Sie sind auf Seite 1von 54


A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. A broad group of securities or investments that tend to react similarly in different market conditions. Individual asset classes are also generally governed by the same rules and regulations. There are three basic asset classes: equity securities (stocks), fixed-income securities (bonds), and cash equivalents (money market vehicles). Real estate, commodities , private equity are also considered asset classes by some. This asset called alternative asset classes Bonds, equities, property and cash are all asset classes and the way you spread your money between asset classes is your asset allocation. A risky asset allocation consists mainly of shares and a conservative allocation consists of more bonds, property and cash. Whatever the asset class lineup, each one is expected to reflect different risk and return investment characteristics, and will perform differently in any given market environment. Asset classes and asset class categories are often mixed together. In other words, describing large-cap stocks or short-term bonds asset classes is incorrect. These investment vehicles are asset class categories, and are used for diversification purposes

1.1 Meaning To explore this question we must first break down what is an asset and then what are classes of such assets. Sullivan provides a good definition of assets as being " assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simply stated, assets represent value of ownership that can be converted into cash (although cash itself is also considered an asset). 1.2 Definition A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. Whatever the asset class lineup, each one is expected to reflect different risk and return investment characteristics, and will perform differently in any given market environment. Similarly The Free Dictionary defines it as "Different types of investments that behave similarly and are subject to most of the same market forces". As such the common definition as to what makes an asset class is whether a group of assets have the same or similar characteristics, behavioral patterns, laws and regulations. According to Magin, Tuttle, Mc Leavey and Pinto (2007) the criteria for specifying asset classes are

Assets within an Asset Class should be homogenous. Asset Classes should be mutually exclusive. Asset Classes should be diversifying. All Asset Classes as a group should make up a significant fraction of all investor's wealth. The Asset Class should have the capacity to absorb a significant fraction of the investor's wealth

1.3 There are three main asset classes.

Equities Bonds (also referred to as fixed income) Cash

Each asset class has different investment characteristics, for example, the level of risk and potential for delivering returns and performance in different market conditions:

Equities Equities (also known as ordinary shares or shares) are issued by a public limited company, and are traded on the stock market. When you invest in equity, you buy a share in a company, and become a shareholder. Equities have the potential to make you money in two ways: 1. you can receive capital growth through increases in the share price, or you can receive income in the form of dividends. 2. Neither of these is guaranteed and there is always the risk that the share price will fall below the level at which you invested. Bonds Bonds also referred to as fixed income securities, are issued by companies and governments as a way of raising money and are effectively an I.O.U. Bonds provide a regular stream of income (which is normally a fixed amount) over a specified period of time, and promise to return investors their capital on a set date in the future. Once bonds have been issued, theyre bought and sold between investors without the involvement of the issuer. Bonds are generally considered to offer stable returns, and to be lower risk than equities and hence deliver lower returns than equities. Cash Cash tends to be held within a bank account where interest can be gained. Alternatively, cash funds use their market power to get better rates of return on deposits than you would get in an ordinary bank account. They often invest in very short-term bonds known as money market instruments, which are essentially banks lending money to each other. In addition, cash funds can provide exposure to global currencies, which may not be easy to purchase on the open market and could be costly transactions. The bottom line is that any investor can construct a highly diversified portfolio from these asset classes.

CHAP.2. ALTERNATIVE INVESTMENT An investment that is not one of the three traditional asset types (stocks, bonds and cash). Most alternative investment assets are held by institutional investors or accredited, high-networth individuals because of their complex nature, limited regulations and relative lack of liquidity. Many alternative investments also have high minimum investments and fee structures compared to mutual funds and ETFs. While they are subject to less regulation, they also have less opportunity to publish verifiable performance data and advertise to potential investors. Alternative investments are favored mainly because their returns have a low correlation with those of standard asset classes. As volatile as the stock market can be, many investors have been looking into safer ways to invest their money. So, "alternative investments" have become increasingly popular. An alternative investment is any investment other than the three traditional asset classes: stocks, bonds and cash. But alternative investments don't take the place of those more traditional assets. Alternative investments include real estate commodities and private equity

2.1 characteristics of alternative investment Low correlation with traditional financial investments such as stocks &shares It may be difficult to determine the current market value of the asset Alternative investments may be relatively illiquid Costs of purchase and sale may be relatively high

2.2 How to diversify the risk in asset classes? By investing in more than one asset class you can diversify your investments and reduce your risk. Below is a short description for each asset class, an indication of the risk and potential return for each asset and a minimum suggested timeframe.*

Growth assets are designed to grow your investment. They include investments such as shares, alternative investments and property. They tend to carry higher levels of risk, yet have the potential to deliver higher returns over longer investment time frames. In general, growth assets are expected to provide returns in the form of capital growth. For example, as a shareholder, you may receive income in the form of a dividend on the shares you own. However, the majority of the return usually comes from changes in the value of the company over time, as determined by its share price. This increase or decrease in a companys value is known as capital growth or capital loss. The frequent changes in a companys value are known as volatility.

Referred to as Growth assets (focus on capital growth and income) PROPERTY SECURITY EQUITY(SHARES)

Risk and potential return:

Risk and potential return:

Minimum suggested timeframe: 3 -5 years

Minimum suggested timeframe: 5-6 years

DEFENSIVE ASSETS Defensive assets include investments such as cash and fixed interest. They tend to carry lower risk levels and, therefore, are more likely to generate lower levels of return over the long term. Referred to as Defensive assets (focus on generating income only) CASH FIXED INTEREST(BOND)

Risk and potential return:

Risk and potential return:

Minimum suggested timeframe: No minimum

Minimum suggested timeframe: 1-3 years

Generally, defensive assets are expected to provide returns in the form of income. Asset classes have particular risk and return characteristics. Growth assets generally higher risk with higher return potential Defensive assets generally lower risk with lower return potential

2.4 MANAGING INVESTMENT RISK WITH ASSET CLASSES DIVERCIFICATION One of the best ways of managing investment risk is through diversification. This is the strategy of investing your money across a range of different asset classes to reduce risk. The more ways you diversify, the more you can reduce your Risk. For example, you can invest: Across different asset classes In more than one investment within each asset class (eg invest in several different industries and companies when investing in shares) In more than one type of fund, and more than one fund manager, when investing in managed funds. EX .If you invest in just one asset class and its value falls, the value of your investment will drop with it. However, by investing in several asset classes, you spread your risk and can offset underperformance in one asset class with positive performance in another. This could help you achieve smoother, more consistent returns over time. Each asset class has its good and bad times, so while a diversified portfolio will never achieve the top return in any given year, it will never receive the lowest either.

1. MONEY MARKET INSTRUMENTS As money became a commodity, the money market became a component of the financial markets for assets involved in short-term borrowing, lending, buying and selling with original maturities of one year or less. Trading in the money markets is done over the counter and is wholesale. Various instruments exist, such as Treasury bills, commercial paper, bankers' acceptances, certificates of deposit, bills of exchange, repurchase agreements, federal funds, and short-lived mortgage-, and securities. It provides liquidity funding for the global financial system. Money markets and capital markets are parts of financial markets. The instruments bear differing maturities, currencies, credit risks, and structure. Therefore they may be used distribute the exposure. FUNCTION OF MONEY MARKET

Transfer of large sums of money Transfer from parties with surplus funds to parties with a deficit Allow governments to raise funds Help to implement monetary policy Determine short-term interest rates

ROLE OF RESERVE BANK OF INDIA The Reserve Bank of India (RBI) plays a key role of regulator and controller of money market. The intervention of RBI is varied curbing crisis situations by reducing key policy rates or curbing inflationary situations by rising key policy rates such as Repo, Reverse Repo, CRR etc. MONEY MARKET INSTRUMENT Money Market Instruments provide the tools by which one can operate in the money market. Money market instrument meets short term requirements of the borrowers and provides liquidity to the lenders. The most common money market instruments are Treasury Bills Certificate of Deposits Commercial Papers Repurchase Agreements Bankers Acceptance.


A certificate of deposit (CD) is a time deposit, a financial product commonly offered to consumers in the United States by banks, thrift institutions, and credit unions. CDs are similar to savings accounts in that they are insured and thus virtually risk free; they are "money in the bank". CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for banks and by the National Credit Union Administration (NCUA) for credit unions. They are different from savings accounts in that the CD has a specific, fixed term (often monthly, three months, six months, or one to five years), and, usually, a fixed interest rate. It is intended that the CD be held until maturity, at which time the money may be withdrawn together with the accrued interest. In exchange for keeping the money on deposit for the agreed-on term, institutions usually grant higher interest rates than they do on accounts from which money may be withdrawn on demand, although this may not be the case in an inverted yield curve situation. Fixed rates are common, but some institutions offer CDs with various forms of variable rates. For example, in mid-2004, interest rates were expected to rise, many banks and credit unions began to offer CDs with a "bump-up" feature. These allow for a single readjustment of the interest rate, at a time of the consumer's choosing, during the term of the CD. Sometimes, CDs that are indexed to the stock market, the bond market, or other indices are introduced. II. COMMERCIAL PAPER

.In the global money market, commercial paper is an unsecured promissory note with a fixed maturity of no more than 270 days. Commercial paper is a money-market security issued (sold) by large corporations to get money to meet short term debt obligations (for example, payroll), and is only backed by an issuing bank or corporation's promise to pay the face amount on the maturity date specified on the note. Since it is not backed by collateral, only firms with excellent credit ratings from a recognized rating agency will be able to sell their commercial paper at a reasonable price. Commercial paper is usually sold at a discount from face value, and carries higher interest repayment rates than bonds. Typically, the longer the maturity on a note, the higher the interest rate the issuing institution must pay. Interest rates fluctuate with market conditions, but are typically lower than banks' rates. Commercial credit, in the form of promissory notes issued by corporations, have existed since at least the 19th century. For instance, Marcus Goldman, founder of Goldman Sachs, got his start trading commercial paper in New York in 1869.


