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Investment and Debts

Define investmentThe action or process of investing money for profit. a debate over private investment in roadbuilding."

a thing that is worth buying because it may be profitable or useful in the future. freezers really are a good investment for the elderly"

An act of devoting time, effort, or energy to a particular undertaking with the expectation of a worthwhile result. the time spent in attending the seminar is an investment in our professional futures" An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price. The building of a factory used to produce goods and the investment one makes by going to college or university is both examples of investments in the economic sense. In the financial sense investments include the purchase of bonds, stocks or real estate property. Be sure not to get 'making an investment' and 'speculating' confused. Investing usually involves the creation of wealth whereas speculating is often a zero-sum game; wealth is not created. Although speculators are often making informed decisions, speculation cannot usually be categorized as traditional investing


Objectives of investment:

The options for investing our savings are continually increasing, yet every single investment vehicle can be easily categorized according to three fundamental characteristics - safety, income and growth - which also correspond to types of investor objectives. While it is possible for an investor to have more than one of these objectives, the success of one must come at the expense of others. Let's examine these three types of objectives, the investments that are used to achieve them and the ways in which investors can incorporate them in devising a strategy.

a) Safety
Perhaps there is truth to the axiom that there is no such thing as a completely safe and secure investment. Yet we can get close to ultimate safety for our investment funds through the purchase of government-issued securities in stable economic systems, or through the purchase of the highest quality corporate bonds issued by the economy's top companies. Such securities are arguably the best means of preserving principal while receiving a specified rate of return. The safest investments are usually found in the money market, which includes such securities as Treasury bills (T-bills), certificates of deposit (CD), commercial paper or bankers'

acceptance slips, or in the fixed income (bond) market in the form of municipal and other government bonds, and in corporate bonds.


b) Income
The safest investments are also the ones that are likely to have the lowest rate of income return or yield. Investors must inevitably sacrifice a degree of safety if they want to increase their yields. This is the inverse relationship between safety and yield: as yield increases, safety generally goes down and vice versa. In order to increase their rate of investment return and take on risk above that of money market instruments or government bonds, investors may choose to purchase corporate bonds or preferred shares with lower investment ratings. Most investors, even the most conservative-minded ones, want some level of income generation in their portfolios, even if it's just to keep up with the economy's rate of inflation. But maximizing income return can be an overarching principle for a portfolio, especially for individuals who require a fixed sum from their portfolio every month. A retired person who requires a certain amount of money every month is well served by holding reasonably safe assets that provide funds over and above other income-generating assets, such as pension plans, for example.

c) Growth of Capital
This discussion has thus far been concerned only with safety and yield as investing objectives, and has not considered the potential of other assets to provide a rate of return from an increase in value, often referred to as a capital gain. Capital gains are entirely different from yield in that they are only realized when the security is sold for a price that is higher than the price at which it was originally purchased. Selling at a lower price is referred to as a capital loss. Therefore, investors seeking capital gains are likely not those who need a fixed, ongoing source of investment returns from their portfolio, but rather those who seek the possibility of longer-term growth. Growth of capital is most closely associated with the purchase of common stock, particularly growth securities, which offer low yields but considerable opportunity for increase in value. For this reason, common stock generally ranks among the most speculative of investments as their return depends on what will happen in an unpredictable future. Blue-chip stocks, by contrast, can potentially offer the best of all worlds by possessing reasonable safety, modest income and potential for growth in capital generated by long-term increases in corporate revenues and earnings as the company matures. Yet rarely is any common stock able to provide the near-absolute safety and income-generation of government bonds.

d) Secondary Objectivesi. Tax Minimization:

An investor may pursue certain investments in order to adopt tax minimization as part of his or her investment strategy. A highly-paid executive, for example, may want to seek investments with favorable tax treatment in order to lessen his or her overall income tax burden. Making contributions to an IRA or other tax-sheltered retirement plan, such as a401(k), can be an effective tax minimization strategy. ii. Marketability / Liquidity:

Many of the investments we have discussed are reasonably illiquid, which means they cannot be immediately sold and easily converted into cash. Achieving a degree of liquidity, however, requires the sacrifice of a certain level of income or potential for capital gains. Common stock is often considered the most liquid of investments, since it can usually be sold within a day or two of the decision to sell. Bonds can also be fairly marketable, but some bonds are highly illiquid, or non-tradable, possessing a fixed term. Similarly, money market instruments may only be redeemable at the precise date at which the fixed term ends. If an investor seeks liquidity, money market assets and non-tradable bonds aren't likely to be held in his or her portfolio.


