Investement Avenues

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1.1 What is Investment/Investing?

The money we earn is partly spent and the rest saved for meeting future

expenses. Instead of keeping the

savings idle we may like to use

savings in order to get return on it

in the future. This is called

Investment.

Investment is a term frequently used

in the fields of economics, business management and finance. It can

mean savings alone, or savings made through delayed consumption.

Investment can be divided into different types according to various

theories and principles.

Investment is the investing of money or capital in order to gain

Profitable returns, as interest, income, or appreciation in value.

When an asset is bought or a given amount of money is invested in the

bank, there is anticipation that some return will be received from the

investment in the future. There are a number of definitions of

investment. While dealing with the various options of investment, the

defining terms of investment need to be kept in mind.

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Investing is a very exhaustive subject. It means different things to

different people. t some point of time we all are investing in

something. It may be relationships! it may be marriage or a career. "ife

is all about doing something to reap benefits in the future. #o all of us

are in the investment game. $owever, it means different things to

different people. %eople invest in&

"arge families so that when they grow old, their children can

take care of them.

'ducation, to ensure job security and comfortable life.

"and and crops, in order to fend for themselves and their

families.

#mall families, to provide a good standard of education and

living for their child.

Their health. (y exercising regularly and eating a balanced diet.

)haritable works, to serve the needy and the poor, and

'xternal assets like real estate, shares in listed companies, gold,

silver, etc., so that they can fall back upon them in tough times.

Thus we have a lot of people doing things in the name of investing. This

makes the subject of investment very complex.

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1.2 Why Should One Invest?

One needs to invest to:

a. 'arn return on your idle resources

b. *enerate a specified sum of money for a specific goal in life

c. +ake a provision for an uncertain future

ne of the important reasons why one needs to invest wisely is to meet

the cost of Inflation. Inflation is the rate at which the cost of living

increases. The cost of living is simply what it costs to buy the goods and

services you need to live. Inflation causes money to lose value because

it will not buy the same amount of a good or a service in the future as it

does now or did in the past. -or example, if there was a / inflation

rate for the next 01 years, a 2s. 311 purchase today would cost 2s. 403

in 01 years. This is why it is important to consider inflation as a factor

in any long5term investment strategy. 2emember to look at an

investment6s 6real6 rate of return, which is the return after inflation. The

aim of investments should be to provide a return above the inflation rate

to ensure that the investment does not decrease in value. -or example, if

the annual inflation rate is /, then the investment will need to earn

more than / to ensure it increases in value. If the after5tax return on

your investment is less than the inflation rate, then your assets have

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actually decreased in value! that is, they won6t buy as much today as

they did last year.

1.3 Investing Is a Plan

It is not a product or a procedure. It is a very personal plan. n

individual has to decide what his goals are and how he can go from one

level of comfort to another he would have certain resources coming to

him and certain commitments to be fulfilled. person is able to earn

when he is young. These earnings need to be invested wisely so that in

old age when a person7s capacity to earn diminishes, he can fall back

on his investments. Therefore, he needs to have a clear picture of his

financials before making an investment plan.

Example: Take the case of working couple, aged 41, with two school

going children5a son and a daughter. t present they live a very

comfortable life. (ut they need to plan for the future and a very

comfortable life. (ut they need to plan for the future expenses. The

children will want to go in for higher studies within next 8531 years.

They will need to be married. The family might need a bigger house or

there could be some major illness in the family.

ll these expenses will have to be met. The needs will increase but the

income may not keep the pace. If one does not plan for these expenses

one may not be able to achieve the milestones as and when they come.

#o this couple needs to estimate their income flow and visuali9e their

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expenses. n investment plan will help to plan for eventualities in the

future.

If one is at comfort level :7. -rom there one needs to go to a higher

comfort level :(7. to do that one would need different types of

investment vehicles like stocks, bonds, real estate, etc. one would

choose the investment vehicles according to one7s needs. -igure explain

this

Figure

1.6 Factos !""ecting Investment #ecisions

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(efore you begin investing, it7s helpful to understand some of the

factors that will affect your investment decisions, such as&

2isk

"iquidity

Time $ori9on

Total 2eturn

;iversification

Tax )onsequences

2upee )ost veraging

Ris!

2isk in investments can take various forms.

"i#uidity:


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;ifferent investors have different time frames in which to achieve their

investment objectives. *enerally, young investors with long time

hori9ons should be able to assume greater risks because they have more

time to offset any losses with the higher return potential of

investments with greater risk. lder investors, however, often

choose to reduce risk because they have less time to recoup losses.

$otal Return!

ll investments provide one or a combination of two different types of

returns to investors 5 income or growth. Income is the dividend earnedfrom stocks. *rowth is the price appreciation of the security. The total

return of an investment is the combination of income and growth

reali9ed over a given time period. In selecting investments based

upon their expected total return, you should understand which portion

is generated from income and which from growth. =sually, the

greater the reliance on income, the lower the market risk but the

greater the long5term purchasing power >or inflationary? risk.

'iversification!

(uilding a diversified portfolio with securities spread across different

investment classes can help you avoid the risk of having all of your eggs

in one basket. (y mixing industries and types of assets, you spread your

risk. particular market condition may have less impact if your

portfolio consists of a wide assortment of securities than if you

purchase only one type of security. +ost beginning investors don6t

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have sufficient capital to properly diversify their portfolio by

purchasing individual securities. Investing in mutual funds allows

you to buy a professionally managed, diversified portfolio with

relatively small rupee amounts. In addition, many mutual funds allow

you to take advantage of rupee cost averaging by investing at regular

intervals.

(ote! )utual fund investing involves ris. *our principal and

investment return in a mutual fund +ill fluctuate in value. *our

investment, +hen redeemed, may be +orth more or less than the

original cost.

$ax onse#uences!

@ot all investment returns are subject to the same taxation. #hort term

and long term returns are taxed at different capital gains rates or even

taxed as business income. The taxation policy should be kept in mind

while deciding which investments to make.

Rupee ost -veraging!

2upee cost averaging, the practice of committing a fixed amount of

money to an investment program on a regular basis, is a popular

practice with many long5term investors. (y investing a set amount

regularly >usually monthly or quarterly?, investors are able to avoid

the pitfalls of trying to time market peaks and valleys. lso, because

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the amount of the investments is set, investors who practice rupee cost

averaging buy more shares of a stock or mutual fund when they are less

costly and fewer shares when they are more expensive. "ike any

investment strategy, rupee cost averaging doesn6t guarantee a profit or

protect against loss in a declining market. (ecause rupee cost

averaging requires continuous investment regardless of fluctuating

prices, you should consider your financial and emotional ability to

continue the program through both rising and declining markets.

1. What Investing Is $ot?

Investing is @T gambling.

*ambling is putting money at

risk by betting on an uncertain

outcome with the hope that you

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might win money. %art of the confusion between investing and

gambling, however, may come from the way some people use investment

vehicles.

-or example, it could be argued that buying a stock based on a


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ne may invest in!

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REAL ESTATE

GOLD

COMMODITIES

OTHERS

SHORT TERM LONG TERM

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Physical assets like real estate, goldBjeweler, commodities

etc. andBor

Financial assets such as fixed deposits with banks, small saving

instruments with post offices, insuranceBprovidentBpension fund

etc. or securities market related instruments like shares, bonds,

debentures etc.

/hat are various 0hort1term financial options available for

investment2

(roadly speaking, savings bank account, money marketBliquid funds

and fixed deposits with banks may be considered as short5term financial

investment options&

0avings 3an -ccount

#avings (ank ccount is often the first banking product people use,

which offers low interest >C/ 5 D/ p.a.?, making them only marginally

better than fixed deposits.