A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively representing interest, sometimes called the repo rate. The party that originally buys the securities effectively acts as a lender. The original seller is effectively acting as a borrower, using their security as collateral for a secured cash loan at a fixed rate of interest. A repo is equivalent to a spot sale combined with a forward contract. The spot sale results in transfer of money to the borrower in exchange for legal transfer of the security to the lender, while the forward contract ensures repayment of the loan to the lender and return of the collateral of the borrower. The difference between the forward price and the spot price is effectively the interest on the loan, while the settlement date of the forward contract is the maturity date of the loan. IV. TREASURY BILLS

Treasury bills (or T-Bills) mature in one year or less. Like zero-coupon bonds, they do not pay interest prior to maturity; instead they are sold at a discount of the par value to create a positive yield to maturity. Many regard Treasury bills as the least risky investment available to U.S. investors.[citation needed] Regular weekly T-Bills are commonly issued with maturity dates of 28 days (or 4 weeks, about a month), 91 days (or 13 weeks, about 3 months), 182 days (or 26 weeks, about 6 months), and 364 days (or 52 weeks, about 1 year). Treasury bills are sold by single-price auctions held weekly. Offering amounts for 13-week and 26-week bills are announced each Thursday for auction, usually at 11:30 a.m., on the following Monday and settlement, or issuance, on Thursday Offering amounts for 4-week bills are announced on Monday for auction the next day, Tuesday, usually at 11:30 a.m., and issuance on Thursday. Offering amounts for 52-week bills are announced every fourth Thursday for auction the next Tuesday, usually at 11:30 am, and issuance on Thursday. Purchase orders at Treasury Direct must be entered before 11:00 on the Monday of the auction. The minimum purchase, effective April 7, 2008, is $100. (This amount formerly had been $1,000.) Mature T-bills are also redeemed on each Thursday. Banks and financial institutions, especially primary dealers, are the largest purchasers of T-bills. Like other securities, individual issues of T-bills are identified with a unique CUSIP number. The 13-week bill issued three months after a 26-week bill is considered a re-opening of the 26week bill and is given the same CUSIP number. The 4-week bill issued two months after that and maturing on the same day is also considered a re-opening of the 26-week bill and shares the same CUSIP number. For example, the 26-week bill issued on March 22, 2007, and maturing on September 20, 2007, has the same CUSIP number (912795A27) as the 13-week bill issued on June 21, 2007, and maturing on September 20, 2007, and as the 4-week bill issued on August 23, 2007 that matures on September 20, 2007.



. A banker's acceptance, or BA, is a promised future payment, or time draft, which is accepted and guaranteed by a bank and drawn on a deposit at the bank. The banker's acceptance specifies the amount of money, the date, and the person to which the payment is due. After acceptance, the draft becomes an unconditional liability of the bank. But the holder of the draft can sell (exchange) it for cash at a discount to a buyer who is willing to wait until the maturity date for the funds in the deposit. A banker's acceptance starts as a time draft drawn on a bank deposit by a bank's customer to pay money at a future date, typically within six months, analogous to a post-dated check. Next, the bank accepts (guarantees) payment to the holder of the draft, analogous to a post-dated check drawn on a deposit with over-draft protection. The party that holds the banker's acceptance may keep the acceptance until it matures, and thereby allow the bank to make the promised payment, or it may sell the acceptance at a discount today to any party willing to wait for the face value payment of the deposit on the maturity date. The rates, at which they trade, calculated from the discount prices relative to their face values, are called banker's acceptance rates. Bankers acceptances make a transaction between two parties who do not know each other safer because they allow the parties to substitute the bank's credit worthiness for that who owes the payment. They are used widely in international trade for payments that are due for a future shipment of goods and services. For example, an importer may draft a banker's acceptance when it does not have a close relationship with and cannot obtain credit from an exporter. Once the importer and bank have completed an acceptance agreement, whereby the bank accepts liabilities of the importer and the importer deposits funds at the bank (enough for the future payment plus fees), the importer can issue a time draft to the exporter for a future payment with the bank's guarantee. Bankers acceptances are typically sold in multiples of US $100,000. Banker's acceptances smaller than this amount are referred to as odd lots.


2. BOND Definition A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities. Introduction Term used to denote bonds and other debt instruments, because they normally pay a fixed interest rate. Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents. The indebted entity (issuer) issues a bond that states the interest rate (coupon) that will be paid and when the loaned funds (bond principal) are to be returned (maturity date). Interest on bonds is usually paid every six months (semi-annually). The main categories of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds, notes and bills, which are collectively referred to as simply "Treasuries." Two features of a bond - credit quality and duration - are the principal determinants of a bond's interest rate. Bond maturities range from a 90-day Treasury bill to a 30-year government bond. Corporate and municipals are typically in the three to 10-year range. Characteristics of a Bond There are three important things to know about any bond before you buy it: the par value, the coupon rate, and the maturity date. Knowing these three items (and a few other odds and ends depending on what kind of bond you are buying) allows you to analyze the bond and compare it to other potential investments. Par value is the amount of money the investor will receive once the bond matures, meaning that the entity that sold the bond will return to the investor the original amount that it was loaned, called the principal. As mentioned earlier, par value for corporate bonds is normally $1,000, although for government bonds it can be much higher. The coupon rate is the amount of interest that the bondholder will receive expressed as a percentage of the par value. Thus, if a bond has a par value of $1,000 and a coupon rate of 10%, the person holding the bond will receive $100 a year. The bond will also specify when the interest is to be paid, whether monthly, quarterly, semi-annually, or annually. The maturity date is the date when the bond issuer has to return the principal to the lender. After the debtor pays back the principal, it is no longer obligated to make interest payments. Sometimes a company will decide to "call" its bond, meaning that it is giving the lenders their money back before the maturity date of the bond.

All corporate bonds specify whether they can be called and how soon they can be called. Federal government bonds are never called, although state and local government bonds can be called.

Advantages of fix income The advantages of fixed-income assets include that they offer a greater potential for return than cash investments, although they involve greater risk. Fixed-income assets are also a good diversification tool for a long-term stock portfolio because bonds generally behave differently than stocks do.

Disadvantages of fix income The disadvantages include that the returns on fixed-income assets have historically been lower than the returns on stocks. Fixed-income assets are very susceptible to interest-rate changes and other risks. Many investors struggle to understand bonds.

Risk/Reward trade-off Risk = Lower than equities, higher than cash Reward = Lower than equities, higher than cash

Generally, fixed-income assets are not good long-term investments by themselves because they do not provide enough growth to beat inflation over long periods of time. However, these assets should be one part of an overall diversified portfolio. Sub classes of fix income CORPORATE BOND GOVERNMENT BOND MUNCIPAL BOND JUNK BOND



A corporate bond is a bond issue by a corporation. It is a bond that a corporation issues to raise money effectively in order to expand its business.[1] The term is usually applied to longerterm debt instruments, generally with a maturity date falling at least a year after their issue date. (The term "commercial paper" is sometimes used for instruments with a shorter maturity.) Sometimes, the term "corporate bonds" is used to include all bonds except those issued by governments in their own currencies. Strictly speaking, however, it only applies to those issued by corporations. The bonds of local authorities and supranational organizations do not fit in either category.[clarification needed] Corporate bonds are often listed on major exchanges (bonds there are called "listed" bonds) and ECNs, and the coupon (i.e. interest payment) is usually taxable. Sometimes this coupon can be zero with a high redemption value. However, despite being listed on exchanges, the vast majority of trading volume in corporate bonds in most developed markets takes place in decentralized, dealer-based, over-the-counter markets. Some corporate bonds have an embedded call option that allows the issuer to redeem the debt before its maturity date. Other bonds, known as convertible bonds, allow investors to convert the bond into equity. Corporate Credit spreads may alternatively be earned in exchange for default risk through the mechanism of Credit Default Swaps which give an unfunded synthetic exposure to similar risks on the same 'Reference Entities'. However, owing to quite volatile CDS 'basis' the spreads on CDS and the credit spreads on corporate bonds can be significantly different. Risk analysis Compared to government bonds, corporate bonds generally have a higher risk of default. This risk depends on the particular corporation issuing the bond, the current market conditions and governments to which the bond issuer is being compared and the rating of the company. Corporate bond holders are compensated for this risk by receiving a higher yield than government bonds. The difference in yield reflects the higher probability of default, the expected loss in the event of default, and may also reflect liquidity and risk premia. Other risk in corporate bond Default Risk has been discussed above but there are also other risks for which corporate bondholders expect to be compensated by credit spread. This is, for example why the Option Adjusted Spread on a Ginnie Mae MBS will usually be higher than zero to the Treasury curve. Credit Spread Risk. The risk that the credit spread of a bond (extra yield to compensate investors for taking default risk), which is inherent in the fixed coupon, becomes insufficient compensation for default risk that has later deteriorated. As the coupon is fixed the only way the credit spread can readjust to new circumstances is by the market

price of the bond falling and the yield rising to such a level that an appropriate credit spread is offered. Interest Rate Risk. The level of Yields generally in a bond market, as expressed by Government Bond Yields, may change and thus bring about changes in the market value of Fixed-Coupon bonds so that their Yield to Maturity adjusts to newly appropriate levels. Liquidity Risk. There may not be a continuous secondary market for a bond, thus leaving an investor with difficulty in selling at, or even near to, a fair price. This particular risk could become more severe in developing markets, where a large amount of junk bonds belong, such as China, Vietnam, Indonesia, etc.[3] Supply Risk. Heavy issuance of new bonds similar to the one held may depress their prices. Inflation Risk. Inflation reduces the real value of future fixed cash flows. An anticipation of inflation, or higher inflation, may depress prices immediately. Tax Change Risk. Unanticipated changes in taxation may adversely impact the value of a bond to investors and consequently its immediate market value.

Type of corporate bond SECURED BOND UNSECURED BOND

1. SECURED BOND .A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally lent to the borrower, for example, foreclosure of a home. From the creditor's perspective this is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount. The opposite of secured debt/loan is unsecured debt, which is not connected to any specific piece of property and instead the creditor may only satisfy the debt against the borrower rather than the borrower's collateral and the borrower. Generally speaking, secured debt may attract lower interest rates than unsecured debt due to the added security for the lender; however, credit history, ability to repay, and expected returns for the lender are also factors affecting rates. There are two purposes for a loan secured by debt. In the first purpose, by extending the loan through securing the debt, the creditor is relieved of most of the financial risks involved because it allows the creditor to take the property in the event that the debt is not properly repaid. In exchange, this permits the second purpose where the debtors may receive loans on more favorable terms than that available for unsecured debt, or to be extended credit under circumstances when credit under terms of unsecured debt would not be extended at all. The

creditor may offer a loan with attractive interest rates and repayment periods for the secured debt. 2. UNSECURED LOAN unsecured debt refers to any type of debt or general obligation that is not collateralized by a lien on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the terms for repayment. In the event of the bankruptcy of the borrower, the unsecured creditors will have a general claim on the assets of the borrower after the specific pledged assets have been assigned to the secured creditors, although the unsecured creditors will usually realize a smaller proportion of their claims than the secured creditors. In some legal systems, unsecured creditors who are also indebted to the insolvent debtor are able (and in some jurisdictions, required) to set-off the debts, which actually puts the unsecured creditor with a matured liability to the debtor in a pre-preferential position. Under risk-based pricing, creditors tend to demand extremely high interest rates as a condition of extending unsecured debt. The maximum loss on a properly collateralized loan is the difference between the fair market value of the collateral and the outstanding debt. Thus, in the context of secured lending, the use of collateral reduces the size of the "bet" taken by the creditor on the debtor's creditworthiness. Without collateral, the creditor stands to lose the entire sum outstanding at the point of default, and must boost the interest rate to price in that risk. Where high interest rates are considered usurious, unsecured loans are either not made at all, or are made by loan sharks unafraid of the law. Also called signature loans or personal loans. These loans are often used by borrowers for small purchases such as computers, home improvements, vacations or unexpected expenses. An unsecured loan means the lender relies on the borrower's promise to pay it back. Due to the increased risk involved, interest rates for unsecured loans tend to be higher. Typically, the balance of the loan is distributed evenly across a fixed number of payments; penalties may be assessed if the loan is paid off early. Unsecured loans are often more expensive and less flexible than secured loans, but suitable if the lender wants a short-term loan (one to five years).[2] In the UK there are hundreds of different unsecured loans to choose from, so comparison tables have become a popular way of finding out about the different options available. In 2006, according to the Bank of England, 22% of UK households had some unsecured debt with a further 21% having both secured and unsecured debt.