The Bottom Line-

As we have seen from each of the five objectives discussed above, the advantages of one often come at the expense of the benefits of another. If an investor desires growth, for instance, he or she must often sacrifice some income and safety. Therefore, most portfolios will be guided by one pre-eminent objective, with all other potential objectives occupying less significant weight in the overall scheme.


Types of investments : Equities

Equities are a type of security that represents the ownership in a company. Equities are traded (bought and sold) in stock markets. Alternatively, they can be purchased via the Initial Public Offering (IPO) route, i.e. directly from the company. Investing in equities is a good long-term investment option as the returns on equities over a long time horizon are generally higher than most other investment avenues. However, along with the possibility of greater returns comes greater risk.


Mutual funds
An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. A mutual fund allows a group of people to pool their money together and have it professionally managed, in keeping with a predetermined investment objective. This investment avenue is popular because of its cost-efficiency, risk-diversification, professional management and sound regulation. You can invest as little as Rs. 1,000 per month in a mutual fund. There are various general and thematic mutual funds to choose from and the risk and return possibilities vary accordingly.

Benefits of Investing in Mutual Funds:Professional Management: Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Diversification: Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.


Convenient Administration: Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. Return Potential: Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Low Costs: Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. Liquidity: In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Transparency: You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. Flexibility: Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. Affordability: 7|Page

Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. Choice of Schemes: Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. Well Regulated All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

Disadvantages of Investing Mutual Funds:Professional Management: Some funds doesnt perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor himself, for picking up stocks. Costs: The biggest source of AMC income is generally from the entry & exit load which they charge from investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon. Dilution: Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big.


When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. Taxes: When making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.


BONDS:Bonds are fixed income instruments which are issued for the purpose of raising capital. Both private entities, such as companies, financial institutions, and the central or state government and other government institutions use this instrument as a means of garnering funds. Bonds issued by the Government carry the lowest level of risk but could deliver fair returns. A bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) and/or to repay the principal at a later date, termed maturity. It is a formal contract to repay borrowed money with interest at fixed intervals. Thus a bond is like a loan: the issuer is the borrower, the bond holder is the lender, and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Certificates of deposit (CDs) or commercial paper are considered to be money market instruments and not bonds. Bonds must be repaid at fixed intervals over a period of time Bonds are issued by public authorities, credit institutions, companies and supranational institutions in the primary markets. The most common process of issuing bonds is through underwriting. In underwriting, one or more securities firms or banks, forming a syndicate, buy an entire issue of bonds from an issuer and re-sell them to investors. The security firm takes the risk of being unable to sell on the issue to end investors. However government bonds are instead typically auction. The most important features of a bond are: Nominal, principal or face amount the amount on which the issuer pays interest, and which has to be repaid at the end. Issue price the price at which investors buy the bonds when they are first issued, which will typically be approximately equal to the nominal amount. The net proceeds that the issuer receives are thus the issue price, less issuance fees.

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Maturity date the date on which the issuer has to repay the nominal amount. As long as all payments have been made, the issuer has no more obligations to the bond holders after the maturity date. The length of time until the maturity date is often referred to as the term or tenor or maturity of a bond. The maturity can be any length of time, although debt securities with a term of less than one year are generally designated money market instruments rather than bonds. Most bonds have a term of up to thirty years. Some bonds have been issued with maturities of up to one hundred years, and some even do not mature at all. In early 2005, a market developed in euros for bonds with a maturity of fifty years. In the market for U.S. Treasury securities, there are three groups of bond maturities: Short term (bills): maturities up to one year; Medium term (notes): maturities between one and ten years; long term (bonds): maturities greater than ten years. Coupon the interest rate that the issuer pays to the bond holders. Usually this rate is fixed throughout the life of the bond. It can also vary with a money market index, such as LIBOR, or it can be even more exotic. The name coupon originates from the fact that in the past, physical bonds were issued which coupons had attached to them. On coupon dates the bond holder would give the coupon to a bank in exchange for the interest payment.