)oney )aret or "i#uid Funds

+oney +arket or "iquid -unds are a speciali9ed form of mutual funds

that invest in extremely short5term fixed income instruments and

thereby provide easy liquidity. =nlike most mutual funds, money market

funds are primarily oriented towards protecting your capital and then,

aim to maximi9e returns. +oney market funds usually yield better

returns than savings accounts, but lower than bank fixed deposits.

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Fixed 'eposits +ith 3ans

-ixed ;eposits with (anks are also referred to as term deposits and

minimum investment period for bank -;s is 41 days. -ixed ;eposits

with banks are for investors with low risk appetite, and may be

considered for 530 months investment period as normally interest on

less than months bank -;s is likely to be lower than money market

fund returns.

/hat are various "ong1term financial options available for

investment2

%ost ffice #avings #chemes, %ublic %rovident -und, )ompany -ixed

;eposits, (onds and ;ebentures, +utual -unds etc.

Post ffice 0avings!

%ost ffice +onthly Income #cheme is a low risk saving instrument,

which can be availed through any post office. It provides an interest

rate of E/ per annum, which is paid monthly. +inimum amount, which

can be invested, is 2s. 3,111B5 and additional investment in multiples of

3,111B5. +aximum amount is 2s. 4, 11,111B5 >if #ingle? or 2s., 11,111B5

>if held jointly? during a year. It has a maturity period of years.

%remature withdrawal is permitted if deposit is more than one year old.

deduction of D/ is levied from the principal amount if withdrawn

prematurely.

Public Provident Fund!

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long term savings instrument with a maturity of 3D years and interest

payable at E/ per annum compounded annually. %%- account can

be opened through a nationali9ed bank at anytime during the year and

is open all through the year for depositing money. Tax benefits can be

availed for the amount invested and interest accrued is tax5free.

withdrawal is permissible every year from the seventh financial year of

the date of opening of the account and the amount of withdrawal will be

limited to D1/ of the balance at credit at the end of the Cth year

immediately preceding the year in which the amount is withdrawn or at

the end of the preceding year whichever is lower the amount of loan if

any.

ompany Fixed 'eposits!

These are short5term >six months? to medium5term >three to five years?

borrowings by companies at a fixed rate of interest which is payable

monthly, quarterly, semi5annually or annually. They can also be

cumulative fixed deposits where the entire principal along with the

interest is paid at the end of the loan period. The rate of interest varies

between 5F/ per annum for company -;s. The interest received is

after deduction of taxes. (onds& It is a fixed income >debt? instrument

issued for a period of more than one year with the purpose of raising

capital. The central or state government, corporations and similar

institutions sell bonds. bond is generally a promise to repay the

principal along with a fixed rate of interest on a specified date, called

the +aturity ;ate.

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)utual Funds!

These are funds operated by an investment company which raises

money from the public and invests in a group of assets >shares,

debentures etc.?, in accordance with a stated set of objectives. It is a

substitute for those who are unable to invest directly in equities or debt

because of resource, time or knowledge constraints. (enefits include

professional money management, buying in small amounts and

diversification. +utual fund units are issued and redeemed by the -und

+anagement )ompany based on the fund6s net asset value >@G?,

which is determined at the end of each trading session. @G is

calculated as the value of all the shares held by the fund, minus

expenses, divided by the number of units issued. +utual -unds are

usually long term investment vehicle though there some categories of

mutual funds, such as money market mutual funds which are short term

instruments.

3ond!

(ond is a negotiable certificate evidencing indebtedness. It is normally

unsecured. debt security is generally issued by a company,

municipality or government agency. bond investor lends money to the

issuer and in exchange, the issuer promises to repay the loan amount on

a specified maturity date. The issuer usually pays the bond holder15 | P a g e


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periodic interest payments over the life of the loan. The various types of

(onds are as follows&

7eo 'ouon -ond: (ond issued at a discount and repaid at a

face value. @o periodic interest is paid. The difference between

the issue price and redemption price represents the return to the

holder. The buyer of these bonds receives only one payment, at

the maturity of the bond.

'onvetile -ond: bond giving the investor the option to

convert the bond into equity at a fixed conversion price.

+easuy -ills: #hort5term >up to one year? bearer discount

security issued by government as a means of financing their cash

requirements.

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FIXED

DEPOSITS

MUTUAL

FUNDS

BONDS

COMMODITY

GOLD

STOCKS

REAL

ESTATE


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E#uities....$oday4s home for tomorro+4s money

2.1 What !e Shae / Stoc8 / (9uity?

share is one of a finite number of equal portions in the capital

of a company, mutual fund or limited partnership, entitling the owner

to a proportion of distributed, non5reinvested profits known as

dividends and to a portion of the value of the company in case of

liquidation. ;ividends are not guaranteed. They may be increased if the

company performs well, but they may also be reduced or

eliminated if the company performs poorly. #o when you purchase

shares, you become part owner of a company. s an owner, you are

usually entitled to voting rights on the board of directors and corporate

policy.

2.2 Why Should One Invest In (9uities?

lthough past performance cannot guarantee

future market results, #tocks, historically have

outperformed all other long5term financial

assets. They are the only the financial asset that

has significantly outpaced inflation over time.

Investors buy stock to potentially increase their

return on investment in one or both of two ways&

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'ividend Payments - +any companies pay portions of their

annual profits to stockholders in the form of dividends. #tocks

with consistent track record of paying attractive dividends are

known as income stocks because investors often buy these

stocks to receive the income by way of dividends in addition to

being invested in the company6s future growth prospects.

3y 0elling the stoc for more than they originally paid 5

#ome companies reinvest most of their profits back into the

business in order to expand. #tocks of companies with sales

and earnings that are expanding faster than the general

economy and faster than the average company are called

growth stocks because investors expect the company to grow

and expect the stock price to grow with it. When such

increase in the stock price is witnessed, investors can sell their

shares for an amount greater than their purchase price, thus

pocketing the difference as profit.

2.3 4o One 'an ,a8e Po"its -y Investing (9uities?

'very year, when the company draws up its accounts, the company

profit for the year will become apparent. The directors of the company

will decide how much of the profit to plough back into the company, and

how much to distribute to the owners of the equity 5 i.e. the

shareholders. The profit is then distributed as an amount per share 5

called a dividend. )ompanies like to increase their dividend year on

year.

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s well as the profit from the dividends, equity share owners will also

benefit if the share price rises. This means that the shareholders can

sell their equity shares at a higher price than they were bought

originally.

#o the investment return from equity shares comes from two sources& 5

the dividends paid from the profits of the company, and the rise in the

equity share price. This return, combining these two sources of profit,

has comfortably exceeded the rate of inflation in the pas

2. +yes o" (9uity

There are a number of types of equity, each with different

characteristics.

ommon stoc or ordinary shares

)ommon stock, as it is known in the =nited #tates, or ordinary shares,according to (ritish terminology, is the most important form of equity

investment. n owner of common stock is part owner of the enterprise

and is entitled to vote on certain important matters, including the

selection of directors. )ommon stock holders benefit most from

improvement in the firm6s business prospects. (ut they have a claim on

the firm6s income and assets only after all creditors and all preferred

stock holders receive payment. #ome firms have more than one class of

common stock, in which case the stock of one class may be entitled to

greater voting rights, or to larger dividends, than stock of another class.

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This is often the case with family owned firms which sell stock to the

public in a way that enables the family to maintain control through its

ownership of stock with superior voting rights.

Preferred stoc

lso called preference shares, preferred stock is more akin to bonds

than to common stock. "ike bonds, preferred stock offers specified

payments on specified dates. %referred stock appeals to issuers because

the dividend remains constant for as long as the stock is outstanding,

which may be in perpetuity. #ome investors favour preferred stock overbonds because the periodic payments are formally considered dividends

rather than interest payments, and may therefore offer tax advantages.