A government bond is a bond issued by a national government, generally promising to pay a certain amount (the face value) on a certain date, as well as periodic interest payments. Bonds are debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to a company or country. Government bonds are usually denominated in the country's own currency. Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds,[1] although the term "sovereign bond" may also refer to bonds issued in a country's own currency.. The first ever government bond was issued by the Bank of England in 1693 to raise money to fund a war against France. It was in the form of a tontine. Later, governments in Europe started issuing perpetual bonds (bonds with no maturity date) to fund wars and other government spending. The use of perpetual bonds ceased in the 20th century, and currently governments issue bonds of limited duration. Risk Credit risk

Government bonds are usually referred to as risk-free bonds, because the government can raise taxes or create additional currency in order to redeem the bond at maturity. There have been instances where a government has defaulted on its domestic currency debt, such as Russia in 1998 (the "ruble crisis"), but this is very rare (see national bankruptcy). Currency and inflation risk

As an example, in the US, Treasury securities are denominated in US dollars. In this instance, the term "risk-free" means free of credit risk. However, other risks still exist, such as currency risk for foreign investors (for example non-US investors of US Treasury securities would have received lower returns in 2004 because the value of the US dollar declined against most other currencies). Secondly, there is inflation risk, in that the principal repaid at maturity will have less purchasing power than anticipated if the inflation rate is higher than expected. Many governments issue inflation-indexed bonds, which protect investors against inflation risk by increasing the interest rate given to the investor as the inflation rate of the economy increases. MONEY SUPPLY If a central bank purchases a government security, such as a bond or treasury bill, it increases the money supply, in effect creating money



A municipal bond is a bond issued by a local government, or their agencies. Potential issuers of municipal bonds include states, cities, counties, redevelopment agencies, specialpurpose districts, school districts, public utility districts, publicly owned airports and seaports, and any other governmental entity (or group of governments) at or below the state level. Municipal bonds may be general obligations of the issuer or secured by specified revenues. In the United States, interest income received by holders of municipal bonds is often exempt from the federal income tax and from the income tax of the state in which they are issued, although municipal bonds issued for certain purposes may not be tax exempt.[1] Unlike new issue stocks that are brought to market with price restrictions until the deal is sold, municipal bonds are free to trade at any time once they are purchased by the investor. Professional traders regularly trade and retrace the same bonds several times a week. The two basic types of municipal bonds are General obligation bonds: Principal and interest are secured by the full faith and credit of the issuer and usually supported by either the issuer's unlimited or limited taxing power. In many cases, general obligation bonds are voter-approved. Revenue bonds: Principal and interest are secured by revenues derived from tolls, charges or rents from the facility built with the proceeds of the bond issue. Public projects financed by revenue bonds include toll roads, bridges, airports, water and sewage treatment facilities, hospitals and subsidized housing. Many of these bonds are issued by special authorities created for that particular purpose.

Risk Credit Risk: If the issuer is unable to meets its financial obligations, it may fail to make scheduled interest payments and/or be unable to repay the principal upon maturity. To assist in the evaluation of an issuer's creditworthiness, ratings agencies (such as Moody's Investors Service and Standard & Poor's), analyze a bond issuer's ability to meet its debt obligations, and issue ratings from 'Aaa' or 'AAA' for the most creditworthy issuers to 'Ca', 'C', 'D', 'DDD', 'DD' or 'D' for those in default. Bonds rated 'BBB', 'Baa' or better are generally considered appropriate investments when capital preservation is the primary objective. To reduce investor concern, many municipal bonds are backed by insurance policies guaranteeing repayment in the event of default. Interest-Rate Risk: The interest rate of most municipal bonds is paid at a fixed rate. The rate does not change over the life of the bond. If interest rates in the marketplace rise, the bond you own will be paying a lower yield relative to the yield offered by newly issued bonds.


Tax-Bracket Changes: Municipal bonds generate tax-free income, and therefore pay lower interest rates than taxable bonds. Investors who anticipate a significant drop in their marginal income-tax rate may be better served by the higher yield available from taxable bonds. Call Risk: Many bonds allow the issuer to repay all or a portion of the bond prior to the maturity date. The investor's capital is returned with a premium added in exchange for the early debt retirement. While you get your entire initial investment plus some back if the bond is called, your income stream ends earlier than you were expecting it to.

Market Risk: The underlying price of a particular bond changes in response to market conditions. When interest rates fall, newly issued bonds will pay a lower yield than existing issues, which makes the older bonds more attractive. Investors who want the higher yield may be willing to pay a premium to get it. Likewise, if interest rates rise, newly issued bonds will pay a higher yield than existing issues. Investors who buy the older issues are likely to do so only if they get it at a discount. If you buy a bond and hold it until maturity, market risk is not a factor because your principal investment will be returned in full at maturity. Should you choose to sell prior to the maturity date, your gain or loss will be dictated by market conditions, and the appropriate tax consequences for capital gains or losses will apply. JUNK BOND


In finance, a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a bond that is rated below investment grade. These bonds have a higher risk of default or other adverse credit events, but typically pay higher yields than better quality bonds in order to make them attractive to investors. Risk The holder of any debt is subject to interest rate risk and credit risk, inflationary risk, currency risk, duration risk, convexity risk, repayment of principal risk, streaming income risk, liquidity risk, default risk, maturity risk, reinvestment risk, market risk, political risk, and taxation adjustment risk. Interest rate risk refers to the risk of the market value of a bond changing in value due to changes in the structure or level of interest rates or credit spreads or risk premiums. The credit risk of a high-yield bond refers to the probability and probable loss upon a credit event (i.e., the obligor defaults on scheduled payments or files for bankruptcy, or the bond is restructured), or a credit quality change is issued by a rating agency including Fitch, Moody's, or Standard & Poors. A credit rating agency attempts to describe the risk with a credit rating such as AAA. In North America, the five major agencies are Standard and Poor's, Moody's, Fitch

Ratings, Dominion Bond Rating Service and A.M. Best. Bonds in other countries may be rated by US rating agencies or by local credit rating agencies. Rating scales vary; the most popular scale uses (in order of increasing risk) ratings of AAA, AA, A, BBB, BB, B, CCC, CC, C, with the additional rating D for debt already in arrears. Government bonds and bonds issued by government sponsored enterprises (GSEs) are often considered to be in a zero-risk category above AAA; and categories like AA and A may sometimes be split into finer subdivisions like "AA" or "AA+". Bonds rated BBB and higher are called investment grade bonds. Bonds rated lower than investment grade on their date of issue are called speculative grade bonds, or colloquially as "junk" bonds. The lower-rated debt typically offers a higher yield, making speculative bonds attractive investment vehicles for certain types of financial portfolios and strategies. Many pension funds and other investors (banks, insurance companies), however, are prohibited in their bylaws from investing in bonds which have ratings below a particular level. As a result, the lowerrated securities have a different investor base than investment-grade bonds. The value of speculative bonds is affected to a higher degree than investment grade bonds by the possibility of default. For example, in a recession interest rates may drop and the drop in interest rates tends to increase the value of investment grade bonds; however, a recession tends to increase the possibility of default in speculative-grade bonds.


3. EQUITY (STOCK) Definition of 'equity' A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. Also known as "shares" or "equity." Introduction of equity A holder of stock (a shareholder) has a claim to a part of the corporation's assets and earnings. In other words, a shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares. For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company's assets Stocks are the foundation of nearly every portfolio. Historically, they have outperformed most other investments over the long run. The main goal of stock investment is to provide growth and to earn returns in excess of inflation. The stock market has historically been the only investment that has consistently outpaced inflation in the long run; from 1926 through year-end 2006, largecapitalization stocks have earned an average 10.4 percent compound annual return, while smallcapitalization stocks have earned an average 12.9 percent compound annual return. When you buy a share of stock, you are buying ownership in a businesss earnings and assets. You therefore receive a proportionate share of the profits through dividends and benefits that stem from increases in the companys share price. Mature companies are typically a better source of dividends, since rapidly growing companies often prefer to invest profits. Type of stock Common stock Preference stock

1. Common stock is a form of corporate equity ownership, a type of security. The terms "voting share" or "ordinary share" are also used in other parts of the world; common stock being primarily used in the United States. It is called "common" to distinguish it from preferred stock. If both types of stock exist, common stock holders cannot be paid dividends until all preferred stock dividends (including payments in arrears) are paid in full. In the event of bankruptcy, common stock investors receive any remaining funds after bondholders, creditors (including employees), and preferred stock holders are paid. As such, common stock investors often receive nothing after a bankruptcy.

On the other hand, common shares on average perform better than preferred shares or bonds over time. Common stock usually carries with it the right to vote on certain matters, such as electing the board of directors. However, a company can have both a "voting" and "non-voting" class of common stock. Holders of common stock are able to influence the corporation through votes on establishing corporate objectives and policy, stock splits, and electing the company's board of directors. Some holders of common stock also receive preemptive rights, which enable them to retain their proportional ownership in a company should it issue another stock offering. There is no fixed dividend paid out to common stock holders and so their returns are uncertain, contingent on earnings, company reinvestment, and efficiency of the market to value and sell stock.[2] Additional benefits from common stock include earning dividends and capital appreciation. Features of Common Stock Voting rights (Cumulative vs. Straight) Proxy voting Classes of stock Other rights Share proportionally in declared dividends Share proportionally in remaining assets during liquidation Preemptive right first shot at new stock issue to maintain proportional ownership if desired

2. Preferred stock Preferred stock (also called preferred shares, preference shares or simply preferreds) is an equity security which may have any combination of features not possessed by common stock including properties of both equity and a debt instruments, and is generally considered a hybrid instrument. Preferred are senior (i.e. higher ranking) to common stock, but subordinate to bonds in terms of claim (or rights to their share of the assets of the company).[1] Preferred stock usually carries no voting rights,[2] but may carry a dividend and may have priority over common stock in the payment of dividends and upon liquidation. Terms of the preferred stock are stated in a "Certificate of Designation". Similar to bonds, preferred stocks are rated by the major credit-rating companies. The rating for preferreds is generally lower, since preferred dividends do not carry the same guarantees as interest payments from bonds and they are junior to all creditors.


Feature of preferred stock Preferred stock is a special class of shares which may have any combination of features not possessed by common stock. The following features are usually associated with preferred stock:[4] Preference in dividends Preference in assets, in the event of liquidation Convertibility to common stock. Call ability, at the option of the corporation Nonvoting

Equity asset classes are mainly classified by three factors: market capitalization type of company Geographic location.