The quality of the issue, which influences the probability that the bondholders will receive the amounts promised, at the due dates. This will depend on a whole range of factors. Indentures and Covenants An indenture is a formal debt agreement that establishes the terms of a bond issue, while covenants are the clauses of such an agreement. Covenants specify the rights of bondholders and the duties of issuers, such as actions that the issuer is obligated to perform or is prohibited from performing. In the U.S., federal and state securities and commercial laws apply to the enforcement of these agreements, which are construed by courts as contracts between issuers and bondholders. The terms may be changed only with great difficulty while the bonds are outstanding, with amendments to the governing document generally requiring approval by a majority (or super-majority) vote of the bondholders.
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Inflation linked bonds, in which the principal amount and the interest payments are indexed to inflation. The interest rate is normally lower than for fixed rate bonds with a comparable maturity (this position briefly reversed itself for short-term UK bonds in December 2008). However, as the principal amount grows, the payments increase with inflation. The government of the United Kingdom was the first to issue inflation linked Gilts in the 1980s. Treasury Inflation-Protected Securities (TIPS) and I-bonds are examples of inflation linked bonds issued by the U.S. government. Other indexed bonds, for example equity-linked notes and bonds indexed on a business indicator (income, added value) or on a country's GDP. Asset-backed securities are bonds whose interest and principal payments are backed by underlying cash flows from other assets. Examples of asset-backed securities are mortgagebacked securities (MBS's), collateralized mortgage obligations (CMOs) and collateralized debt obligations (CDOs). Subordinated bonds are those that have a lower priority than other bonds of the issuer in case of liquidation. In case of bankruptcy, there is a hierarchy of creditors. First the liquidator is paid, then government taxes, etc. The first bond holders in line to be paid are those holding what is called senior bonds. After they have been paid, the subordinated bond holders are paid. As a result, the risk is higher. Therefore, subordinated bonds usually have a lower credit rating than senior bonds. The main examples of subordinated bonds can be found in bonds issued by banks, and asset-backed securities. The latter are often issued in tranches. The senior tranches get paid back first, the subordinated tranches later. Perpetual bonds are also often called perpetuities. They have no maturity date. The most famous of these are the UK Consols, which are also known as Treasury Annuities or Undated Treasuries. Some of these were issued back in 1888 and still trade today, although the amounts are now insignificant. Some ultra long-term bonds (sometimes a bond can last centuries: West Shore Railroad issued a bond which matures in 2361 (i.e. 24th century)) are virtually perpetuities from a financial point of view, with the current value of principal near zero.

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Bearer bond is an official certificate issued without a named holder. In other words, the person who has the paper certificate can claim the value of the bond. Often they are registered by a number to prevent counterfeiting, but may be traded like cash. Bearer bonds are very risky because they can be lost or stolen. Especially after federal income tax began in the United States, bearer bonds were seen as an opportunity to conceal income or assets.[2] U.S. corporations stopped issuing bearer bonds in the 1960s, the U.S. Treasury stopped in 1982, and state and local tax-exempt bearer bonds were prohibited in 1983.[3] Registered bond is a bond whose ownership (and any subsequent purchaser) is recorded by the issuer, or by a transfer agent. It is the alternative to a Bearer bond. Interest payments, and the principal upon maturity, are sent to the registered owner. Municipal bond is a bond issued by a state, U.S. Territory, city, local government, or their agencies. 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. Book-entry bond is a bond that does not have a paper certificate. As physically processing paper bonds and interest coupons became more expensive, issuers (and banks that used to collect coupon interest for depositors) have tried to discourage their use. Some book-entry bond issues do not offer the option of a paper certificate, even to investors who prefer them.[4] Lottery bond is a bond issued by a state, usually a European state. Interest is paid like a traditional fixed rate bond, but the issuer will redeem randomly selected individual bonds within the issue according to a schedule. Some of these redemptions will be for a higher value than the face value of the bond. War bond is a bond issued by a country to fund a war. Serial bond is a bond that matures in installments over a period of time. In effect, a $100,000, 5year serial bond would mature in a $20,000 annuity over a 5-year interval.