The issuer is obliged to pay dividends to preferred stock holders before

paying dividends to common shareholders. If the preferred stock is

cumulative, unpaid dividends may accrue until preferred stock holders

have received full payment. In the case of non cumulative preferred

stock, preferred stock holders may be able to impose significant

restrictions on the firm in the event of a missed dividend.

onvertible preferred stoc

This may be converted into common stock under certain conditions,

usually at a predetermined price or within a predetermined time period.

)onversion is always at the owner6s option and cannot be required by

the issuer. )onvertible preferred stock is similar to convertible bonds.

/arrants

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Warrants offer the holder the opportunity to purchase a firm6s common

stock during a specified time period in future, at a predetermined price,

known as the exercise price or strike price. The tangible value of a

warrant is the market price of the stock less the strike price. If the

tangible value when the warrants are exercisable is 9ero or less the

warrants have no value, as the stock can be acquired more cheaply in

the open market. firm may sell warrants directly, but more often they

are incorporated into other securities, such as preferred stock or bonds.

Warrants are created and sold by the firm that issues the underlying

stock. In a rights offering, warrants are allotted to existing stock

holders in proportion to their current holdings. If all shareholders

subscribe to the offering the firm6s total capital will increase, but each

stock holder6s proportionate ownership will not change. The stock

holder is free not to subscribe to the offering or to pass the rights to

others. In the =H a stock holder chooses not to subscribe by filing a

letter of renunciation with the issuer.

Issuing shares

-ew businesses begin with freely traded shares. +ost are initially

owned by an individual, a small group of investors >such as partners or

venture capitalists? or an established firm which has created a new

subsidiary. In most countries, a firm may not sell shares to the public

until it has been in operation for a specified period. #ome countries bar

firms from selling shares until their business is profitable, a

requirement that can make it difficult for young firms to raise capital.

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Flotation

-lotation, also known as an initial public offering >ipo?, is the process

by which a firm sells its shares to the public. This may occur for a

number of reasons. The firm may require additional capital to take

advantage of new opportunities. #ome of the firm6s original investors

may want it to buy them out so they can put their money to work

elsewhere. The firm may also wish to use shares to compensate

employees, and a public share listing makes this easier as the value of

the shares is freely established in the market place. The flotation need

not involve all or even the majority of the firm6s shares.

Private offering

2ather than selling its shares to the public, a firm may raise equity

through a private offering. nly sophisticated investors, such as money

management firms and wealthy individuals, are normally allowed to

purchase shares in a private offering, as disclosures about the risks

involved are fewer than in a public offering. #hares purchased in a

private offering are common equity and are therefore entitled to vote on

corporate matters and to receive a dividend, but they usually cannot be

resold in the public markets for a specified period of time.

0econdary offering

secondary offering occurs when a firm whose shares are already

traded publicly sells additional shares to the public called a follow on

offering in the =H or when one or more investors holding a large

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proportion of a firm6s shares offers those shares for sale to the public.

-irms that already have publicly traded shares may float additional

shares to increase their total capital. If this leaves existing shareholders

owning smaller proportions of the firm than they owned previously, it is

said to dilute their holdings. If the secondary offering involves shares

owned by investors, the proceeds of a secondary offering go to the

investors whose shares are sold, not to the issuer.

2.0 !dvantages O" Investing In (9uity Funds:

The main advantageso e!"it# sha$es a$e: -

Investment!

The funding is committed to your business and your intended projects.

Investors only reali9e their investment if the business is doing well,

E.g.through flotation or a sale to new investors.

Resources!

2esources for your business. The right business angels and venture

capitalists can bring valuable skills, contacts and experience to your

business and can assist with strategy and key decision making.

3usiness 0uccess!

In common with you, investors have a vested interest in the business6

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success, i.e. its growth, profitability and increase in value. Investors

are often prepared to provide follow5up funding as the business

grows.

2.6 #isadvantages O" Investing In (9uity Funds:

The %$in&i%a' disadvantages o e!"it# sha$es a$e: -

Raising E#uity Finance!

2aising equity finance is demanding, costly and time5consuming. Aour

business may suffer as you devote time to the deal. %otential investors

will seek background information on you and your business 5 they will

closely scrutini9e past results and forecasts and will probe the

management team. $owever, many businesses find this discipline

useful regardless of any funding.

'epending n the Investors!

;epending on the investor, you will be subject to varying degrees of

influence over the management of your business and making of major

decisions.

)anagement $ime!

Aou will have to invest management time to provide regular

information for the investor to monitor.

'iluted:

Aour share in the business will be diluted. $owever, your share may

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be of a much larger business because of the funding.

"egal and Regulatory Issues!

There can be legal and regulatory issues to comply with when raising

finance, e.g.when promoting investments.

2.; &is8 !ssociated With (9uity ,a8et

Ris( in investments &an )e o the o''o*ing t#%es:

)aret Ris or 5olatility& This refers to

the fluctuation in the value of

investments due to changes in the price of

the stocks included in an investor7s

portfolio which could be caused by a

variety of factors such as performance ofthe company, policy announcements,

political factors etc. 'ven a portfolio of

well5diversified assets cannot escape all risk.

Inflationary ris&

lso known as purchasing power risk, this is the decline in the

purchasing power of money over time, so that even the


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eroded that 2s.311 so that it is worth only 2s.E.

Investment or credit ris&

This is the possibility that a company in which an investor is invested

in may not be sufficiently profitable to remain in business.

2.< &etuns !ssociated With (9uity ,a8et

#ince 3FF1 till date, Indian stock market has returned about 38/ toinvestors on an average in terms of increase in share prices or capital

appreciation annually. (esides that on average stocks have paid 3.D/

dividend annually. ;ividend is a percentage of the face value of a share that

a company returns to its shareholders from its annual profits. )ompared to

most other forms of investments, investing in equity shares offers the highest

rate of return, if invested over a longer duration.

3.1 What Is ,utual Fund?

mutual fund is just the

connecting bridge or a financial

intermediary that allows a group

of investors to pool their money

together with a predetermined

investment objective. The mutual

fund will have a fund manager

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who is responsible for investing the gathered money into specific

securities >stocks or bonds?. When you invest in a mutual fund, you are

buying units or portions of the mutual fund and thus on investing

becomes a shareholder or unit holder of the fund.

+utual funds are considered as one of the best available investments as

compare to others they are very cost efficient and also easy to invest in,

thus by pooling money together in a mutual fund, investors can

purchase stocks or bonds with much lower trading costs than if they

tried to do it on their own. (ut the biggest advantage to mutual funds is

diversification, by minimi9ing risk maximi9ing returns.

There are various investment avenues available to an investor such as

real5estate, bank deposits, post office deposits, shares, debentures,

bonds etc. mutual fund is one more type of Investment venue

available to investors. There are many reasons why investors prefer

mutual funds. (uying shares directly from the market is one way of

investing. (ut this requires spending time to find out the performance of

the company whose share is being purchased, understanding the future

business prospects of the company, finding out the track record of the

promoters and the dividend, bonus issue history of the company etc. n

informed investor needs to do research before investing. $owever,

many investors find it cumbersome and time consuming to pore over so

much of information, get access to so much of details before investing inthe shares. Investors therefore prefer the mutual fund route. They

invest in a mutual fund scheme which in turn takes the responsibility of

investing in stocks and shares after due analysis and research. The

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investor need not bother with researching hundreds of stocks. It leaves

it to the mutual fund and its professional fund management team.

nother reason why investors prefer mutual funds is because mutual

funds offer diversification. n investor7s money is invested by the

mutual fund in a variety of shares, bonds and other securities thus

diversifying the investor7s portfolio across different companies and

sectors. This diversification helps in reducing the overall risk of the

portfolio. It is also less expensive to invest in a mutual fund since the

minimum investment amount in mutual fund units is fairly low >2s. D11

or so?. With 2s. D11 an investor may be able to buy only a few stocks

and not get the desired diversification. These are some of the reasons

why mutual funds have gained in popularity over the years.

