UNIVERSITY OF MUMBAI

PROJECT
ON
“STUDY OF INVESTMENT AVENUES”
SUBMITTED BY
KUDIKALA MAHESH SRINIVAS
THE AWARD OF THE DEGREE OF
BACHELOR OF FINANCIAL MARKETING
BFM SEM. V
EXAM NO
ACADEMIC YEAR 2018-19
GUIDED BY
Mrs. NEELAM SEN

PADMASHRI ANNASAHEB JADHAV BHARATIYA SAMAJ UNNATI MANDAL’S

B.N.N. COLLEGE, BHIWANDI

DIST. THANE 421302
 DECLARATION

I MR. KUDIKALA MAHESH SRINIVAS , Exam No._____________

student of B.N.N College, Bhiwandi of T.Y. B.com {FINANCIAL
MARKETING}, Semester V, hereby declare that I have completed
project on “STUDY OF INVESTMENT AVENUES” is a record of
independent research work carried by me during the academic year
2018-2019 under the guidance of ‘‘Prof Mrs. Neelam sen ’’ The
information submitted is true and original to the best of my
knowledge.

KUDIKALA MAHESH SRINIVAS

 PadmashreeAnnasahebJadhavBhartiyaUnnati Mandal’s

B.N.N.College,Bhiwandi.
Estd. June 1960 (A.S. &C.). Dist.Thane – 421 305
SELF FUNDED COURSES
‘A’ NAAC Accredited

BACHELOR OF FINANCIAL MARKETING (BFM)

CERTIFICATE
This is to certify that KUDIKALA MAHESH SRINIVAS, Exam
No.-____________of T.Y.B Com (FINANCIAL MARKETING),
B.N.N College, Semester V (Academic Year 2018- 2019) has
successfully completed the project entitled “INVESTMENT
AVENUES” and submitted the Project Report in partial
fulfillment of the requirement for the award of the Degree
of Bachelor Of Commerce (FINANCIAL MARKETING), of
University of Mumbai.

Prof. Neelam sen Prof.Bhavana khairnar Dr.Ashok D.Wagh

(Project Guide) (Co-coordinator) (Principal)

Examiner: - _______________
Date :- __________

College Seal
 ACKNOWLEGMENT

To list who all have helped me is difficult because they are so numerous and the depth
is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me chance to do
this project.
I would like to thank my Principal, Dr Ashok D.Wagh for providing the necessary
facilities required for completion of this project.
I take this opportunity to thank our Coordinator prof.Mrs.Bhavana Khairnar , for her
moral support and guidance.
I would also like to express my sincere gratitude towards my project guide
Prof Mrs. Neelam sen whose guidance and care made the project successful.
I would like to thank my College Nirlon Library, for having provided various reference
books and magazines related to my project.
Lastly, I would like to thank each and every person who directly or indirectly helped
me in the completion of the project especially my parents and peers who supported
me throughout my project.
Lastly,5 I would like to thank each and every person who directly or indirectly helped
me in the completion of the project especially my Parents and Peers who supported
me throughout my project.
Introduction
Financial system plays vital role in the economic growth of a country. It
intermediates between the flow of funds belonging to those who save a part
of their income and those who invest in productive assets. It mobilizes and
usefully allocates scare resources of a country. It is a complex, well-
integrated set of subsystems of financial institutions, markets, instruments,
and services which facilitates the transfer and allocation of funds, efficiently
and effectively. The financial systems of most developing countries are
characterized by coexistence and cooperation between the formal and
informal financial sectors. The coexistence of these two sectors is
commonly referred to as financial dualism. The formal financial sector is
characterized by the presence of an organized, institutional and regulated
system which caters to the financial needs of the modern spheres of
economy. The informal financial sector has emerged as a result of the
intrinsic dualism of economic and social structures in developing countries,
and financial repression which inhibits the certain deprived sections of
society from accessing funds. One of the important functions of a financial
system is to link the savers and investors and, thereby, help in mobilizing
and allocating the saving efficiently and effectively. By acting as an efficient
conduit for allocation of resources, it permits continuous up-gradation of
technologies for promoting growth on a sustained basis. A financial system
not only helps in selecting project to be funded but also inspires the
operators to monitor the performance of the investment. Financial markets
and institutions help to monitor corporate performance and exercise
corporate control through the threat of hostile takeovers for
underperforming firms. It provides a payment mechanism for the exchange
of goods and services and transfers economic resources through time and
across geographic regions and industries.

One of the most important functions of a financial system is to achieve

optimum allocation of risk bearing. It limits, pools and trades the risk
involved in mobilizing saving and allocating credit. An efficient financial
 system aims at containing risk within acceptable limits. It reduces risk by
laying down rules governing the operation of the system. Risk reduction is
achieved by holding diversified portfolios and screening of borrowers.
Market participants gain protection from unexpected losses by buying
financial insurance services. Risk is traded in the financial markets
throughfinancial instruments such as derivatives. Derivatives are risk
shifting devise, they shift risk from those who have it but may not want it to
those who are willing to take it.

The Indian financial system can broadly be classified into the

formal/organized and informal/unorganized system. The formal financial
system comes under the purview of the Ministry of Finance (MOF),
Reserve Bank of India (RBI), Security and Exchange Board of India
(SEBI), and other regulatory bodies. The informal financial system consists
of:

i. Individual moneylenders such as neighbors, relatives, landlords, traders

and storeowners.
ii. Groups of person operating as funds or associations. These groups
function under a system of their own rules and use names such as fixed
fund, association and saving club.
iii. Partnership firms consisting of local brokers, pawnbrokers and non-
bank financial intermediaries such as finance, investment and chit fund
companies.
INVESTMENTS AVENUES

By Investment Avenue we mean a particular organization or system in

which an investor can place his surplus funds with the objectives of having
certain gains in the future. This organization may be well organized like a
bank, financial institution, mutual funds and company or in an unorganized
manner like chit fund organization, Nidhis (a type of non-banking finance
company) or curry (a type of non-banking finance company in southern
India). Different investment avenues have different features; few offer a
fixed return and certain others offer stock market based returns and yet
certain others offer a mix of these two. Few of these have an element of
safety and yet others do not have any kind of safety. In certain cases these
are in negotiable form and in other cases these are non-negotiable.
Investment avenues of a country are subject to different rules and
regulations of either the government or some apex body like Reserve Bank
of India, NABARD, SEBI or Companies Act. Following are the features of
investment avenues.
A place where one can invest his surplus
Fixed or floating return
Security vs. Non-security form
Investment accepting organization might have an obligation or not
Negotiable vs. Non-negotiable
Risk is the inherent part of every avenue
May be in an organized form or unorganized form
Regulation
Market oriented vs. others

Investment avenues can be broadly divided into following types.

Security form
Non-security form
Traditional form
Other emerging avenues
Security Forms
These are the instruments or securities through which a company or
issuing authority like government raises finance. Majority of these are in
negotiable form, i.e. these are sellable in the market by the holder of the
securities. Companies/Government issues these in capital market or money
market to raise funds directly from the providers of the funds. Some of
these have maturity for a very long period and others have for either
medium term or short term. Security form can further be divided into
money market securities and capital market securities.

Money Market Securities

It is the market in which liquid funds as well highly liquid securities are
traded in for a very shorter duration. The main participants in this market
are banks and financial institutions. The banks deal in this market to fulfill
their CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio)
requirements. However, few corporate houses, insurance companies,
mutual funds, provident funds trusts and non-banking finance companies
also play an active role in this market. This market provides liquidity
support to banking system. At the same time, the central bank of the
country – Reserve bank of India- uses this market to exercise monetary
control in the economy and credit control in the county.