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Revenue bond is a special type of municipal bond distinguished by its guarantee of repayment solely from revenues generated by a specified revenue-generating entity associated with the purpose of the bonds. Revenue bonds are typically "non-recourse," meaning that in the event of default, the bond holder has no recourse to other governmental assets or revenues.

Investing in bonds
Bonds are bought and traded mostly by institutions like pension funds, insurance companies and banks. Most individuals who want to own bonds do so through bond funds. Still, in the U.S., nearly 10% of all bonds outstanding are held directly by households. Sometimes, bond markets rise (while yields fall) when stock markets fall. More relevantly, the volatility of bonds (especially short and medium dated bonds) is lower than that of shares. Thus bonds are generally viewed as safer investments than stocks, but this perception is only partially correct. Bonds do suffer from less day-to-day volatility than stocks, and bonds' interest payments are often higher than the general level of dividend payments. Bonds are liquid it is fairly easy to sell one's bond investments, though not nearly as easy as it is to sell stocks and the comparative certainty of a fixed interest payment twice per year is attractive. Bondholders also enjoy a measure of legal protection: under the law of most countries, if a company goes bankrupt, its bondholders will often receive some money back (the recovery amount), whereas the company's stock often ends up valueless. However, bonds can also be risky: Fixed rate bonds are subject to interest rate risk, meaning that their market prices will decrease in value when the generally prevailing interest rates rise. Since the payments are fixed, a decrease in the market price of the bond means an increase in its yield. When the market interest rate rises, the market price of bonds will fall, reflecting investors' ability to get a higher interest rate on their money elsewhere perhaps by purchasing a newly issued bond that already features the newly higher interest rate. Note that this drop in the bond's market price does not affect the interest payments to the bondholder at all, so long-term investors who want a specific amount at the maturity date need not worry about price swings in their bonds and do not suffer from interest rate risk.

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Price changes in a bond will also immediately affect mutual funds that hold these bonds. If the value of the bonds held in a trading portfolio has fallen over the day, the value of the portfolio will also have fallen. This can be damaging for professional investors such as banks, insurance companies, pension funds and asset managers (irrespective of whether the value is immediately "marked to market" or not). If there is any chance a holder of individual bonds may need to sell his bonds and "cash out", interest rate risk could become a real problem. (Conversely, bonds' market prices would increase if the prevailing interest rate were to drop, as it did from 2001 through 2003.) One way to quantify the interest rate risk on a bond is in terms of its duration. Efforts to control this risk are called immunization or hedging. Some bonds are callable, meaning that even though the company has agreed to make payments plus interest towards the debt for a certain period of time, the company can choose to pay off the bond early. This creates reinvestment risk, meaning the investor is forced to find a new place for his money, and the investor might not be able to find as good a deal, especially because this usually happens when interest rates are falling.

EQUITY SHARES:ABOUT SHARES:At the most basic level, stock (often referred to as shares) is ownership, or equity, in a company. Investors buy stock in the form of shares, which represent a portion of a company's assets (capital) and earnings (dividends). As a shareholder, the extent of your ownership (your stake) in a company depends on the number of shares you own in relation to the total number of shares available For example, if you buy 1000 shares of stock in a company that has issued a total of 100,000 shares, you own one per cent of the company.

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While one per cent seems like a small holding, very few private investors are able to accumulate a shareholding of that size in publicly quoted companies, many of which have a market value running into billions of pounds. Your stake may authorize you to vote at the company's annual general meeting, where shareholders usually receive one vote per share. In theory, every stockholder, no matter how small their stake, can exercise some influence over company management at the annual general meeting. In reality, however, most private investors' stakes are insignificant. Management policy is far more likely to be influenced by the votes of large institutional investors such as pension funds.

a) STOCKS SYMBOLS:A stock symbol, or 'Epic' symbol, is the standard abbreviation of a stock's name. You can find stock symbols wherever stock performance information is published - for example, newspaper stock listings and investment websites. Company names also have abbreviations called ticker symbols. However, it's worth remembering that these may vary at the different exchanges where the company is quoted.

