A

PROJECT REPORT ON

FINANCIAL PLANNING FOR INDIVIDUAL INVESTOR


REPORT SUBMITTED ON PARTIAL FULFILMENT
OF
MASTER IN BUSINESS ADMINISTRATION
SUBMITTED T0:

GURU GOBINDSINGH INDRAPRASTHA UNIVERSITY OF DELHI

BY:

Ankit Kumar Verma
MBA 2
nd
(Finance)


UNDER GUIDENCE OF:

Mr. Arun Mahajan

SHRI. D.B. PAWAR COLLEGE OF MANAGEMENT
MANUR, KALWAN, NASHIK.

YEAR 2009-11.





ACKNOWLEDGEMENT



I would like to express my sincere thanks to my Director, Dr. F. C. Mahajan
for giving me the opportunity to be a part of an esteemed institution and without his
support this project would not have been possible.

A successful project can never be prepared by the single effort of the person to
whom project is assigned, but it also demand the help and guardianship of some
conversant person who helped the undersigned actively or passively in the completion
of successful project .
In this context as a student of Shree Dhondu Baliram Pawar college of management,
Manur, Kalwan, Nashik. I would first of all like to express my gratitude to
Mr.Shahezaad Pathan for assigning me such a worthwhile topic FINNANCIAL
PLANNING FOR INDIVIDUAL INVESTOR. During the actual project work, Mr.
Shahezaad Pathan & Mr. Farukh Sheikh have been a source of inspiration through
their constant guidance; personal interest; encouragement and help. I convey my
sincere thanks to them.

Mr. Shahezaad Pathan (Branch Head), Mr. Farukh Sheikh, Mr. Abhijeet, Mr.
Vishal
for their invaluable guidance, keen interest cooperation inspiration, and of course
moral support through my project session.





SANTOSH P.
RATHOD

M.B.A

WHY THIS TOPIC WAS SELECTED FOR STUDY?
The topic-Financial Planning For Individual Investors
was selected to find out the risk appetite and investment potential of Indian Investors
to invest in these instruments and what percentage component are these instruments in
an optimal portfolio.
Prior to the development of portfolio theory the investors dealt with the
concept of risk and return loosely. Then portfolio theory was later on developed by
Harry Markowitz in 1950, it was the first attempt to quantify the risk of a portfolio
and develop a methodology for determining an optimal portfolio. Shares, mutual
funds, Ulip, tax planning, gold, silver etc. are all the constituents of a portfolio. My
basic reason of selecting these three instruments of investment i.e. mutual funds,
insurance and tax planning is that these instruments cover the most basic investment
needs of an individual. Mutual funds offer the advantages of diversification,
professional management, liquidity, assured allotment, tax saving, and transparency.
Also insurance products have many unit linked plans (ulip) which provides
both growth opportunity and risk cover at the same time. So, understanding these
instruments is a must as they form the most basic and essential part of an investment
portfolio.
Thus this topic was selected for the study.

SPECIFIC OBJECTIVES OF THE STUDY:-

To know investments criteria thoroughly.
To provide the clients the best allocation of their funds.
To guide them how various schemes under mutual funds, insurance and
tax planning can give them the best investment solution.
To develop a framework and a database which can help the organization
understand the goals of investment, investment potential and the risk
taking capability of investors.
To design a right mix of products on the basis of the financial goals of the
clients.

FINANCIAL SYSTEM- AN OVERVIEW

The financial system of any country consists of specialized and non-specialized
financial institutions, organized and unorganized financial markets, financial
instruments and services that facilitate flow of funds from areas of surplus funds to
the areas of deficit. Financial system is a composition of various institutions, markets,
regulations, law practices, money managers, analysts, etc. By making funds available,
the financial system helps the growth of modern economics and the increase in the
standard of living among the citizens.


FINANCIAL INSTITUTIONS

Financial institutes are business organizations that act as mobilizes and depositaries of
savings and as purveyors of credit or finance. Financial institutions are classified as
banking and non-banking institutions, intermediaries and non-intermediaries. Banking
institutions are the creators of credit, where as non-banking institutions are
purveyors of credit. Banking system in India comprises of commercial and
cooperative banks and non banking financial institutes are LIC, UTI, IDBI, GIC,
etc. Intermediaries like banking institutions lend as well as mobilizes savings,
where as non-intermediaries like NABARD gives loans but their resources are not
directly obtained from savers.



