferred stock. Share certificates
bearing the name of the shareholder, the number of shares, and the name of the
company represent these equities, or shares. The number of shares a corporation
is authorized to issue is outlined in its corporate charter. When a company decides
to sell additional shares to new or existing shareholders, this is sometimes called
raising equity. Although shareholder rights vary by company, one of the most
prominent characteristics of equity is that it entitles the owner to vote on certain
matters and to do so in proportion to the number of shares he or she owns. The
company’s articles of incorporation and bylaws determine the number of votes
each share is entitled to.
Equity holders enjoy voting rights and other privileges that only come with
ownership, because equity represents a claim on a proportionate share of a
company’s assets and earnings. These claims are generally subordinate to lenders’
claims, but only equity holders can truly participate in and benefit from growth in
the value of the enterprise. Some financial instruments have equity characteristics
but are not actually equity. Convertible debt instruments, for example, represent
loans that convert into shares when a company (the borrower) crosses certain
thresholds, thereby turning a lender into an owner in certain events. Stock options
also act like equity in that their value changes with the value of the underlying
shares, but the option holders generally do not have voting rights and are not
eligible to receive the dividends or other distributions made to bona fide equity
holders.
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the people who have to do savings i.e. investments are made from their savings, or
in other words it is the people invest their savings. A variety of different investment
options are available that are bank, Gold, Real estate, post services, mutual funds
& so on much more. Investors are always investing their money with the different
types of purpose and objectives such as profit, security, appreciation, Income
stability. Researcher has here in this paper studied the different types and avenues
of investments as well as the factors that are required while selecting the
investment with the sample size of 60 salaried employees by conducting the survey
through questionnaire in Pune city of, India. Actually, here the present study
identifies about the preferred investment avenues among individual investors
using their own self- assessment test. The researcher has analyzed and found that
that salaried employees consider the safety as well as good return on investment
that is invested on regular basis. Respondents are much more aware about the
different investment avenues available in India except female investors.
⦁ DIVIDEND
An investor is entitled to receive a dividend from the company. It is one of the two
main sources of return on his investment.
⦁ CAPITAL GAIN
The other source of return on investment apart from dividend is the capital gains.
Gains which arise due to rise in market price of the share.
⦁ LIMITED LIABILITY
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⦁ EXERCISE CONTROL
By investing in the company, the shareholder gets ownership in the company and
thereby he can exercise control. In official terms, he gets voting rights in the
company.
An investor of equity share is the owner of the company and so is the owner of the
assets of that company. He enjoys a share of the incomes of the company. He will
receive some part of that income in cash in the form of dividend and remaining
capital is reinvested in the company.
⦁ RIGHTS SHARES
Whenever companies require further capital for expansion etc, they tend to issue
‘rights shares’. By issuing such shares, ownership and control of existing
shareholders are preserved and the investor receives investment priority over
other general investors. Right Shares are issued at a price lower than current
market price of the equity share. So, existing investor can take that advantage or
otherwise can renounce right in some one’s favour to get value of right.
⦁ BONUS SHARES
⦁ LIQUIDITY
The shares of the company which is listed on stock exchanges have the benefit of
any time liquidity. The shares can very easily transfer ownership.
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⦁ STOCK SPLIT
Stock split means splitting a share into parts. How should an investor be benefited
by this? By splitting of share, the per-share price reduces in the market which
eventually increases the readability of share. At the end, stock split results in higher
volumes with a number of investors leading to high liquidity of the share.
Risk involved :
⦁ DIVIDEND
⦁ High risk:
The market price of any equity share has a wide variation. It is always very difficult
to book profits from the market. On the contrary, there are equal chances of losses.
⦁Limited control:
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⦁ Residual claim:
An equity shareholder has a residual claim over both the assets and the income.
Income which is available to equity shareholders is after the payment of all other
stakeholders’ viz. debenture holders etc.
8. LIFE INSURANCE
Life insurance is a contract between an insurance policy holder and an insurer and
assurer, where the insurer promises to pay a designated beneficiary a sum of
money that is the benefit in exchange for a premium, upon the death of an insured
person. Depending on the contract, other events such as terminal illness or critical
illness can also trigger payment. The policy holder typically pays a premium, either
regularly or as one lump sum. Other expenses, such as funeral expenses, can also
be included in the benefits.
Life policies are legal contracts and the terms of the contract describe the
limitations of the insured events. Specific exclusions are often written into the
contract to limit the liability of the insurer; common examples are claims relating
to suicide, fraud, war, riot, and civil commotion.
Life-based contracts tend to fall into two major categories:
⦁ Protection policies:
This policies are designed to provide a benefit, typically a lump sum payment, in
the event of a specified occurrence. A common form more common in years past
of a protection policy design is term insurance.
⦁ Investment policies: The main objective of these policies is to facilitate the growth
of capital by regular or single premiums.
When it comes to considering life insurance as an investment, you’ve probably
heard the adage, “Buy term and invest the difference.” This advice is based on the
idea that term life insurance is the best choice for most individuals because it is the
least expensive type of life insurance and leaves money free for other investments.
Permanent life insurance, the other major category of life insurance, allows
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policyholders to accumulate cash value, while term does not, but there are
expensive management fees and agent commissions associated with permanent
policies, and many financial advisors consider these charges a waste of money.
⦁ You can keep most policies up to age 120, as long as you pay the premiums:
A key advertised benefit of permanent life insurance over term life insurance is you
don’t lose your coverage after a set number of years. A term policy ends when you
reach the end of your term, which for many policyholders is at age 65 or 70. But by
the time you’re 120, who will need your death benefit. Most likely, the people you
originally took out a life insurance policy to protect your spouse and children are
either self-sufficient or have also passed away.
