A Study On Investor Preferences About Various Investment Avenues A PROJECT REPORT Submitted To The SCHOOL OF MANAGEMENT In partial Fulfillment

Of The Requirement For The Award Of The Degree Of MASTER OF BUSINESS ADMINISTRATION By R.NIRMAL KUMAR (Reg. No.-35103166) Under The Guidance Of Prof. T.P.Nagesh. Faculty

SRM SCHOOL OF MANAGEMENT SRM INSTITUTE OF SCIENCE AND TECHNOLOGY DEEMED UNIVERSITY KATTANKOLATHUR April 2005

CERTIFICATE Certified that this Project Report titled A Study On Investor Preferences About Various Investment Avenues is a bonafide work of Mr.R.Nirmal Kumar (Reg. No.-35103166) who carried out the research under my supervision. Certified that to my best of my knowledge the work reported herein does not from part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate. Signature Of Supervisor Signature Of Dean

(Prof.T.P.NAGESH)

(Dr.Jayasree Suresh)

DECLARATION

I R.Nirmal Kumar, a student of final year MBA, SRM School Of Management Studies, do hereby declare that the project titled Critical Analysis Of Various Investment Avenues undertaken at Sundaram Finance, Chennai in partial fulfillment of MBA degree course of SRM School Of Management Studies is my original work.

(R.NIRMAL KUMAR) Place : Chennai Date :

Acknowledgement

Table Of Contents

Serial No.

Particulars
List Of Tables List Of Charts List Of Abbreviations

Page No.

1. 2. 3. 4. 5. 6. 7. 8. 9.
10.

Introduction Statement of Problem Objectives Of Study Concepts And Terms Used Methodology And Limitations Company Profile Analysis And Interpretation Findings Suggestions Conclusion
Appendices Bibliography

1. INTRODUCTION India has always been known as the elephant of the investment world. It moves slowly but surely. Invariably when investment decisions come up, funds flow to hot new destinations. In the past it has been Japan, Argentina, Mexico, Russia. However, if you are looking for high growth with safety, then India is the place to invest your money. India has developed solid financial systems since Independence in 1947. It is home to several metropolises while also dramatically developing its rural areas. Major infrastructure improvements all over the country are currently underway. Indias information technology industry is thriving and making major worldwide contributions. India has grown as an investment area with GDP growth of 8% and above and Foreign Direct Investments growing at a very rapid rate in the last few years.

The last couple of years have seen the traditional investment leaders stumble. However, as investment returns dropped in the American, European and East Asian markets, India continued to see slow but significant gains. The world is now looking to India and China as the next investment leaders Every investor is rational that they want their money to work harder, so that it fetch them good returns. Investor prefers various investment avenues that will maximize their profit with less risk or at least they wanted to break even between risk and return. All investors takes high risks to earn high returns, only some with good knowledge will go for it, but many investors wanted to be in safer side with less returns and not ready to take up risks. This report acts as a guide for a prospective investor. This analysis is prepared with an aim to assist investor regarding returns, risks, capital appreciation, tax benefits, etc., Since there are more investment avenues with various risk-return combinations, investment becomes a tedious job, so majority investors prefers Post Office Bank Deposits. Because it is very simpler, less riskier investment avenue, though it fetch less returns. This approaches is called Conservative Investment Approach.

Second kind of investors are aggressive, who wanted their money to work hard for them. So they make up extra risks than conservative investors. So aggressive investors prefer investment that fetches them more returns and rapid capital appreciation. We must also remember that returns is not free of costs, costs here refers to risks. Therefore an aggressive investor has to beware of more risks. Generally, youngsters and high-income people prefer for this Aggressive Investment Approach. Some investors prefers for investments which are profitable and they wanted to breakeven with the risks inherited with that particular investment avenue. These investors may not have enough knowledge about other investment avenues, which fetch them higher incomes. There is more number of investment avenues with various risks-return combinations. This evaluation will conclude in an optimum investment portfolio, that wills help/guide a prospective investor. Starting with POSB, Bank Deposits, gold, shares, insurance, Real Estates, Mutual Funds, Share Markets, Inventory etc., 2. STATEMENT OF THE PROBLEM It was said that first expenditure must be savings. But savings has not given preference to other expenditure. In reality, it was treated as residual of income over expenditure; this can be expressed as, Y=C +S I.e. S = Y - C Where; Y= Income C= Consumption S= Savings Mere savings will not result in profitability of the saver. The saved money must be invested in any investment avenue, which fetch good returns and also appreciate the capital invested. If the savings is not invested, the value of money will be reduced according to the concept of Time Value of Money. The concept of time value of money is simple to understand. The value of money received today is more than the value of same amount received after a certain period. In other words money received in the future is not as valuable as money received today.

If an investor saves money from his income and if he keeps it idle without investing it, then the value of money he holds after some period will be reduced. An investor can overcome this decrease in value of money saved by investing it in any investment avenue. Time value of money can be calculated by; (a) Compounding Technique (b) Discounting at present value technique. 2.1 DETERMINANTS OF SAVINGS AND INVESTMENT a) Income of the investor b) Expected rate of return from the investment c) Other rate of return d) Consumption level of the investor e) Saving benefits Savings and investment increases if the income of the investor increase, the same can be easily understood by following diagram. S I E Savings and Investment

Income FIGURE 2.1

Y1

Y2

Any profit along E, savings exceeds investment, from the alone graph we can understand that a change in the income from Y to Y1, there is a change in investment level also. Which concludes that any change in the income will adversely affects the investment decision of the investor.

So, investment has inevitable, if an investor has to save his money value. Investment is made with an aim of getting a return. Returns may be; Interest Profit Capital Appreciation

Every investment is inherited with a chance of failure called risk. Risk is nothing but loss or failure of income from investment; here income refers to interest, dividend, Capital appreciation etc. Timing of income to be received from any investment is also treated as risk. Risk may be Systematic. Unsystematic.

So it is very clear that risk is inherited with every investment avenues, only the degree of risk varies from one avenue to another for example, POSB a/c and Bank Deposits are risk free investment avenues, but share market on the other hand are high riskier when compared to POSB and Bank Deposits, even though share market sometimes fetches huge returns. Risk becomes a determining force for return from any investment avenue. If an investment is new highly rewarding, which is based on new technology, but requires high capital investment then it becomes riskier, if the project fails, i.e. very high returns can be expected with very high risk. Similarly if the risk is less then the return will also be less. So it all starts with the investors preference to take up the quantum of risks. If he prefers more risk, his returns will also be more, same way, if he prefers for less risk, he returns will be also low. Here the investor must check out the various risks. So the investor must consider risks before investing in these investment avenues. It is clear that the problem exist in choosing an avenue, which maximizes returns to the investor with less risk.

3. OBJECTIVES OF THE STUDY Every investment comes with risks; it is impossible to speak about return without motioning the risks inherited in it. So an investor must analyze various investment vehicles available to him with risk involving in it and must come to a decision, whether to go for it or not. A prospective investor can also collect information from various sources such as interview, magazines, newspaper, reports, etc. 3.1 PRIMARY OBJECTIVES The Primary Objectives of the study are, To know the various investment avenues available to a prospective investor. To analyze those investment avenues. To report the performance of these Investment vehicles. To understand the risk and return patterns of various Investment vehicles.

 To study the preferences of the investor. 3.2 SECONDARY OBJECTIVES To assist a prospective investor in investing. To know in depth knowledge of various investment vehicles. To present information about investment avenues.

4. REVIEW OF LITERATURE When the Statement of problem is formulated, a literary survey was undertaken to find new insights in connection to this research problem. For this, at first published journals, conference proceedings, government, companies reports, books, etc were tapped in relevance to my research problem. The earlier project report is also searched in the college library. Apart from journals and magazines, data are collected from companies, organizations websites, and other project reports, which are briefed in Bibliographies.