b) PERFORMANCE INDICATORS:Here is a list of the standard performance indicators

Performance Indicator


Closing price High and low day 52 week range

The last price at which the stock was bought or sold The highest and lowest price of the stock from the previous trading

The highest and lowest price over the previous 52 weeks

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Volume and low Net change the

The amount of shares traded during the previous trading day High

the difference between the closing price on the last trading day and closing price on the trading day prior to the last

THE STOCK EXCHANGES:A marketplace in which to buy or sell something makes life a lot easier. The same applies to stocks. A stock exchange is an organization that provides a marketplace in which investors and borrowers trade stocks. Firstly, the stock exchange is a market for issuers who want to raise equity capital by selling shares to investors in an Initial Public Offering (IPO). The stock exchange is also a market for investors who can buy and sell shares at any time.

A) Trading shares on the stock exchange: As an investor in the INDIA, you can't buy or sell shares on a stock exchange yourself. You need to place your order with a stock exchange member firm (a stockbroker) who will then execute the order on your behalf. The NSE AND BSE are the leading stock exchange in the INDIA. Trading is done through computerized systems. b) The trading process:If you decide to buy or sell your shares, you need to contact a stockbroker who will buy or sell the shares on your behalf. After receiving your order, the stockbroker will input the order on the SETS or SEAQ system to match your order with that of another buyer or seller. Details of the trade are transmitted electronically to the stockbroker who is responsible for settling the trade. You will then receive confirmation of the deal.

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c) Types of shares available on the stock exchange:You cannot trade all stocks on the stock exchange. To be listed on a stock exchange, a stock must meet the listing requirements laid down by that exchange in its approval process. Each exchange has its own listing requirements, and some exchanges are more particular than others. It is possible for a stock to be listed on more than one exchange. This is known as a dual listing.

GOVERNMENT SECURITIES:Government securities (G-secs) are sovereign securities which are issued by the Reserve Bank of India on behalf of Government of India, in lieu of the Central Government's market borrowing programme. The term Government Securities includes: Central Government Securities. State Government Securities Treasury bills

The Central Government borrows funds to finance its 'fiscal deficit. The market borrowing of the Central Government is raised through the issue of dated securities and 364 days treasury bills either by auction or by floatation of loans. In addition to the above, treasury bills of 91 days are issued for managing the temporary cash mismatches of the Government. These do not form part of the borrowing programme of the Central Government

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Types of Government Securities Government Securities are of the following types:Dated Securities: are generally fixed maturity and fixed coupon securities usually carrying semi-annual coupon. These are called dated securities because these are identified by their date of maturity and the coupon, e.g., 11.03% GOI 2012 is a Central Government security maturing in 2012, which carries a coupon of 11.03% payable half yearly. The key features of these securities are: They are issued at face value. Coupon or interest rate is fixed at the time of issuance, and remains constant till redemption of the security. The tenor of the security is also fixed. Interest /Coupon payment is made on a half yearly basis on its face value. The security is redeemed at par (face value) on its maturity date.

Zero Coupon bonds are bonds issued at discount to face value and redeemed at par. These were issued first on January 19, 1994 and were followed by two subsequent issues in 1994-95 and 1995-96 respectively. The key features of these securities are: They are issued at a discount to the face value. The tenor of the security is fixed. The securities do not carry any coupon or interest rate. The difference between the issue price (discounted price) and face value is the return on this security. The security is redeemed at par (face value) on its maturity date.

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Partly Paid Stock is stock where payment of principal amount is made in installments over a given time frame. It meets the needs of investors with regular flow of funds and the need of Government when it does not need funds immediately. The first issue of such stock of eight year maturity was made on November 15, 1994 for Rs. 2000 crore. Such stocks have been issued a few more times thereafter. The key features of these securities are: They are issued at face value, but this amount is paid in installments over a specified period. Coupon or interest rate is fixed at the time of issuance, and remains constant till redemption of the security. The tenor of the security is also fixed. Interest /Coupon payment is made on a half yearly basis on its face value. The security is redeemed at par (face value) on its maturity date.