You may be able to receive anywhere from 25% to 100% of your permanent life
insurance policy’s death benefit before you die if you develop a specified condition
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such as heart attack, stroke, invasive cancer or end-stage renal failure. The upside
of accelerated benefits, as they’re called, is you can use them to pay your medical
bills and possibly enjoy a better quality of life in your final months. Arguments in
Favor of Buying Term Insurance and Investing the Differencethat is: When you buy
a term policy, all of your premium go toward securing a death benefit for your
beneficiaries. Term life insurance, unlike permanent life insurance, does not have
any cash value and therefore does not have any investment component. However,
you can think of term life insurance as an investment in the sense that you are
paying relatively little in premiums in exchange for a relatively large death benefit.
Using permanent life insurance as an investment might make sense for some
people in some situations usually high net-worth individuals looking for a way to
minimize estate taxes. For the average person, the odds are poor that permanent
life insurance will be a good investment compared with buying term and investing
the difference.
Risk:
If you want to take advantage of the investment opportunity, you have to purchase
a permanent life insurance. Only they offer customers the chance of a cash value
accumulation. Therefore, the premiums are much higher (sometimes ten times
bigger). In addition, there are plenty of fees and charges that you have to pay.
Unfortunately, a big part of the premiums goes to cover fees, for example –
administration costs. Let’s not forget the commission you owe the person who sold
you the policy. If you want to take out a loan from your cash value, you need to pay
a cash surrender fee up to 10% alongside an interest rate.
Insurance companies talk customers into buying life policies by promising certain,
and usually high, returns. By accumulating cash value you earn an interest, which
many companies promise to be higher than most savings accounts. Even though
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often policies go with a guaranteed minimum interest rate, the real return is not as
high as that. Well, it’s very simple. There are many fees and charges imposed on
your account. After they are deducted the return is far less than the guaranteed
interest rate, let alone the promised one. What’s more, these “promised” returns
will happen only if you wait for a certain period of time before taking money out,
say 20 years. One more thing on the downside is that, especially during the first
years of the term, the chances are high that your returns will be negative. This is
because often the fees and charges exceed the interest your cash value can
generate.
⦁ Lack Of Flexibility
Unfortunately, life insurance policies do not offer much flexibility. Life is not static.
Sometimes the more you predict, the fewer things happen the way you expected.
Can you predict an unfortunate event? A disease or an accident. No, but you can
be ready for this. Having an Individual Retirement Account (IRA) or a 401(k) gives
you the freedom to reduce the amount you pay in case you face financial problems.
This will not affect your account and the money in it will still generate interest over
time. So where is the problem. However, life insurance does not offer you that. If
you miss a payment, the money will be taken out of your cash account (if it’s a
permanent life insurance). Of course, this will result in a decrease in your cash
value. If there is not enough money in your account, or you have spent it on paying
premiums, you might lose your policy.
Don’t you have the right to face financial difficulties and delay a payment or freeze
payments for a while? Life insurance will not put up with this if you want your
coverage to remain active until the end of the term.
Some life insurances boats with the fact that they are offer tax deferred accounts.
To some extent this is true. For example, whole life insurances, give you the
opportunity to make tax-free “withdrawals” as well as to “grow” a tax-free savings
account. The first thing is that, though the growth of your cash value is exempt from
taxes, the premiums you pay are not. Unlike health insurance premiums, life
insurance ones are considered personal expenses. The Internal Revenue Service
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(IRS) imposes taxes on personal expenses. What is a little bit tricky is that the
“withdrawals”, for example, are tax-free but they aren’t actual distributions? In
fact, to take money out you have to borrow money from your cash value. You are
the lender and borrower at the same time. But you have to pay an interest rate to
your policyholder. So, the equation is easy: You don’t pay taxes on these amounts
of money but you have to pay an interest rate because you have borrowed the
money. Can you imagine the rate to be higher than the possible taxes you have to
pay on withdrawals? It’s quite possible. Another thing worth mentioning is that if
you take out a lot of money, you might exhaust your cash value. Which, as you
already know, can lapse the policy.
9. DEBENTURES
A debenture is one of the most typical forms of long term loans that a company can
take.It is normally a loan that should be repaid on a specific date, but some
debentures are irredeemable securities (sometimes referred to as perpetual
debentures).
The majority of debentures come with a fixed interest rate. This interest must be
paid before dividends are paid to shareholders. In the US, most debentures are
unsecured, but elsewhere debentures are typically secured through the borrower’s
assets.
Debenture holders
Debenture holders (investors) are not allowed to vote in the company's general
shareholders meetings, but they may have separate meetings or votes, for instance
regarding changes to the rights associated with the debentures. The interest that
is paid to debenture holders is calculated as a charge against profit in the
company's financial statements.
Types of debentures
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Debentures come in two types:
Convertible debentures:
Convertible bonds or bonds that can be converted into equity shares of the issuing
company after a predetermined period of time. To investors, convertible bonds are
more attractive because the bonds can be converted, and to companies they have the
advantage that they normally have lower interest rates than non-convertible
corporate bonds.
Non-convertible debentures:
Standard debentures that can't be converted into equity shares of the liable
company. Since they can't be converted, they usually have higher interest rates
than convertible debentures.
⦁Benefits
Debentures are mainly beneficial to companies by having a lower interest rate than
other types of loans, e.g. overdrafts. Further, they normally only need to be repaid
by a very remote date. The main benefits of debentures to investors is that they
can usually be sold in stock exchanges quite easily and they come with less risk than
e.g. equities.
Risk:
The majority of debentures and unsecured notes have a fixed rate of interest and
a fixed repayment of capital amount. In this case, where the securities are held to
maturity, investors will receive the expected amount, irrespective of interest rate
movements. The main risk that fixed-rate debentures and unsecured notes holders
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are exposed to is the opportunity cost that a better rate of return may be available
elsewhere if interest rates were to increase.