5. METHODOLOGY The methodology used in project is Descriptive research. Descriptive research includes surveys and fact-finding enquires of different kind. This type of research is done in order to describe the present situation, trends. The main purpose of this research is to describe the state of affairs as it existing at present. Descriptive research studies has no control over the variables, that is ex post facto research, the main character of this research is that the researcher has no control over the variables, he can only report what has happened or what is happening. These methods are used for descriptive studies in which the researcher seeks to measure such items as for example, frequency of shopping, consumer preferences, etc. The method used in descriptive research is survey methods of all kinds, including comparative and co relational methods. For survey methods I have used Questionnaire for primary data from the investors and Personal Interview from various respondents. In this type of research the variables were not under the control of researcher for variables such has inflation, price fluctuations, demand, supply, interest rates, money supply, etc. The researcher can only explain what has happened and is happening and also he cannot predict future happenings by applying some treatment to such variables. 5.1 SAMPLING Sampling is sequential steps to identify a group of population to who questions, interview have to be taken. It refers to techniques or procedure the researcher would adopt in selecting items for the sample. Samples are respondents from whom data are to be collected for interpretation and to come to conclusion. 5.2 SAMPLE DESIGN A sample design is a definite plan for obtaining a sample from a given population. It refers to the technique the researcher would adopt for selecting items for the sample. Sample design may as well lay down the number of items to include in the sample i.e. the size of the sample. Sample designs are determined before data are colleted. There are many sample designs from which a research can choose anyone. Researcher must select / prepare a sample design that should be reliable and appropriate for his research study. Basically there are two kinds of sampling design, Probability Sampling. Non-Probability Sampling. Probability sampling is that every item of the universe has an equal chance of inclusion in the sample, so it is like a lottery method in which individual units are picked up from the whole group of population. Probability sampling is also called as random sampling or chance sampling. The result obtained from probability or random sampling can be assured

in terms of probability. Random sampling ensures the law of Statistical Regularity, which states that if on an average the sample chosen is a random one, the sample will have the same composition and characteristic as the universe. This is the reason why random sampling is considered as the best technique of selecting a representative sample. In brief, the implications of random sampling are, It gives each element in the population an equal probability of getting into sample, and all choices are independent of one another. It gives each possible sample combination an equal probability of being chosen. Keeping this in view we can define a simple random sample from a finite population as a sample, which is chosen in such a way that each of possible samples have the same probability of being selected. Non Probability sampling is that sampling procedure which does not afford any basis for estimating the probability that each item in the population has of being included in the sample. It is also called Deliberate Sampling, Purposive Sampling and Judgment Sampling. For example if the economic conditions of people living in a state are to be studied, a few towns and villages may be purposively selected for intensive study on the entire state. So in order to identify the preferences of investor I have choosed Non Probability sampling method. 5.3 SAMPLE SIZE This refers to the number of items to be selected from the universe to constitute a sample. The size of sample should not be excessively too large or too small, so it must be optimum, so a normal sample size of 100 is selected for research. An optimum sample is one, which fulfills the requirements of efficiency, representative ness, reliability and flexibility. 5.4 DATA COLLECTION Data is unprocessed information of a particular state of affairs. Data becomes very important for any decision making process. When a researcher decides upon the method of data collection, he must be very clear with Primary and Secondary Data. The primary data are those that are collected afresh and for the first time and thus happen to be original in character. Secondary Data are those which have been collected by some one else and which have already been passed through the Statistical process. The method of Data Collection may vary with the two types of data, since primary data are to be originally collected from the source whereas secondary data collection work is merely a compilation.

In this project primary and secondary data are required at various situations, so therefore I have decided to collect primary data through Questionnaire and secondary data through various sources like newspaper, magazines, journals, reports, reports prepared by research scholars, historical documents, companies records, website, publishing, financial statements, budgets, etc. 5.4.1 PRIMARY DATA Primary Data can be collected during the course of experiments in an Experimental Research, but incase of Descriptive Study, we can obtain primary data either through observation or through direct communication with respondents in one form or another or through Personal Interview. Some other methods of Primary Data collections are, Interview Method. Questionnaires. Observation Method. Through Schedules Others Methods are, Warranty Cards. Distributor Audits. Pantry Audits. Consumer Panels. Projective Techniques. Depth Interview. Content Analysis.

QUESTIONNAIRES This method of data collection is quite popular, particularly in case of big enquires. Private individuals, research workers, private and public organizations and even governments, are adopting it. In this method a questionnaire is sent to respondents concerned with a request to answer the questions and return the questionnaire. A questionnaire consists of number of questions printed or typed in a definite order on a form or set of forms. The respondents have to answer the questions on their own. Reasons for selecting Questionnaire for Data Collection, Cost effective. Free from bias, since respondents answer directly. Respondents are given enough time to answer. Large samples can also be covered.

 Respondents who are not easily approachable can also be reached. 5.4.2 SECONDARY DATA Secondary data means data that are already available. So they are collected from various existing sources such as, Trade journals, business journals. Reports and publications of business, stock exchanges, etc. Reports prepared by research scholars, universities. Public records and statistics. Official websites Books, newspapers, magazines, etc. 5.5 LIMITATIONS OF THE STUDY This study has been limited by time and cost factors. Since analyzes has been made from the information given by the respondents, the accuracy of the findings are depended on the quality of the respondents. This sample refers only to a set of population i.e. a set of prospective investor. The sample size of 100 is only a small percentage of total investing public, therefore it is only a representation report based on the sample study. The sample is confirmed to Chennai city only.

6. COMPANY PROFILE 6.1 SUNDARAM FINANCE LTD. The Company was incorporated in 1954, with the object of financing the purchase of commercial vehicles and passenger cars. 1972.The Company's shares were listed in the Madras Stock Exchange in 1972 and in the National Stock Exchange in January 1998. Subsequently, the equity shares of the Company have been delisted from Madras Stock Exchange Limited (MSE) with effect from January 27, 2004, in accordance with SEBI (Delisting of Securities) Guidelines, 2003, for voluntary Delisting. Sundaram Finance Ltd has grown today into one of the most trusted financial services groups in India. Today, the activities of the Sundaram Finance Group span Commercial Vehicle Finance, Car Finance, Insurance, Asset Management, Home Loans, Equipment Finance, Fleet Card, InfoTech Solutions, Business Process Outsourcing, Tyre Finance and Freight Exchange. Sundaram Finance has a Nation-wide presence with over 130 branches, 0.65 million depositors and nearly 100,000 commercial vehicle and car finance customers. 6.2 PRODUCTS / SERVICES OFFERED Deposits Car Finance Commercial Vehicle Finance Equipment Finance Fleet Card Tyre Finance

6.3 AWARDS The Best Financier of the New Millennium 2000 to Shri. G K Raman, Managing

Director, from the All India Motor Transport Congress. Best Tax Payer in the category of Private Sector Company for Assessment Year 1995-96 in Tamil Nadu Region, from the Income Tax Department, Tamil Nadu. 6.4 SUNDARAM FINANCE DISTRIBUTION LIMITED Sundaram Finance Distribution Limited (SFDL) is a wholly owned subsidiary of Sundaram Finance Limited. The main object of this company is to engage in distribution and marketing of financial, savings, loan, investments and insurance products. SFDL has initially taken up the corporate Agency of National Insurance Company Ltd. to distribute all General Insurance Products of that company. The products of National Insurance include: Motor Insurance Personal Lines of Insurances such as Home Insurance, Health Insurance, Personal Accident Insurance, Travel Insurance, etc. Commercial Lines of Insurances such as Fire Insurance, Marine Insurance, Engineering Insurance, etc. Liability Insurance Products

7. ANALYSIS AND INTERPRETATION 7.1 POST OFFICE SAVINGS BANK A/C 7.1.1 INTRODUCTION Post Office acts as a primary investment option for the investor. Post Office spreads over all parts of India. India has more number of branches of Post Office in world. Basically, its objective is to quality mailing service, due to its coverage and accuracy, the central government planned to mobilize funds from public through Post Offices. People in the same region are not provided with modern banking facilities. So post office savings bank account has become very good opportunity in mobilizing the savings in most backward and

rural areas. People found it easy and flexible in investing in post offices. Based on the performance of the deposits, many attractive schemes are introduced. Schemes such as Indra Vikas Patra which pays 100% maturity within 4 years was a grand success, but due to inflation and price level changes, interest payable to investors are reduced by the Reserve Bank of India. Still Post Office leads in holding maximum number of branches when compared to any other financial institution. VARIOUS SCHEMES AVAILABLE IN POST OFFICE BANK 7.1.2 15 YEARS PUBLIC PROVIDENT FUND Features Only one account can be opened in the name of a person. Twelve deposits can be made in a financial year. Minimum deposits in a year are Rs.500 and maximum is Rs. 70,000/-. Interest is charged at the rate of 1% if prepaid within 36 months and at 6% on the outstanding loan after 36 months. Deposits are qualified for Income Tax rebate under section 88 of Income Tax Act. 7.1.3 NATIONAL SAVING CERTIFICATE (NSC) FEATURES One person can be nominated for certificates of denomination of and more than one person can be nominated for higher denominations. Maturity period is 6 years. No premature encashment is permitted in the normal course. 7.1.4 SAVINGS BANK ACCOUNT Interest Rates 3.5% per annum on individual/joint and group accounts. 3% per annum on public accounts and Security Deposits Account for purchase of motor vehicle or tractor and for other purposes 2% per annum. For official capacity account 2% per annum. 7.1.5 Monthly Income Scheme FEATURES Only one deposit in an account. Rs. 100-

Only individuals can open the account; either single or joint. (Two or three) Interest rounded off to nearest rupee. i.e., 50 paise and above will be rounded off to next rupee.