Floating Rate Bonds are bonds with variable interest rate with a fixed percentage over a benchmark rate. There may be a cap and a floor rate attached thereby fixing a maximum and minimum interest rate payable on it. Floating rate bonds of four year maturity were first issued on September 29, 1995, followed by another issue on December 5, 1995. Recently RBI issued a floating rate bond, the coupon of which is benchmarked against average yield on 364 Days Treasury Bills for last six months. The coupon is reset every six months . The key features of these securities are: They are issued at face value. Coupon or interest rate is fixed as a percentage over a predefined benchmark rate at the time of issuance. The benchmark rate may be Treasury bill rate, bank rate etc. Though the benchmark does not change, the rate of interest may vary according to the change in the benchmark rate till redemption of the security.

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The tenor of the security is also fixed. Interest /Coupon payment is made on a half yearly basis on its face value. The security is redeemed at par (face value) on its maturity date.

Bonds with Call/Put Option: First time in the history of Government Securities market RBI issued a bond with call and put option this year. This bond is due for redemption in 2012 and carries a coupon of 6.72%. However the bond has call and put option after five years i.e. in year 2007. In other words it means that holder of bond can sell back (put option) bond to Government in 2007 or Government can buy back (call option) bond from holder in 2007. This bond has been priced in line with 5 year bonds. Capital indexed Bonds are bonds where interest rate is a fixed percentage over the wholesale price index. These provide investors with an effective hedge against inflation. These bonds were floated on December 29, 1997 on tap basis. They were of five year maturity with a coupon rate of 6 per cent over the wholesale price index. The principal redemption is linked to the Wholesale Price Index. The key features of these securities are: They are issued at face value. Coupon or interest rate is fixed as a percentage over the wholesale price index at the time of issuance. Therefore the actual amount of interest paid varies according to the change in the Wholesale Price Index. The tenor of the security is fixed. Interest /Coupon payment is made on a half yearly basis on its face value. The principal redemption is linked to the Wholesale Price Index.

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Features of Government Securities

Nomenclature The coupon rate and year of maturity identifies the government security.

Example: 12.25% GOI 2008 indicates the following: 12.25% is the coupon rate, GOI denotes Government of India, which is the borrower, 2008 is the year of maturity. Eligibility All entities registered in India like banks, financial institutions, Primary Dealers, firms, companies, corporate bodies, partnership firms, institutions, mutual funds, Foreign Institutional Investors, State Governments, Provident Funds, trusts, research organisations, Nepal Rashtra bank and even individuals are eligible to purchase Government Securities. Availability Government securities are highly liquid instruments available both in the primary and secondary market. They can be purchased from Primary Dealers. PNB Gilts Ltd., is a leading Primary Dealer in the government securities market, and is actively involved in the trading of government securities. Forms of Issuance of Government Securities Banks, Primary Dealers and Financial Institutions have been allowed to hold these securities with the Public Debt Office of Reserve Bank of India in dematerialized form in accounts known as Subsidiary General Ledger (SGL) Accounts. Entities having a Gilt Account with Banks or Primary Dealers can hold these securities with them in dematerialized form. In addition governments securities can also be held in dematerialized form in demat accounts maintained with the Depository Participants of NSDL.

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Minimum Amount In terms of RBI regulations, government dated securities can be purchased for a minimum amount of Rs. 10,000/-only. Treasury bills can be purchased for a minimum amount of Rs 25000/- only and in multiples thereof. State Government Securities can be purchased for a minimum amount of Rs 1,000/- only. Repayment Government securities are repaid at par on the expiry of their tenor. The different repayment methods are as follows: For SGL account holders, the maturity proceeds would be credited to their current accounts with the Reserve Bank of India. For Gilt Account Holders, the Bank/Primary Dealers, would receive the maturity proceeds and they would pay the Gilt Account Holders. For entities having a demat account with NSDL,the maturity proceeds would be collected by their DP's and they in turn would pay the demat Account Holders. Day Count For government dated securities and state government securities the day count is taken as 360 days for a year and 30 days for every completed month. However for Treasury bills it is 365 days for a year.