⦁ Credit/default risk
The credit risk is the risk that the investor’s interest and/or capital are not repaid
by the borrower. A good credit rating by an independent and reputable credit
rating agency gives a measure of confidence for investors. Unfortunately, the
majority of debenture issuers and unsecured notes will not have been rated in this
way, which makes it difficult to gauge the financial health of the issuer. Factors that
affect the credit risk include the ranking of the debt in terms of repayment upon
liquidation of the company, purposes the investors’ funds will be used for, and
financial strength of the company.
⦁ Liquidity risk
The majority of debentures and unsecured notes do not offer a readily available
exit mechanism and as such should be considered a relatively illiquid investment.
Issuers may allow the investor to access their original capital investment at their
discretion in
10. SAVINGS
Savings accounts pay interest, it is more beneficial to keep your unneeded funds in
a savings account than in a checking account so your money can grow. In addition,
savings accounts are one of the most liquid investments outside of other demand
accounts and cash. While savings accounts facilitate saving, they also make it very
easy to access your funds. In contrast, it is typically more difficult to cash a bond,
make a withdrawal from a retirement account, or sell stocks or other assets. A
savings account is a long-term, fundamental money management tool that can help
you meet numerous financial needs. It also means you’re placing your money
somewhere that is not under your absolute control, since it is being held by a bank
or credit union.
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ADVANTAGES OF SAVING ACCOUNT:
⦁ Savings accounts will usually accrue interest over time: Although interest rates
have been extremely low since 2007, with many savings accounts having an interest
rate below 1%, you will still accrue interest over time with an account. That means
you have more earning potential with your money compared to keeping it in a safe
at home.
⦁ Funds are still readily available: With most banks and credit unions, investor have
online access to your funds 24 hours per day. All you need to have is a data
connection or access to the internet. Many institutions will allow you to link your
savings account to other accounts you may have, like a checking account, which
can help you to avoid costly overdraw fees. This also allows you to quickly transfer
funds from one account to another, even outside of regular banking hours.
⦁ Safety of money: Because your money is being held by a third party, it increases
its personal safety. Not only does storing cash on property make you a target for a
potential robbery, but losses like that are not always covered by a homeowner’s or
renter’s insurance policy. If there was a fire in your home or some other natural
disaster, you could lose your cash as well. Keeping your cash in a savings account
keeps you and your money safer.
⦁ People can open an account with very little money: Many savings accounts can
be started by paying small amount. Some institutions may have an even lower limit,
sometimes allowing an account to be opened for as little as Rs 50. This gives you
an opportunity to begin saving your money, even if you don’t have much to save at
the start.
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⦁ Savings accounts can provide automated bill payments: Many financial
institutions allow bills to be paid automatically out of a savings account without
being subjected to the withdrawal and transfer laws. This allows you to save time
because you don’t need to manually pay every bill each month and you’re less likely
to experience late fees because you missed or forgot a payment. Of course, you’ll
need to have money in the account to pay the bill, but if you do, you’ll be able to
maintain a better credit score over time.
⦁ Receive security: A savings account gives you the opportunity to put away cash in
case you have an emergency situation. If you lose your job, for example, you’d be
able to draw upon your savings account for your monthly expenses.
⦁ There are withdrawal limits on a savings account: You can easily transfer money
from one account to another with regularity, but in the United States, there are
Federal limits on the number and the types of withdrawals you can make per
statement cycle. This law is called “Regulation D” and limits you to no more than 6
transfers or withdrawals from each savings or money market account during a
calendar month.
⦁ Some financial institutions charge fees for their savings accounts: There may be
monthly fees charged to your savings account for it to be maintained. To avoid this
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disadvantage, look for fee-free options at local banks or credit unions for the best
results.
The Public Provident Fund (PPF) is a long-term tax-saving investment vehicle that
comes with a lock-in period of 15 years. Investments made in PPF can be used to
earn a tax break. The PPF rate is decided by the Government of India every quarter.
The corpus withdrawn at the end of the 15-year period is completely tax-free in the
hands of the investor. PPF also allows loans and partial withdrawals after certain
conditions have been met. Public Provident Fund is one of the most common and
trusted investment plans in India. It pays interest rate annually and requires a
minimum of Rs 500 per annum investment. It has a life of 15 years with partial
withdrawals allowed of the corpus at various points. This option also pays a high
and steady rate of interest as prescribed the government from time to time.
The National Pension System (NPS) is a relatively new tax-saving investment option.
Investors in the NPS stay locked-in till retirement and can earn higher returns than
PPF or EPF since the NPS offers plan options that invest in equities as well. The
maturity corpus from the NPS is not entirely tax-free and a part of it has to be used
to purchase an annuity that will give the investor a regular pension.
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Chapter 4
DATA ANALYSIS &
INTERPRETATIONS
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Indian investment : % of GDP
What will be India’s GDP in 2022-’23? The government and RBI have given three answers
in 11 days
While the economic survey and Budget estimate the growth in the
coming fiscal year to be 8%-8.5% and 6.6% respectively, RBI forecasts
it to be 7.8%.
Indians have enjoyed an ever-expanding array of choices for consumer goods over
the past couple of decades. In this season of cheer and goodwill, they now have the
pleasure of even selecting a version of India’s growth perspectives, depending on
the risks playing out.
Three versions are on offer. Over the past 10 days, the Indian public has been
furnished with separate estimates of India’s expected gross domestic product for
next year, 2022-’23.
First, on January 31, the finance ministry presented the government’s economic
survey for the current year, 2021-’22, which also provided a line of sight to next
year’s GDP. The estimate from the office of the chief economic adviser: 8%-8.5%
real growth, that is growth adjusted for inflation, over 2021-’22.
Next day, February 1, came the government’s Budget for next year, an annual
exercise in estimating how much it will earn through different revenue streams
(through taxes or selling off government-owned companies, like Air India) and
how much it will spend on salaries or roads and bridges. The government’s Budget
pencils in the year’s tax collection projections on the basis of a rough estimate of
how the economy will grow. Finance minister Nirmala Sitharaman, in an unusual
display of conservatism, expects India’s nominal GDP to grow by 11.1% during
2022-’23.