7.2 BANK DEPOSITS Deposits are nothing but receiving the amount from public with a view of providing safety to the amount by providing a certain rate of return. Deposits are of two types namely; Time Deposits & Demand Deposits. 7.2.1 TIME DEPOSIT Time deposits may also be termed as Term Deposit as the customers make the deposits for a specific period. Time deposits consist of Fixed Deposits and Recurring Deposits and other types, which are not normally withdrawn before the fixed term. 7.2.2 FIXED DEPOSITS The customer makes fixed deposits for specific period ranging from 46 days to three years or more. The rate of interest ranges from % to 15%, however this rate is subject to change. The longer the period of deposits, higher is the rate of interest. The depositor is assured of the safety of the fund apart from higher returns. The depositor as per the terms agrees not to withdraw the amount earlier. 7.2.3 RECURRING DEPOSIT In this scheme the customer deposits every month a certain sum of money for a period ranging from 12 to 120 months. This is useful to low land middle-income groups. This encourages regular saving habit. 7.2.4 DEMAND DEPOSITS Demand Deposits may be classified into two, namely Saving Bank Account and Current Account. 7.2.5 SAVINGS BANK ACCOUNT As the name indicates the purpose of opening a savings account is to save money to meet the future contingencies. Some of the guidelines for savings bank account are below; they differ from ban to bank and from time to time. Account can be opened with proper introduction. Deposits are for any amount at the rate of interest applicable from time to time. Facility to collect dividend warrant, cheques etc. In the name of the account holder. Number of withdrawals should not exceed 50 times, in every half year, but in practice this is not strictly followed by all commercial banks. Transfer of account from one branch to another is permitted against a letter of request.

7.2.6 CURRENT ACCOUNT A businessman normally opens current account. A minimum balance is insisted in the account. This account holder should always maintain such minimum balance in the account. The features of this account are as follows; The banker does not give any interest on the deposits. If the customer overdraws account he has to pay interest to the banker Overdraft facility is available only for current account holders. Special facilities such as Free collection of outstation cheques Issue of demand drafts and Mail transfer without any extra charges.

There is no restriction on the number of withdrawals from the account. 7.3 BULLION MARKET Golds use as an investment is rooted in history and derives from its roles as a safe haven, a store of value and as a monetary asset. India is the world's largest market for gold, one that has expanded considerably during its period of liberalization. Deregulation of Gold in India by Himadri Bhattacharya tracks the evolution of gold market reform in India, this study shows how reform measures can be sequenced and discusses the optimal gold import regime and the monetary role of gold. "Exciting advances in the Indian gold market" charts changes over the last fifteen years, including anticipated plans that could bring about significant increase in local gold market activity. There may be an "opportunity cost" of holding gold but in a world of low interest rates, this is less than is often thought. It concentrates a lot of value in a small volume. Adding gold to a portfolio introduces an entirely different class of asset. Gold is unusual because it is both a commodity and a monetary asset. It is an 'effective diversifier' because its performance tends to move independently of other investments and key economic indicators. The reason for holding diverse investments is to protect the portfolio against fluctuations in the value of any single asset class. Portfolios that contain gold are generally more robust and better able to cope with market uncertainties than those that don't. 7.3.1 MOTIVES FOR HOLDING GOLD BY CENTRAL BANKS The following are the main reasons why central banks hold gold.

 Economic Security Physical Security Unexpected Needs Confidence Diversification

WORLD GOLD HOLDINGS

Euro Area

USA

Rest Of World

IMF

Western Europe

Asia

Source - GFMS ltd. FIGURE 7.1 7.3.2 INVESTMENT IN GOLD OTHER THAN JEWELLERY If you are thinking about investing gold, it is worth giving the same consideration to your purchase as you would to any other investment A. COINS AND SMALL BARS Gold coins have continued as legal tender since 560 BC. Today, bullion coins and small bars offer private investors an attractive way of investing in relatively small amounts of gold. B. FUTURES AND OPTIONS Gold futures contracts are firm commitments to make or take delivery of a specified quantity and quality of gold on a prescribed date at an agreed price. Investors may take or make delivery of the gold underlying the contract on its maturity although, in practice, that is unusual.

C. WARRANTS Gold warrants originated in the mid-eighties and were mostly related to gold mine issues. These days, they are commonly issued by leading investment banks and give the buyer the right to buy gold at a specific price on a specific day in the future, for which the buyer pays a premium. Warrants can usually be sold back to the issuer at any time prior to the expiry date. D. EQUITY TYPE PRODUCTS A recent addition to the family of exchange-traded products has been securities gold in the form of equities traded on stock exchanges in certain countries. These are regulated financial products. E. GOLD ACCOUNTS There are two types of gold accounts: allocated and unallocated. An Allocated account is rather like keeping it in a safety deposit box. Specific bars (or coins, where appropriate), which are numbered and identified by hallmark, weight, and fineness, are allocated to each particular investor, who has to pay the custodian for storage and insurance. Unallocated accounts, which are conceptually similar to foreign exchange accounts. Unless investors take delivery of their gold (usually within two working days), they do not have specific bars ascribed to them. An advantage of unallocated accounts is that Investors do not incur storage and insurance charges. F. GOLD ACCUMULATION PLANS Gold Accumulation Plans are only available in Japan. Gold Accumulation Plans (GAPs) are similar to conventional savings plans in that they are based on the principle of putting aside a fixed sum of money every month. What makes GAPs different from ordinary savings plans is that the fixed sum is invested in gold. G. GOLD CERTIFICATES Historically, the U.S. Treasury from the civil war issued gold certificates until 1933. Denominated in dollars, these certificates were used as part of the gold standard and could be exchanged for an equal value of gold. Although they are now collectibles, these gold certificates have been out of circulation for many years. They were initially replaced by silver certificates, and later by Federal Reserve notes. H.GOLD ORIENTED FUND A number of collective investment vehicles specialize in investing in the shares of gold mining companies. The term collective investment vehicles as used here should be taken to include mutual funds, OEICs, closed-end funds, unit trusts, and so on.

7.4 INSURANCE 7.4.1 INTRODUCTION Insurance is based on the principles of co-operation. The losses of a few are shared by many. The insurance company, otherwise called the insurer, organizes this co-operative effort. 7.4.2 LIFE INSURANCE In a life insurance contract, a person insures his own life or the life of another person on whom he has insurable interest. The risk insured against in this policy is the death of the insured. Under the life insurance contract the assurer agrees to pay an agreed sum on the death of the assured or on the completion of the stated period. 7.4.3 KINDS OF LIFE POLICIES A. WHOLE LIFE POLICY In whole life policy the sum assured is payable to the legal heir only on the death of the assured. It is to protect and support the family of the assured after his death. In this scheme premium may be payable throughout the life of the assured or for a limited number or years. B. ENDOWMENT LIFE POLICY This policy measures on the assureds or on his attainment of a particular age whichever occurs earlier. The premium is payable till its maturity of for a limited number of years assured sum will be paid to the policyholder if be survives the particular age; otherwise it will be paid to his nominee. The period, which the policy is taken, is called the endowment period. It is popular because the assured himself can enjoy the benefits of insurance if he survives the endowment period. The family is also protected in case of his sudden death within the endowment period. C. MONEY BACK POLICY This policy is more suitable for a person who is taking a creet. Under this policy a certain percentage of the sum assured is paid periodically according the terms of the policy. Some of the other popular policies are; Childrens Deferred Assurance (C.D.A.) Term Policy

 Group Insurance Policy D. MEDICAL AND NON-MEDICAL SCHEMES Life insurance is normally offered after a medical examination of the life to be assured. However, to facilitate greater spread of insurance and also as a measure of relaxation, LIC has been extending insurance cover without any medical examination, subject to certain conditions. E. KEY MAN INSURANCE. Key man Insurance is taken by a business firm on the life of key employee(s) to project the firm against the finance loss, which may occur due to the premature demise of the Key man. F. PENSION PLANS Pension Plans are profits Deferred Annuity (Pension) plan. On survival of the policyholder beyond term of the policy the accumulated amount (i.e. Sum Assured + Guaranteed Additions + Bonuses) is used to generate a pension (annuity) for the policyholder. The plan also provides a risk cover during the deferment period. The USP of the plan being the pension can commence at 40 years. The premiums paid are exempt under Section 80CCC of Income Tax Act. 7.4.4 WHY IS IT SUPERIOR TO OTHER FORMS OF SAVINGS? Protection Aid to thrift Liquidity Tax Relief 7.4.5 CONTRACT OF INSURANCE A contract of insurance is a contract of utmost good faith technically known as uberrima fides. The doctrine of disclosing all material facts is embodied in this important principle, which applies to all forms of insurance. 7.4.6 REBATES