'iversification f Funds

;iversification is nothing but spreading out your money across available or

different types of investments. (y choosing to diversify respective

investment holdings reduces risk tremendously up to certain extent. The

most basic level of diversification is to buy multiple stocks rather than just

one stock. +utual funds are set up to buy many stocks. (eyond that, you

can diversify even more by purchasing different kinds of stocks, then adding

bonds, then international, and so on. It could take you weeks to buy all

these investments, but if you purchased a few mutual funds you could be

done in a few hours because mutual funds automatically diversify in a

predetermined category of investments >i.e. 5 growth companies, emerging

or mid si9e companies, low5grade corporate bonds, etc?.

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3.2 Who ,anages Investo=s ,oney?

This is the role of the sset +anagement )ompany >the Third tier?.

Trustees appoint the sset +anagement )ompany >+)?, to manage

investor7s money. The +) in return charges a fee for the services

provided and this fee is borne by the investors as it is deducted from the

money collected from them. The +)7s (oard of ;irectors must have

at least D1/ of ;irectors who are independent directors. The +) hasto be approved by #'(I. The +) functions under the supervision of its

(oard of ;irectors, and also under the direction of the Trustees and

#'(I. It is the +), which in the name of the Trust, floats new schemes

and manages these schemes by buying and selling securities. In order to

do this the +) needs to follow all rules and E regulations prescribed

by #'(I and as per the Investment +anagement greement it signs with

the Trustees.

If any fund manager, analyst intends to buyB sell some securities, the

permission of the )ompliance fficer is a must. compliance fficer is

one of the most important persons in the +). Whenever the fund

intends to launch a new scheme, the +) has to submit a ;raft ffer

;ocument to #'(I. This draft offer document, after getting #'(I

approval becomes the offer document of the scheme. The ffer

;ocument >;? is a legal document and investors rely upon the

information provided in the ; for investing in the mutual fund scheme.

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The )ompliance fficer has to sign the ;ue ;iligence )ertificate in the

;. This certificate says that all the information provided inside the

; is true and correct. This ensures that there is accountability and

somebody is responsible for the ;. In case there is no compliance

officer, then senior executives like )', )hairman of the +) has to

sign the due diligence certificate. The certificate ensures that the +)

takes responsibility of the ; and its contents.

3.3 Who Is ! 'ustodian?

custodian7s role is safe keeping of physical securities and also

keeping a tab on the corporate actions like rights, bonus and dividends

declared by the companies in which the fund has invested. The

)ustodian is appointed by the (oard of Trustees. The custodian also

participates in a clearing and settlement system through approved

depository companies on behalf of mutual funds, in case of

demateriali9ed securities. In India today, securities >and units of mutual

funds? are no longer held in physical form but mostly in demateriali9ed

form with the ;epositories. The holdings are held in the ;epository

through ;epository %articipants >;%s?. nly the physical securities are

held by the )ustodian. The deliveries and receipt of units of a mutualfund are done by the custodian or a depository participant at the

instruction of the +) and under the overall direction and

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responsibility of the Trustees. 2egulations provide that the #ponsor and

the )ustodian must be separate entities.

3. What Is +he &ole O" +he !,'?

The role of the +) is to manage investor7s money on a day to day

basis. Thus it is imperative that people with the highest integrity are

involved with this activity. The +) cannot deal with a single broker

beyond a certain limit of transactions. The +) cannot act as a Trustee

for some other +utual -und. The responsibility of preparing the ;

lies with the +). ppointments of intermediaries like independent

financial advisors >I-s?, national and regional distributors, banks, etc.

is also done by the +). -inally, it is the +) which is responsible for

the acts of its employees and service providers.

s can be seen, it is the +) that does all the operations. ll activities

by the +) are done under the name of the Trust, i.e. the mutual fund.

The +) charges a fee for providing its services. #'(I has prescribedlimits for this. This fee is borne by the investor as the fee is charged to

the scheme, in fact, the fee is charged as a percentage of the scheme7s

net assets. n important point to note here is that this fee is included in

the overall expenses permitted by #'(I. There is a maximum limit to

the amount that can be charged as expense to the scheme, and this fee

has to be within that limit. Thus regulations ensure that beyond a

certain limit, investor7s money is not used for meeting expenses.

/oring of )utual Fund

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Regulatory -uthorities

To protect the interest of the investors, #'(I formulates policies and

regulates the mutual funds. It notified regulations in 3FF4 >fully revised in

3FF? and issues guidelines from time to time. +- either promoted by

public or by private sector entities including one promoted by foreign

entities is governed by these 2egulations.

#'(I approved sset +anagement )ompany >+)? manages the funds by

making investments in various types of securities. )ustodian, registered

with #'(I, holds the securities of various schemes of the fund in its custody.

ccording to #'(I 2egulations, two thirds of the directors of Trustee)ompany or board of trustees must be independent.

The ssociation of +utual -unds in India >+-I? reassures the investors in

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units of mutual funds that the mutual funds function within the strict

regulatory framework. Its objective is to increase public awareness of the

mutual fund industry.

+-I also is engaged in upgrading professional standards and in

promoting best industry practices in diverse areas such as valuation,

disclosure, transparency etc.

3.0 !ltenative Way +o Investment In ,utual Funds > SIP

#I% is a way of investing in +utual -unds where you pay a fixed amount

each month for a fixed tenure.

"ike If you take an #I% of D,111 for 3 year on Jan 3, 011E, you will be

paying 2s D,111 per month for next 30 months.

%lease understand that it7s not a financial instrument, but a way of

investing in mutual funds, some people confuse #I% with %%-, @#), and

mutual funds, they think they can invest in K#I%L, it7s just a mode of

investment.

/hen to invest in mutual funds through 0IP2

Investment through #I% must be done only when markets are uncertain or

very volatile, when you don7t know which side they are headed to.

#I% will be beneficial only if markets really are volatile or going down after

you invested. If it happens that markets turns bullish and starts going up, in

that case #I% will not be beneficial and will give less return compared to

lump sum investment in start.

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-'5-($-6E0

+akes you a disciplined Investor

The other advantage of #I% is that it makes you a disciplined investor. nce

you start #I%, each month you have to contribute certain money in mutual

fund and that habit is cultivated.

'I0-'5-($-6E0:

5 It will not work in bullish markets or when market goes up over time

When market goes up and keeps growing over time , the units bought every

time will be at high price then the previous one, which will ultimately

bring the average cost up , compared to the lump sum investment at the

start.

1 In case of tax saving fund, the loc in period gets extended for every

investment.

Tax saver mutual funds lock your money for 4 yrs, When you invest

through #I%, each of your investment is locked separately for 4 yrs from

the date of investment. #o if you pay your first installment on Jan 0118 , it

will locked till Jan 3 0131 , then the installment paid on -eb 3 , 0118 will

be locked till -eb 3 , 0131 and like this each installment will be locked

with the gap of 3 month

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3.6 +yes O" ,utual Funds Schemes In India

Wide variety of +utual -und #chemes exists to cater to the needs such as

financial position, risk tolerance and return expectations etc. thus mutual

funds has Gariety of flavors, (eing a collection of many stocks, an investors

can go for picking a mutual fund might be easy. There are over hundreds of

mutual funds scheme to choose from. It is easier to think of mutual funds in

categories, mentioned below.

verview of existing schemes existed in mutual fund category& (A

#T2=)T=2'

pen 1 Ended 0chemes!

n open5end fund is one that is available for subscription all through

the year. These do not have a fixed maturity. Investors can

conveniently buy and sell units at @et sset Galue >


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the net asset value >@G? of the scheme on account of demand and

supply situation, expectations of unit holder and other market factors.

lternatively some close5ended schemes provide an additional option

of selling the units directly to the +utual -und through periodic

repurchase at the schemes @G! however one cannot buy units and

can only sell units during the liquidity window. #'(I 2egulations

ensure that at least one of the two exit routes is provided to the

investor.