Then on February 10, the Reserve Bank of India presented its last bi-monthly
monetary policy for 2021-’22. The central bank has estimated that India’s real
GDP will grow by 7.8% during 2022-’23, with consumer inflation averaging 4.5%,
yielding a nominal GDP growth of 12.3%.
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A quick point here. If we juxtapose the survey’s and Budget’s GDP estimates, since
both the exercises were conducted in the finance ministry, it seems the expected
growth rate is 3.1%-2.6% for the forthcoming financial year (Sitharaman’s 11.1%
minus the survey’s 8%-8.5%). But, since RBI has already provided a feel for next
year’s consumer inflation, the Budget’s projection of real GDP works out to 6.6%.
So, there you have it, three different versions of India’s future GDP, all presented
within a span of 11 days: 8%-8.5%, 6.6% and 7.8%. Take your pick, depending on
your personal fancy.
But, if you look closely, these numbers are also telling us something.
Circumspection in air
For one, if we leave aside the Economic Survey forecast, both Sitharaman and RBI
governor Shaktikanta Das seem to be erring on the side of caution. Both have
dialled down their usual penchant for bold and ambitious growth targets.
Last year, around this time, RBI’s Das was slightly more bullish and had forecast a
growth rate of 10.5%. Using his inflation estimates, Sitharaman’s forecast was
9.9%. The first advance estimate shows that the year might end with a 9.2%
growth.
So, why have both Sitharaman and Das back-pedalled on growth? Two things
stand out.
The first is circumspection. All it takes is a virus to upend the well-laid plans and
aspirations of economic planners. The devastating second wave of April 2021-May
2021, made deadlier by sub-optimal vaccination and a severe deficit in healthcare
infrastructure, upset all plans and projections by a mile.
The Delta variant resulted in a large number of deaths and pushed back nascent
recovery by a few weeks. And then, just when things seemed to be getting back on
an even keel, another variant called Omicron threw sand in the wheels of recovery.
Who knows whether another variant will turn spoilsport next year. There is no
telling with this shape-shifting virus. It irrupts and disrupts, and could once again
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end a recovery party even before it begins. The lessons from last year’s stumbles
seem to have informed the conservative growth approximations.
This is why the RBI’s monetary policy committee also probably feels it is too early
to start normalizing policy. The RBI’s monetary policy has continued with its
accommodative stance and eschewed any rate hikes, which is at odds with bond
market expectations.
This brings us to the second factor. Even if we are willing to forget the virus for a
moment, the RBI’s call has also been informed by the burden of risks weighing
down on the horizon.
The central bank’s policy statement of February 10 spelt out some of its worries:
“The global macroeconomic environment is, however, characterised by a
deceleration in global demand in 2022, with increasing headwinds from financial
market volatility induced by monetary policy normalisation in the systemic
advanced economies and inflationary pressures from persisting supply chain
disruptions. Accordingly, the Monetary Policy Committee judges that the ongoing
domestic recovery is still incomplete and needs continued policy support.”
Das actually provides a more specific matrix by stretching the envelope of risks:
“In a global environment rendered highly volatile and uncertain by diverging
monetary policy stances, geo-political tensions, elevated crude oil prices and
persistent supply bottlenecks, emerging economies are vulnerable to destabilising
global spillovers on an ongoing basis. Thus, policymakers face daunting challenges
even as recovery from the pandemic remains incomplete.”
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Where to invest in 2022
Covid-19 made investors shift to riskier assets for higher returns in 2021. Here’s what
to expect from different asset classes in 2022.
The year 2021, hit by the worst of Covid-19, ended unexpectedly well for
financial market investors. One reason was pick-up in GDP growth after the
sharp dip in early part of 2020. While global economic growth is
recovering, India will occupy the title of one of the fastest-growing
economies, says Nilesh Shah, Group President & MD, Kotak Mahindra
AMC. Real GDP growth is expected to be 9.5% in FY2022 due to lower base
and bounce-back by businesses after progressive reopening of the economy.
GDP had shrunk 7.3% in FY2021. Nineteen of the 22 high-frequency
economic indicators such as index of industrial production are in the
positive territory. Taking the cue, Indian stock markets did extremely well
for a major part of 2021. The weight of Indian listed companies that are
part of the MSCI Emerging Market Index rose from 8% in 2020 to 12% in
2021. Such hearty macro and micro indicators and decent capital market
gains are great for investors. So, which asset class will give blockbuster
returns in 2022?
It is tough to choose. Apart from traditional investment options such as
equities, debt, real estate and gold, the digital boom during the pandemic
has amplified retail investors’ interest in asset classes like peer-to-peer
(P2P) lending, cryptocurencies and Real Estate Investment Trusts (REITs).
Here’s how these assets may move in 2022.
The year 2021, hit by the worst of Covid-19, ended unexpectedly well for
financial market investors. One reason was pick-up in GDP growth after the
sharp dip in early part of 2020. While global economic growth is
recovering, India will occupy the title of one of the fastest-growing
economies, says Nilesh Shah, Group President & MD, Kotak Mahindra
AMC. Real GDP growth is expected to be 9.5% in FY2022 due to lower base
and bounce-back by businesses after progressive reopening of the economy.
GDP had shrunk 7.3% in FY2021. Nineteen of the 22 high-frequency
economic indicators such as index of industrial production are in the
positive territory. Taking the cue, Indian stock markets did extremely well
for a major part of 2021. The weight of Indian listed companies that are
part of the MSCI Emerging Market Index rose from 8% in 2020 to 12% in
2021. Such hearty macro and micro indicators and decent capital market
77
gains are great for investors. So, which asset class will give blockbuster
returns in 2022?