Rebate For Mode of Premium Payment a) Yearly b) Half-Yearly c) Quarterly d) Monthly 2% of tabular premium 1% of tabular premium Nil 5% extra of tabular premium

7.4.7 PERFORMANCE OF LIC CLAIMS SETTLED DURING THE LAST THREE YEARS TABLE 7.1 YEAR 2000-01 2001-02 2002-03 Number (in Lakh) 75.86 87.67 95.34 Amount (in Crore) 11,637.98 14,519.25 16,952.34

Amount (in Crore)

2000-01

2001-02

2002-03

SOURCE www.licindia.com FIGURE 7.2 LIC SETTLES 1.43 CLAIMS EVERY SECOND. 7.5 REAL ESTATE

Real estate is one of the fastest growing sectors in India. Market analysis pegs returns from realty in India at an average of 14% annually with a tremendous upsurge in commercial real estate on account of the Indian BPO boom. Lease rentals have been picking up steadily and there is a gaping demand for quality infrastructure. A significant demand is also likely to be generated as the outsourcing boom moves into the manufacturing sector. Further, the housing sector has been growing at an average of 34% annually, while the hospitality industry witnessed a growth of 10-15% last year. Recent reports indicate that the share of real estate as a percentage of Indias GDP has risen from 5.25% to over 7% from 2002 2003. Returns from this sector exceed those for most other investment alternatives in the market. Yields on commercial real estate across metros in India are higher than those prevalent in global real estate markets. With the revolution in the services sector over the last decade, the rise in the sectors share of GDP to 50% marks a shift in the Indian economy and takes it closer to the fundamentals of a developed economy. The IT and ITES sector has grown phenomenally despite adverse global conditions and grew by 54% in 2003-04. Apart from this, biotechnology, insurance, banking and consulting businesses have also been growth segments driving the demand for real estate. A higher demand can be seen in the retail segment with an expected influx of clothing and lifestyle stores, restaurants and beverage chains, entertainment and leisure complexes. Apart from the huge demand, India also scores on the construction front. A Mckinsey report reveals that the average profit from construction in India is 18%, which is double the profitability for a construction project undertaken in the US.

RANKING OF CITIES BASED ON REAL ESTATE INVESTMENT TABLE 7.2 City Mumbai Bangalore Taipei New Delhi Tokyo 2004 Ranking Next 12 months 1 1 5 3 7 2003 ranking Next 3 years 1 1 3 4 5

Seoul Singapore Kuala Lumpur Bangkok Shanghai Hong Kong Jakarta Beijing Manila

13 9 10 8 12 6 4 14 11

6 7 8 9 10 11 12 13 14

16 14 12 10 8 6 4 2 0
ba ng i al or e Ta N ipe ew i D el h To i ky o Se Si o ng ul Ku a al por a e Lu m Ba pur ng k Sh ok an g H on h a i g Ko n Ja g ka rta Be ijin g M an ila Ba
2004 Ranking 2003 ranking

M um

FIGURE 7.3 7.5.1 INVESTMENTS IN REAL ESTATE REAL ESTATE FUNDS (REF) REGULATORY IMPLICATIONS Real Estate Investment Trusts (REITs) are currently non-existent in India. Over the last few years, there have been several representations by players in the real estate industry and mutual funds to permit setting-up of REITs in India and the Securities Exchange Board of India (SEBI), as a nodal agency for regulating the mutual fund and the securities markets in India. Pursuant to such representations, SEBI, in consultation with the Association of Mutual Funds of India had appointed a committee for studying the implementation of REITs in India. The committee has recommended that REITs should be implemented in India through the mutual fund schemes.

The report is still pending with SEBI. While this demand has not been met, in April 04, SEBI opened a small window for real estate investments under the venture capital fund (VCF) and foreign venture capital investor (FVCI) regime. 7.5.2 TAX IMPLICATIONS Since REFs are currently set up under the Venture Capital Fund regime, the governing provisions would be Sections 10(23FB) and 115U of the Income Tax Act (I-T Act). Accordingly, the VCF would be regarded as a pass through, that is, any income earned by a VCF would be exempt from tax in the hands of the VCF and taxed only in the hands of the investors when distributions are made by the VCF, as if the investments were made directly by investors in the VCUs 7.5.3 REAL ESTATE MUTUAL FUND INDIA may soon have a new genre of mutual funds, if the efforts uncorked by the Retailers Association of India (RAI) succeed. Estimates indicate that REFs expect to raise commitments in excess of $1bn in the future. Instead of the equity market, the proposed fund would be investing in real estate development for the retail sector. Although RAI has drafted a model for the proposed real estate mutual fund (REMF), it has a long way to go before it gets approval from the regulatory authorities. The REMF model has been structured on the lines of the Real Estate Investment Trust (REIT) of the US. The concept has been successful in the US, where there are over 300 publicly traded REITs operating with total assets of over $300 billion. Basically, REIT in the US is a company that buys, develops, manages and sells real estate assets. "We have submitted the REMF proposal to the Ministry of Commerce last week and the response has been encouraging. The Ministry will now have to take up the issue with the regulatory authorities," says Mr. Gibson Vedamani, RAI President. 7.5.4 HDFC REAL ESTATE FUND HDFC India Real Estate Fund (HI-REF) is for domestic investors and has a target corpus of Rs 750 crores with a green shoe option of Rs 250 crores. This would be a 7-year close-ended fund, which would be privately placed. The scheme would have a minimum contribution of Rs 5 crores per investor and would target banks, insurance companies, and corporate and

high net worth individuals for investment. To achieve a balanced risk-reward profile, the inaugural scheme, HI-REF will invest in three broad classes of companies 7.6 MUTUAL FUND Mutual funds originated in Belgium where in 1882, a company was started To finance investments in national industries associated with high risk under the name of sosiete generale de belgiue. A Trust that pools the savings of investors who share a common financial goal is known as a Mutual Fund. The money thus collected is then invested in financial market instruments such as shares, debentures and other securities like government paper, etc. The income earned through these investments, and the capital appreciation realized, are shared by its unit holders in proportion to the number of units owned by them. 7.6.1 FEATURES Mobilizing small savings Investment avenue Professional management Diversified Investment Better Liquidity Reduced risks Investment protection Switching facility Tax benefits Economic development 7.6.2 PRODUCTS OR SCHEMES A. OPERATIONAL CLASSIFICATION Open-Ended Scheme Close-Ended Scheme Interval Scheme

B. RETURN-BASED CLASSIFICATION Income Fund Scheme Growth Fund Scheme Conservative Fund Scheme C. INVESTMENT BASED CLASSIFICATION Equity fund scheme Bond fund schemes Balanced fund scheme Sectoral fund schemes Fund-of-fund schemes Gilt funds Tax saving schemes 7.6.3 MANAGING THE MUTUAL FUNDS A system of four tiers is used for managing the mutual funds in India, ensuring an arms length distance between the sponsor and the funds, as designed by the SEBI. A.SPONSOR Any corporate body, which initiates the launching of an m7utual fund, is referred to as the sponsor. The agency, which is expected to have a sound track record and experience in the relevant field of financial services for a minimum period of 5 years, ensures complying with the various formalities required in establishing a mutual fund. B.THE TRUSTEES Persons who hold the property of the mutual fund in trust for the benefit of the unit holders are called the trustees. Trustees look after the mutual fund, which is constituted as a trust under the provisions of the Indian Trust Act. C.THE CUSTODIANS An agency that keeps custody of the securities that are bought by the Mutual fund managers under the various schemes are called the custodians. They ensure safe custody and ready availability of scrip. D.ASSET MANAGEMENT COMPANY The investment manager of a mutual fund is technically known as the Asset Management Company, and appointed by the sponsor or the trustees. The AMC manages the affairs of the mutual fund, It is responsible for operating all the schemes of the

fund, and can act as the AMC of only one mutual fund/ Only activities who are in the nature of management and advisory services to off-shore funds, pension funds, provident funds, venture capital funds, management of insurance funds, financial consultancy and exchange of research on commercial basis can be undertaken by the AMC. 7.6.4 NET ASSET VALUE NAV is another parameter used to measure the operational efficiency of Mutual funds. The intrinsic value of a unit under a particular scheme is referred to as the NAV of the scheme. The value gives an idea of the amount that may be obtained by the unit holder on its sale to the mutual fund company. NAV of a unit is calculated as follows; NAV per unit=(TMV - CL) + SU Where; TMV=Total Market Value of investment portfolio +wdv of fixed assets+ the cost value of other current assets. CL= Current Liabilities SU=Number of outstanding units in that scheme. 7.7 SHARE MARKET In our present day economy, finance is defined as provision of money at the time it is required. Every enterprise, whether big, medium or small needs finance to carry on its operations and to achieve its targets. In fact finance is also indispensable today that it is rightly said that it is the lifeblood of an enterprise. Without adequate finance, no enterprise can possibly accomplish its objectives. Finance or Capital needed for a business can be classified as, Fixed Capital. Working Capital. Every business needs funds for two purposes to carryout its day-to-day operations. Longterm funds are required to create production facility through purchases of fixed asset such as plant, machinery, land, building, furniture, etc. Funds are required to purchase raw material, payment of wages and other day-to-day expenses, etc. These funds are known as Working Capital. The various sources for raising long-term funds include Shares, Debentures, and Ploughing back of profits and loans from Financial Institutions, etc. The short term requirement are