Interval 0chemes!

Interval #chemes are that scheme, which combines the features ofopen5ended and close5ended schemes. The units may be traded on the

stock exchange or may be open for sale or redemption during pre5

determined intervals at @G related prices.

Thus investors choose mutual funds as their primary means of investing, as

+utual funds provide professional management, diversification,

convenience and liquidity. That doesn7t mean mutual fund investments risk

free. This is because the money that is pooled in are not invested only in

debts funds which are less riskier but are also invested in the stock markets

which involves a higher risk but can expect higher returns. $edge fund

involves a very high risk since it is mostly traded in the derivatives market

which is considered very volatile.

vervie+ of existing schemes existed in mutual fund category! 3*

(-$7RE

E#uity fund!

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These funds invest a maximum part of their corpus into equities holdings.

The structure of the fund may vary different for different schemes and the

fund manager7s outlook on different stocks. The 'quity -unds are sub5

classified depending upon their investment objective, as follows&

;iversified 'quity -unds

+id5)ap -unds

#ector #pecific -unds

Tax #avings -unds >'"##?

'quity investments are meant for a longer time hori9on, thus 'quity funds

rank high on the risk5return matrix.

'ebt funds!

The objective of these -unds is to invest in debt papers. *overnment

authorities, private companies, banks and financial institutions are some of

the major issuers of debt papers. (y investing in debt instruments, these

funds ensure low risk and provide stable income to the investors. ;ebt funds

are further classified as&

6ilt Funds! Invest their corpus in securities issued by *overnment,

popularly known as *overnment of India debt papers. These -unds

carry 9ero ;efault risk but are associated with Interest 2ate risk.

These schemes are safer as they invest in papers backed by

*overnment. Income Funds!Invest a major portion into various debt instruments

such as bonds, corporate debentures and *overnment securities. )IPs:Invests maximum of their total corpus in debt instruments

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while they take minimum exposure in equities. It gets benefit of both

equity and debt market. These scheme ranks slightly high on the risk5

return matrix when compared with other debt schemes.

0hort $erm Plans 80$Ps9!+eant for investment hori9on for three to

six months. These funds primarily invest in short term papers like

)ertificate of ;eposits >);s? and )ommercial %apers >)%s?. #ome

portion of the corpus is also invested in corporate debentures.

"i#uid Funds:lso known as +oney +arket #chemes, These funds

provides easy liquidity and preservation of capital. These schemes

invest in short5term instruments like Treasury (ills, inter5bank call

money market, )%s and );s. These funds are meant for short5term

cash management of corporate houses and are meant for an

investment hori9on of 3day to 4 months. These schemes rank low on

risk5return matrix and are considered to be the safest amongst all

categories of mutual funds.

3alanced funds!

s the name suggest they, are a mix of both equity and debt funds. They

invest in both equities and fixed income securities, which are in line with

pre5defined investment objective of the scheme. These schemes aim to

provide investors with the best of both the worlds. 'quity part provides

growth and the debt part provides stability in returns.

-urther the mutual funds can be broadly classified on the basis of

investment parameter vi9! 'ach category of funds is backed by an

investment philosophy, which is pre5defined in the objectives of the fund.

The investor can align his own investment needs with the funds objective

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and invest accordingly.

3y investment ob:ective!

6ro+th 0chemes!*rowth #chemes are also known as equity

schemes. The aim of these schemes is to provide capital appreciation

over medium to long term. These schemes normally invest a major

part of their fund in equities and are willing to bear short5term

decline in value for possible future appreciation.

Income 0chemes!Income #chemes are also known as debt schemes.The aim of these schemes is to provide regular and steady income to

investors. These schemes generally invest in fixed income securities

such as bonds and corporate debentures. )apital appreciation in

such schemes may be limited.

3alanced 0chemes!(alanced #chemes aim to provide both growth

and income by periodically distributing a part of the income and

capital gains they earn. These schemes invest in both shares and fixed

income securities, in the proportion indicated in their offer

documents >normally D1&D1?.

)oney )aret 0chemes! +oney +arket #chemes aim to provide

easy liquidity, preservation of capital and moderate income. These

schemes generally invest in safer, short5term instruments, such as

treasury bills, certificates of deposit, commercial paper and inter5

bank call money.ther schemes

$ax 0aving 0chemes!

Tax5saving schemes offer tax rebates to the investors under tax laws

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prescribed from time to time. =nder #ec.EE of the Income Tax ct,

contributions made to any 'quity "inked #avings #cheme >'"##? are

eligible for rebate.

Index 0chemes!Index schemes attempt to replicate the performance of a particular index

such as the (#' #ensex or the @#' D1. The portfolio of these schemes will

consist of only those stocks that constitute the index. The percentage of each

stock to the total holding will be identical to the stocks index weight age.

nd hence, the returns from such schemes would be more or less equivalent

to those of the Index.

0ector 0pecific 0chemes!

These are the fundsBschemes which invest in the securities of only those

sectors or industries as specified in the offer documents. '.g.

%harmaceuticals, #oftware, -ast +oving )onsumer *oods >-+)*?,

%etroleum stocks, etc. The returns in these funds are dependent on the

performance of the respective sectorsBindustries. While these funds may give

higher returns, they are more risky compared to diversified funds. Investorsneed to keep a watch on the performance of those sectorsBindustries and

must exit at an appropriate time.

Pros ; cons of investing in mutual funds!

-or investments in mutual fund, one must keep in mind about the %ros and

cons of investments in mutual fund.

3.; !dvantages O" Investing ,utual Funds:

Professional )anagement> The basic advantage of funds is that, they

are professional managed, by well qualified professional. Investors

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purchase funds because they do not have the time or the expertise to

manage their own portfolio. mutual fund is considered to be

relatively less expensive way to make and monitor their investments.

'iversification >%urchasing units in a mutual fund instead of buying

individual stocks or bonds, the investors risk is spread out and

minimi9ed up to certain extent. The idea behind diversification is to

invest in a large number of assets so that a loss in any particular

investment is minimi9ed by gains in others.

Economies of 0cale >+utual fund buy and sell large amounts of

securities at a time, thus help to reducing transaction costs, and help tobring down the average cost of the unit for their investors.

"i#uidity 1Just like an individual stock, mutual fund also allows

investors to liquidate their holdings as and when they want.

0implicity >Investments in mutual fund is considered to be easy,

compare to other available instruments in the market, and the

minimum investment is small. +ost +) also have automatic purchase

plans whereby as little as 2s. 0111, where #I% start with just 2s.D1 per

month basis.

3.< #isadvantages O" Investing ,utual Funds:

Professional )anagement- #ome funds don7t perform in neither the

market, as their management is not dynamic enough to explore theavailable opportunity in the market, thus many investors debate over

whether or not the so5called professionals are any better than mutual

fund or investor himself, for picking up stocks.

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ostsM The biggest source of +) income is generally from the entry

exit load which they charge from investors, at the time of purchase.

The mutual fund industries are thus charging extra cost under layers of

jargon.