It is tough to choose. Apart from traditional investment options such as
equities, debt, real estate and gold, the digital boom during the pandemic
has amplified retail investors’ interest in asset classes like peer-to-peer
(P2P) lending, cryptocurencies and Real Estate Investment Trusts (REITs).
Here’s how these assets may move in 2022.
78
Equities have also done far better than other popular assets such as real estate, gold
and fixed income by a wide margin in the last one decade. Nifty 50 rose over 21%
in first 11 months of 2021. Small-caps returned nearly twice as much. NSE Small
Cap 100 grew 62% in one year till November 30. Nifty 50 rose 31% during the
period. Nifty Midcap 100 was up 50%.
The Budget goals for FY2022-23 aim to further India's aspirations in Amrit Kaal, as
it moves towards its 100th year post independence.
Focus on growth and all-inclusive welfare
Promoting technology-enabled development, energy transition and climate
action
Virtuous cycle starting from private investment, crowded in by public capital
investment
The Union Budget for FY 2022-23 this year aims to strengthen the infrastructure
with its focus on four priorities of:
PM GatiShakti
Inclusive Development
Productivity Enhancement & Investment, Sunrise opportunities, Energy
Transition, and Climate Action
Financing of investments
The Union Budget website lists the Highlights of the FY 2022-23 Budget. The Press
Information Bureau (PIB) website provides a summary of the Budget. The
Productivity Linked Incentive in 14 sectors for achieving the vision of AtmaNirbhar
Bharat has received excellent response, with potential to create 60 lakh new jobs,
and an additional production of Rs 30 lakh crore during next 5 years.
KEY FEATURES
India's GDP has witnessed robust recovery twice with the past two waves of the
pandemic, a testimony to the nation's economic resilience.
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India's GDP
Providing Greater Fiscal Space to States
Enhanced outlay for 'Scheme for Financial Assistance to States for Capital
Investment' from Rs.10,000 crore in Budget Estimates to Rs.15,000 crore in
Revised Estimates for current year
Allocation of Rs.1 lakh crore in 2022-23 to assist the states in catalysing
overall investments in the economy: fifty-year interest free loans, over and
above normal borrowings
In 2022-23, States will be allowed a fiscal deficit of 4% of GSDP, of which
0.5% will be tied to power sector reforms
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Guarantee cover under ECLGS to be expanded by Rs.50000 Crore to total
cover of Rs.5 Lakh Crore
Rs.2 lakh Crore additional credit for Micro and Small Enterprises to be
facilitated under the Credit Guarantee Trust for Micro and Small Enterprises
(CGTMSE)
Raising and Accelerating MSME performance (RAMP) programme with
outlay of Rs.6000 Crore to be rolled out
Education
One class-One TV channel' programme of PM eVIDYA to be expanded to
200 TV channels
Virtual labs and skilling e-labs to be set up to promote critical thinking skills
and simulated learning environment
High-quality e-content will be developed for delivery through Digital
Teachers
Digital University for world-class quality universal education with
personalised learning experience to be established
Saksham Anganwadi
Integrated benefits to women and children through Mission Shakti, Mission
Vatsalya, Saksham Anganwadi and Poshan 2.0
Two lakh anganwadis to be upgraded to Saksham Anganwadis
Health
An open platform for National Digital Health Ecosystem to be rolled out
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National Tele Mental Health Programme’ for quality mental health
counselling and care services to be launched
A network of 23 tele-mental health centres of excellence will be set up, with
NIMHANS being the nodal centre and International Institute of Information
Technology-Bangalore (IIITB) providing technology support
Sunrise Opportunities
Government contribution to be provided for R&D in Sunrise Opportunities
like Artificial Intelligence, Geospatial Systems and Drones, Semiconductor
and its eco-system, Space Economy, Genomics and Pharmaceuticals, Green
Energy, and Clean Mobility Systems
Banking
100 per cent of 1.5 lakh post offices to come on the core banking system.
Scheduled Commercial Banks to set up 75 Digital Banking Units (DBUs) in
75 districts
KEY FEATURES
Key documents such as those listed below are tabled in the parliament during the
Budget presentation process.
Annual Finance Statement (AFS)
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Demand for Grants (DG)
Finance Bill
Explanatory statements such as those listed below are also presented for ready
references.
Expenditure Budget
Receipt Budget
Expenditure Profile
Budget at a Glance
Memorandum Explaining the provisions in the Finance Bill
Output Outcome Monitoring Framework
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Related Last Previous Unit Reference
India Population
The population of India represents 17.99 percent of the world´s total population
which arguably means that one person in every 6 people on the planet is a resident
of India.
Ratio Analysis
Ratio analysis can be defined as the process of ascertaining the financial ratios that
are used for indicating the ongoing financial performance of a company using few
types of ratios such as liquidity, profitability, activity, debt, market, solvency,
efficiency, and coverage ratios and few examples of such ratios are return on equity,
current ratio, quick ratio, dividend payout ratio, debt-equity ratio, and so on.
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Ratio analysis is a process used for the calculation of financial ratios or in other
words, for the purpose of evaluating the financial wellbeing of a company. The
values used for the calculation of financial ratios of a company are extracted from
the financial statements of that same company.
1. Liquidity Ratios
This type of ratio helps in measuring the ability of a company to take care
of its short-term debt obligations. A higher liquidity ratio represents that
the company is highly rich in cash.
1. Current Ratio:
The current ratio is the ratio between the current assets and current
liabilities of a company. The current ratio is used to indicate the liquidity of
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an organization in being able to meet its debt obligations in the upcoming
twelve months. A higher current ratio will indicate that the organization is
2. Profitability Ratios
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3. Solvency Ratios
4. Turnover Ratios
Turnover ratios are used to determine how efficiently the financial assets
and liabilities of an organization have been used for the purpose of
generating revenues.
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1. Fixed Assets Turnover Ratios: Fixed assets turnover ratio is used to
determine the efficiency of an organization in utilizing its fixed assets
for the purpose of generating revenues.
sales.