meet through Commercial Banks, Trade Credit, Installment Credit, Advances, Factoring, Receivable Credit, Accruals, Deferred Incomes and Commercial Papers, etc. So businesses have to mobilize funds from investors through these various sources depending upon its nature of fund required. Businesses can directly mobilize funds from investors in public, provided if it is authorized to do so by SEBI (Security Exchange Board Of India) through various available means of securities. This mobilization of funds is possible only through a strong and efficient Financial System. 7.7.1 FINANCIAL SYSTEM Financial System is a system that aims at establishing and providing a regular, smooth, efficient and effective linkage between depositors and investors is called as Financial System. A set of complex and closely connected instructions, agents, practices, markets, transactions, claims and liability relating to financial aspects of an economy may be referred to as financial system. A well-developed financial system allows for the transfer of resources from depositors to investors and thus plays a crucial role in the functioning of the economy. 7.7.2 FEATURES OF A FINANCIAL SYSTEM Providing ideal linkage between depositors and investors. To encourage savings and investments. To facilitate expansion of financial markets through time and space. To promote efficient allocation of financial resources. Determining both quality and speed of economic development. 7.7.3 CONSTITUENTS OF FINANCIAL SYSTEM Indian Financial System

Organized Sector Primary Market (New Issue Market) Secondary Market

Unorganized Sector Indigenous Money Lenders Indigenous Bankers (Stock Market)

FIGURE 7.4 A.ORGANIZED SECTOR Organized Sector is works as per the norms of all regulatory bodies like Reserve Bank Of India, Securities Exchange Board Of India, Central Government, etc. The markets under the Organized Sector are well regulated by these Institutions in order to safeguard the interests of the investors and to provide equal opportunities available to them. These regulatory authorities are responsible for the following, To regulate money supply in the country. To supervise functioning of financial institutions. To stabilize Rupee value. To regulate business dealings in Stock Exchanges. Prohibiting fraudulent and unfair trade practices. Promoting investors education. Safeguarding investors interest. Prohibiting insider trading. Regulating the activities of stockbrokers, sub-brokers, transfer agents, underwriters, etc. B.UNORGANIZED SECTOR Unorganized Sector consists of local moneylenders and Indigenous Bankers who do not come under the regulatory frame work as Organized Sector, many attempt have made to bring them under control, but it failed. They are earliest bankers in India, because the only source of finance before establishment of Commercial Banks. They are still occupying an important place in Financial System. Some communities have taken up the Indigenous Banking business as a profession, for example Chettairs in Tamilnadu and Marwaris in Mumbai.They carry on the banking business combined with other trading activities. The Indigenous Bakers have their own association, which is responsible for uniting them. They have their own code of conduct. They only provide short term and long-term loans to agriculture, trade and industry, but they charge huge rate of interest and exploit the customers to maximum extent. Now a day they have lost their importance due to the development of banking system. 7.7.4 REASONS FOR THEIR UNPOPULARITY High rate of interest. Competition from Commercial Banks.

 Spread of Co-operative movement. Statutory protection not available to them. Political consciousness and awareness among people. However, the Indigenous Bankers continue to function as an important source of finance particularly in the areas, which are not properly served, by the modern banks. Moreover their integrity, friendliness, personal touch with the customers, less and easy procedure for giving loans, immediate transaction at any time even on holidays, etc. help them to keep their hold over small borrowers in rural and developing areas 7.7.5 PRIMARY MARKET Primary Market refers to new issue market. It is concerned with the floatation and disposal of new issue of shares and debentures through the allotment to persons and organizations. Its operation includes new issue of shares by new and existing companies, right issues to existing share holders, public offers and issue of debt instruments such as debentures, bonds, etc. It deals with new securities issued to the public. It function as a direct link between the companies, which require funds, and the investing public. The new issue market has no physical existence, but intermediaries such as brokers and commercial banks, merchant bankers, underwriters, issue houses render the services. FLOATING IN PRIMARY MARKET Public Issue. Offer For Sale. Private Placement. Rights Issue. 7.7.6 SECONDARY MARKET Secondary market is a market where the securities issued in primary market are resold. Thus the growth of secondary market depends upon primary market. More the number of companies entering primary market more will be the volume of trade in secondary market. Trading in the secondary market in India is done through Recognized Stock Exchange. There are more than 21 recognized stock exchanges in India and Over The Counter Exchange Of India (OTCEI) and National Stock Exchange of India. Their operation involve buying and selling of securities on the stock exchanges through its members.

Stock Exchange is an organized market for the purchase and sale of second hand listed securities of public companies, government securities, bonds and debentures issued by municipalities and port trust. It is a place where one who wants to sell his securities may find an immediate seller; similarly one who wants to buy some securities may find a seller at fair and reasonable price. Stock Exchanges are the institutions organized for providing necessary facilities to carryon trading or dealings in securities. 7.7.7 CHARACTERISTICS OF A STOCK EXCHANGE The essential features of stock exchanges are, Voluntary Association. Control by Government body. Strict Rules and Regulations. Listed securities. Protecting investors interest.

7.7.8 REGULATORY BODY A.SECURITIES EXCHANGE OF INDIA (SEBI) Securities Exchange Of India (SEBI) regulates the stock exchanges in India. SEBI was set up as an administrative body in Aril 1998. It was given statutory status on 30-12-92 by passing SEBI ordinance in parliament. B.FEATURES OF SEBI It is a body corporate with perpetual succession and common seal. The Chairman and five members of the board are appointed by the Central Government. Primary duty is to protect investors interest, to promote and regulate trade. Financed by Central Government. C.OBJECTIVES OF SEBI To promote fair dealings. To protect investors and safeguard their rights and interest. To ensure and to develop a code of conduct and fair practices. CITY WISE DISTRIBUTION OF TURNOVER

Table 7.3 City MUMBAI DELHI KOLKATA AHMEDABAD CHENNAI Others Feb 2005 46 19 11 3 3.5 16.5 Jan 2005 46 20 12 3 3 16 Dec 2004 44 19 13 3 3 18 Nov 2004 45 20 12.5 3 3 16.5 Oct 2004 44 20 12 3 2.5 18.5 Sep 2004 42 22 13 3 3 17

100% 80% 60% 40% 20% 0% Feb.

Mumbai Delhi

Jan.
Kolkatta

Dec.

Nov.

Oct.
Ahmedabad

Sep.
Others

Chennai

SOURCE www.nsc.com FIGURE 7.5 INFERENCES Mumbai holds major share in total turnover in stock exchange. It nearly holds 44% on an average of the total turnover. Delhi and Kolkata follow it at 20% and 12.5% on an average. Chennai holds 3% on an average of the total turnover.

ANALYSIS OF DATA COLLECTED 1) RESPONDENTS MADE DEPOSITS IN BANK TABLE 7.4 DEPOSITS IN BANK Yes No NO. OF RESPONSES 91 9

INFERENCES This table shows the respondents preferences for Bank Deposits. Even though the interest rates are very low people prefer Bank Deposits. Nearly 91% of respondents were invested in Banks. People prefer bank deposits for many reasons such as liquidity, Internet banking, credits, payment of bills, money transfer, etc., which are all absent in other form of investment.

% of Responses

100 80 60 40 20 0 Yes
Yes FIGURE 7.6 1) a) TYPE OF BANK DEPOSIT TABLE 7.5 KIND OF DEPOSIT Recurring Deposit Savings Deposit Fixed Deposit NO. OF RESPONSES 21 52 27

No
No

INFERENCES Very less amount of investors preferred Fixed Deposits, because the liquidity is limited by the term of deposit. This table explains the kind of deposits made by people in Banks. Majority of them are using Savings Bank A/C, even the interest rates are less. Only 21% of respondents invested in Recurring Deposit, which shows that investors are not interested in it.

% of Responses

Recurring Deposit Fixed Deposit

FIGURE 7.7

Savings Deposit

b) RESPONDENTS PREFERENCES ON BANK DEPOSITS TABLE 7.6 REASONS FOR DEPOSIT Safety Liquidity Profitability NO. OF RESPONSES 47 32 21

INFERENCES Majority of people prefers Bank Deposits for Safety in terms of their principal as well as for interest. Only Savings A/C provides the investors with easy liquidity through direct withdrawal or through credit cards, by issuing cheques, drafts, pays orders, etc. Only a mere percentage of respondents have said Bank Deposits are Profitable, who are conservative in approach and not interested in taking risk. For these people Bank Deposits remain the only risk-free Investment Avenue.