Money market can be divided into two parts, call money market and
government securities/gilt-edged securities market. Call money market in
which surplus cash of banks and corporate houses is traded in for a very
short maturity period, generally not exceeding one fortnight. The main
transactions are carried on by banks to fulfill their liquidity, as well as CRR
requirements. The main participants in market are banks, financial
institution, mutual funds, corporate houses and other organizations as
allowed by Reserve bank of India from time to time. Banks are allowed to
play the role of both the seller as well as the buyer of funds. A seller of
funds is the one who provides it to another party and the party receiving it
is identified as the buyer of the funds. For making funds available, the
seller charges interest, which is decided mutually.
The charges in a call money market are influenced by the demand and
supply of money available in this market. Call rates fluctuate very
frequently due to the volatile nature of this market. The provider of funds
can call back his money at a short notice; which is why it is called call
money market. The market for government securities is known as gilt-
edged securities market. Government securities are either issued by the
central government or state government or any of the agencies of these
governments. The government guarantees payment of interest and
repayment of the principal amount in gilt-edged securities. Developed
banks and financial institutions trade in this market to fulfill their SLR
(Statutory Liquidity Ratio) requirement. The feature of safety and liquidity
in these securities is as safe as good as that of gold; hence, these are called
as gilt-edged securities. Following are the main instruments in this market.
Treasury Bills
Treasury bills are very useful instruments to deploy short term surplus
depending upon the availability and requirement. Even funds which are
kept in current accounts can be deployed in treasury bills to maximize
returns. These treasury bills have a maturity period not exceeding 364
days. These bills do not carry any interest rate; instead these are issued at a
discount to face value, and redeemed at par on the maturity. Treasury bills
have a unique maturity period of 91 days, 182 days, and 364 days. Recently
RBI issued treasure bills for a maturity of 14 days and 28 days too. Banks
do not pay any interest on fixed deposits of less than 15 days, or balances
maintained in current accounts, whereas treasury bills can be purchased for
any number of days depending on the requirements. This helps in
deployment of idle funds for very short periods as well.

Further, since every week there is a treasury bills auction, investor can
purchase treasury bills of different maturities as per requirements so as to
match with the respective outflow of funds. Treasury bills are of two types,
regular treasure bills issued to the general public, including banks, financial
institutions and corporate houses through a notification by RBI. Ad-hoc
treasure bills are issued in the favour of RBI, and these bills never issued or
sold subsequently to anyone in the secondary market. Nowadays RBI
issues only regular treasure bills; ad-hoc treasure bills are not issued. At
times when the liquidity in the economy is tight, the returns on treasury
Certificate of Deposits
Certificate of deposits are offered to investors by banks just like normal
deposits. But the difference is certificate of deposits are short term
wholesale deposits and they are tradable. An investor holding the certificate
of deposit can sell it to another investor. Because of liquidity interest rates
on certificate of deposits are normally less than that on „sight‟ deposits,
investor can compare certificate of deposits with treasury bills as they are
short term, tradable, discounted bonds. But the difference is treasure bills
are issued by government and certificates of deposits are issued by banks,
financial institutions etc. The lender of a certificate of deposits could be
another bank, corporate or financial institution. Certificates of deposits are
rated by approved rating agencies (e.g. CARE, ICRA, CRISIL, and
FITCH) which considerably enhance their tradability in the secondary
market, depending upon demand.

The term of certificate of deposit is fixed and it is usually 3 months, 6

months, 1 year or 5 years. In India certificate of deposits are introduced in
July 1989. Maturity period is minimum 7 days and maximum 12 months
for certificate of deposits issued by banks. For certificate of deposits issued
by financial institutions, maturity is minimum 1 year and maximum 3 years.
Minimum amount to invest in a certificate of deposit is Rs. 100000 and in
the multiples of Rs. 100000 thereafter. Loan against collateral of certificate
of deposit is not permitted but it is possible in „sight fixed deposits.
Premature withdrawal is not allowed but can be sold to other investors.
Interest rate
Advantages of certificate of deposits
Since one can know the returns from inception, the certificates of
deposits are considered much safe.
One can earn more as compared to depositing money in savings account.
The central insurance corporation guarantees the investments in the
certificate of deposit.

Disadvantages of Certificate of deposits

As compared to other investments the return is less.
Money is tied along with the long maturity period of the certificate of deposit.
Huge penalties are paid if one gets out of it before maturity.
Commercial Paper
Commercial paper is short-term loan that is issued by a corporation for
financing accounts receivable and inventories. Commercial papers have
higher denominations as compared to the treasury bills and the certificate
of deposit. The maturity period of commercial papers is minimum 15 days
to maximum of one year. Commercial papers do not carry any interest
rate; instead these are issued at a discount to face value and redeemed at
par on maturity. The difference between issue price and maturity value is
the interest compensation for the buyer of commercial papers. These are
negotiable in nature – these can easily and freely be transferred from one
5party to another party. They are very safe since the financial situation of
the corporation can be anticipated over a few months.
Commercial paper is a money market security sold by banks and
corporations. Commercial paper is a low-cost alternative to bank loans. It is
a very safe investment and can be used for inventory purchases or working
capital. Use of commercial paper can efficiently raise large amounts of
funds quickly and without expensive registration by selling paper, either
directly or through independent dealers, to a large and varied pool of
institutional buyers. Competitive, market-determined yields in maturity and
amounts can be tailored to specific needs, can be earned by investing in
commercial paper. The essential quality of this type of investment is short-
term maturity typically three to six months, an automatic or self-liquidating
nature, and non-speculativeness in origin and purpose of use. The two
main methods of issuing commercial paper are selling them directly to an
investor, or selling them to a dealer who then sells them in the market.
Commercial paper is issued by large creditworthy borrowers, which means
it's typically less risky than some other investments. Also, the rating
provided by credit rating agencies gives an indication to investors about
how risky the investment is, which helps them better gauge the investment.
As a tradeoff for the relative safety of this investment, it yields a lower rate
than riskier investments, such as stocks. Another advantage is that
commercial paper issuers usually can't buy back the paper before its due
date without a penalty. This means they can't buy back the paper before its
maturity without compensating the investor for the early purchase.
Investors can thus count on a steady yield from commercial paper, unlike
in the case of certain bonds that investors can retire before their maturity.

These funds also charge management fees and expenses, for giving the
convenience of investing in market-rate, short-term, fixed-income
securities. Therefore, investor could obtain slightly higher yields on their
money if they invest in commercial paper directly. However this is not a
very liquid investment and there is no active secondary market, this makes
it difficult for the investor to sell off the commercial paper before its
scheduled maturity date.
Dated Securities of Government
Government securities are issued by the government for raising a public
loan or as notified in the official gazette. They consist of government
promissory notes, bearer bonds, stocks or bonds held in bond ledger
account etc. They may be in the form of treasury bills or dated government
securities. Government securities are mostly interest bearing dated
securities issued by RBI on behalf of the government of India.
Government of India uses these funds to meet its expenditure
commitments. These securities are generally fixed maturity and fixed
coupon securities carrying semi-annual coupon. Since the date of maturity
is specified in the securities, these are known as dated government
securities.