5.Earnings Ratios
Earnings ratio is used for the purpose of determining the returns that an
organization generates for its investors.
1. Profit Earnings Ratio: P/E ratio indicates the profit earning capacity of
the company.
2. Earnings per Share (EPS): EPS signifies the earnings of an equity holder
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Budget 2022-23: Is public investment-led growth strategy desirable
and credible?
The Budget presented on 1 February forecasts India’s real (net of inflation) annual
GDP to grow at 9.2% in the current year (2021-22) – the highest among the
world’s large economies. However, the Budget fails to mention output contraction
89
in the previous year (2020-21) – the worst among the world's large economies.
Compared to the pre-pandemic year’s (2019-20) output level, the current year’s
GDP will likely be marginally higher by 1.3% (Ministry of Statistics and
Programme Implementation (MOSPI), 2022). If the adverse effect of the ongoing
Omicron wave of Covid-19 is factored in, the forecasted increase may disappear.
Thus, realistically, India has lost two years of output expansion, and per capita
income in 2021-22 is likely to be lower by Rs. 844 (at constant 2011-12 prices), or
by 0.8% than in 2019-20 (MOSPI, 2022).
The output shrinkage during the crisis meant a rise in unemployment, absolute
poverty, and lost livelihoods. The informal or unorganised sector has borne the
brunt of the pandemic and consequent lockdowns. For lack of up-to-date official
data on employment and consumption, the 2021-22 Economic Survey seems to fail
to offer a full and authentic picture of the economic devastation.
Abraham and Basole (2022) show a sharp rise in unemployment and deterioration
in employment quality using the CMIE's (Centre for Monitoring the Indian
Economy) pyramid database. Arguably, there are questions about the integrity of
the database (Pais and Rawal 2021, Drèze and Somanchi 2021). However, the
direction of change in employment reported in the CMIE data may be indisputable.
If the critics' contentions have merit, the severity of the stress in the labour market
is likely more, not less, than what Abraham and Basole (2022) report.
While the informal sector faced the brunt of the exogenous shocks, the 2021-22
Economic Survey shows that corporate profits boomed (Figure 1). India's current
market capitalisation at 116% of GDP – in terms of the widely used measure of
national wealth of equity holding – is higher that its long-term trend of 79% of
GDP, and higher also than its previous peak in 2007 (the year before the Global
90
Financial Crisis). Thus, juxtaposing the employment contraction with booming
corporate profits, it seems reasonable to infer that economic inequality after the
pandemic has widened, and recent research on trends in economic inequality has
also documented this (Azad and Chakraborty 2022).
91
Current policy orientation
Two, the government’s efforts to mitigate the crisis were measly compared
to most large economies. As per IMF data released in October 2021, fiscal
support in India was lower than the average for the advanced economies
(AEs), as well as for emerging market economies (EMEs) (Figure 2). For
example, additional spending or revenue foregone in India since January
2020 was 4% of GDP, whereas it was close to 12% of GDP in advanced
economies. India's response was greater in offering credit and loan
guarantees (contingency funds), the utilisation of which was modest due to
lack of demand. Moreover, that additional revenue provided for health
during the pandemic was as meagre as 0.5% of GDP (IMF, 2021).
92
Figure 2. Fiscal support during Covid-19 since January 2020, as % of
GDP
Why was India so stingy? Though the output growth was decelerating
before the pandemic (as noted above), India’s macroeconomic situation was
largely benign with low inflation, modest external imbalance, and tolerable
fiscal deficit. Yet, India opted for supply-side reforms to strengthen long-
term growth prospects – instead of stimulating aggregate demand by
raising public spending in line with professional advice of economists with
diverse analytical persuasions. The 2021-22 Economic Survey bears out the
policy choice:
93
the Government can be seen both as demand and supply enhancing
response as it creates infrastructure capacity for future growth.”
1.1 Government
11.2 12.2
consumption
94
The Budget's economic strategy
The Budget – barely referring to the ongoing Covid-19 pandemic and the
suffering it has caused to the people of the country – reiterates the
government's commitment to boosting economic growth by seeking to
increase public investment as a ratio of GDP from 2.2% in the current year
(2021-22) to 2.9%. Prima facie, such a strategy indicates a directional
change in the theoretical underpinning of economic policy. Against the
standard arguments of the ‘crowding-out’ effect of public investment, the
Economic Survey has favoured the Keynesian logic of ‘crowding-in’ effect
when real interest rates are low, and the economy is operating well below
full capacity.
Figure 3 reports trends in fixed investment to GDP ratio and annual GDP
growth rates for the last decade to provide perspective on this. The ratio
declined from about 33% in 2012-13 to about 31% by 2019-20. However,
the fall in the ratio would be far steeper if the data are extended backwards
to 2008-09 when the figure touched 37%-38% of GDP and output was
booming at 8-9% per year (Nagaraj 2020). Never in post-Independence
history had India witnessed such a steep fall in aggregate investment rate
for so long. Hence the changed reasoning underpinning the renewed
emphasis on public investment-led economic revival, in principle, stands to
reason.
95
Figure 3. GDP growth rate and fixed investment ratio
But there lies the rub. Is it the right moment to prioritise investment when
the country faces massive job loss, livelihoods, and a rise in absolute
poverty? The government seems to underplay the gravity of human
suffering by only looking at the broken instruments of official statistics. But
the picture that emerges from credible independent voices seems fairly
unanimous and the evidence appears grave. As private consumption's share
in GDP declined, sensible policy response demands the immediate
restoration of employment and earnings directly through employment
generation or income support programmers – as in many economies such
as the US or Canada. The proposed investment demand will indirectly
create jobs, but it may take a while to materialize, given the roundabout
nature of fixed investment. How much employment these investments
generate will depend on the labour intensity of the investments. Further,
given the high level of industrial import in domestic manufacturing,
employment generation prospects would get dented to that extent.