% of Respondents

50 40 30 20 10 0 Safety Liqudity
FIGURE 7.8 2) RESPONDENTS MADE DEPOSITS IN POSB TABLE 7.7 DEPOSITS IN POSB Yes No NO. OF RESPONSES 39 61

Profitability

INFERENCES Due decrease in percentage of interest payable to depositors, people hesitate to invest in POSB. Spread of modern public and private banks attracts depositors than Post Offices. Post Offices deposits do not have immediate liquidity. Since Post Offices operate inside the country, so it failed to transfer money and other services to foreign countries. Nearly half of the respondents have not invested in POSB.

70 60 50 40 30 20 10 0 Yes

% of Respondents

No
FIGURE 7.9

2) a) REASONS FOR DEPOSIT IN POSB TABLE 7.8 REASONS FOR DEPOSIT Monthly Returns Higher % of Returns Flexibility NO. OF RESPONSES 25 60 15

INFERENCES When compared the banks fixed deposits Post Office deposits fetch more percentage of interest. Post offices provide monthly returns to depositors, which are very useful to retired people who deposit their gratuity and pension amount and earn monthly interest income.

% of Respondents

Mothly Returns

Higher % of Returns
Figure 7.10

Flexibility

3) RESPONDENTS MADE INVESTMENTS IN GOLD AND SILVER TABLE 7.9 INVESTMENT IN GOLD AND SILVER IS PROFITABLE Yes No NO. OF RESPONSES 85 15

INFERENCES Nearly 85% of respondents said that investment in Gold and Silver is Profitable. The question of Investment made or not does not arise, because Indians generally have craze to gold. Some respondents have also said investment is not profitable.

% of Respondents
90 80 70 60 50 40 30 20 10 0 Yes
Yes
FIGURE 7.11 3) a) NECESSITY OF PURCHASE OF GOLD AND SILVER TABLE 7.10 NECESSITY OF PURCHASE Randomly Anniversaries Weddings NO. OF RESPONDENTS 32 34 34

No
No

INFERENCES This table shows responses of gold and silver only, because investors are not aware of various instruments in Bullion Market such Futures, Coins and Bars, Warrants, Gold Certificates, etc. Though Indians are fond of gold and silver majority of them are not interested in them. Only 32% of them purchase Gold randomly.

 Majority of people buy gold for Anniversaries and Weddings.

% of Respondents

Weddings

Anniversaries

Randomly

31

31.5

32

32.5

33

33.5

34

% of Respondents
Figure 7.12 3) b) RESPONDENTS ACCEPTED AS ALTERNATE AVENUE TABLE 7.11 ACCEPTANCE AS ALTERNATE AVENUE Yes No NO. OF RESPONDENTS 61 39

INFERENCES Respondents are explained about various instruments in Bullion Market after which respondents accepted it as an Alternate Avenue. Though respondents are explained, but some of them do not accept it as an alternate avenue.

% of Respondents
70 60 50 40 30 20 10 0 Yes No

FIGURE 7.13 4) RESPONDENTS MADE INVESTMENTS IN INSURANCE TABLE 7.12 INVESTMENTS IN INSURANCE Yes No NO.OF RESPONDENTS 73 27

INFERENCES This table shows investors preferences of Life Insurance only. This table shows how important the insurance is. Many respondents agreed insurance as an important investment avenue. Nearly 73% of respondents have taken Life Insurance Policy. Remaining respondents have not taken insurance, reasons being not interested, policy already elapsed, old aged, etc.

% of Respondents
80 70 60 50 40 30 20 10 0 Yes No

Yes
FIGURE 7.14

No

4) a) INVESTMENT IN DIFFERENT INSURANCE COMPANIES TABLE 7.13 INSURANCE COMPANIES LIC ICICI SBI Others RESPONSES 80 12 4 4

INFERENCES This table shows the share of insurance companies. LIC retains the biggest insurance company in India. ICICI catches the second place in people preference. Others include ANP Sanmar, MetLife, etc.

Responses

Others SBI ICICI LIC 0

LIC

20
ICICI

40
FIGURE 7.15

60 SBI

80
Others

100

4) b) INVESTMENT IN VARIOUS INSURANCE SCHEMES TABLE 7.14 Schemes Whole Life Policy Endowment Policy Money Back Policy NO. OF RESPONSES 33 29 38

INFERENCES This table shows people prefer Money Back Policy than other schemes.

40 35 30 25 20 15 10 5 0 Whole Life Policy Endow ment Policy Money Back Policy

Whole Life Policy

Endowment Policy

Money Back Policy

FIGURE 7.16 4) c) REASONS FOR INVESTMENT IN INSURANCE TABLE 7.15 REASONS Life Cover Tax Benefits Future Contingencies NO. OF RESPONSES 40 28 32

INFERENCES People responded equally that insurance are important for Future contingencies and Life cover. Only 28% of respondents voted for Tax benefits.

% of Responses

Life Cover

Tax Benefits
FIGURE 7.17

Future Contigencies

4) d) ACCORDING TO RESPONDENTS INSURANCE ARE, TABLE 7.16 INSURANCE ARE Very Important Important Less Important NO.OF RESPONSES 31 56 13

INFERENCES Respondents are asked to rank Insurance. Majority of respondents replied it required. Only 31% of respondents replied it is badly needed.

60 50 40 30 20 10 0 Very Important Important

% of Responses

Less Important

FIGURE 7.18 5) RESPONDENTS MADE INVESTMENT IN MUTUAL FUND TABLE 7.17 INVESTMENT IN MUTUAL FUND Yes No NO. OF RESPONSES 20 80

INFERENCES This table shows Percentage of respondents who have made investment in Mutual Fund. Only 20% respondent that they have invested in Mutual Fund.

90 80 70 60 50 40 30 20 10 0 Yes

% of Responses
FIGURE 7.19

No

5) a) RESPONDENTS WHO KNOW THE MUTUAL FUND CONCEPT TABLE 7.18 INVESTMENT IN MUTUAL FUND Yes No no. of Responses 61 39

INFERENCES Nearly 60% of respondents who know the concept of Mutual Fund. But the percentage of respondents who invested in Mutual Fund is very less.

70 60 50 40 30 20 10 0

% of Responses

Yes
Yes
FIGURE 7.20

No
No

5) b) RESPONDENTS REASONS FOR INVESTMENT IN MUTUAL FUND TABLE 7.19 REASONS More % of Returns Diversified Risk Benefits of Share Market Tax Benefits no. of Responses 36 9 36 19

INFERENCES Majority of respondents voted for more percentage of returns, since share market was on peak during the survey was taken, so they assumed that they might get good returns.

 36% of respondents said the reason is for the benefits of share market, i.e. if share market performs well then mutual fund will also perform well. Less percentage of respondents opted for diversified risk.

More % of Returns Benefits of Share Market

FIGURE 7.21

Diversified Risk Tax Benefits

6) RESPONDENTS MADE INVESTMENT IN SHARE MARKET TABLE 7.20 INVESTMENT IN SHARE MARKET Yes No INFERENCES Since respondents are Chennai based who are not well educated about stock markets. So only a hand full of respondents have invested in capital markets. Reason for less investment in stock market is because Chennai stands fifth in total stock turnover, whereas Mumbai stands first in turnover. More percentage of respondents is aware of the market situations but they have not made investment. NO. OF RESPONSES 36 64

Yes
FIGURE 7.22

No

6) a) INVESTMENT MADE BY RESPONDENTS IN VARIOUS SECURITIES TABLE 7.21 SECURITIES Shares Debentures Commercial Papers & Others NO. OF RESPONSES 67 22 11

INFERENCES 67% of respondents have made investment in shares. Equity shares are profitable if it is held for long term; even if it is sold it is profitable. Only 22% of respondents have invested in debt market instruments. Debt market instruments are better than bank deposits since the interest are tax-free.

70 60 50 40 30 20 10 0
Shares Shares Debentures Debentures Commercial Papers & Commercial Papers &Others Others

FIGURE 7.23 6) b) BENEFITS OF SHARE MARKET TABLE 7.22 BENEFITS Higher % of Returns Transferability Tax Benefits Easy Exit NO. OF RESPONSES 39 30 8 22

INFERENCES As it is pointed earlier that share market offers more percentage of returns to investors, so many of them voted for it. 30% of respondents said that easy transferability is the important benefit of share market, wherein bank deposits it is impossible for realizing the money invested immediately. Only 8% of respondents voted for Tax Benefits.

 At last 22% voted for Easy exit i.e. liquidity of the investment.