'ilution- (ecause funds have small holdings across different

companies, high returns from a few investments often don6t make much

difference on the overall return. ;ilution is also the result of a

successful fund getting too big. When money poursinto funds that have

had strong success, the manager often has trouble finding a good

investment for all the new money. $axes- when making decisions about your money, fund managers

don6t consider your personal tax situation. -or example, when a fund

manager sells a security, a capital5gain tax is triggered, which affects

how profitable the individual is from the sale. It might have been more

advantageous for the individual to defer the capital gains liability.

3. +he +yes O" &is8s !ssociated With ,utual Funds:

2isk is an inherent aspect of every form of investment. -or mutual fund

investments, risks would include variability, or period5by5period

fluctuations in total return. The value of the scheme6s investments may

be affected by factors affecting capital markets such as price and

volume volatility in the stock markets, interest rates, currency exchange

rates, foreign investment, changes in government policy, political,

economic or other developments.

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)aret Ris&t times the prices or yields of all the securities in

a particular market rise or fall due to broad outside influences.

When this happens, the stock prices of both an outstanding,

highly profitable company and a fledgling corporation may be

affected. This change in price is due to


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Investment Riss!In the sect oral fund schemes, investments will

be predominantly in equities of select companies in the particular

sectors. ccordingly, the @G of the schemes are linked to the

equity performance of such companies and may be more volatile

than a more diversified portfolio of equities.

"i#uidity Ris: Thinly traded securities carry the danger of not

being easily saleable at or near their real values. The fund

manager may therefore be unable to quickly sell an illiquid bond

and this might affect the price of the fund unfavorably. "iquidity

risk is characteristic of the Indian fixed income market.

hanges in the 6overnment Policy: )hanges in *overnment

policy especially in regard to the tax benefits may impact the

business prospects of the companies leading to an impact on the

investments made by the fund.

3.1@ &etuns "om ,utual Funds:

*enerally, +utual -unds do not offer guaranteed returns to investors.

lthough, #'(I regulations allow +utual -unds to offer guaranteed

returns subject to the -und meeting certain conditions, most -unds do

not offer such guarantees. In case of a guaranteed return scheme, the

sponsor or the +), guarantees a minimum level of return and makes

good the difference if the actual returns are less than the guaranteed

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minimum. The name of the guarantor and the manner in which the

guarantee shall be met must be disclosed in the offer document by the

+utual -und. Investments in mutual funds are not guaranteed by the

*overnment of India, the 2eserve (ank of India or any other

government bodies.

$here are three +ays, +here the total returns provided by mutual

funds can be en:oyed by investors!

Income is earned from dividends on stocks and interest on bonds.

fund pays out nearly all income it receives over the year to fund

owners in the form of a distribution.

If the fund sells securities that have increased in price, the fund

has a capital gain. +ost funds also pass on these gains to

investors in a distribution.

If fund holdings increase in price but are not sold by the fund

manager, the fund6s shares increase in price. Aou can then sell

your mutual fund shares for a profit. -unds will also usually give

you a choice either to receive a check for distributions or to

reinvest the earnings and get more shares.

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FI


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The most unusual characteristic of a fixed deposit is that the funds cannot

be withdrawn for a specified period of time. In most cases, fixed

deposits carry duration of five years. ;uring that time, the money remainsin the account and cannot be withdrawn for any reason. Individuals,

corporate entities, and even non5profitorgani9ations that wish to set aside

funds and limit their access to the funds for a period of time often find

that fixed deposits are a simple way to accomplish this goal. s an added

benefit, the monies in the account will earn a fixed rate of interest

regardless of any fluctuations in interest ratesthat apply to other types of

accounts.

$owever, both these benefits can also turn into disadvantages under

certain circumstances. (ecause the money cannot be withdrawn until the

duration is complete, the funds cannot be used even in emergency

situations. )hanges in the going interest ratemay also rise to a point

above and beyond the interest rate applied to existing deposits. This meansaccount holders are actually earning less interest with fixed deposits than

with other types of loans and accounts.

While the interest rate on fixed deposits cannot be changed, there is

sometimes a way to work around the issue of obtaining use of funds in an

emergency situation. t times, the lending institution where

the fixed deposit is placed may be willing to extend a separate loan to the

account holder, using the fixed account as collateral. While not ideal, this

can at least make it possible to deal with the current financial crunch.

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-ixed deposits are a credible way to make a return on investmentthat is

somewhat higher than a standardsavings account. The use of

fixed deposits can also be helpful when working with various types ofcurrency. (y establishing what is known as a -oreign )urrency -ixed

;eposit or -)-;, it is possible to choose the type of currency involved in

the deposit and lock in a rate of interest. If the choice of currency is a

good one, this means the investor can enjoy a healthy fixed deposit

currency rate for the duration of the deposit and earn more than with a

standard fixed deposit strategy. $owever, going with an -)-; does

contain a slightly higher amount of risk, since the funds deposited must be

converted to the currency of choice and then converted back when the

deposit is fulfilled. If the currency did not fare well in the interim, there is

some chance of obtaining a loss, due to the changes in the rate of

exchange from the time the fixed deposit was activated until the time the

deposit is considered complete.

.2 !dvantages O" FiAed #eosits:

0afety

-;s have conventionally been the premier choice for investors with

a low risk appetite! assured returns is the key factor which attracts

investors towards deposits. #tick to -;s of the highest credit ratingi.e. those with a KL rating even if their rates seem modest vis5O5

vis those offered by company deposits.

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)ompany deposits are unsecured in nature and investing in them

would imply taking on disproportionately higher risk. If as an

investor you are open to investing in instruments involving higherrisk levels, market linked instruments like mutual funds may not be a

bad deal.

$enure

#hort tenured fixed deposits continue to be your best bet. With

interest rates on the ascent, a further hike in rates offered by fixed

deposits cannot be ruled out. "ocking your investments in longer

tenured instruments may lead to an opportunity loss. 'ven if a 45Ar

-; looks like a lucrative proposition as compared to one which

runs over a year or so, pick the short tenured one. In a rising rate

scenario, you could be more than compensated for the lower returns

at present.

"i#uidity

-ind out how your -; fares on the pre5mature encashment front i.e.

how easily can your investment be liquidated. lso enquire about

the penalty clauses, e.g. do you suffer a loss of interest andBorprincipal amount. )ompare how various -;s rank on this

parameter and pick the best deal! thereby try to minimi9e the impact

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of illiquidity which is typically associated with -;s.

Flexible investment periods!

To suit your personal needs, you can choose from an investment

period of between 3 and 1 months for fixed deposit, or between 3

week to 30 months for foreign currencies deposit. If you need your

deposit to mature on a specific date

-ccessibility!

(anks offer you access to a wide range of the world7s major

currencies to help you achieve your investment goals. Aou can even

switch from one currency to another by simply giving us your

instructions. Aour deposit can also be remitted either by draft or

telegraphic transfer.

-utomatic rene+als!

To ensure continued growth, your matured deposit will

automatically be renewed for the same period of time at the bank7s

prevailing rate. This allows you to enjoy uninterrupted interest

earnings on your principal amount invested. Aou will also have the

choice of issuing specific standing instruction regarding the renewal

of your deposit and the disposal of interest earned. In the event that

you decide to change your renewal instruction, you will need to

inform us at least 0 working days before maturity.

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Early payment of interest!

If you place your savings in -ixed ;eposit account for at least 0C

months, you can enjoy early interest payments. n receipt of yourinstructions, the interest will be credited to your operating account

on a yearly basis.

Pre1approved overdraft!

To ensure that your investment continues to grow, whilst giving you

the flexibility to satisfy any unexpected financial needs, (anks offer

you a pre5approved overdraft worth up to F1/or 311/ ;eposit

value.

redit ard!

'njoy the benefits of recognition, payment flexibility, attractive

reward points, worldwide accessibility to cash at over 11,111

T+s and many more simply by carrying a credit card. To qualify,

all you need is to maintain at least (PD,111 in your -ixed ;eposit

ccount over a 4 months period.