On the practical side, whether the budgetary arithmetic really supports the
investment agenda seems questionable. First, contrary to the Finance
Minister's claim, the proposed rise in public investment's share in the
96
Budget is similar to what was presented last year. As per my calculations,
the increase in public investment accounted for barely 0.2% of GDP.
Knowledgeable commentators have contended that the proposed 35.4% rise
in public investment expenditure over the last year may be a statistical
mirage.
The ‘Make in India’ initiative, for instance, was launched in 2014-15 to raise
the manufacturing sector's share in GDP to 25% and create 100 million
additional jobs in the industry by 2022. Despite the hype, little came out it.
The manufacturing sector's share in GDP continues to languish at around
17% as of 2019-20 (Figure 4). The manufacturing sector annual output
growth rate at constant prices sharply plummeted from 13.1% in 2015-16 to
-7.2% in 2020-21. What could explain such an adverse outcome, and how
does the government hopes to reverse the declining trend through the
proposed public investments? There are few answers.
97
Figure 4. Manufacturing sector performance – share in GDP (left
panel) and growth rate (right panel)
98
A few years before launching the PLI, the government was pursuing a
"phased manufacturing programmer” (PMP); with a conscious effort to
indigenize mobile phones production whose domestic demand was rising
rapidly. The Economic Survey claims the success of the mobile phone-
assembly industry, which reportedly formed the basis for seeding the PLI
scheme. However, this effort has shown modest success, contrary to official
claims (Iyer 2021).
Table 2a. India-China trade (as per India’s estimates, in billion US$)
99
Source: Dhar (2022); Department of Commerce, India.
Table 2b. India-China trade (as per China’s estimates, in billion US$)
100
Economic Survey 2022: Strong investment growth of 15% likely in Gross
Fixed Capital Formation in FY22
On investment, the Economic Survey expects that Gross Fixed Capital Formation
(GFCF) will see strong growth of 15 percent in 2021-22. It also expects India to
achieve full recovery of pre-pandemic level.
Follow our LIVE coverage of the Economic Survey and Union Budget 2022 here
Finance Minister Nirmala Sitharaman tabled the Economic Survey in the Lok
Sabha today. It projects 8-8.5 percent growth in GDP in 2023, noting that India
“has fiscal space to ramp up capex”.
Further, FY22 GDP growth seen at 9.2 percent; agricultural growth for FY22 is
seen at 3.9 percent and industrial growth at 11.8 percent.
101
How many people in India invests?
According to data from the National stock exchange (NSE), there are 1.2
crore active investors in India, a country of 138 crore people, as of August
2021. Even though this number is rising and better from the previous data,
investing in stock markets still remains as a stigma for many.
102
Top Investors in India – List of Successful Stock Market Investors of 2022
103
Top Investment Options in India
Listed below are some of the best investment options in India 2022 that offer
high returns. You can consider including these investment plans in your
financial portfolio while savings for the future.
104
be exposed from bank
to an equity to bank
105
Various 8 major Investments scams in India :-
Discovered: In 1992
Modus Operandi: Used money from banks to make personal gains via
investment.
2. CRB Scam
CRB Scam
EstimatedSize:Rs1,200crore
Discovered:1996
Modus Operandi: Raised public money through FDs, MFs and debentures via
nonexistent firms and invested them in stocks for personal gains
3. KETANPAREKH
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Central Figure: Ketan Parekh
Discovered:2001
4. SATYAM SCAM
Satyam Scam
EstimatedSize:Rs14,162crore
CentralFigure:RamalingaRajuDiscovered:2009
5. SAHARASCAM
zahara Housing Bonds
Discovered:2010
107
6.SPEAK ASIASCAM
a certain sum, after which they became eligible to answer surveys and
7.SARADHASCAM
Saradha Scam
Discovered:2013
108
8.NSEL SCAM
NSEL Scam
Discovered:2013
109
Chapter 5
Conclusion
110
CONCLUSION
As we now know various investment options are available in India i.e. small savings
schemes, insurance, mutual funds, equity, real estate, precious metals etc., but its
selection depends upon various factors. The analysis and interpretations very
clearly shows that the investors have different views like investment pattern by
market movement, factors influencing their decision, frequency of investment,
alternatives available and investment preferences truly influence their perception
towards different products and services of the company. Thus, the study says that
the Indian investment community has shown much interest in investing in different
financial products available in the market, better performance by the
companies, liberal rules and regulations by the authority like SEBI to protect the
investors’
interest and this process will grow much more quicker in the future. There might
be a chance
that the perceptions of the investors’ of different nature are varied due to diversity
in social
life, living pattern, income level etc. that needs to be studied further The facts with
regard to the several factors such as relationship between age and risk tolerance
level of individual investors etc. It has important implications for investment
managers as it came out with certain interesting facets of an individual investor.
111
The individual investor still prefers to invest in financial products which give risk
free returns. Hence it concludes that Indian investors even if they are of high
income, well educated, salaried, independent are conservative investors & prefer
to play safe.
The investment options available in the share market are various and while
investing one needs to check the various factors such as liquidity , saving pattern ,
risk, etc. Various markets give various opportunities. Before investing, the investor
has to analyses the following factors:
1. Management Outlook.
2. Competitor’s Strategy.
3. Opportunities created by technological change.
4. Market forecast
Therefore Financial investments are made with the future expectation of making
only financial returns in terms of cash flow from the company in which investment
is being carried out. The investor relies to a greater extent on the existing
management themselves, unlike strategic investors. The term “investment” can be
used to refer to any mechanism used for the purpose of generating future income.
In the financial sense, this includes the purchase of bonds, stocks or real estate
property. Additionally, the constructed building or other facility used to produce
goods can be seen as an investment. The production of goods required to produce
other goods may also be seen as investing. There are both pros and cons while
112
investing in financial market but one have to take this risk to invest money in
different forms to secure their future.