40 35 30 25 20 15 10 5 0
Higher % of Returns Transferability Tax Benefits Easy Exit

Higher % of Returns

Transferability
FIGURE 7.24

Tax Benefits

Easy Exit

6) c) RESPONDENTS OPINION ABOUT SHARE MARKET TABLE 7.23 OPINION More Profitability Unpredictable Less Profitable & High Risk NO. OF RESPONSES 20 69 11

INFERENCES Majority of respondents said that share market is unpredictable, because of speculative nature of the investors. Capital markets have high risk when compared to other avenues. More profitability was choosed by only 20% of investors.

70 60 50 40 30 20 10 0 More Profitability More Profitability Unpredictable Unpredictable

FIGURE 7.25

Less Profitable & High Risk Less Profitable & High Risk

STATISTICAL ANALYSIS 1.CHI-SQARE TEST

AIM : To find that there is any association between the kind of bank deposit and the type of employment. NULL HYPOTHESIS H0 states that there is no association between the kind of bank deposit and the type of employment of the respondent. ALTERNATE HUPOTHESIS H1 states that there is association between the kind of bank deposit and the type of employment of the respondent, at 0.05 significance level. TABLE 7.24 Bank Deposits Kind of Employment Self-employed Employed Retired Total CHI-SQUARE Recurring Deposit 11 7 5 23 Savings Deposit 11 30 5 46 Fixed Deposit 6 13 5 24 NonRespondents 2 4 1 7 Total 30 54 16 100

= TOTAL (O-E)2 /E = 11.2861

Critical value of Chi-square at 0.05 significance level (df = 6) = 12.592 Since the Tabulated value greater than Calculated value so Accept the hypothesis. INFERENCE There is no association between the kind of bank deposit and the type of employment of the respondent.

2.ONE-WAY ANOVA AIM : To find that there is any association between the Qualification of the respondents and ranking made by them. NULL HYPOTHESIS H0 states that there is no association between the Qualification of the respondents and ranking made by them. ALTERNATE HYPOTHESIS

H1 states that there is association between the between the Qualification of the respondents and ranking made by them, at 0.05 significance level. TABLE 7.25 POSB Higher secondary Graduate Post graduate Professional Total Bank Deposits 2 12 11 4 29 Gold& Silver 1 3 3 2 9 Ins. R.E M.F S.M

4 1 2 1 8

4 4 4 3 15

2 4 2 3 11

2 6 5 3 16

2 3 5 2 12

STEP 1 : Total number of observations n = 28. Total number of Samples T = 100. STEP 2 : Correlation Factor = T2/n =(100)2/28. = 357.14

STEP 3 : Total sum of squares (SST): TABLE 7.26 POSB Higher secondary Graduate Bank Deposits 4 144 Gold& Silver 1 9 Ins. R.E M.F S.M

16 1

16 16

4 16

4 36

4 9

Post graduate Professional Total

4 1 22

121 16 285

9 4 23

16 9 57

4 9 33

25 9 74

25 4 42

SST

= x12 + x22 +x32 - T2/n. = 22+285+23+57+33+74+42 357.14 = 536 357.14 = 178.86

STEP 4 : Column sum of squares (SSC) SSC = (x1)2 /n+ (x2)2 /n+(x3)2 /n+- T2/n. = 433 357.14 = 75.86 STEP 5 : Sum of squares within column (SSE) SSE = SST SSC = 178.86 75.86 = 103.

STEP 6 : ANOVA TABLE TABLE 7.27 SOURCE OF VARIANCE Between Samples Within samples F = SUM OF SQUARES 75.86 103 Variance Between Samples Variance Within Samples DEGREE OF FREEDOM c-1 7-1=6 n-c 28-7=21 VARIANCE 12.64 4.9

= 12.64/4.9 =2.58 Calculated value of F = 2.58

Tabulated value of F = 2.57 Since the tabulated value is less than calculated value so reject null hypothesis. INFERENCE There is association between the Qualification of the respondents and ranking made by them.

3.TWO-WAY ANOVA AIM : To find that there is any association between the age of an investor and investment decision. NULL HYPOTHESIS H0 states that there is no association between the age of an investor and investment decision. ALTERNATE HYPOTHESIS H1 states that there is no association between the age of an investor and investment decision, at 0.05 significance level. TABLE 7.28 Age POSB Bank Deposits 4 Gold& Silver 1 Ins. R.E M.F S.M Total

< 20 yrs. 21 yrs.40 yrs

11

17

50

< 40 yrs.

10

39

Total

29

15

11

16

12

100

STEP 1 : Total number of observations n = 21. Total number of Samples T = 100. STEP 2 : Correlation Factor = T2/n =(100)2/21. = 476.19 STEP 3 : Total sum of squares (SST) TABLE 7.29 Age P OS B < 20 yrs. 21 yrs.- 40 yrs < 40 yrs. Total SST 0 16 16 32 Bank Deposits 16 289 64 369 Gold& Silver 1 25 9 35 Ins. R.E M.F S.M

4 64 25 93

4 25 16 45

1 25 100 126

1 36 25 62

= x12 + x22 +x32 - T2/n. = 32+369+35+93+45+126+62 476.19 = 762 476.19 = 285.81

STEP 4 : Column sum of squares (SSC) SSC = (x1)2 /n+ (x2)2 /n+(x3)2 /n+- T2/n. = 247.41- 476.19 = - 228.78

STEP 5 : Row sum of squares (SSR) SSC = (Y1)2 /n+ (Y2)2 /n+(Y3)2 /n+- T2/n. = 1380.66 476.19 = 904.47 STEP 5 : Sum of squares Errors (SSE) SSE = SST SSC - SSR = 285.81 +228.78 904.47 = - 389.88. STEP 6 : ANOVA TABLE TABLE 7.30 SOURCE OF VARIANCE Between Column Between Rows Error SUM OF SQUARES - 228.78 904.47 - 389.88 DEGREE OF FREEDOM c-1 7-1=6 r-1 3-1=2 n-c-r+1 21-7-3+1 = 12 MEASURES OF SQUARE - 38.13 452.235 - 32.49 VARIANCE 1.73 13.91

Calculated value of Fc = 1.173 Fr = 13.91 Tabulated value of F(6,12) = 3.00 F(12,2) =19.4 INFERENCE There is association between the age of an investor and investment decision.

4.CHI-SQARE TEST AIM : To find that there is any association between the income of respondents with the investment avenue. NULL HYPOTHESIS H0 states that there is no association between the incomes of respondents with the investment avenue. ALTERNATE HUPOTHESIS H1 states that there is association between the incomes of respondents with the investment avenue, at 0.05 significance level. TABLE 7.31 Income P OS B < Rs.50000 Rs.50001 Rs. 10000 < Rs.10000 Total CHI-SQUARE 3 5 1 9 Bank Deposits Gold& Silver

Ins.

R.E

M.F

S.M

Total

12 13 3 28

4 3 2 9

3 9 3 15

2 6 3 11

7 3 6 16

3 4 5 12

34 43 23 100

= TOTAL (O-E)2 /E

Calculated value (df = 18) = 15.5201 Critical value of Chi-square at 0.05 significance level = 28.869 Since the Tabulated value is greater than Calculated value so accept the null hypothesis. INFERENCE There is no association between the incomes of respondents with the investment avenue. 8. FINDINGS This project proved to be a useful tool for a prospective investor. Before taking investment decision an investor must consider the following issues. 8.1 POST OFFICES SAVINGS BANK A/C

 Post offices are loosing their share as an investment avenue in the minds of investor. Inadequacy of new and attractive deposit schemes. Very bad treatment of customers/investors. Interest rates payable to investors are diminishing. Modernizations and new technological adoptability is very less. 8.2 BANK DEPOSITS Bank deposits still remains a major investor attraction, because of its convenient, safety, liquidity, etc. Banks due to its wide spread and it reaches to investor. It continuously increases deposits with its sales force; special offers and credit cards are issued to attract investors. Liquidity, money transfer through cheques, drafts, etc were the main reason for its popularity. Investors prefer savings a/c rather fixed deposits, which will fetch more percentage of interest. 8.3 BULLION MARKET Still people are not aware of the various instruments available in bullion market. Investment in Gold and silver are increasing. Investors must be educated regarding the instruments such as Warrants, Futures, Gold Certificates, Gold Accumulation Plans, Gold Oriented Funds, etc. Whereas bullion markets are well developed in western countries. In India investment in bullion market has not picked up, government has not taken any steps to improve it. Recently, Central Government has permitted to issue Gold Oriented Funds. 8.4 INSURANCE More percentage of the samples has invested in insurance, which shows the importance for insurance. LIC holds majority of shares among the samples followed by ICICI Prudential. Only basic products are sold but investors continuously forbade products such as Annuity, Pension Plans, and Med claim.