The dated government securities market in India has two segments;

primary market consists of the issuers of the securities, viz., central and
state government and buyers include commercial banks, primary dealers,
financial institutions, insurance companies & co-operative banks. RBI also
has a scheme of non-competitive bidding for small investors. Secondary
market includes commercial banks, financial institutions, insurance
companies, provident funds, trusts, mutual funds, primary dealers and
reserve bank of India. Even corporate and individuals can invest in
government securities. The eligibility criteria are specified in the relative
government notification. Following are the main features of government
securities.

i. Issued at face value.

ii. No default risk as the securities carry sovereign guarantee.
iii. Ample liquidity as the investor can sell the security in the secondary market.
iv. Interest payment on a half yearly basis on face value.
v. No tax deducted at source.
vi. Can be held in dematerialized form.
vii. Rate of interest and tenure of the security is fixed at the time of
issuance and is not subject to change.
viii. Redeemed at face value on maturity
ix. Maturity ranges from of 2-30 years.

Auctions for government securities are normally multiple-price auctions

either yield based or price based. In yield based type of auction, RBI
announces the issue size or notified amount and the tenure of the paper to
be auctioned. The bidders submit bids in term of the yield at which they
are ready to buy the security. If the bid is more than the cut-off yield then
its rejected otherwise it is accepted where in price based type of auction
RBI announces the issue size or notified amount and the tenure of the
paper to be auctioned, as well as the coupon rate. The bidders submit bids
in terms of the price. This method of auction is normally used in case of
reissue of existing governmentsecurities. Bids at price lower than the cut off
price are rejected and bids higher than the cut off price are accepted. Price
based auction leads to a better price discovery then the yield based auction.
Government securities, state development loans & treasury bills are
regularly sold by RBI through periodic public auctions. It gives investors an
opportunity to buy government securities/treasure bills at primary market
auctions of RBI through its invest scheme. Investors may also invest in high
yielding government securities through buy and sell facility for selected
liquid scripts in the secondary markets.
Capital Market Securities
The capital market is a market for financial assets which have a long or
indefinite maturity. Unlike money market instruments the capital market
instruments become mature for the period above one year. It is an
institutional arrangement to borrow and lend money for a longer period of
time. It consists of financial institutions like IDBI, ICICI, UTI, LIC, etc.
These institutions play the role of lenders in the capital market. Business
units and corporate are the borrowers in the capital market. Capital market
involves various instruments which can be used for financial transactions.
Capital market provides long term debt and equity finance for the
government and the corporate sector. Capital market can be classified into
primary and secondary markets. The primary market is a market for new
shares, where as in the secondary market the existing securities are traded.
Capital market institutions provide rupee loans, foreign exchange loans,
consultancy services and underwriting. Capital market securities issued by
the companies in the primary market to raise the finance. Issue of the
securities is completely regulated by the provisions of SEBI. A company
can issue the following securities in this market.
Equity shares
Preference shares
Debentures
Equity Shares
Equity is the term commonly used to describe the ordinary share capital of
a business. Ordinary shares in the equity capital of a business entitle the
holders to all distributed profits after the holders of debentures and
preference shares have been paid. Ordinary shares are issued to the
owners of a company. The ordinary shares of Indian companies typically
have a nominal or 'face' value between rupees 10 to 100. However, it is
important to understand that the market value of a company's shares has
little relationship to their nominal or face value. The market value of a
company's shares is determined by the price another investor is prepared
to pay for them. In case of publicly quoted companies, this is reflected in
the market value of the ordinary shares traded on the stock exchange. In
case of privately owned companies, where there is unlikely to be much
trading in shares, market value is often determined when the business is
sold or when a minority shareholding is valued for taxation purposes.

"Deferred ordinary shares" are a form of ordinary shares, which are entitled
to a dividend only after a certain date or only if profits rise above a certain
amount. Voting rights might also differ from those attached to other
ordinary shares. An equity holder become the owner of the company and
enjoys voting rights also. Besides capital appreciation, he is entitled to get
dividend also. Equity shares are listed on stock market and can easily
converted into cash whenever required. But equity investments are the
most risky form of investment where there are chances of going money into
100 percent loss. Besides, investors will get his money back when all the
parties have been paid their dues to company at the time of liquidation.
Preference Shares
A preference shares means shares which carries preferential rights in
respect of dividend at fixed amount or at fixed rate before the holders of
the equity shares have been paid. It also carries preferential right in regard
to payment of capital on winding up or otherwise. It means the amount
paid on preference share must be paid back to preference shareholders
before anything in paid to the equity shareholders. In other words,
preference share capital has priority both in repayment of dividend as well
as capital. Following are the main types of preference shares.
Cumulative and Non – Cumulative Preference Shares
A non-cumulative or simple preference shares gives right to fixed
percentage dividend of profit of each year. In case no dividend thereon is
declared in any year because of absence of profit, the holders of preference
shares get nothing nor can they claim unpaid dividend in the subsequent
year or years in respect of that year. Cumulative preference shares however
give the right to the preference shareholders to demand the unpaid
dividend in any year during the subsequent year or years when the profits
are available for distribution. In this case dividends which are not paid in
any year are accumulated and are paid out when the profits are available.
Redeemable and Non- Redeemable Preference Shares
Redeemable Preference shares are preference shares which have to be
repaid by the company after the term for which the preference shares have
been issued. Irredeemable preference shares means preference shares
need not to repay by the company except on winding up of the company.
However, under the Indian companies act, a company cannot issue
irredeemable preference shares. In fact, a company limited by shares
cannot issue preference shares which are redeemable after or more than
10 years from the date of issue. In other words the maximum tenure of
preference shares is 10 years. If a company is unable to redeem any
preference shares within the specified period, it may, with consent of the
company law board, issue further redeemable preference shares equal to
redeem the old preference shares including dividend thereon. A company
can issue the preference shares which from the very beginning are
redeemable on a fixed date or after certain period of time not exceeding 10
years.
Participating and Non - Participating Preference Shares
Participating preference shares are entitled to a preferential dividend at a
fixed rate with the right to participate further in the profits either along with
or after payment of certain rate of dividend on equity shares. A non-
participating share is one which does not such right to participate in the
profits of the company after the dividend and capital has been paid to the
preference shareholders.

Convertible and Non - Convertible Preference Shares

Convertible preference shares are the one which have a provision of
conversion into the equity shares of the issuing company; the conversion
takes place on pre-specified date. The terms and conditions of conversion
are specified at the time of issue of these shares. Holders of these have the
benefit of preference shares till the date of conversion, thereafter these
have the benefits of equity shares, due to this dual nature these are called
hybrid securities. Non-convertible preference shares are those in which a
provision of conversion into the equity shares of the issuing company is not
provided, these might be redeemable or irredeemable, redemption, if any,
take place according to the terms and conditions of the issue of these
preference shares. For the investor, preference shares are less attractive
than loan stock because they cannot be secured on the company's assets,
the dividend yield traditionally offered on preference dividends has been
too low to provide an attractive investment compared with the interest
yields on loan stock in view of the additional risk involved.
Debentures and Bonds
Debentures and bonds are similar except for one difference that bonds are
more secure than debentures. In case of both, investors are paid a
guaranteed interest that does not change in value irrespective of the
fortunes of the company. However, bonds are more secure than
debentures, but carry a lower interest rate. The company provides
collateral for the loan. Moreover, in case of liquidation, bond holders will
be paid off before debenture holders. In India, the terms „corporate
bonds‟ and „debentures‟ are interchangeably used. Though different
countries have different interpretations of both the terms „corporate
bonds‟ and „debentures‟, our companies act (section 2(12)) identifies both
as same. Investor may find a corporate bond similar to a fixed deposit in a
bank or a post office scheme or any such fixed‐return instrument.
However, every type of investment is different in its own way and has its
own features, advantages and disadvantages.