.3 #isadvantages O" Investing O" FiAed #eosits:>

person can withdraw money only when hisBher maturity period is

over.

person suffers a loss if heBshe try to withdraw money before

maturity period

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s compared to other investment instruments percentage of return is

less.

Ris and returns

. $o &is8 ,eans FiAed Instuments

If you want to begin investing but are not ready to take any risk, you still

have plenty of choices available in the market. -rom your traditional

bank fixed deposit, to fixed maturity plans >-+%s? of mutual funds there

are a number of instruments to choose from. #ince these instruments offera fixed return on your investment, they are known as fixed income

instruments.

#ome traditional fixed income assets are bank fixed deposits, money5back,

whole5life and endowment policies of life insurance companies, post office

saving schemes, government endorsed saving schemes like Hisan Gikas

%atra and -+%s.

-ixed income assets broadly offer an annual return of eight to nine percent

on your investment. 'xcept public provident fund >%%-?, returns from all

other instruments are subject to tax that reduces the returns of these

instruments and if you take inflation into consideration, your returns come

down even further.

That is why, when compared to equity, fixed income assets are not

considered a wealth5building tool but their strength lies in the safety of

your money. 'xperts advise that if you are looking at generating regular

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and fixed income on your investment, these assets are best suited for you.

These funds are particularly well suited for senior citi9ens, retired people

and people without a regular source of income.

Though bank fixed deposits are widely considered a safe option, however,

there have been instances when depositors have lost their savings. This is

why one must look for a bank7s track record and credibility before

investing. In case a bank goes bust, depositors can claim a maximum

compensation of 2s. 3"akh irrespective of their actual deposits.

-ixed income assets could be used to balance your portfolio as well. If you

invest a part of your funds in these instruments, you can reduce the overall

risk on your portfolio substantially. With a prudent mix of fixed income

assets and equity, you can create a robust portfolio that enhances your

wealth significantly.

.0 &etuns !ssociated With FiAed #eosits

(anks are luring customers to park their excess funds with the banks6 fixed

deposits by offering striking interest rates. $owever they are emphasi9ing

on fixed deposits with short term maturities in order to escape from giving

high interest rates in future when low interest regime is expected to

prevail. -or now the banks are offering high interest rates on short term

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deposits as compared to their long term deposits and this factor is

attracting customers to park their excess cash in short term deposits. -or

instance a 3,1115day fixed deposit with #tate (ank of India would earn31/ and a three5year fixed deposit which is only FD days more in maturity

would fetch only F/. This might look strange but banks are following an

accurate policy considering the further cuts in policy rates to be

announced by the 2(I soon. 2eserve (ank of India is likely is cut the key

policy rates in the coming few days.

RE-" E0$-$E

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0.1 Intoduction to &eal (state

2eal 'state +arket Investment involves the buying and selling of 2eal

'state for sheer profit. %rofits are

piled up slowly by renting out

2eal 'state %roperties in a cash

flow method or are generally

improved upon and resold for a

financial gain. 2eal 'state +arket

Investment makers can also

wholesale properties in order to

make profits. =sually real estate

market has a 6laggard effect6 to the

equity markets. What it means is a few monthsByear after equity markets

have rallied the real estate markets also start moving up.

The %roperty +arket in India has shown a substantial development in the

last few years and is bustling with many investors looking forward to gain

more from this apparently risk free sector. If we compare 2eal 'state to

other types of investment like mutual funds and equities, then it definitely

emerges as a safer option. The chief reason for generation of such interest

from buyers is due to the several measures taken by the government to

expand 2ealty +arket and make it attractive for buyers from India as well

as the world.

Investors sell their stocks at a profit in equity markets and invest the

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money into real estate. (ut before making investments an investor should

analy9e the market thoroughly.

$he factors an investor should loo into before investing are!

The current demand of the 2eal 'state +arket.

The future trend of the 2eal 'state +arket.

It is also important to know whether the demand is increasing,

decreasing or remaining constant.

2eal 'state +arket Investment has advantages and disadvantages at the

same time. Though it looks like the advantages are more in numbers but

the disadvantages if not taken care of can prove to be fatal.

0.2 +yes O" &eal (state:

Residential real estate

The most common form of real estate investment as it includes the property

purchased as other people6s houses. In many cases the (uyer does not

have the full purchase price for a property and must engage a lender such

as a (ank, -inance company or %rivate "ender. $erein the lender is the

investor as only the lender stands to gain returns from it. ;ifferent

countries have their individual normal lending levels, but usually they will

fall into the range of 815F1/ of the purchase price. gainst other types of

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real estate, residential real estate is the least risky.

ommercial real estate

)ommercial real estate is the owning of a small building or large

warehouse a company rents from so that it can conduct its business. ;ue

to the higher risk of )ommercial real estate, lending rates of banks and

other lenders are lower and often fall in the range of D1

0.3 !dvantages O" Investing In &eal (state:

The real advantage in the Real Estate )aret Investment is that

theoretically this business has an ever growing tendency because of the

growing population and the demand for 2eal estate7s both for residential

and office usages.

s all the things in this field are very expensive and every time one sells it

the profit becomes more.

The ability to borrow based on the value of the 2eal estate %roperty, is

another advantage. It is easier to finance 2eal 'state than any other

product. While investing other pluses requires the buyer to have the entire

buying price available for the pluses. (ut in Real Estate )aret

Investment,one just needs to have a fraction of the buying price available

as the down payment. That is why, 2eal 'state, in spite of being extremely

expensive, is much easier to buy than a piece of industrial instrument of

the very same price.

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0. #isadvantages O" Investing In &eal (state

2eal 'state +arket Investment is something that needs to be maintained

and taxes to be submitted from time to time. small mistake in this

procedure can bring a major loss to the investor.

;uring the real estate booms, investors can be attracted to buy 2eal 'state

properties without calculating the expenditures attached in the purchase

and for the existing expenditures of the property. The 2eal 'state +arket

can then suddenly flow against them instead of flowing for them makingthe investor face a major loss.

0.0 &is8 !ssociated With &eal (state

2eal 'state Investment is now

treated as a major case of

capital budgeting by usingstate5of5the5art investment

analysis which incorporates

the future stream of income it

may generate and the

associated risk adjustments. It

has been the highlight of the investment literature since the 3F817s when

investment theorists extended techniques such as probability, time value of

money and utility into its analysis.

2eal estate is basically defined as immovable property such as land and

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everything permanently attached to it like buildings. 2eal property as

opposed to personal or movable property is characteri9ed by the right to

transfer the title to the land whereas title to personal property can beretained. The investment in real estate essentially depends on the risks

associated with it, that is to say, even if the venture succeeds when the

future stream of income will accrue to the investor and the alternative

investment opportunities. 2eal estate investment can be attractive if viewed

as a business opportunity! it can generate rental income, using it as

collateral to secure a loan for a business venture, to offset otherwise

taxable income through cash savings on tax5deductible interest rate losses,

or simply from the profits garnered from its resale. @otable, in this context

is the gains reaped by real estate speculators who trade in real estate

futures >by buying and selling purchase options?.

)ommon examples of real estate investment are individuals owning

multiple pieces of real estate7s one of which is his primary residence andothers are occupied by tenants from where the rental income accrues. 2eal

estate investment is also associated with appreciation in the value of

property thereby having the potential for capital gains. Tax implications

differ for real estate investment and residential real estates. 2eal estate

investment is long term in nature and investment professionals routinely

maintain that one7s investment portfolio should have at least Dpercnt!5

01percnt! invested in real estate.