 Insurance only reached some people, but huge amount of people have to be covered, only 22% of total population is insured. Rural areas still remain untapped. Huge potential exits for Life Assurance and General Insurance in these regions. 8.5 REAL ESTATE India because of its it-boom became hottest destinations for foreign companies. Retail Real estate market is growing at high speed than other countries. People do not treat real estate as an investment avenue. They invest only when they required or if they have sufficient funds. Existence of unpopular Real Estate Mutual Fund. Absence of any stimulation or acceleration from government to improve Real Estate Fund. Income Deductions are available as in other type of investment avenues. 8.6 MUTUAL FUND Mutual Funds provide protection to investors interest, which is not available in capital market investments. Diversified risks, since investments are made in different securities having varied risk-return patterns. Availability of tax deductions for investors. After privatization market for mutual funds have increased. Only big Financial Institutions are successful in launching mutual funds. Efficient Management of Portfolio by Mutual Fund Managers. Supervisory and regulatory framework provided by SEBI. 8.7 SHARE MARKET Indian stock exchanges are in its peak; Sensex reached 6900 Plus in March, which shows a favorable condition for investment. Strong and well protected framework provided by SEBI and Reserve Bank Of India. Mumbai leads the country in stock exchange turnover. Chennai is in fifth place. Investors in India are speculative in nature.

 Rumors and misleading statements dominates investment decision. Availability of tax benefits.

9. SUGGESTIONS The following points are suggested with regard to improvements in investment avenues. These points are useful to an investor to safeguard his interests and can reap maximum benefits out of his investment. Suggestions are given with regard to each investment avenue. 9.1 POST OFFICE SAVINGS BANK A/C Technological and modernization of post offices has to be made to improve deposits. Customer-oriented approach and employee morale has to be improved. New and attractive schemes have to be introduced to improve deposits. Government must take steps to stabilize interest rates. 9.2 BANK DEPOSITS Investors must select banks that render good services at affordable cost. Investors must be aware of all services that suit his requirements. Due to liberalization and globalization foreign banks came in with new technology and latest services, so investors must use these services to improve his standard of life. 9.3 BULLION MARKET Investors must understand that mere investment in Gold and Silver Jewellery will not be profitable. Investments must be made in bullion market instruments. Investor must try to know the various instruments available in bullion market. Government and its associates must improve investors education regarding various instruments and risk patterns. Government should permit financial institutions to issue various bullion market instruments. 9.4 INSURANCE

 Due to privatization, the number of Life Assurance companies has increased to 14, General Insurance companies Increased to 7. Government must instruct insurance companies to concentrate on rural and backward areas in the country. Investors must analyze the various insurance products before selecting and investing in particular scheme. Insurance agents must educate, explain the policies in insurance that matches their requirement. 9.5 REAL ESTATE Real estate investment inherits high risk; if the authority concerned does not approve the particular plot, so an investor must be careful in investing. Government must improve investment options in real estate, such as Real Estate Mutual Fund. Educating investors regarding real estate instruments. 9.6 MUTUAL FUND Although investors risk are reduced in mutual fund, when compared to stock market investment where investors must be very careful in investing. Investor must look for the capabilities of, Sponsors Fund Managers Trustees Asset Management Company, etc.

Investors must be careful in selecting the kind of fund, such as Equity, Bond, Tax, Monthly return funds, etc., depending upon his needs. Rules and regulations are carefully laid down by SEBI and Reserve Bank Of India to safe guard the interest of the investor. 9.7 SHARE MARKET Investors risks reach highest point in this investment avenue. He must be very careful in investing. The investor must analyze the company through Fundamental and Technical analyzing tools.

 SEBI and its associates must promote investors education and training. Rumors and misleading opinions are to be controlled. A prospective investor must not care to those gossips; he must rely only on the facts available to him.

10. CONCLUSION This project and training was very helpful in developing my skills. It is very interesting to know that even with good, guaranteed rate of returns from mutual fund and share market, investors hesitate to invest in them, similarly bank deposit remain the preferred avenue, both investment in gold and silver are also preferred by investors. This project work provides me with great satisfaction as it enabled me to apply some of the theoretical methods and tools to practical situations successfully.

11. APPENDICES 11.1 FORMAT OF QUESTIONNAIRE A SURVEY ON INVESTOR PREFERENCES ON VARIOUS INVESTMENT AVENUES PART I 1. Name: 2. Address: 3.Age group: a) Below 20 yrs. 4. Qualification: a) Higher Secondary d) Professional. 5. Occupation: a) Employed b) Self Employed c) Retired. b) Graduate c) Post Graduate b) 21 yrs. 41 yrs. c) 41 yrs. and Above.

6. Your Monthly income: a) Below Rs. 5000. Above 7. Your monthly expenditure: a) Below Rs. 4000. 8. Your monthly cash savings: a) Rs.500 1000. b) Rs. 1000 Rs. 3000. c) Rs. 3000 and Above. b) Rs. 4000 Rs. 6000. c) Rs. 6000 and Above. b) Rs. 5001 Rs. 10,000. c) Rs. 10,001 and

PART II A) POST OFFICE SAVINGS BANK A/C. a) Yes If yes, A.1.i. In which deposit scheme? . A.1.ii.Why do you prefer POSB and not others? a) Monthly Returns a) Very Convenient. B. BANK DEPOSITS. B.1.Have you made deposits in bank deposits? a) Yes If yes, B.1.i.In, which deposit scheme? a) Recurring deposit. b) Savings Deposit B.1.ii. Your reasons for deposit in bank deposit. a) Safety a) Highly profitable. C. BULLION MARKET C.1. Have you made investment in Bullion market? a) Yes b) No. b) Liquidity. b) Profitable. c) Transferability. c) Less profitable. B.1.iii.How will you rate bank deposits with others? c) Fixed deposit. b) No. b) Higher % of returns b) Convenient. c) Flexibility. c) Not Convenient. A.1.iii.According to POSB Deposits are b) No. A.1. Have you made deposits in post office savings bank a/c?

C.2. Are you aware of the instruments of Bullion market? a) Yes a) Randomly. b) No. b) Anniversaries. c) Weddings. C.3. Specify the necessity/occasions for which you purchase gold and silver?

C.4. Do you accept investment in bullion market as an alternate avenue? a) Yes D. INSURANCE D.1. Have you made Investments in insurance? a) Yes If yes, D.1.i. In which insurance company? a) LIC. b) ICICI Prudential. c) Others D.1.ii. What is the total amount on insurance for a year? a) Less than Rs. 3000. b) More than Rs. 3000. D.1.iii. In which insurance scheme you have invested? a) Whole life policy a) Yes a) Life covers a) Very Important E. MUTUAL FUND. E.1.Do you know the concept of mutual fund? a) Yes a) Yes b) No. b) No. E.2. Have you made Investments in mutual fund? b) Endowment policy c) Money back policy b) No. b) Tax benefits. b) Important c) Future Contingencies. c) Not so Important. D.1.iv.Are you covered by more than one policy? D.1.v.Your reasons for investment in insurance? D.2.Your opinion about insurance is, b) No. b) No.

If yes, E.2.i.In which Mutual fund company?

a) UTI. d) Others E.2.ii.In, which Scheme? a) Equity fund. d) Others

b) LIC

c) SBI

b) Bond fund.

c) Tax Savings fund.

E.2.iii.Reasons for investment in mutual fund? a) Good rate of returns. b) Less risks. c) Benefit of share market. d) Tax benefits. E.3. According to mutual fund investments are, a) More riskier. F. SHARE MARKET. F.1. Have you made Investments in Stock market? a) Yes If yes, F.1.i. In, which markets instrument you made your investment? a) Capital market. a) Primary market a) Shares. a) Higher &quick returns d) Easy exit. F.3.Your opinion about share market movements is, a) Easy Predictable b) Predictable c) Unpredictable. b) Money market. b) Secondary market. b) Debentures. b) Transferability. c) Others. c) Tax benefits. F.1.ii.In, which market you, made your investment? F.1.iii.In what instruments you made investment? F.2.Give reasons for investment in share market? b) No. b) Riskier c) Less riskier

G. RANK THE FOLLOWING INVESTMENT AVENUES. a. Post office savings a/c b. Bank deposits c. Bullion market d. Insurance e. Real estate -

f. Mutual fund g. Share market

12. REFERENCES

12.1 BOOKS a) C.R Kothari, Research Methodology, Methods and Techniques, second edition pages 6974, 117, 124, 131. b) Dr.S. Guruswamy, Financial Services and System, pages 137, 268. c) M.Y.Khan, Financial Services, pages 11.1-11.12, d) Desai & Rao, The Economics Of Developing and Planning 12.2 WEBSITES a) www.indiapost.org b) www.irdaindia.com c) www.sebi.gov.in d) www.licindia.com e) www.realindia.com f) www.rbi.com