In India, both public and private companies can issue corporate bonds. A
company incorporated in India, but part of a multinational group, can also
issue corporate bonds. However, a company incorporated outside India
cannot issue corporate bonds in India. A statutory corporation like LIC
can also issue corporate bonds. Forinvestors those who are looking for an
investment that generates fixed income periodically, corporate bonds may
be an ideal investment. It normally offers a higher rate of interest as
compared to fixed deposits or postal savings or similar investments. Listed
bonds can also sell in the secondary market before its maturity. While a
bond is usually not designed for capital appreciation; a listed bond may
also earn capital appreciation i.e. investor can sell bond at a price higher
than cost price in the market.

A corporate bond may offer a fixed or floating rate of interest and

accordingly investor may earn a fixed or varying amount of interest
periodically. A fixed rate bond will pay fixed amount periodically as per the
interest rate set out when the bonds were issued. This interest is
determined as a percent of the face value of the bond. Such fixed interest
payments are sometimes also called coupon payments. A floating rate bond
has its interest rate pegged to a benchmark rate i.e. (Benchmark rate) +/‐
(some percent). The benchmark rate may be government bond/MIBOR.
As the benchmark rate changes, the interest rate on the bond will vary
accordingly. Hence, a floating rate bond is considered to be relatively risky
since return is dependent on the movement of the benchmark rate. If
investor wish to receive fixed amount periodically, a fixed rate bond is
advisable. However, a fixed interest rate bond may earn less than a floating
rate bond due to lesser risk involved. If investor plans to invest in a floating
rate bond, return will depend on the movement of benchmark rate which
may move in either direction substantially.

An investor in corporate bonds receives his interest payments periodically.

The interest may be received yearly or half yearly or quarterly or even
monthly depending upon the period set at the time of issue. The interest
payment dates are usually specified in the prospectus. On the maturity
date, the issuer pays back the investor face value of the bonds held by him
along with the interest accrued on the same.
 Types of Debentures / Bonds

UnsecuredSecure
Security d

secured

Redeemable
Tenure
Irredeemabl
e/ Perpetual
Fully
Converti
ble
Convertible
Convertibilit Partly
Types of Converti
Debentures / Y ble
Bond Non
Convertible

Zero
Coupon Rate
Coupon Rate
Specific
Rate

Registerd
Registration
Bearer
From the Security Point of View
Secured debentures refer to those debentures where a charge is created on
the assets of the company for the purpose of payment in case of default.
The charge may be fixed or floating. A fixed charge is created on a specific
asset whereas a floating charge is on the general assets of the company. The
fixed charge is created against those assets which are held by a company for
use in operations not meant for sale whereas floating charge involves all
assets excluding those assigned to the secured creditors. Unsecured
debentures do not have a specific a charge on the assets of the company.
However, a floating charge may be created on these debentures by default.
Normally, these kinds of debentures are not issued.
From the Tenure Point of View
Redeemable debentures are those which are payable on the expiry of the
specific period either in lump sum or in installments during the life time of
the company. Debentures can be redeemed either at par or at premium.
Irredeemable debentures are also known as perpetual debentures because
the company does not given any undertaking for the repayment of money
borrowed by issuing such debentures. These debentures are repayable on
the on winding-up of a company or on the expiry of a long period.

From the Convertibility Point of View

Debentures which are convertible into equity shares or in any other
security either at the option of the company or the debenture holders are
called convertible debentures. These debentures are either fully
convertible or partly convertible. The debentures which cannot be
converted into shares or in any other securities are called nonconvertible
debentures. Most debentures issued by companies fall in this category.

From Coupon Rate Point of View

These debentures are issued with a specified rate of interest, which is
called the coupon rate. The specified rate may either be fixed or floating.
The floating interest rate is usually tagged with the bank rate. These
debentures do not carry a specific rate of interest. In order to compensate
the investors, such debentures are issued at substantial discount and the
difference between the nominal value and the issue price is treated as the
amount of interest related to the duration of the debentures.

From the Registration Point of View

Registered debentures are those debentures in respect of which all details
including names, addresses and particulars of holding of the debenture
holders are entered in a register kept by the company. Such debentures
can be transferred only by executing a regular transfer deed.
Non - Security Form
These are the avenues of investment in which document issued as evidence
of the investment cannot be transferred from one party to another party.
These are non-negotiable in form. The payment of these can be claimed
by only the original holder or in the event of death of the original holder
his legal successors can claim the payment. The prominent feature of these
avenues that the majority of these are safe investments. By safe we mean
free from default risk. However due to privatization of banking and
insurance sector there has been the incidences that even the bank are in
trouble sometimes and investment in a bank might be subject to default
risk like in a co-operative bank or certain low creditworthy banks. By
default risk we mean chances of early in the payment or repayment it may
be even the non-payment of dues. Following is included in this category:
Bank Deposits
Post Office Deposits
Public Provident Fund Account
Employee Provident Fund Account
Insurance Investment
Mutual Funds Investment
Commodity Investment
FOREX Investment
Bank Deposits
An investor who has safety as the first objective can choose bank as an
avenue for investment. Banks are considered to be safe i.e. these assure a
fix return in the form of interest payment and also there is no default risk.
Investors can deposit his savings in a bank as per their convenience by
maintaining different accounts. In general following type of deposits can be
held by an investor in a bank.
Savings Bank Account
Current Account
Cash and Credit Account
Self-Liquidating FDR
Recurring Deposit Account / Scheme

Flexi Deposit Account / Scheme

Fixed Deposit Receipt (FDR)
Savings Bank Account
In a savings bank account, account holder has the option to deposit his
small savings with the aim to have safety and interest income on such
deposit. Investor has the convenience of withdrawal of his money through
different mechanisms like by cheque, by withdrawal slip, through ATM
card, etc. Bank offers anywhere banking which offers operation of the bank
account for deposit and withdrawal from anywhere across the country at
the designated branches. In a saving bank account one can have limited
number of transactions in each month and it has the restrictions that
frequent transactions cannot be made in this account. Although banks have
a norm for maintaining minimum balance in the savings bank account, yet
there are the banks which offer zero balance savings bank account. The
main reason people use banks to hold their money isn't because of the
lucrative returns from interest rates - it is because the bricks, sensors and a
tempered steel safe convey a sense of security that a sock drawer can't
match.
Current Account
Current account is mainly opened by the businessman or business houses.
In a current account frequent transaction are allowed and one can have the
facility of overdraft. Overdraft is a facility provided by the bank only on a
current account whereby account holder can withdraw the amount over
and above his deposit. On this extra withdrawal, bank charges interest as
per rules and regulation of the bank. Overdraft facility can be utilized only
when it has been sanctioned by the bank in advance. For the deposited
amount in a current account few banks do not give any interest whereas few
offer a nominal interest. Withdrawal from this account can be made by
cheque, debit card or credit card.