Market capitalization Market capitalization is one way of measuring the size of a company. Market capitalization is calculated by multiplying the market price of the stock by the number of shares, or the number of ownership pieces outstanding. Market capitalization is used to separate companies into specific ranges of company size and to determine certain classes of companies. These classes include large-capitalization (large-cap) companies, middle-capitalization (mid-cap) companies, and small-capitalization (small-cap) companies. LARGE CAP-Large-cap stocks are generally defined as stocks from companies with a market capitalization that is greater than U.S. $10 billion (this amount is smaller for international companies). Large-cap stocks generally come from large, well-established companies that have a history of good sales and earnings, as well as a notable market share. Although large-cap stocks have traditionally been synonymous with dividendpaying companies, this classification is no longer standard. Nevertheless, large-cap stocks do generally entail mature corporations with long track records and a steady growth of dividends. MID CAP-Companies that offer mid-cap stocks have a capitalization that is roughly between U.S. $2 billion and U.S. $10 billion. These stocks tend to grow faster than largecap stocks, and they are generally less volatile than small-cap stocks. Mid-cap stocks generally perform in a similar manner to the small-cap asset classes. For asset allocation purposes, mid-cap stocks are not generally considered a major asset class. SMALL CAP-Companies that are small-cap stocks generally have a market capitalization of less than U.S. $2 billion. They are small (or sometimes newer) U.S. and global companies that are still developing, so they have a smaller market share than their large-cap counterparts. Small-cap companies are subject to greater volatility in stock


price, and they tend to fail more frequently than larger companies; however, they are generally expected to grow faster than larger companies. Type of company Within the large-, mid-, and small-cap stock categories, there are two separate types of stocks: growth stocks and value stocks. Growth stocks are offered by companies whose earnings are expected to grow much more rapidly than the market. These companies frequently focus on developing new technologies. When compared to the market, value stocks are cheap stocks, at least in terms of low price earnings and low price-to-book-value ratios. Value stocks are offered by companies that have potential for good long-term returns through both capitalization appreciation and dividends; they have this potential because they are inexpensively priced in relation to the market.

Location Stocks may also be classified according to location. International stocks are stocks outside the United States. Global stocks are stocks that are either international or in the United States. Regional stocks are stocks from a specific region, such as Europe or Asia. Emerging market stocks are stocks from countries that are not considered developed. International investments involve additional risk, such as differences in financial accounting standards, currency fluctuations, political instability, foreign taxes and regulations, and the potential for illiquid markets. Advantages of equity Stocks are advantageous because they offer the highest potential return of any of the major asset classes. Stocks are good for long-term investing: as mentioned earlier, this is the only major asset class that has consistently beaten inflation over the long term The longer you hold equities, the better your chance of achieving your financial goal.

Disadvantages of equity The disadvantages of stocks include that they offer less stability of principal than other asset classes, and they are subject to short-term price fluctuations. Because of these factors, stocks are very risky for short-term investments. The highs and lows of equity ownership can feed all kinds of irrational behavior, from panic-selling in the face of loss to piling into a bubble market. Fear and greed rule.


Risk/Reward trade-off Risk = Higher than bonds, property or cash Reward = Higher than bonds, property or cash

Definition A good produced in bulk. Many commodities, such as coffee, meat and grain, and raw materials such as metals and oil, are traded on local, regional and/or international markets called commodity exchanges, either on a spot basis or through futures contracts, which allow the purchase or sale of a commodity at a predetermined price on a particular date in the

Introduction In economic a commodity is a marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services. The more specific meaning of the term commodity is applied to goods only. It is used to describe a class of goods for which there demand is, but which is supplied without qualitative differentiation across a market. A commodity has full or partial fungibility; that is, the market treats its instances as equivalent or nearly so with no regard to who produced them. "From the taste of wheat it is not possible to tell who produced it, a Russian serf, a French peasant or an English capitalist."Petroleum and copper are other examples of such commodities, their supply and demand being a part of one universal market. Items such as stereo systems, on the other hand, have many aspects of product differentiation, such as the brand, the user interface and the perceived quality. The demand for one type of stereo may be much larger than demand for another. In contrast, one of the characteristics of a commodity good is that its price is determined as a function of its market as a whole. Well-established physical commodities have actively traded spot and derivative markets. Generally, these are basic resources and agricultural products such as iron ore, crude oil, coal, salt, sugar, tea, coffee beans, soybeans, aluminum, copper, rice, wheat,gold, silver, palladium, and platinum. Soft commodities are goods that are grown, while hard commodities are the ones that are extracted through mining. There is another important class of energy commodities which includes electricity, gas, coal and oil. Electricity has the particular characteristic that it is usually uneconomical to store; hence, electricity must be consumed as soon as it is produced.


Advantages Low correlation with equities may reduce portfolio risk. Gold is negatively correlated with equities. A good inflation hedge.

Disadvantages No long-term source of reward for direct commodity exposure. Commodities dont pay dividends and future returns should equal inflation. There is no clear evidence that investors can expect a long-term return from commodities futures either. The workings of commodity future funds are extremely complicated.

Risk/Reward trade-off Risk = Equivalent to Large Cap US equity. Reward = Inconsistent and hotly debated. Better thought of as a method to reduce the risk of equities.

Multi Commodity Exchange of India Ltd (MCX)

(BSE: 534091) is an independent commodity exchange based in India. It was established in

2003 and is based in Mumbai. The turnover of the exchange for the fiscal year 2009 was US$ 1.24 trillion, and in terms of contracts traded, it was in 2009 the world's sixth largest commodity exchange. ([1]) MCX offers futures trading in bullion, ferrous and non-ferrous metals, energy, and a number of agricultural commodities (menthe oil, cardamom, potatoes, palm oil and others). In 2012, MCX has taken the third spot among the global commodity bourses in terms of the number of futures traded. Based on the latest data from Futures Industry Association (FIA), during the period between January and June this year, about 127.8 million futures contracts were traded on MCX.[1] MCX has also set up in joint venture the MCX Stock Exchange. Earlier spin-offs from the company include the National Spot Exchange, an electronic spot exchange for bullion and agricultural commodities, and National (NBHC) India's largest collateral management company which provides bulk storage and handling of agricultural products. In February 2012, MCX has come out with a public issue of 6,427,378 Equity Shares of Rs. 10 face value in price band of 860 - 1032 Rs. per equity share to raise around $134 million. It is the first ever IPO by an Indian exchange. It is regulated by the Forward Markets Commission.

MCX is India's No. 1 commodity exchange with 83% market share in 2009



The exchange's main competitor is National Commodity & Derivatives Exchange Ltd ([2]) Globally, MCX ranks no. 1 in silver, no. 2 in natural gas, no. 3 in crude oil and gold in futures trading (But actual volume is far behind CME group volume as Silver is traded in 30 kg lots on MCX whereas CME traded in Approx 155 kg Lot size same in Gold 1 kg : 3. kg Approx and Crude 100 Barrels : 1000 Barrels on CME) and major volume in manipulated as there in no strict regulation in Indian markets just to Excalate the prices of Shares of company. Also the major volume comes from Arbitration Of CME and MCX which is also not legal to do. ([3]) The highest traded item is gold. MCX has several strategic alliances with leading exchanges across the globe As of early 2010, the normal daily turnover of MCX was about US$ 6 to 8 billion MCX now reaches out to about 800 cities and towns in India with the help of about 126,000 trading terminals MCX COMDEX is India's first and only composite commodity futures price index




Mining process begins after conducting a geological survey of an area.

Thus, the production process involves separating the metals such as Copper, tin, lead, nick, etc. 1. Aluminum The primary aluminum production process consists of three stages: Mining of Bauxite. Refining of bauxite to alumina. Smelting of alumina to aluminum. Aluminum (Al) is the third most abundant element in the earths crust and constitutes 7.3% by mass. It does not rust and 100% recyclable, thus having a long working life.

It can take the range of forms like castings, extrusions & tubes, sheet & plate, foil, powder, forgings etc and variety of surface furnishes. Being a good conductor of electricity, most overhead and many underground transmission lines are made of aluminum. Excellent medium to produce cooking utensils and foils. In packaging, multipurpose foil and cans. The following sectors, aluminum has a usage defined viz.. Building & Construction, Transport, Packing, Electricity, Medical, Cooking utensils, etc. China has been the largest producer of aluminium in the globe, with India taking the 4th or the 5th place

2. Copper Copper, chemically referred to as Cu, is one of the oldest elements used in ancient civilization. It is reddish with brilliant metallic luster solid colored. Copper occurs in earths crust in a variety of forms. It is found in sulfide deposits, carbonate deposits, silicate deposits as pure Native Cu. From these, Copper is processed. Coppers chemical, physical & aesthetic properties make it a materials of choice in a wide range of domestic, industrial and high technology applications. Its flexibility and manageable property makes it wide acceptable and can be used : To conduct electricity and heat. Copper is 2nd to silver is condutivity of electricity and heat. Within communication equipments wires, cables etc. In pipe forms it can be used to transport water and gas. By construction industry for roofing, gutters, etc. As an art. China is the largest producer of copper amongst al nations and also the largest consumer of the world. India held the 7th position as per last years statistics.

3. Nickel Nickel is a metallic chemical element with the symbol Ni. It is making up 0.008% of the Earths crust. It is a silvery-white lustrous metal with a slight golden tinge. It is found in 2 types ore bodies: sulfides and late rites. Nickel is a transition element that exhibits mixture of ferrous and non-ferrous metal properties. Nickel is a hard, malleable and ductile & has relatively low thermal and electrical conductivities, high resistance to corrosion and oxidation, excellent strength & toughness at elevated temperatures, and is capable of being magnetizes. It is used in stainless steel. Major producers of Nickel were Russia in 2011.



1. Crude oil Crude Oil is the single most important and the highest trading commodity by volume in the world. Though well known in ancient times, people knew about it more as a medicine and not a fuel. In 1859, the modern day oil industry was born. Initially, people used it a s a kerosene, lubricants. In 1889, Germanys Daimler and Wilhelm Maybach 1st built the gasoline engine, gesturing the modern day automobile industry.

There are two types of crude oil: Light sweet crude oil Brent crude oil.