FINANCIAL MARKETS
A financial market can be defined as the market in which financial assets are created
or transferred. Financial assets represents represent a claim to the payments of a sum
of money sometime in the future and/or periodic payment in the form of interest or
dividend. Financial Market performs an important function of mobilization of savings
and channeling them into the most productive uses. The participants in the financial
markets are financial institutions, agents, brokers, dealers, borrowers, lenders, savers
and others who are inter-linked by the laws, contracts and communication networks.
Financial markets consist of Primary and Secondary Markets. The
Primary markets deal in new financial claims and securities and hence are known as
new issue markets. The secondary market deals in securities already issued, existing
or outstanding. Financial markets are also classified as Money and Capital Markets.
Money markets deals with transactions in short-term instruments (with period of
maturity one year or less, e.g. treasury bills), while capital market deals with
transactions in long-term instruments (with period of maturity above one year, e.g.
corporate debentures and government bonds).
On the basis of the type of the financial claim, financial markets are
classified as Debt and Equity markets. By the timing of delivery, financial markets are
classified as Cash or Spot markets and Forward or Future markets.
The classification of Financial markets can be summarized as follows:

o Money Market
o Debt Market
o Forex Market
o Capital Market


FINANCIAL
MARKET
Money
Market
Debt
Market
Forex
Market
Capital
Market
MONEY MARKETS

Money markets can be defined as a market for short term money and financial assets
that are near substitutes for money (any financial assets that can be quickly converted
into money with minimum transaction cost). One more important function of this
market is to channel savings into short term productive investments like working
capital. Money market aids banking, operates as a medium of integration between sub
markets, promotes maintaining of minimum reserve in the form of cash and liquidity
and controls the interest rates.

Money market is a collection of market for the instruments like Call money,
Treasury bills, Commercial papers, Certificate of deposits, Money Market Mutual
Funds, etc. A certain degree of flexibility in the regulatory framework exists and there
are constant endeavors for introducing a new instruments or innovating dealing
techniques. It is a wholesale market and the volume of funds or financial assets traded
are very large i.e. in cores of rupees.


DEBT MARKET
Traditionally debt instruments are known for generating a predetermined income for a
given period of time, other than in cases of default. Hence they are also known as
fixed income instruments. The debt markets in advanced are significantly larger and
deeper than equity markets. But in India, the trend is just the opposite. The
development of debt market in India has not been as remarkable as in the equity
market. However the debt markets in India have undergone a considerable change in
the last few years. Characterized by regulated interest rates, limited players and lack
of trading earlier, the markets have become more integrated and less regulated. The
debt market in India is divided into two categories:

1. Government securities market consisting of Central Government and State
Government securities.
2. Bond market consisting of FI bond, PSU bonds and Corporate
bonds/debentures.
FOREIGN EXCHANGE MARKET

Every sovereign country in the world has a currency, which is a legal tender in its
territory, and which does not act as money outside its boundaries. Foreign exchange
or Forex market is the one where a countrys currency is traded for another. The rate
at which one currency is converted to another is known as the rate of exchange. Forex
market is the largest financial market in the world having a daily turnover of couple of
trillion dollars. The key participants in the forex market are importers (who need
foreign currency to pay off their imports), exporters (who want to convert their
foreign currency receipts into domestic), traders (who make a market in the foreign
currency), foreign exchange brokers (who bring together buyers and sellers),
speculators (who tries to profit from exchange rate movements) and portfolio
managers who buy and sell foreign currency. Speculative transactions account for
more than 95% of the turnover on the Forex markets.

In India, the key participants in the Forex markets are RBI, banks and
business undertakings. Business undertakings can participate in the Forex market only
to the extent that they need cover for the exchange exposure arising from a merchant
transaction or a foreign currency borrowing and cannot resort to speculative
transaction.

One reason justified for the existence of the Forex market is that each nation
has decided to keep their sovereign right to have control on their own currency. If
every country had the same currency, then there will be no need for a foreign
exchange market.




CAPITAL MARKET

Capital markets provide the resources needed by medium and large-scale industries
for investment purposes unlike money markets that provide the resources for working
capital needs. While money markets deal in short-term claims (with a period of
maturity 1 year or less) capital market deals in long-term claims (with a period of
maturity more than 1 year). Stock market and Government bond markets are example
of capital markets.

Capital market consists of primary and secondary markets. The primary
markets create long-term instruments through which corporate entities borrow and the
secondary market provides liquidity and marketability to these instruments.
Companies can raise capital in the primary market through the issue of shares and
debentures for which prior approval of The SEBI is required. The secondary market
that operates through the medium of stock exchanges is that segment of the capital
market where securities already issued are traded.