Cash & Credit Account

A cash credit account is the account which allows the account holder a
credit facility against the security of certain fixed deposit or some other
assets of the business like stock, building etc. This account is opened after
entering into an agreement with the bank whereby bank sanctions a cash
credit limit, the account holder has the convenience of using the sanctioned
amount as per his requirement from time to time within the overall time
55limit of the cash credit account. Interest is charged on the amount which
is utilized by the account holder and not on the sanctioned amount. Few
banks charge nominal commitment charge/interest for the amount
sanctioned but not utilized. If this account is opened against the security of
stock-in-trade then the account holder is required to provide the details of
the stock-in-trade at a regular interval. Withdrawal can be made by cheque.
Self-Liquidating FDR
This is a fixed deposit scheme in which instead of issuing one single FDR
bank issues several FDR of small denominations. These have a provision
that in case depositor wishes to utilize a part of the amount out of the total
FDR or in the current account or savings bank account of the same
depositor and if some shortfall of amount is there, then it can be met by
liquidating the FDR of small denomination without affecting the interest on
rest of the FDR amount.

Recurring Deposit Account/Schemes

This is a bank account in which account holder is required to deposit a
fixed amount every month. This account offers the benefit of higher
interest rate as compared to savings bank account, however there is a
restriction of making pre-mature withdrawal from this account. Account
holder can get back his deposited amount along with the interest earned on
it only at the time of maturity. This account offers a facility of taking a loan
against the deposited amount on which bank charges interest.
Flexi Deposit Account/Scheme
This account is like recurring deposit account with a little difference that
the depositor is not bound to deposit a fix amount every month instead he
has the option to make different amount in each month depending upon
his savings, if he desires so. In these accounts account holder can deposit
any amount from a minimum amount up to maximum amount as specified
by the bank. Repayment of principal amount along with the interest on it is
done only at the time of maturity. This account offers a facility of taking
loan against the deposited amount on which bank charges interest.

Fixed Deposit Receipts (FDR)

Banks offer a low interest on the deposited money in savings bank account
and current account, but these accounts offer the convenience of making
partial withdrawal anytime at demand. In contrary to this FDR is a deposit
scheme which offers a higher interest rate with the condition to maintain
the deposit for a fixed time period. It is not like an account wherein any
time any amount can be added instead a fixed amount is deposited by
mentioning the time period till which no withdrawal is allowed. If the
deposit continues till the specified maturity period then interest for the full
period along with the principal amount is paid. These also offer the
convenience of premature withdrawal, in such case interest is paid at a low
rate and few banks charge a panel interest also.

FDR can be pledged with the issuing bank to obtain a loan against the FDR
or it an be pledged to open a cash credit account. In case a loan is taken against
the FDR then bank gives the interest on the amount of FDR and charges the
interest on the loan amount. Fixed deposit is a financial instrument for investors to
deposit money for a fixed duration ranging from 15 days to 10 years. Therefore,
the depositors are supposed to continue such FDR for the duration of time for
which the depositor decides to keep the money with the bank. However, in case of
need, the depositor can ask for closing the fixed deposit in advance by paying a
penalty.
Public Provident Fund
PPF is a 30 year old constitutional plan of the central government
happening with the objective of providing old age profits security to the
unorganized division workers and self-employed persons. Any individual
salaried or non-salaried can open a PPF account. Investor may also pledge
on behalf of a minor, HUF, AOP and BOI. EvenNRIs can open PPF
account. A person can contain only one PPF account. Also two adults
cannot open a combined PPF account. The collective annual payment by
an individual on account of himself his minor child and HUF/AOP/BOI
cannot exceed Rs.70000 or else the excess amount will be returned without
any interest.

The yearly contribution to PPF account ranges minimum Rs.500 to a

maximum of Rs.70000 payable in multiple of Rs.500 either in lump sum
or in convenient installments, not exceeding 12 in a year. The account will
happen to obsolete if the required minimum of Rs.500 is not deposited in
any year. The account can be regularized by depositing for each year of
default, arrears of Rs.500 along with penalty of Rs.100.

A PPF account can be opened at any branch of State Bank of India or its
subsidiaries or in few national banks or in post offices. On opening of
account a pass book will be issued wherein all amounts of deposits,
withdrawals, loans and repayment together with interest due shall be
entered. The account can also be transferred to any bank or post office in
India. Deposits in the account earn interest at the rate notify by the central
government from time to time. Interest is designed on the lowest balance
among the fifth day and last day of the calendar month and is attributed to
the account on 31st March every year. So to derive the maximum, the
deposits should be made between 1st and 5th day of the month.

Even though PPF is 15 year scheme but the effectual period works out to
16 years i.e. the year of opening the account and adding 15 years to it. The
sum made in the 16th financial year will not earn any interest but one can
take advantage of the tax rebate. The investor is allowed to make one
removal every year beginning from the seventh financial year of an amount
not more than 50 percent of the balance at the end of the fourth year or
the financial year immediately preceding the withdrawal, whichever is less.
This facility of making partial withdrawals provide liquidity and the
withdrawn amount can be used for any purpose.

Employee Provident Fund (EPF)

EPF has been such a successful idea that many people check where a
company offers EPF before taking up employment. Through EPF, the
employer deducts 12 percent of the employee‟s salary and contributes an
equal amount from their side. For example, if basic salary of any person is
Rs. 6000, then employees contribution will be 12 percent of 6000 would
be Rs. 720. Employer will also contribute an equal amount. But 8.33
percent of the 12 percent contributed by the employer (6000*8.33 percent
= 500) will get deposited in the employees‟ pension scheme (EPS) and the
remaining (6000*3.67 percent = 220) will be added to the employee‟s
contribution and deposited into the employee‟s EPF account. So, in total
940 Rs. will get deposited in the employee‟s EPF account and Rs. 500 will
get deposited in the EPS account. But here the contribution to EPS is
limited to a maximum of Rs. 541 irrespective of salary; the rest of the
amount will get deposited in EPF account. Investor will earn interest on the
amount deposited in PPF account as well as get tax benefits under section
80C for the contribution from salary.
 Advantages of EPF Account

i. The amount contributed by investor under EPF is eligible for tax

deductions under section 80C up to a limit of Rs. 100000. The
employer‟s contribution is not considered for tax deduction.
ii. Investor need not to open EPF account. It is opened by employer.
iii. At the time of closing an account and withdrawing money, simple
procedure is required to follow and money will get deposited to
investors account.
iv. At the time of switching job, investor need to mention EPF account
number to new employer. The amount accumulated in earlier EPF
account will get transferred to new account automatically.
v. If EPF account holds for more than five years or more, the amount
investor gets on closing account is completely tax free.
vi. Investor can deposit more than 12 percent in EPF account.

Disadvantages of EPF Account

i. Investors cannot withdraw amount from EPF account, except in case of

emergencies.
ii. If withdraw money before completion of five years, investors will have
to pay tax on the amount received.
iii. It is not a liquid investment; on closing account or withdrawing amount,
investor will not get amount due to him immediately, it takes around
two to three months.
Mutual Funds
A Mutual fund is an investment tool that allows small investors to access a
well-diversified portfolio of equities, bonds and other securities. Each
shareholder participates in the gain or loss of the fund. Units are issued
and can be redeemed as needed. A mutual funds is a professionally
managed firm of collective investments that pools money from many
investors and invests it in stocks, bonds, short-term money market
instruments, and/or other securities. In a mutual funds, the fund manager,
who is also known as the portfolio manager, trades the fund's underlying
securities, realizing capital gains or losses, and collects the dividend or
interest income. The investment proceeds are then passed to the individual
investors. Thevalue of a share of the mutual funds, known as the net asset
value per share (NAV), is calculated daily based on the total value of the
fund divided by the number of shares currently issued and outstanding.
There are several benefits from investing in Mutual funds.
Small Investments
Mutual funds help to reap the benefit of returns by a portfolio spread
across a wide spectrum of companies with small investments. Such a
spread would not have been possible without their assistance.