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DEPOSITS:Investing in bank or post-office deposits is a very common way of securing surplus funds. These instruments are at the low end of the risk-return spectrum. Fixed deposits-In India, fixed deposit (FD) is one of the most common form of investment. It allows you to invest money for a fixed period of time and most of the time at a fixed rate of interest. Banks in the country offer fixed rate of interest, which means that the rate of interest will not be change once the entire period of fixed deposit. Some banks like HDFC provide the option of floating rate. Under this option a bank, as in this case, HDFC announces its interest rate every quarter and accordingly the interest rate on the FDs change.

Savings bank account is the normal account where you can put and withdraw your money with your convenience. Its the regular account that all of us open with a bank. Since, savings account gives interest of only 3.5%, FDs are accepted as a better option, since they give a better return depending upon the time span. A senior citizen will get up to 0.50% higher rate of interest on their FD.

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TYPES OF FIXED DEPOSITS:There are mainly two kinds of FDs, but generally when an individual mentions about FDs we consider it to be a fixed deposit issued by a bank. The other kind of fixed deposit is provided by the corporate. Bank FDs are offered by banks or non-banking finance companies. Both these institutions are regulated by the RBI, and the deposits up to INR 1 lakh per account are guaranteed by RBI. Corporate FDs are offered by corporate who are looking to raise money from the open market. Corporate FDs pay a higher rate of interest because they carry a higher risk than bank FDs, since they are not guaranteed. Cash equivalents These are relatively safe and highly liquid investment options. Treasury bills and money market funds are cash equivalents. Currency (foreign exchange) As well as being used to buy goods and services, foreign currency is also used as an investment. Currency investors are looking for higher interest rates overseas, or hoping exchange rates will move in their favor resulting in a capital gain. Investors, including managed funds, may also use currency to protect, or hedge, other investments that are invested overseas.

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Non-financial Instruments Real estate

With the ever-increasing cost of land, real estate has come up as a profitable investment proposition. Returns from investing in property come from rental income and from any increase in the value of property over time called capital gain. Some people view their own home as an investment because it may grow in value. It doesnt have the income that letting property to other individuals or businesses brings. You can invest in commercial property directly, or through managed fund.

The 'yellow metal' is a preferred investment option, particularly when markets are volatile. Today, beyond physical gold, a number of products which derive their value from the price of gold are available for investment. These include gold futures and gold exchange traded funds.

Statistical representation of India in recent years

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The color level shows Blue - assets, Red direct investment Green reserve assets

It is not such that a country involved in investment will only keep on investing. It also holds certain liabilities which they need to pay off to some other country or organization which belong to other country which are known as debts.

Debts The anthropologist David Grabber argues in Debt: The First 5000 Years that trade starts with some sort of credit namely the promise to pay later for already handed over goods. Therefore credit and debt existed even before coins a sum of money that is owed or due."I paid off my debts" bill, account, tally, financial obligation, outstanding payment, amount due, money owing; The state of owing money. the firm is heavily in debt" Owing money, in arrears, behind with payments, late with payments, overdue with payments, overdrawn. An amount of money borrowed by one party from another. Many corporations/individuals use debt as a method for making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.

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Bonds, loans and commercial paper are all examples of debt. For example, a company may look to borrow $1 million so they can buy a certain piece of equipment. In this case, the debt of $1 million will need to be paid back (with interest owing) to the creditor at a later date.

EFFECTS OF DEBTS:Debt allows people and organizations to do things that they would otherwise not be able, or allowed, to do. Commonly, people in industrialized nations use it to purchase houses, cars and many other things too expensive to buy with cash on hand. Companies also use debt in many ways to leverage the investment


their assets, "leveraging" the return on their equity. This leverage, the proportion of debt to equity, is considered important in determining the riskiness of an investment; the more debt per equity, the riskier. For both companies and individuals, this increased risk can lead to poor results, as the cost of servicing the debt can grow beyond the ability to pay due to either external events (income loss) or internal difficulties (poor management of resources). It is possible for some organizations to enter into alternative types of borrowing and repayment arrangements which will not result in bankruptcy. For example, companies can sometimes convert debt that they owe into equity in themselves. In this case, the creditor hopes to regain something equivalent to the debt and interest in the form of dividends and capital gains of the borrower. The "repayments" are therefore proportional to what the borrower earns and so cannot in themselves cause bankruptcy. Once debt is converted in this way, it is no longer known as debt.

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