Uses of crude oil or petroleum can be classified as: Petrol-diesel. Fuel oil. Petrol. Jet fuel. Kerosene. LPG

Saudi Arabia, Russia and US are the top 3 crude oil producing countries on the world. Natural Gas

Natural Gas is the next promising fuel for the future. The main constituent is Methane. Natural Gas that are frequently found together in the same deposits are formed from decay of vegetables & animals. Actual consumption of natural gas varies between reservoirs, thus a distinction is made between Wet and Dry Gas. WET GAS Has high proportion of other gas substances like ethane, propane, butane etc. DRY GAS It is a natural gas without this substance


B. PRECIOUS METAL 1. GOLD History In 19th century gold was discovered at Little Meadow Creek, North Carolina in 1803. North Carolina, for next 25 years, supplied all domestic gold coined for currency by the US. In 1817, Britain introduced a small gold coin valued at one pound sterling. In 1868, major discovery was made in South Africa where George Harrison uncovered gold while digging up stones to build a house. Source of 40% of all gold extract from the earth. In 1900, the Gold standard Act placed the US officially on gold std, committing it to maintain a fixed exchange rate in relation to other countries on gold standard. In 1927, - it was 1st used for medical terms. In 1982, 1st space shuttle launched, used gold in its liquid hydrogen fuel pump. 21st century one of the worlds most prized materials. Olympic medals, Nobel prizes, Academy Awards and other honors rely on positive connotations of gold. Gold commands high economic significance Medium of monetary exchange The 1st pure gold coins were struck by King Croesus of Lydia (Turkey) during his reign between 560 and 547 BC and gold coins have continued to be as legal tender since then. Global Monetary Reserves Central Banks have been major holders of gold for more than 100 years and are expected large stocks in future. Portfolio diversifier South Africa, United States and Australia 3 largest gold producing countries. Others are Canada, China, Indonesia and Russia. India is the worlds largest GODL Consumer, followed by China.

Feature Gold is the most malleable of all metals; a single gram can be beaten into a sheet of 1 square meter, or an ounce into 300 square feet. Gold leaf can be beaten thin enough to become transparent. The transmitted light appears greenish blue, because gold strongly reflects yellow and red.[20] Such semi-transparent sheets also strongly reflect infrared light, making them useful as infrared (radiant heat) shields in visors of heat-resistant suits, and in sun-visors for spacesuits.[21] Gold readily creates alloys with many other metals. These alloys can be produced to modify the hardness and other metallurgical properties, to control melting point or to create exotic colors.[22] Gold is a good conductor of heat and electricity and reflects infrared radiation strongly. Chemically, it is unaffected by air, moisture and most corrosive reagents, and is therefore well suited for use in coins and jewelry and as a protective coating on other, more reactive metals. However, it is not chemically inert. Gold is almost insoluble, but can be dissolved in aqua regia.

Common oxidation states of gold include +1 (gold(I) or aurous compounds) and +3 (gold(III) or uric compounds). Gold ions in solution are readily reduced and precipitated as metal by adding any other metal as the reducing agent. The added metal is oxidized and dissolves, allowing the gold to be displaced from solution and be recovered as a solid precipitate. In addition, gold is very dense, a cubic meter weighing 19,300 kg. By comparison, the density of lead is 11,340 kg/m3, and that of the densest element, osmium, is 22,610 kg/m3.

2. SILVER History Silver is known as poor mans gold. Silver is a brilliant grey white metal soft and malleable. Features Strength, malleability, ductility, its sensitivity to high reflectance of light and the ability to high temperature endurance. Its the highest electrical and thermal conductivity amongst all the metals. The main source of silver is in lead ore. It is also found associated with copper, zinc and gold and produced as a by-product of base metal mining activities. Silver is used both as precious metal and also as an industrial metal. Main uses of silver : Industrial Photography Silverware Jewelry and coins and medals production. The top 5 silver producing countries of the world are Peru, Mexico, China, Chile and Australia

Feature Silver is a very ductile, malleable (slightly harder than gold), monovalent coinage metal, with a brilliant white metallic luster that can take a high degree of polish. It has the highest electrical conductivity of all metals, even higher than copper, but its greater cost has prevented it from being widely used in place of copper for electrical purposes. An exception to this is in radio-frequency engineering, particularly at VHF and higher frequencies, where silver plating to improve electrical conductivity of parts, including wires, is widely employed. During World War II in the US, 13,540 tons were used in the electromagnets used for enriching uranium, mainly because of the wartime shortage of copper. Among metals, pure silver has the highest thermal conductivity (the nonmetal carbon in the form of diamond andsuperfluid helium II are higher) and one of the highest optical reflectivitys. (Aluminum slightly outdoes silver in parts of the visible spectrum, and silver is a poor reflector of ultraviolet). Silver is the best conductor of heat and electricity of any metal on the periodic table. Silver also has the lowest contact resistance of any metal. Silver halides are photosensitive and are remarkable for their ability to record a latent image that can later be developed chemically. Silver is stable in

pure air and water, but tarnishes when it is exposed to air or water containing ozone or hydrogen sulfide, the latter forming a black layer of silver sulfide which can be cleaned off with dilute hydrochloric acid. C. AGRICULTURE COMMODITY CATEGRISED GRAINS SOFTS OILSEEDS FIBRES GRAINS 1. Wheat Bread made of Wheat referred to as food of life. As per the studies of Pavlov, North Western part of Indian Sub-continent together with region of Afghanistan was centre of origin of bread wheat. At Mohenjo-Daro archeologists discovered that wheat was being grown in that region 5000 years ago. Belongs to the Genus Tritium of family Graminae. Type of grass with diff. varieties such as spring, winter, red, white, soft, hard, durum etc. There are 25 species of wheat recognized in the world, only 3 species namely Bread wheat, Macaroni wheat and Emmer wheat are commercially grown in India. Consumed mainly in form of bread or baked products. India ROTI. Used to make flour, livestock feed and for fermentation to make alcohol. Straw of wheat fiber boards thatch roof materials used by Construction Industry. Prodn of wheat depends on weather, temperature, and rainfall and soil moisturizer. China is the higher producer of wheat followed by India.

2. Maize (corn) Also known as CORN, one of the most imp Cereal Crops in the world. Its diversified uses increase its importance. Used as human food and also as feed for animals. Corn contains 71% starch which is the major constituent of corn kernel-used in foods and industrial products. Central America and Mexico centre of origin.

Maize is grown all over the world, in more than 100 countries. It is one of the major crops in America, Africa and Asia. USA is the major producing country. 3. Rice Rice is primarily a high energy calorie food, being also a type of grass. Rice composes of 72 75% carbohydrates in form of starch. 7% protein

4% phosphorus. The nutritive value of rice protein is much higher than maize and wheat. It is the staple food of more than 60% of world population. It is produced and consumed in Asian region. China is the largest producer of rice in the world followed by India. The global rice prices peaked in 2008 and fell down in 2009 post global financial meltdown.

SOFTS Soft commodities are cash crops originating from tropical regions of the globe. The Key soft commoditized is Coffee, Tea, Sugar and Rubber. 1. Coffee Coffee is one of the worlds most popular drinks. Coffee beans are the twin seeds of a red fruit that grows. Growers call these coffee fruits as coffee cherries. There are 25 species of the major species within Coffee, but the typical coffee drinker is likely to be familiar with 2 Coffee Arabica and Coffee Camphor. Brazil and Vietnam held 1st and 2nd position in global coffee production during 2008 2009. India held 7th position.

2. Sugar India has been known as the original home for sugarcane and sugar. India scores as the highest producer and consumer of sugar. Sugar is made from sugarcane which is a type of grass and from sugar beet, a kind of root vegetable resembling beetroot. Sugarcane needs tropical climates while sugar beet needs colder climates. Types of Sugar are : Bakers Sugar Barley Sugar Brown Sugar Cane juice. Candy Sugar. Castor Sugar Chinese Sugar Cinnamon Sugar. Coarse Sugar Coffee Sugar

3. Rubber Natural Rubber is produced by the process of tapping of fluid from the bark and trunk of the plant, Synthetic rubber is produced through the process of polymerization of various monomers.

The rubber tree originated in the Amazon River basin in South America. The natural rubber produced is processed to convert into a storable and marketable form. Block rubber, Preserved latex, Crepes and sheets are a few form rubber is produced and used. Rubber industry produces wide range products like auto tyre, auto tubes, automobile parts, footwear, belts, cables & wires, battery boxes etc. Thailand largest producer of rubber followed by Indonesia and Malaysia. India 4th position in Global rubber production.

OILSEADS Oilseeds include Soybean Cotton seeds, rapeseeds, groundnut, sunflower, etc. Soya-bean is most widely traded oilseed of the world 80%. 1. Soya-Bean Soybean is the worlds most important vegetable protein feed. 98% of it used as an animal feed ingredient, with remaining used in human foods such as in bakery ingredients and meat substitutes.. Highly digestive, high energy content and consistency. In US, China and India, crop arrives from Aug-Sept, South America, it starts from JanFeb. Annual global trade of this is approximately-48 million tons. Soybean Oil is the leading vegetable Oil traded in the international markets, next being the palm oil. Weather is an important factor that influences Soyabean markets. Pests, diseases of soybean, epidemics infections affecting poultry influence as it is an important feed. Aggressive cultivation and promotion from major producing nations encouraged production and consumption. Argentina, Brazil, China and India along with US are the major contributors for the growth.

2. Cotton Cotton is a desirable characteristic unmatched fiber since 8000 years now. Its usability in astronauts in-flight space suits, to sheets and towels, tents. It even helps support millions of jobs as it takes its shape. China tops the list of the cotton producing nations followed by India and then US and Pakistan.

3. Rapeseed - Mustard: Mustard rapeseed group of crops is among the oldest cultivated plants in human civilization. Its cultivation is confined to India, China, Germany, France, Australia and USA.

It belongs to the Brassica group which have large amount of long chain fatty acids called erucic acid. Till late 1960s this acid content was not included for testing of the quality of the acid. Once taken proof was given as it has negative effects on the health and with research new varieties with low erutic acid content was developed in Canada. Canola registered as the trademark of Canada Canola Association used as cooking oil, salad oil and is acceptable throughout the world. Oil obtained from mustard rapeseed, the seeds, sprouts, leaves, tender plants useful for human being and used for making spices and vegetables.

4. Sunflower: Sunflower (Helianthus annuus L) is an important oilseed crop, in India well known as Surajmikhi. Derived from Helios & Anthos. Why is it called as SUNFLOWER? It is a major source of vegetable oil in the world, being used for a variety of cooking purposes. Its seed contains 48-53% edible oil. Its contains 64% of linoleic acid good for heart functioning, pumping out calories. Used as nutritious meal for birds and animals. It originated in Southern United States and Mexico from where it was introduced into Europe .In India; it was introduced into in 1969 as an oilseed crop. India stands 7th in position with Russia commanding the 1st position.

5. Sesame Sesame commonly known as TIL is the oldest oil crop cultivated in the world. Sesame originated in Africa and was introduced into India by the earliest human migrants from Africa. De Candolle (1886) and other investigators were of the view that sesame originated in South-West Africa, where wild and cultivated species are found. It is a rich source of food, nutrition, edible oil, health care and bio medicine. Sesame seeds have been a source of food and oil. It remains the main source of fat used in cooking. It has many medicinal values respiratory disorders, eye-infections and digestive ailments.

FIBERS Several types of fibbers are available, man-made as well as natural fibers. Natural fibers are made from natural material such as cotton, silk, wool etc. Cotton is the most widely used fibred.