Professional Fund Management

Professionals having considerable expertise, experience and resources;
manage the pool of money collected by mutual funds. They thoroughly
analyze the markets and economy to pick good investment opportunities.

Spreading Risk
An investor with a limited amount of fund might be able to invest in only
one or two stocks or bonds, thus increasing his or her risk. However,
mutual funds will spread its risk by investing a number of sound stocks or
bonds. A fund normally invests in companies across a wide range of
industries, so the risk is diversified at the same time taking advantage of the
position it holds. Also in cases of liquidity crisis where stocks are sold at a
distress, mutual funds have the advantage of the redemption option at the
NAVs.

Transparency and Interactivity

Mutual funds regularly provide investors with information on the value of
their investments. Mutual funds also provide complete portfolio disclosure
of the investments made by various schemes and also the proportion
invested in each asset type. Mutual funds clearly layout their investment
strategy to the investor.
Liquidity
Closed ended funds have their units listed at the stock exchange, thus they
can be bought and sold at their market value. Over and above this, the
units can be directly redeemed to the mutual funds as and when they
announce the repurchase.

Choice
The large amount of mutual funds offers the investor a wide variety to choose
from.
An investor can pick up a scheme depending upon his risk / return profile.

Regulations
All the mutual funds are registered with SEBI and they function within the
provisions of strict regulation designed to protect the interests of the
investor.
Commodity Investment
After Indian economy embarked upon the process of liberalization and
globalization in 1990, the Indian government set up a committee in 1993 to
examine the role of futures trading. The committee headed by Prof. K.N.
Kabra recommended allowing futures trading in 17 commodity groups. It
also recommended strengthening of the forward markets commission, and
certain amendments to forward contracts regulation act 1952, particularly
allowing options trading in goods and registration of brokers with forward
markets commission. The government accepted most of these
recommendations and futures trading were permitted in all recommended
commodities.India is among the top five producers of most of the
commodities, in addition to being a major consumer of bullion and energy
products. Agriculture contributes about 22 percent to the GDP of the
Indian economy. It employees around 57 percent of the labor force on a
total of 163 million hectares of land. Agriculture sector is an important
factor in achieving a GDP growth of 8-10 percent. All this indicates that
India can be promoted as a major center for trading of commodity
derivatives. It is unfortunate that the policies of FMC (Forward Market
Commission) during the most of 1950s to 1980s suppressed the markets. It
was supposed to encourage and nurtureto grow with times. It was a mistake
that other emerging economies of the world would want to avoid.
However, it is not in India alone that derivatives were suspected of creating
too much speculation that would be to the detriment of the healthy growth
of the markets and the farmers. Such suspicions might normally arise due
to a misunderstanding of the characteristics and role of derivative product.
It is important to understand why commodity derivatives are required and
the role they can play in risk management. It is common knowledge that
prices of commodities, metals, shares and currencies fluctuate over time.
The possibility of adverse price changes in future creates risk for
businesses. Derivatives are used to reduce or eliminate price risk arising
from unforeseen price changes. A derivative is a financial contract whose
price depends on, or is derived from, the price of another asset. Two
important derivatives are futures and options.
Commodity Futures Contracts
A futures contract is an agreement for buying or selling a commodity for a
predetermined delivery price at a specific future time. Futures are
standardized contracts that are traded on organized futures exchanges that
ensure performance of the contracts and thus remove the default risk. The
commodity futures have existed since the Chicago board of trade was
established in 1848 to bring farmers and merchants together. The major
function of futures market is to transfer price risk from hedgers to
speculators. For example, suppose a farmer is expecting his crop of wheat
to be ready in two months‟ time, but is worried that the price of wheat may
decline in this period. In order to minimize his risk, he can enter into a
futures contract to sell his crop in two months‟ time at a price determined
now. This way he is able to hedge his risk arising from a possible adverse
change in the price of his commodity.

Commodity Options Contracts

Like futures, options are also financial instruments used for hedging and
speculation. The commodity option holder has the right, but not the
obligation, to buy or sell a specific quantity of a commodity at a specified
price on or before a specified date.
Option contracts involve two parties – the seller of the option, who writes
the option in favour of the buyer, who pays a certain premium to the seller
as a price for the option. There are two types of commodity options: a
„call‟ option gives the holder a right to buy a commodity at an agreed
price, while a „put‟ option gives the holder a right to sell a commodity at
an agreed price on or before a specified date called expiry date.
Futures and options trading therefore helps in hedging the price risk and
also provide investment opportunity to investors who are willing to assume
risk for a possible return. Further, futures trading and the ensuing discovery
of price can help farmers in deciding which crops to grow. They can also
help in building a competitive edge and enable businesses to smoothen
their earnings because non-hedging of the risk would increase the volatility
of their quarterly earnings. Thus futures and options markets perform
important functions that cannot be ignored in modern business
environment.
Commodity markets are markets where raw or primary products are
exchanged. These raw commodities are traded on regulated commodities
exchanges, in which they are bought and sold in standardized contracts.
The terms commodities and futures are often used to depict commodity
trading or futures trading. It is similar to the way stocks and equities are
used when investors talk about the stock market. Commodities are the
actual physical goods like gold, crude oil, corn, soy beans, etc. Futures are
contracts of commodities that are traded at a commodity exchange like
MCX. Apart from numerous regional exchanges, India has three national
commodity exchanges namely, Multi Commodity Exchange (MCX),
National Commodity and Derivatives Exchange (NCDEX) and National
Multi-Commodity Exchange (NMCE). Forward Markets Commission
(FMC) is the regulatory body of commodity market. It is one of a few
investment areas where an individual with limited capital can make
extraordinary profits in a relatively short period of time. Selected
information about the most important commodity exchanges in India is
given here.
Advantages of Commodity Investment
i - Investing in Commodities
Commodity investing was initially received well only by a few sectors.
Commodities investing were first restricted to the trade and exchange of
commodities meant for regular and day to day use. However the awareness
in the subsequent stages has brought all sectors into the manifold of
commodity investing and has enabled speedy movements, transfer and
transaction of goods and services. The following are the benefits of
investing in commodities market.

ii - Reduced Risks
As an investor chances of risks are very less if choose to invest in
commodity. Therefore the gains from commodity investing will be helpful
for investor to balance other losses due to other financial instruments in
portfolio. The chances of risks are lower because commodity investing
primarily deals with diverse items. Moreover when the contracts are
entered for a future date at the current time investor can exercise
reasonable care and see to it that the chances of risks are reduced or nil.

iii - Helps to Fix Price Easily

The performance of commodity market can be monitored by analyzing the
performance of bond and share market because in most cases a
commodity market will perform well when the others don't perform and
vice versa. It is therefore possible to easily predict the prices and make the
contracts by considering the ups and downs in other markets. A
prerequisite for this is that the assets in the commodity market should not
be correlated with the stock and bond market.
Disadvantages of Commodity Investment
The futures markets can be very volatile and direct investment in these
markets can be very risky, especially for inexperienced investors.
Leverage can greatly increase profit, but likewise can greatly increase losses.
Investor can lose initial deposit and more before investors are not able
to close position if trade turns and begins to lose money.
FOREX MARKET
The foreign exchange market also known as FOREX. FOREX or currency
market is a global, worldwide decentralized over the counter financial
market for trading currencies. Financial centers around the world function
as anchors of trading between a wide range of different types of buyers and
sellers round the clock, with the exception of weekends. The foreign
exchange market determines the relative values of different currencies.