Hence ,
I get to know all the investment schemes available in India, various investment
options in India,
And the main important thinks I get to know the risks and scams happened in India.
113
Chapter 6
Biblography
114
Bibliography
https://www.scribd.com/document/362361201/Investment-Options-final-
black-book
https://en.wikipedia.org/wiki/Investment
https://www.investopedia.com/terms/i/investment.asp
https://www.allbusiness.com/top-10-reasons-to-invest-money-93916-
1.html https://blog.ipleaders.in/advantages-and-disadvantages-of-
financialinvestment/
https://www.projects4mba.com/questionnaire-for-analyzing-best-
investment-option-available-to-the-investors/403/
https://www.scribd.com/doc/55437186/PROJECT-Finance-for-Mba
https://www.scribd.com/doc/13246827/PROJECT-ON-MUTUAL-FUND-
AKHILESH-MISHRA
https://www.scribd.com/document/451850595/MBA-Project-final-
converted
115
https://www.scribd.com/document/214903333/MBA-Finance-Project
https://www.scribd.com/document/102416447/Awareness-of-Commodity-
Market-a-Project-Report-on-Mba-Finance
https://www.scribd.com/document/120502913/Finance-project-mba
https://www.india.gov.in/spotlight/union-budget-fy-2022-2023
https://tradingeconomics.com/india/population
https://www.educba.com/ratio-analysis-types/
https://www.ideasforindia.in/topics/macroeconomics/budget-2022-23-is-
public-investment-led-growth-strategy-desirable-and-credible.html
https://top10stockbroker.com/top-10-stock-market-investors/
https://www.policybazaar.com/life-insurance/investment-
plans/articles/best-investment-options-in-india/
116
Chapter 7
Appendix
117
Appendix:-
Introduction:
The below survey was conducted regarding awareness about various investments
options in India Known among people. The sample size was minimum 50 people.
The responses were fair enough. The data collected below is purely primary data.
The questions of survey are as follows:
118
1. Do you invest your money ?
20%
80%
119
2. For what purpose do you invest your money?
Options No. of responses
Saving 13
Investment 17
Future growth 12
Retirement plans 8
Total 50
16%
26%
24%
34%
120
3. where do you prefer to invest?
8%
28%
40%
20%
4%
121
4. Have you invested your saving so far?
Options No. of responses
Yes 35
No 15
Total 50
30%
70%
122
5. Are you aware about share market
Options No. of responses
Yes 49
No 1
Total 50
2%
98%
123
6. Do you invest in share marker?
Options No. of responses
Yes 40
No 10
Total 50
20%
80%
124
7. Which is the oldest stock exchange In India?
6%
10%
14%
70%
125
8. Who is the regulatory authority of stock exchange?
18%
50%
32%
126
9. In which markets do you/would you like to invest your money?
20%
40%
40%
127
10. what investment options are you considering?
5%
19%
12%
45%
19%
128
11. what do you/would you look before investing in a particular Investment options
?
30%
54%
4%
12%
129
12. What is/would be the time span of your investment?
20%
44%
16%
20%
130
13. On whose advice do you seek your investment decision ?
16%
4%
40%
30%
10%
131
14. Your decision to invest depends upon?
10%
10%
50%
30%
132
15. What level of risk are you ready to undertake for your investment a venue?
14%
6%
80%
133
16. What is your occupation?
6%
14%
40%
40%
134
17. what is your annual income?
4%
11%
85%
135
18. what pecentage of your annual income do your annual income do you save to
invest?
3%
10%
87%
136
19. Do you prefer to invest for?
40%
60%
137
20. Which investment options you think has less risk?
8% 8%
4%
20%
60%
138
21. Which options give you the more returns ?
20%
2%
10%
60%
8%
139
22. What are the goals? You are looking from/for Investment ?
10%
12%
58%
20%
140
23. Do you consider the safety of principal amount while investing ?
10%
10%
80%
141
24. Which income group you belongs to?
16%
20%
60%
4%
142
25. Do you know if you invest you will get tax benefits ?
40%
60%
143
26. Do you pay any processing fee while investing ?
10%
90%
144
27. How many years you invested in stock market ?
2%
4% 2%
92%
145
28. How you paid any charges while creating your D-mate a/c ?
30%
70%
146
29. Do your family support for investing in variorums investments ?
8%
92%
147
30. Who is the nominee of your D-mate a/c ?
10%
30%
60%
148
31. From where do you get the knowledge of stock market ?
SALES
Books Newspaper Family member Friends
10%
20%
10%
60%
149
32. Do you regularly invest in stock market ?
2%
98%
150
33. Gender ?
33. GENDER ?
Male Female
30%
70%
151
34. Education level ?
16%
20%
64%
152
35. How much of your annual income do you spent in investment ?
4% 2%
11%
83%
153
36. Have you work with a financial planner before ?
40%
60%
154
37. Would you refer your friends and family to invest in market ?
10%
90%
155
38. Are you afraid of losing money while investing ?
4%
96%
156
39. which of the following option is better for investment ?
20%
40%
20%
20%
157
40. Do you feel that financial plan would make your life easyer?
30%
40%
30%
158
41. Do you help you family and friends while investing ?
2%
98%
159
42. While investing do you take an advice from financial advisor ?
10%
90%
160
43. Your opinion about investment ?
34%
50%
8%
8%
161
44. Have you get an expected profit from previous investments ?
Options No. of responses
Yes 35
No 15
Total 50
30%
70%
162
45. Where you have opened your D-mate a/c ?
30% 30%
40%
163
46. Do you paid any processing fees while trading in market ?
0%
100%
164
47. Are you satisfied with the investments schemes available in India ?
20%
60% 20%
165
48. Have you invested in Blue Chip companies ?
Yes No
166
49. Which Features will you see while investing in companies ?
10%
40% 20%
30%
167
50. Age Group ?
4%
6%
90%
168
Thankyou
169