In finance, private equity is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange.[1] A private equity investment will generally be made by a private equity firm, a venture capital firm or an angel investor. Each of these categories of investor has its own set of goals, preferences and investment strategies; however, all provide working capital to a target company to nurture expansion, new-product development, or restructuring of the companys operations, management, or ownership.[2] Bloomberg Business week has called private equity a rebranding of leveraged buyout firms after the 1980s. Among the most common investment strategies in private equity are: leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital. In a typical leveraged buyout transaction, a private equity firm buys majority control of an existing or mature firm. This is distinct from a venture capital or growth capital investment, in which the investors (typically venture capital firms or angel investors) invest in young or emerging companies, and rarely obtain majority control. Private equity is also often grouped into a broader category called private capital, generally used to describe capital supporting any long-term, illiquid investment strategy. Private equity firms According to an updated 2011 ranking created by industry magazine Private Equity International[78] (published by PEI Media called the PEI 300), the largest private equity firm in the world today is TPG, based on the amount of private equity direct-investment capital raised over a five-year window. As ranked by the PEI 300, the 10 largest private equity firms in the world are: 1. TPG Capital 2. Goldman Sachs Principal Investment Area 3. The Carlyle Group 4. Kohlberg Kravis Roberts 5. The Blackstone Group 6. Apollo Global Management 7. Bain Capital 8. CVC Capital Partners 9. First Reserve Corporation 10. Hellman & Friedman Because private equity firms are continuously in the process of raising, investing and distributing their private equity funds, capital raised can often be the easiest to measure. Other

metrics can include the total value of companies purchased by a firm or an estimate of the size of a firm's active portfolio plus capital available for new investments. As with any list that focuses on size, the list does not provide any indication as to relative investment performance of these funds or managers. Additionally, Preqin (formerly known as Private Equity Intelligence), an independent data provider, ranks the 25 largest private equity investment managers. Among the larger firms in that ranking were Alp Invest Partners, AXA Private Equity, AIG Investments, Goldman Sachs Private Equity Group and Pantheon Ventures. The European Private Equity and Venture Capital Association ("EVCA") publishes a yearbook which analyses industry trends derived from data disclosed by over 1, 300 European private equity funds. Finally, websites such as provide lists of London-based private equity firms. Who Is Impacted by Private Equity? Commercial banks

Bank of America (BAC), Citigroup (C), and J P Morgan Chase (JPM) are among the largest lenders to private equity firms. These are the main firms who have been stuck with the high-yield bonds that investors are increasingly reluctant to buy. A decline in private equity would lead to big losses for these lenders, since they're already sitting on over $40 billion in unsellable debt.[1] Goldman Sachs Group (GS), Merrill Lynch (MER), Morgan Stanley (MS), Lehman Brothers Fin SA (LEH), and other investment banks have been offering billions of dollars in bridge loans, which can be used to cover the costs of a private equity acquisition until permanent funding is found. These loans haven't been used that often in the past, but as private equity firms find it harder to raise capital by other methods, they could start drawing upon these loans, leaving investment banks with billions of dollars of loans. With the current state of the debt market, these banks could have trouble finding secondary buyers, meaning that they'd be stuck with heaps of unwanted loans. Also, investment banks are heavily involved with the underwriting of debt and securities for acquisitions and IPOs. These services bring in hefty fees for I-banks, and any decrease in demand for private equity-related services would negatively impact revenues.

Investment banks

Last men standing As the number of private equity deals has increased, the targets of acquisitions have primarily been small- to mid-size companies. While larger companies are technically fair game, some are just much too large to be seriously considered as possible acquisitions. Due to their size, large corporations such as these have benefited from the privatization in their respective industries. As smaller companies are taken private, investors wanting exposure to the industry are left with fewer options in terms of stocks; the remaining companies are seeing higher demand (and higher prices) for their stocks.

Exxon Mobil (XOM), Royal Dutch Shell (RDS), and ChevronTexaco (CVX) are potential beneficiaries of private equity deals involving small- to mid-sized oil refineries.


Piedmont Natural Gas Company (PNY), Northeast Utilities (NU), and Sempra Energy (SRE) may benefit from a host of global private equity transactions in natural gas.

Private Equity Goes Public

Blackstone Group (BX) is one of the first private equity firms that has gone public with a recent initial public offering in June 2007. China took a $3 billion stake before the IPO, which amounts to approximately 10% of the company's value. Blackstone manages about $800 billion in capital, ranking it as one of the top private equity firms by assets. Most market observers remain optimistic that Blackstone will deliver strong value to shareholders over time, given their excellent investment record since the company's inception. KKR--a leading private equity firm originally known as Kohlberg, Kravis, Roberts-announced in early July, 2007, that it was planning to go public. KKR is famous for its involvement in high-profile buyouts, including the $45 billion buyout of TXU in February 2007. According to their filings with the SEC, the company said it would sell up to $1.3 billion in common equity units and use proceeds to expand the business. It was reported later that same month that poor conditions in the debt market could delay KKR's IPO, as the firm is finding it more difficult to arrange financing for its deals

Characteristics Private equity funds tend to have much longer investment horizons than funds that hold publiclytraded securities. There are several reasons for this. First, securities issued by private companies (as well as private placements from public companies) are highly illiquid, since they are not traded in public securities markets. Also, the opportunities for resale to another party are highly limited, with possible contractual and regulatory constraints adding to the difficulties. Second, some private equity funds tend to act as partners in managing the companies that they back, rather than being merely passive investors.


6. PROPERTY Real estate asset is a unique investment because of the property and buildings that can be built on it. Real estate can be very illiquid if the land and buildings are purchased outright. On the other hand, investors can enjoy higher liquidity if the same asset (either land or buildings) is purchased through a fund or some other vehicle. It can be divided among a pool of investors, and can be categorized by the way the property is used by the owners or tenants. It can be owned in various forms such as public, private or financed through equity of debt. Historically, real estate has been a very popular alternative investment. Of course, the 2008 crash in the U.S. real estate market made many nervous about investing in real estate. But with prices still extremely low, real estate can be a good investment opportunity. The three most accessible ways to invest in real estate are to buy rental property as an individual, to join a real estate investment group or to buy shares in a real estate investment trust (REIT). Buying rental property can usually provide steady, reliable income if you find the right tenants. However, there are also expenses like property taxes and general upkeep that can limit profits, as well as huge investments of time and effort. Real estate investment groups offer a more hands-off, low-risk method of investing in real estate. A group of individual investors contributes money to a company that purchases a property (usually something like a condo development). The company manages the property in exchange for a portion of the monthly rent. Another option is the real estate investment trust (REIT). They provide extremely accessible ways for individuals to invest in real estate. An REIT is a group that invests in various real estate properties, and receives preferential tax treatment from the IRS in exchange for paying most of its income to shareholders. Investors can purchase shares of REITs on public exchanges, making them one of the more liquid alternative investments. Another upside is that, like stocks, shares in REITs pay out regular dividends. There are two types of property funds. Direct property funds buy all or part of physical buildings. Indirect property funds invest in products that own properties, such as publicly quoted property companies or Real Estate Investment Trusts (REITs). These are listed property companies with a special tax treatment that allows them to pass on the rental income from investing in physical property to shareholders.

Funds in The Select List can be direct or indirect investments. There are also hybrid funds that invest both ways. Although the property market is global, most of the funds we have chosen are largely focused on the UK. Feature of investing in real estate One of the beneficial features of real estate is that it produces relatively consistent total returns that are a hybrid of income and capital growth. In that sense, real estate has a coupon-paying bond-like component in that it pays a regular, steady income stream,

and it has a stock-like component in that its value has a propensity to fluctuate. And, like all securities that you have a long position in, you would prefer the value to go up more often than it goes down! The income return from real estate is directly linked to the rent payments received from tenants, minus the costs of operating the property and outgoing mortgage/financing payments. So, you can understand how important it is to keep your property as full as possible. If you lose too many tenants, you won't have sufficient rents being paid by the other tenants to cover the building operating costs. Your ability to keep the building full depends on the strength of the leasing market - that is, the supply and demand for space similar to the space you are trying to lease. In weaker markets with oversupply of vacancies or poor demand, you would have to charge less rent to keep your building full than in a strong leasing market. And unfortunately, if your rents are lower, your income returns are lower. Capital appreciation of a property is determined by having the property appraised. (We discuss the appraisal process further in chapter 7, but for now you should just know that an appraiser uses actual sale transactions that have occurred and other pieces of market data to estimate what your property would be worth if it were to be sold.) If the appraiser thinks your property would sell for more than you bought it for, then you've achieved a positive capital return. Because the appraiser uses past transactions in judging values, capital returns are directly linked to the performance of the investment sales market. The investment sales market is affected largely by the supply and demand of investment product. The majority of the volatility in real estate returns comes from the capital appreciation component of returns. Income returns tend to be fairly stable, and capital returns fluctuate more. The volatility of total returns falls somewhere in between.

Other Characteristics Some of the other characteristics that make real estate unique as compared to other investment alternatives are as follows: 1. No fixed maturity unlike a bond which has a fixed maturity date, an equity real estate investment does not normally mature. In Europe, it is not uncommon for investors to hold property for over 100 years. This attribute of real estate allows an owner to buy a property, execute a business plan, then dispose of the property whenever appropriate. An exception to this characteristic is an investment in fixed-term debt; by definition a mortgage would have a fixed maturity. 2. Tangible Real estate is, well, real! You can visit your investment, speak with your tenants, and show it off to your family and friends. You can see it and touch it. A result of this attribute is that you have a certain degree of physical control over the investment - if something is wrong with it, you can try fixing it. You can't do that with a stock or bond. 3. Requires Management because real estate is tangible, it needs to be managed in a hands-on manner. Tenant complaints must be addressed. Landscaping must be handled. And, when the building starts to age, it needs to be renovated.

4. Inefficient Markets an inefficient market is not necessarily a bad thing. It just means that information asymmetry exists among participants in the market, allowing greater profits to be made by those with special information, expertise or resources. In contrast, public stock markets are much more efficient - information is efficiently disseminated among market participants, and those with material non-public information are not permitted to trade upon the information. In the real estate markets, information is king, and can allow an investor to see profit opportunities that might otherwise not have presented themselves. 5. High Transaction Costs Private market real estate has high purchase costs and sale costs. On purchases, there are real-estate-agent-related commissions, lawyers' fees, engineers' fees and many other costs that can raise the effective purchase price well beyond the price the seller will actually receive. On sales, a substantial brokerage fee is usually required for the property to be properly exposed to the market. Because of the high costs of "trading" real estate, longer holding periods are common and speculative trading is rarer than for stocks. 6. Lower Liquidity With the exception of real estate securities, no public exchange exists for the trading of real estate. This makes real estate more difficult to sell because deals must be privately brokered. There can be a substantial lag between the time you decide to sell a property and when it actually is sold - usually a couple months at least. 7. Underlying Tenant Quality when assessing an income-producing property, an important consideration is the quality of the underlying tenancy. This is important because when you purchase the property, you're buying two things: the physical real estate, and the income stream from the tenants. If the tenants are likely to default on their monthly obligation, the risk of the investment is greater. 8. Variability among Regions while it sounds clich, location is one of the important aspects of real estate investments; a piece of real estate can perform very differently among countries, regions, cities and even within the same city. These regional differences need to be considered when making an investment, because your selection of which market to invest in has as large an impact on your eventual returns as your choice of property within the market. Benefits some of the benefits of having real estate in your portfolio are as follows: 1. Diversification Value - The positive aspects of diversifying your portfolio in terms of asset allocation are well documented. Real estate returns have relatively low correlations with other asset classes (traditional investment vehicles such as stocks and bonds), which adds to the diversification of your portfolio. (To read more about diversifying, see Allocation, Introduction, The Importance Of Diversification and A Guide To Portfolio Construction.) 2. Yield Enhancement - As part of a portfolio, real estate allows you to achieve higher returns for a given level of portfolio risk. Similarly, by adding real estate to a portfolio you could maintain your portfolio returns while decreasing risk.