The primary purpose of the foreign exchange is to assist international trade

and investment, by allowing businesses to convert one currency to another
currency. For example, it permits a US business to import British goods
and pay Pound, even though the business's income is in US dollars. It also
supports speculation, and facilitates the carry trade, in which investors
borrow low-yielding currencies and lend or invest in high-yielding
currencies, and which may lead to loss of competitiveness in some
countries.

In a typical foreign exchange transaction, an investor purchases a quantity

of one currency by paying a quantity of another currency. The modern
foreign exchange market began forming during the 1970s when countries
gradually switched to floatingexchange rates from the previous exchange
rate regime, which remained fixed as per the Bretton Woods system.

The foreign exchange market is unique because of

Its huge trading volume, leading to high liquidity;
Its geographical dispersion;
Its continuous operation: 24 hours a day except weekends;
The variety of factors that affect exchange rates;
The low margins of relative profit compared with other markets of fixed
income; and
The use of leverage to enhance profit margins with respect to account size.
Market Size Liquidity
The foreign exchange market is the largest and most liquid financial market
in the world. Traders include large banks, central banks, institutional
investors, currency speculators, corporations, governments, other financial
institutions and retail investors. The average daily turnover in the global
foreign exchange and related market is continuously growing. According to
the 2010 Triennial central bank survey, coordinated by the bank for
international settlements, average daily turnover was Rs. 398000 crores in
April 2010 vs. Rs. 170000 crores in 1998. From this Rs. 398000 crores, Rs.
150000 crores was spot foreign exchange transactions and Rs. 250000
crores was traded in outright forwards, FOREX swaps and other currency
derivatives.

Trading in London accounted for 36.7 percent of the total, making

London by far the most important global center for foreign exchange
trading. In second and third places, respectively, trading in New York
accounted for 17.9 percent, and Tokyo accounted for 6.2 percent.
Turnover of exchange-traded foreign exchange futures and options have
grown rapidly in recent years, reaching Rs. 16600 crores in April 2010
double the turnover recorded in April 2007. Exchange-traded currency
derivatives represent 4 percent of OTC foreign exchange turnover.
FOREX futures contracts were introduced in 1972 at the Chicago
mercantile exchange and are actively traded relative to most other futures
contracts.
Most developed countries permit the trading of FOREX derivative
products like currency futures and options on their exchanges. All these
developed countries already have fully convertible capital accounts. A
number of emerging countries do not permit FOREX derivative products
on their exchanges in view of controls on the capital accounts. The use of
foreign exchange derivatives is growing in many emerging economies.
Countries such as Korea, South Africa, and India have established
currency futures exchanges, despite having some controls on the capital
account.
FOREX trading is the immediate trade of one currency and the selling of
another. Currencies are traded through an agent or dealer. Investors are
not buying anything physical but think of buying a currency as buying a
share of a particular country. When investor purchase say Japanese Yen,
they are in fact buying a share in the Japanese financial system, as the price
of the currency is a direct reflection of what the market thinks about the
current and future health of the Japanese economy. In common, the
exchange rate of a currency versus other currencies is a reflection of the
condition of that country's financial system compared to the other countries
financial system. Unlike other financial markets like the New York stock
exchange, the FOREX spot market has neither a physical location nor a
central exchange.

The FOREX market is measured an over the counter (OTC) or interbank

market, due to the fact that the entire market is run electronically within a
network of banks continuously over a 24 hour period. Until the late 1990's
only the big investors could play this game. The first requirement was that
investor could trade only if he had about ten to fifty million bucks to start
with FOREX. FOREX was initially intended to be used by bankers and
large institutions and not by small investors. However because of the rise of
the internet, online FOREX trading firms are now able to offer trading
accounts to 'retail' traders also.
Financial Instruments in Foreign Exchange:
Spot Market and Forwards & Futures Markets
There are actually three ways that institutions, corporations and individuals
trade FOREX: the spot market, the forward market and the future market.
The FOREX trading in the spot market always has been the largest market
because it is the "underlying" real asset that the forwards and futures
markets are based on. In the past, the futures market was the most popular
venue for traders because it was available to individual investors for a
longer period of time. However, with the advent of electronic trading, the
spot market has witnessed a huge surge in activity and now surpasses the
futures market as the preferred trading market for individual investors and
speculators. When people refer to the FOREX market, they usually are
referring to the spot market. The forwards and futures markets tend to be
more popular with
companies that need to hedge their foreign exchange risks out to a specific
date in the future.

Spot Market
More specifically, the spot market is where currencies are bought and sold
according to the current price. That price, determined by supply and
demand, is a reflection of many things, including current interest rates,
economic performance, and sentiment towards ongoing political situations
both locally and internationally, as well as the perception of the future
performance of one currency against another. When a deal is finalized, this
is known as a "spot deal". It is a bilateral transaction by which one party
delivers an agreed-upon currency amount to the counter party and receives
a specified amount of another currency at the agreed-upon exchange rate
value. After a position is closed, the settlement is in cash. Although the spot
market is commonly known as one that deals with transactions in the
present rather than the future, these trades actually take two days for
settlement.
Forwards and Futures Markets
Unlike the spot market, the forwards and futures markets do not trade
actual currencies. Instead they deal in contracts that represent claims to a
certain currency type, a specific price per unit and a future date for
settlement. In the forwards market, contracts are bought and sold over the
counter between two parties, who determine the terms of the agreement
between themselves. In the futures market, futures contracts are bought
and sold based upon a standard size and settlement date on public
commodities markets. Futures contracts have specific details, including the
number of units being traded, delivery and settlement dates, and minimum
price increments that cannot be customized. The exchange acts as a
counterpart to the trader, providing clearance and settlement.
Both types of contracts are binding and are typically settled for cash. The
forwards and futures markets can offer protection against risk when trading
currencies. Usually, big international corporations use these markets in
order to hedge against future exchange rate fluctuations, but speculators
take part in these markets as well.

Swap
The most common type of forward transaction is the FOREX swap. In
FOREX swap, two parties exchange currencies for a certain length of time
and agree to reverse the transaction at a later date. These are not
standardized contracts and are not traded through an exchange.
Option
A foreign exchange option commonly shortened to just FOREX option is
a derivative where the owner has the right but not the obligation to
exchange money denominated in one currency into another currency at a
pre-agreed exchange rate on a specified date. The FOREX options market
is the deepest, largest and most liquid market for options of any kind in the
world.
Risk Aversion in FOREX
Risk aversion in FOREX is a kind of trading behavior exhibited by the
foreign exchange market when a potentially adverse event happens which
may affect market conditions. This behavior is caused when risk adverse
traders liquidate their positions in risky assets and shift the funds to less
risky assets due to uncertainty. In the context of the FOREX market,
traders liquidate their positions in various currencies to take up positions in
safe-haven currencies, such as the US Dollar. Sometimes, the choice of a
safe haven currency is more of a choice based on prevailing sentiments
rather than one of economic statistics. An example would be the financial
crisis of 2008. The value of equities across world fell while the US Dollar
strengthened. This happened despite the strong focus of the crisis in the
USA.