0.6 &etuns !ssociated With &eal (state

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2eal 'state Investment %roperty follows a business cycle like any

investment business5it has its peaks and troughs. (ut as real estate

investment property is defined as investment in properties, which even canbe commercial in nature, real estate can make a fortune for many

individuals giving them the license to permanently walk away from their

jobs. )ommercial property may include apartments and multifamily units,

offices, hotels, malls, retail stores, businesses and industrial property.

)ommercial properties are acquired for reali9ing both capital gains and

rental income %roperty investment can lead to diversification of one7s

investment portfolio, as real estate investments can be profitable for many

giving them financial freedom in the long run. The real property can be

put to its best use if it produces the highest value for land, as if vacant. (ut

as many real estate investment property analysts point out, it can go

horribly wrong if not undertaken in a careful manner. Thus it is always

advisable to conduct a thorough research before arriving at a decision. t

present, terms such as Kforeclosure investingL and Kno money down real

estate investingL have become associated with real estate property

investment. While foreclosure investing means buying properties from

owners who are in a financial distress, thus giving the opportunity to buy

cheap, no money down real estate investing is an attractive service offered

by many real estate agencies which helps people to invest in real estate

without any credit check and employment verifications.

&eal estate investment can e o"itale i" one ta8es note o" the

"olloing:

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+aximi9ing return

+inimi9ing risk

)omparing investments

#aving time, and,

ptimi9ing the deal structure

In short, people investing in real estate should be able to study the market

trend of rising and falling real estate prices and then arrive at a decision.

This service is also offered by many real estate investing agencies that willprovide investment analyses software and real estate software cash flow

tool that will help the investors make the right decisions about real estate

investment decisions. The return on investment on real estate should be

considered when deciding to invest in real estate.

2eturn on investment can be calculated on past or current investment or

on the estimated return on future investment. It does not indicate the

period for which the investment is being made. 2ate of 2eturn, or 2eturn

on Investment is essentially the future stream of income or a cash flow

from an invested capital. This capital might be investing in real estate

property or company shares and debentures.

The future stream of income or cash flow might arise from interest,

dividends or capital gains. capital gain occurs when the market value of

an investment rises or falls. It does not however, include the returns

accrued on the investment.

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2eal estate investment can be attractive if viewed as a business

opportunity! it can generate rental income, using it as collateral to secure

a loan for a business venture, to offset otherwise taxable income throughcash savings on tax5deductible interest rate losses, or simply from the

profits garnered from its resale. @otable, in this context is the gains

reaped by real estate speculators who trade in real estate futures>by

buying and selling purchase options?

s per the commercial real investment property boom in many areas of the

world, it has been ascribed to improvement of the economy and growth of

business ventures in the country. (ut it should be noted that investment in

commercial properties yield more returns and cash flow than investments

in residential properties

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ther Investment -venues

6.1 )old

-or centuries gold has been the ultimate cushion against the dangers of

stocks price falls, fluctuating rate changes, inflation, risingBfalling real

estate prices, natural calamities, wars and more. *old has been the best

way to safeguard your investments against unstable financial markets.

Why Is )old Such ! )ood Investment?

Whether or not gold is a good investment, is a question that does not have

a simple answer. *old has appreciated substantially over the past couple

of years. The growth rate of late has been much higher than the

conventional rate of appreciation. $owever, if we look at the past 3D501

years record, it is seen that *old is a hedge against inflation.

ver the last 01 years, the average return from *old has been around 8/.

#o, if the past trend continues, one could expect around say 5F/ returns

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from gold in the long5term.

lso, another aspect that we should look at is a weakening currency. @o

matter which country you originate from, there is a chance that your

country7s currency will suffer a downfall at a particular point of time.

*old, on the other hand, retains its true value and can help you protect

your riches because it does not rely on the state of the country7s economic,

whether it is on the up or downtrend. Therefore, investing a small portion

of one7s investment portfolio in gold would be a good idea.

4o 'an One Invest In )old?

*old can be bought in various forms and the decision should be based on

the reason you need gold. If you see this purely as an investment, you can

either buy it in the form of physical gold Q bars, biscuits and or coins or

even in a demateriali9ed form.

-or most Indians, gold purchases usually mean buying jewellery.

$owever, the disadvantage of buying gold in the form of jewellery is that

its resale is not always a profitable proposition.

He$e a$e some othe$ *a#s o investing in go'd:

6"' Etfs

Aou can invest in gold by buying *old 'xchange Traded -unds >'T-s?.

(eing 'T-s, these funds are listed and traded on the stock exchange i.e.

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investors can buy and sell them like any other stock on the stock exchange,

on a real5 time basis.

ll you need is a demat account and a share trading account with a broker

or sub5broker who deals in stocks. These are traded in units of one. That

means you can buy one or more units at a time. 'ach unit represents

approximately the market value of one gram of gold.

*old 'T-s are traded close to real5time gold prices in the market, that is,

'T- prices move up and down with the market price of gold in the

conventional marketplace. Aour expenses in an 'T- would be very low&

you would pay securities transaction tax >#TT?, brokerage Bservice tax,

and the like, which are unlikely to exceed around 3/ of market price.

Aou7d hold gold in demat form in your demat account, just as you hold

shares. If you decide to sell your 'T- units, you can do so through your

stock broker or sub5broker and the charges would be the same as what you

paid while buying the 'T-. Thus an 'T- is very convenient, and you need

not worry about the purity of the gold, secure storage, insurance against

theft, and so on

Physical 6old

This is the traditional way to invest in gold. Investors can buy gold and

then store it in a bank7s locker. If you are one of those people who keep

buying gold jewellery for a marriage of a daughter or son, a better optionwould be to buy gold 'T- units now at the current price of gold, hold them

in your demat account, and sell them in the future, whenever you want,

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and use the money to buy jewellery then.

In this way, you will be protecting yourself from rising gold prices, while

also sparing yourself anxiety about the purity and safety of your gold. Aou

can keep accumulating gold at a slow rate, perhaps even one gram at a

time.

It is evident that gold is an asset class that you can rarely go wrong with.

Therefore, think seriously about investing in gold.

6.2 -onds:

=nlike equities that represent a participation in a company, a bond is a

debt security. When you purchase a bond, you lend money to the issuer of

the bond. The issuer can be a government, a municipality, a federal

agency, a corporation or another entity. bond has generally a maturity

>a date at which the issuer reimburse the amount borrowed? and an

interest payment.

The stream of payments linked to a bond is known in advance >provided

that the issuer can pay? but this stream depends of the bond. Aou have

bonds that pay a fixed interest during the life of the paper >fixed rate

bonds?! you have others that pay a revised interest rate >floating rate

bonds? or even no interest at all >9ero coupon bonds?.

The first thing that comes to most people6s minds when they think of

investing is the stock market. fter all, stocks are exciting. The swings in

the market are scrutini9ed in the newspapers and even covered by local

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evening newscasts. #tories of investors gaining great wealth in the stock

market are common. (onds, on the other hand, don6t have the same sex

appeal. %lus, bonds are much more boring 5 especially during raging bullmarkets, when they seem to offer an insignificant return compared to

stocks.

$owever, all it takes is a bear market to remind investors of the virtues of

a bond6s safety and stability. In fact, for many investors it makes sense to

have at least part of their portfolio invested in bonds.

6.3 'ommodities ,a8et:

- commodity may be defined as an article, a product or material that is

bought and sold.It can be classified as every ind of movable property,

except -ctionable laims, )oney ; 0ecurities. )ommodities actually

offer immense potential to become a separate asset class for market5savvy

investors, arbitrageurs and speculators. 2etail investors, who claim to

understand the equity markets, may find commodities an unfathomable

market. (ut commodities are easy to understand as far as fundamentals of

demand and supply are concerned. 2etail investors should understand the

risks and advantage

Documents

Investement Avenues