3. Inflation Hedge - Real estate returns are directly linked to the rents that are received from tenants. Some leases contain provisions for rent increases to be indexed to inflation. In other cases, rental rates are increased whenever a lease term expires and the tenant is renewed. Either way, real estate income tends to increase faster in inflationary environments, allowing an investor to maintain its real returns. (To find out more about inflation, see Inflation, The and Curbing the Effects of Inflation.) 4. Ability to Influence Performance - In previous chapters we've noted that real estate is a tangible asset. As a result, an investor can do things to a property to increase its value or improve its performance. Examples of such activities include: replacing a leaky roof, improving the exterior and re-tenanting the building with higher quality tenants. An investor has a greater degree of control over the performance of a real estate investment than other types of investments. Other Considerations Real estate also has some characteristics that require special consideration when making an investment decision: Costly to Buy, Sell and Operate - For transactions in the private real estate market, transaction costs are significant when compared to other investment classes. It is usually more efficient to purchase larger real estate assets because you can spread the transaction costs over a larger asset base. Real estate is also costly to operate because it is tangible and requires ongoing maintenance. Requires Management - With some exceptions, real estate requires ongoing management at two levels. First, you require property management to deal with the dayto-day operation of the property. Second, you need strategic management of the property to consider the longer term market position of the investment. Sometimes the management functions are combined and handled by one group. Management comes at a cost; even if it is handled by the owner, it will require time and resources. Difficult to Acquire - It can be a challenge to build a meaningful, diversified real estate portfolio. Purchases need to be made in a variety of geographical locations and across asset classes, which can be out of reach for many investors. You can, however, purchase units in a private pool or a public security, and these units are typically backed by a diverse portfolio. Cyclical (Leasing Market) - Not unlike other asset classes, real estate is cyclical. Real estate has two cycles: the leasing market cycle and the investment market cycle. The leasing market consists of the market for space in real estate properties. As with most markets, conditions of the leasing market are dictated by the supply side, which is the amount of space available (or, vacancies), and the demand side, which is the amount of space required by tenants. If demand for space increases, then vacancies will decrease, and the resulting scarcity of space will cause an increase in market rents. Once rents reach economic levels, it becomes profitable for developers to construct additional space so that supply can meet demand. Cyclical (Investment Market) - The real estate investment market moves in a different cycle than the leasing market. On the demand side of the investment market are investors who have capital to invest in real estate. The supply side consists of properties that are brought to market by their owners. If the supply of capital seeking real estate investments is plentiful, then property prices increase. As prices increase, additional properties are

brought to market to meet demand. Although the leasing and investment market have independent cycles, one does tend to influence the other. For instance, if the leasing market is in decline, then growth in rents should decrease. Faced with decreasing rental growth, real estate investors might view real estate prices as being too high and might therefore stop making additional purchases. If capital seeking real estate decreases, then prices decrease to force equilibrium. Although timing the market is not advisable, you should be aware of the stage of the market when you are making your purchase and consider how the property will perform as it moves through the cycles.

Performance Measurement - In the private market there is no high quality benchmark to which you can compare your portfolio results. Similarly, it is difficult to measure risk relative to the market. Risk and return are easy to determine in the stock market but measuring real estate performance is much more challenging.

Advantages Historically, the risk and rewards of property have been a halfway house between equities and bonds. It can be a useful diversifier, as global property returns have demonstrated a moderately low correlation to UK equity. Property is also likely to keep pace with the rate of inflation.

Disadvantages Property bubbles can pop and inflict large losses on funds. Property is illiquid, which can lead to funds imposing exit restrictions on investors during periods of market stress In other words, they cant sell their buildings quickly if everyone wants their money back at the double.

Risk/Reward trade-off Risk = Higher than bonds or cash, but lower than equities Reward = Higher than bonds or cash, but lower than equities


Non marketable securities are those securities which cannot be liquidated in financial market. Non market security is BANK DEPOSITS POST OFFICE DEPOSITS 1. BANK DEPOSITS Definition of BANK DEPOSITS Money placed into a banking institution for safekeeping. Bank deposits are made to deposit accounts at a banking institution, such as savings accounts, checking accounts and money market accounts. The account holder has the right to withdraw any deposited funds, as set forth in the terms and conditions of the account. The "deposit" itself is a liability owed by the bank to the depositor (the person or entity that made the deposit), and refers to this liability rather than to the actual funds that are deposited. Bank deposit meaning In deposit terminology, the term Bank Deposit refers to an amount of money in cash or checks form or sent via a wire transfer that is placed into a bank account. The target bank account for the Bank Deposit can be any kind of account that accepts deposits. Bank deposit example For example, a Bank Deposit is generally made when opening an account or in the course of routine business or personal transactions that involve placing funds with the bank for future use. Bank deposits can be made in a number of different ways. The most direct way is to walk into a bank or a bank branch in which you hold an account. You are then usually required to fill in a Bank Deposit slip with the particulars of your account and the amount of money you wish to deposit. In addition, Bank Deposits can be made via wire transfer, as well as through a direct deposit plan from employers in many cases. Major type of bank deposits I. CURRENT DEPOSIT SAVING DEPOSIT FIX DEPOSIT SAVING ACCOUNT

saving accounts are accounts maintained by retail financial institutions that pay interest but cannot be used directly as money in the narrow sense of a medium of exchange (for example, by

writing a cheque). These accounts let customers set aside a portion of their liquid assets while earning a monetary return. For the bank, money in a savings account may not be callable immediately and in some jurisdictions, does not incur a reserve requirement, freeing up cash from the bank's vault to be lent out with interest. Withdrawals from a savings account are occasionally costly, and they are more timeconsuming than withdrawals from a demand (current) account. However, most saving accounts do not limit withdrawals, unlike certificates of deposit. In the United States, violations of Regulation D often involve a service charge, or even a downgrade of the account to a checking account. With online accounts, the main penalty is the time required for the Automated Clearing House to transfer funds from the online account to a "brick and mortar" bank where it can be easily accessed. During the period between when funds are withdrawn from the online bank and transferred to the local bank, no interest is earned. Online saving account Some financial institutions offer online-only savings accounts. These usually pay higher interest rates and sometimes carry higher security restrictions. Online access has opened the accessibility of offshore financial centers to the wider public. II. FIX DEPOSIT

Fixed deposit (FD) is a financial instrument provided by Indian banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date. It may or may not require the creation of a separate account. It is known as a term deposit or time deposit in Canada, Australia, New Zealand, and the US, and as a bond in the United Kingdom. They are considered to be very safe investments. Term deposits in India are used to denote a larger class of investments with varying levels of liquidity. The defining criteria for a fixed deposit are that the money cannot be withdrawn for the FD as compared to a recurring deposit or a demand deposit before maturity. Some banks may offer additional services to FD holders such as loans against FD certificates at competitive interest rates. It's important to note that banks may offer lesser interest rates under uncertain economic conditions. The interest rate varies between 4 and 11 %.The tenure of an FD can vary from 10, 15 or 45 days to 1.5 years and can be as high as 10 years. These investments are safer than Post Office Schemes as they are covered under the Deposit Insurance & Credit Guarantee Scheme of India. They also offer income tax and wealth tax benefits. Fixed deposits are a high-interest-yielding Term deposit offered by banks in India. The most popular form of Term deposits are Fixed Deposits, while other forms of term Deposits are Recurring Deposit and Flexi Fixed Deposits (the latter is actually a combination of Demand deposit and Fixed deposit). To compensate for the low liquidity, FDs offer higher rates of interest than saving accounts. The longest permissible term for FDs is 10 years. Generally, the longer the term of deposit, higher is the rate of interest but a bank may offer lower rate of interest for a longer period if it expects interest rates, at which RBI lends to banks ("repo rates"), will dip in the future.


Usually in India the interest on FDs is paid every three months from the date of the deposit. (e.g. if FD a/c was opened on 15th Feb., first interest installment would be paid on 15 May). The interest is credited to the customers' Savings bank account or sent to them by cheque Banks issue a separate receipt for every FD because each deposit is treated as a distinct contract. This receipt is known as the Fixed Deposit Receipt (FDR) that has to be surrendered to the bank at the time of renewal or encashment. Many banks offer the facility of automatic renewal of FDs where the customers do give new instructions for the matured deposit. On the date of maturity, such deposits are renewed for a similar term as that of the original deposit at the rate prevailing on the date of renewal Taxability Tax is deducted by the banks on FDs if interest paid to a customer at any branch exceeds Rs. 10,000 in a financial year. This is applicable to both interest payable or reinvested per customer or per branch. This is called Tax deducted at Source and is presently fixed at 10% of the interest. Banks issue Form 16 A every quarter to the customer, as a receipt for Tax Deducted at Source.[8] If the total income for a year does not fall within the overall taxable limits, customers can submit a Form 15 G (below 65 years of age) or Form 15 H (above 65 years of age). How bank FD rate of interest vary with RBI policy? In certain macroeconomic conditions (particularly during periods of high inflation) RBI adopts a tight monetary policy, that is, it hikes the interest rates at which it lends to banks ("repo rates"). Under such conditions, banks also hike both their lending (i.e. loan) as well as deposit (FD) rates. Under such conditions of high FD rates, FDs become an attractive investment avenue as they offer good returns and are almost completely secure with no risk. III. CURRENT ACCOUNT

A current account is the form of transactional account found in the United Kingdom and other countries with a UK banking heritage; a current account offers various flexible payment methods to allow customers to distribute money directly to others. Most current accounts come with a cheque book and offer the facility to arrange standing orders, direct debits and payment via a debit card. Current accounts may also allow borrowing via an overdraft facility. Lending Current accounts have two different ways in which money can be lent: overdraft and offset mortgage. Overdraft In the UK, virtually all current accounts offer a pre-agreed overdraft facility the size of which is based upon affordability and credit history. This overdraft facility can be used at any time without consulting the bank and can be maintained indefinitely (subject to ad-hoc reviews).

Although an overdraft facility may be authorized, technically the money is repayable on demand by the bank. In reality this is a rare occurrence as the overdrafts are profitable for the bank and expensive for the customer. Offset mortgage An offset mortgage was a type of mortgage common in the United Kingdom used for the purchase of domestic property; the key principle is the reduction of interest charged by "offsetting" a credit balance against the mortgage debt. This can be achieved via one of two methods: either lender provide a single account for all transactions (often referred to as a current account mortgage) or they make multiple accounts available which allow the borrowers to notionally split their money according to purpose whilst all accounts are offset each day against the mortgage debt. Interest In the UK some online banks offer rates as high as many savings accounts along with free banking (no charges for transactions) as institutions which offer centralized services (telephone, internet or postal based) tend to pay higher levels of interest. The same holds true for banks within the EURO currency zone. 2. POST OFFICE DEPOSITS Postal deposit means a savings account, often with a building society, that is operated by post. You post cheques to them for deposit and they either send cheques to you, on your written request, or they transfer money to your bank account. You don't go into any of their offices or visit them in person. 1. The public department responsible for the transportation and delivery of the mails. Also called postal service. 2. A local office where mail is received, sorted, and delivered, and where stamps and other postal materials are sold. 3. A game in which kisses are exchanged for pretended letters Post office scheme are I. Monthly income saving scheme Interest rate of 8.4% per annum payable monthly i.e. 01-04-2013 Maturity period is 5 years. No Bonus on Maturity i.e. 01.12.2011. No tax deduction at source (TDS). No tax rebate is applicable. Minimum investment amount is Rs.1500/- or in multiple thereafter. Maximum amount is Rs. 4.50 lakhs in a single account and Rs.9 lakhs in a joint account.

Auto credit facility of monthly interest to saving account if accounts are at the same post office. Account can be opened by an individual, two/three adults jointly, and a minor through a guardian. Non-Resident Indian / HUF cannot open an Account. Minors have a separate limit of investment of Rs. 3 lakhs and the same is not clubbed with the limit of guardian. Facility of premature closure of account after 1 year but on or before 3 years @ 2.00% discount. Deduction of 1% if account is closed prematurely at any time after three years. Suitable scheme for retired employees/ senior citizens and for those who need regular monthly income. National saving certificate NSC VIII Issue (5 years) Interest rate of 8.5% per annum w.e.f. 01-04-2011 NSC IX Issue (10 years) - Interest rate of 8.8% per annum w.e.f. 01-04-2013 Minimum investment Rs. 100/-. No maximum limit for investment. No tax deduction at source. Investment up to Rs 1,00,000/- per annum qualifies for Income Tax Rebate under NSC section 80C of IT Act Certificates can be kept as collateral security to get loan from banks. Trust and HUF cannot invest. A single holder type certificate can be purchased by an adult for himself or on behalf of a minor or to a minor. The interest accruing annually but deemed to be reinvested will also qualify for deduction under NSC - section 80C of IT Act PUBLIC PROVIDEND FUND Interest rate of 8.7% per annum w.e.f. 01-04-2013. Minimum deposit is 500/- per annum. Maximum deposit is Rs. 1,00,000/- per annum The scheme is for 15 years. Investment up to Rs 1, 00,000/- per annum qualifies for Income Tax Rebate under section 80C of IT Act. Interest is completely tax-free. Deposits can be made in lump sum or in 12 installments. One deposit with a minimum amount of Rs 500/- is mandatory in each financial year. Withdrawal is permissible from 6th financial year. Loan facility available from 3rd financial year upto 5th financial year. The rate of interest charged on loan taken by the subscriber of a PPF account on or after 01.12.2011 shall be 2% p.a. However, the rate of interest of 1% p.a. shall continue to be charged on the loans already taken or taken up to 30.11.2011. Free from court attachment.



Non-Resident Indians (NRIs) not eligible.

An individual cannot invest on behalf of HUF (Hindu Undivided Family) or Association of persons. Ideal investment option for both salaried as well as self employed classes. IV. TIME DEPOSITE

1 year, 2 year, 3 year and 5 year time deposits can be opened. Interest payable annually but compounded quarterly: PERIOD 1st year 2nd year 3rd year 4th year RATE OF INTEREST 8.2% 8.3% 8.4% 8.5%

Minimum amount of deposit is Rs 200/- and in multiples of Rs 200/- thereafter. No maximum limit. Investment up to Rs 1, 00,000/- per annum qualifies for Income Tax Rebate under section 80C of IT Act. Interest income is taxable. Facility of redeposit on maturity of an account. Account can be pledged as security against a loan to banks/ Government institutions. Any individual (a single adult or two adults jointly) can open an account. Group Accounts, Institutional Accounts and Misc. account not permissible. Trust, Regimental Fund or Welfare Fund not permissible to invest.

In case of premature closure of 1 year, 2 Year, 3 Year or 5 Year account on or after 01.12.2011 between 6 months to one year from the date of deposit, simple interest at the rate applicable to from time to time to post office savings account shall be payable. 2 year, 3 year or 5 year accounts on or after 01.12.2011 if closed after one year, interest on such deposits shall be calculated at a discount of 1% on the rate specified for respective period as mentioned in the concerned table given under Rule 7 of Post office Time Deposit Rules


V. SENIOUR CITIZEN SAVING SCHEME Interest @ 9.2% per annum from the date of deposit on quarterly basis w.e.f. 01-04-2013 Minimum deposit is Rs 1000 and multiples thereof. Maximum limit of 15 lakhs. Maturity period is 5 years and can be extended for a further period of 3 years. Age should be 60 years or more, and 55 years or more but less than 60 years who has retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme on the date of opening of the account within three months from the date of retirement. No age limit for the retired personnel of Defense services provided they fulfill other specified conditions. The account may be opened in individual capacity or jointly with spouse. TDS is deducted at source on interest if the interest amount is more than Rs 10,000/- per annum. Investment up to Rs 1, 00,000/- per annum qualifies for Income Tax Rebate under section 80C of IT Act. Interest can be automatically credited to savings account provided both the accounts stand in the same post office. Premature closure is allowed after one year on deduction of 1.5% of the deposit and after 2 years on deduction of 1%. No withdrawal permitted before the expiry of a period of 5 years from the date of opening of the account. Non-resident Indians (NRIs) and Hindu Undivided Family (HUF) are not eligible to open an account. POST OFFICE SAVING SCHEME Rate of interest 4.0% per annum Minimum amount Rs 50/- in case of non-cheque account, Rs.500/- in case of cheque account. Maximum balance permissible is Rs 1, 00,000/- in a single account and Rs 2,00,000/- in a joint account. Interest Tax Free. Any individual can open an account. Cheque facility available.
Group Account, Institutional Account, other Accounts like Security Deposit account & Official Capacity account are not permissible



Everyone says interest rates are rising. This is true even for deposit rates. So does that mean bank deposits could now be a better option to post office savings? Here is a bird's eye view of recurring and fixed deposits offered by banks and post-office. 4.1 Post office Recurring Deposits VS Bank Recurring Deposits A post office recurring deposit account (RDA) is similar to a recurring deposit in a bank, where you can invest a fixed amount on a monthly basis. The postal RDA has a fixed tenure of five years. These deposits accumulate money at an annual fixed rate of interest of 8 per cent. The interest is compounded on a quarterly basis. The minimum investment in a post office RDA is Rs 10 and there is no prescribed upper limit. For example, if you invest Rs 100 every month in 60 installments, you will earn a sum of Rs 7,289 after 5 years. Banks, however, offer a flexible time period on their recurring deposits. You can open an RDA for a minimum period of 6 months, and thereafter in multiples of 3 months up to a maximum period of 10 years. In banks, you can start a recurring deposit with State Bank of India(SBI) for a monthly installment of Rs 100 whereas ICICI Bank has kept its minimum deposit limit at Rs 500. An individual can open an RDA account with a post office individually or one in a joint form with another investor, or a guardian on behalf of the minor who has attained the age of 10 years can open an RDA account in his/her own name. The advantage with post-office deposits is that it offers a fixed rate of return for the duration of the deposit, while banks constantly review their recurring deposit rates. However, the disadvantage with post office savings is that that in the age of convenience banking, you will have to visit the post office every month. In case of banks, the amount is automatically debited from your account. Premature withdrawal, however, cannot earn you desired returns. In post office RDA, you can withdraw up to half the balance. On premature closure of the account (after one year), interest is payable as per the rate for the Post Office Savings Bank Account, which is 3.5 per cent. In the case of banks, premature closure of an RDA will attract a penal interest. This means the depositor will get interest around 1 per cent less than the prevailing rate. It will certainly be higher than the 3.5 per cent paid by post office.


4.2 Post office Time deposits vs. Banks' Fixed Deposits Just like banks' fixed deposits (FDs), post office time deposits are meant for those investors who want to deposit a lump sum for a fixed period. Time Deposits are of 1 year, 2 year, 3 year and 5 year tenures. The minimum investment should be Rs 200 and its multiples. The tenure of bank fixed deposits is flexible, with periods ranging from 15 days to 10 years but the minimum amount is as high as Rs 10,000. In case of postal time deposits, the account can be closed after 6 months but before one year of opening the account. On such closure, the amount invested is returned without interest. If a time deposit of two or three years is withdrawn prematurely, post office will pay interest only for the completed year or years. For example, a fixed deposit for two years is withdrawn after 20 months; interest will be paid only for the one full year completed. The depositor will lose interest for the remaining 8 months. If a bank FD is closed before completing the original term of the deposit, banks have the discretion to charge penal interest. If a bank decides to charge penal interest, the depositor will be paid interest at a lower rate than that was contracted. A postal time deposit fetches annual interest rates in the range of 6.25 to 7.5 per cent. A bank FD offers annual interest rates in the range of 3.75 per cent to 7.27 per cent. Senior citizens enjoy the privilege of earning higher interest rates on bank FDs, ranging from 4.25 per cent and 7.95 per cent. In the post-office scheme your investment grows at a pre-determined rate with no risk as it is backed by the government.


According to survey Bonds had impressive this year, with the 10-year Treasury note returning about 4.4% year-to-date, despite several gurus talking about the bond bubble burst. Bond yields may finally rise in 2013 as the macroeconomic situation improves, even though the Fed will maintain the rates near zero at least until the unemployment rate drops to 6.5% or inflation exceeds 2.5%. They will also continue massive purchases of bonds. On the other hand, no deal or a bad deal on the fiscal cliff front may push the investors towards safer assets again. Another is Stock Market is up about 15% year-to-date. Economy will probably continue to muddle through for most part of 2013, though unemployment may not come down significantly. Considering the situation in most other parts of the developed world and historical valuations, U.S. stocks look pretty attractive. And if the policy makers strike a nice deal on the fiscal cliff front, the stocks will continue their uptrend. Also today date many people invest in real estate. But this year worst performing asset is gold because Gold is on track to gain about 7% this year, yielding positive returns for the twelfth year in a row. Though the precious metal lost some of its shine recently, many view the decline as a buying opportunity. As the Government printing presses continue to run overtime, gold may benefit as an inflation hedge. Also the central banks of the emerging countries are likely to continue their gold purchases in 2013. Emerging Markets While the broader MSCI emerging markets index is up about 16% yearto-date, some of the ETFs tracking smaller emerging markets like Turkey, Philippines, Egypt, Mexico and Thailand have returned more than 30% this year so far. Further China and India now seem to be bottoming out and may post a much better performance in 2013.