The foreign exchange market is exclusive because of the following reasons:

Its trading volumes
The tremendous liquidity of the market
Its geographical dispersion
Its long trading hours
The variety of factors that affect exchange rates
The low limits of profit compared with other markets of fixed income
but profits can be high due to very great trading volumes
The use of leverage
Benefits of FOREX Trading
Superior Liquidity
Liquidity is what really makes the FOREX market different from other
markets. The FOREX market is by far the most liquid financial market in
the world with more than Rs. 300000 crores traded every day. This ensures
price stability and better trade execution. Allowing traders to open and
close transactions with ease. Also such a tremendous volume makes it hard
to manipulate the market in an extended manner.

24 hour Market
This one is also one of the greatest advantages of trading FOREX. It is an
around the clock market, the market opens on Sunday at 3:00 pm EST
when New Zealand begins operations, and closes on Friday at 5:00 pm
EST when San Francisco terminates operations. There are transactions in
practically every time zone, allowing active traders to choose at what time
to trade.

Leverage Trading
Trading the FOREX market offers a greater buying power than many
other markets. Some FOREX brokers offer leverage up to 400:1, allowing
traders to have only 0.25 percent in margin of the total investment. For
instance, a trader using 100:1 means that to have a Rs. 100000 position,
only Rs. 1000 are needed on margin to be able to open that position.
Remember leverage is like a double sword, it could work in your favor as
well as against you.

Low Transaction Costs

Almost all brokers offer commission free trading. The only cost traders
incur in any transaction is the spread; difference between the buy and sell
price of each currency pair. This spread could be as low as 1 percentage in
profit in some pairs.
Low Investment
The FOREX market requires less capital to start trading than any other
markets. The initial investment could go as low as Rs. 10000, depending
on leverage offered by the broker. This is a great advantage since FOREX
traders are able to keep their risk investment to the lowest level.

All these benefits make the FOREX market very attractive to investors and
traders. Investor needs to make something clear though, even when all
these benefits of the FOREX market are notorious; it is still difficult to
make a profit in FOREX market. It requires a lot of education, discipline,
commitment and patience.

The foreign exchange market, or FOREX, has unique disadvantages not

found in other trading environments. Without understanding the pitfalls
investors are almost guaranteed to lose money.
Disadvantages of FOREX Market
Central Bank Intervention
Many government central banks intervene in the markets in order to
preserve the value of their currency, not known to the average investor.
This intervention is usually camouflaged to keep the market from knowing.
For example, the central bank may use a network of smaller banks to buy
or sell on their behalf. Regardless of the camouflage used, the result is the
same: the currency value is artificially strengthened or weakened, making it
difficult to make trades based on market fundamentals.

Timing Difficulties
The foreign exchange market is a bartering based system. This means that
one item a given currency is exchanged directly for another item a second
currency. These trades are usually made through a third "vehicle" currency.
So, for example, if an investor wants to trade from the Brazilian Real into
the British Pound, holdings of Real are usually converted into the U.S.
Dollar and then reconverted into the Pound. In such a complex
arrangement, it can be difficult when the vehicle currency will remain
stable
9. Traditional Form of Investments
Real Estate Investment
The growth curve of Indian economy is at an all-time high and contributing
to the upswing is the real estate sector in particular. Investments in Indian
real estate have been strongly taking up over other options for domestic as
well as foreign investors. The boom in the sector has been so appealing
that real estate has turned out to be a convincing investment as compared
to other investment vehicles such as capital and debt markets and bullion
market. It is attracting investors by offering a possibility of
stable income yields, moderate capital appreciations, tax structuring
benefits and higher security in comparison to other investment options.

A survey by the Federation of Indian Chambers of Commerce and

Industry (FICCI) and Ernst & Young has predicted that Indian real estate
industry is poised to emerge as one of the most preferred investment
destinations for global realty and investment firms in the next few years.
The potential of India's property market has a revolutionizing effect on the
overall economy of India as it transforms the skyline of the Indian cities
mobilizing investments segments ranging from commercial, residential,
retail, industrial, hospitality, healthcare etc. But maximum growth is
attributed to its growth from the booming IT sector, since an estimated 70
percent of the new construction is for the IT sector. Real estate industry
research has also thrown light on investment opportunities in the
commercial office segment in India. The demand for office space is
expected to increase significantly in the next few years, primarily driven by
the IT and ITES industry that requires an projected office space of more
than 367 million square feet till 2012-13.
Advantages of Investment in Properties
In general, property is considered a fairly low-risk investment, and can be
less volatile than shares. Some of the advantages of investing in property
includes following.

i - Tax Benefits
A number of deductions can be claimed on tax return, such as interest
paid on the loan, repairs and maintenance, rates and taxes, insurance,
agent's fees, travel to and from the property to facilitate repairs, and
buildings depreciation.

ii - Negative Gearing
Tax deductions can also be claimed as a result of negative gearing, where
the costs of keeping the investment property exceed the income gained
from it.
iii - Long - Term Investment
Many people like the idea of an investment that can fund them in their
retirement. Rental housing is one sector that rarely decreases in price,
making it a good potential option for long-term investments.

iv - Positive Asset Base

There are many benefits from having an investment property when
deciding to take out another loan or invest in something else. Showing
potential lender that have the ability to maintain a loan without defaulting
will be highly regarded. The property can also be useful as security when
taking out another home, car or personal loan.

v - Safety Aspect
Low-risk investments are always popular with untrained "mum and dad"
investors. Property fits these criteria with returns in some country areas
reaching 10 percent per year. Housing in metropolitan areas is constantly
in demand with the high purchase price being offset by substantial rental
income and a yearly return of between 6 to 9 percent.

vi - High Leverage Possibilities

Investment properties can be purchased at 80 percent LVR (loan to
valuation ratio), or up to 90 percent LVR with mortgage insurance. The
LVR is calculated by taking the amount of the loan and dividing it by the
value of the property, as determined by the lender. This high leverage
capacity results in a higher return for the investor at a lower risk due to less
personal finance ties up in the property. By choosing a property
intelligently, investors can make this form of investment work for them.
However, as with all investments there are some disadvantages to be aware
of. Disadvantages of investment properties includes the following.

vii - Liquidity
Investor can sell the property if things go bad, but however this can take
many months unless willing to accept a price less than the property is
worth. Unlike the stock market, investor will have to wait for any financial
rewards.
viii - Vacancies
There will be times when mortgage payments will need to be covered out
of own pocket due to property being untenanted. This could just be a
result of a gap between tenants or because of maintenance issues.

ix - Bad Tenants
It‟s every investment property owner's worst frightening problem of bad
tenant. They can significantly damage property, refuse to pay rent and
refuse to leave. Disputes can sometimes take months to resolve.

x - Property Oversupply
In recent years, inner-city builders have created a glut of high-rise
apartment blocks, resulting in fierce competition and many units being
increasingly difficult to rent out.

xi - Ongoing Costs
In addition to the standard costs associated with a property, ongoing
maintenance costs, especially with an older building, can be substantial.
Gold & Silver Investment
Gold has got lot of emotional value than monetary value in India. India is
the largest consumer of gold in the world. In western countries, majority of
stock of gold is kept in central banks. But in India, people use gold mainly
as jewels. When look at gold in a business sense, anybody can understand
that gold is one of the all-time best investment tool in India. Following data
shows Indian gold market current scenario.

Size of the gold economy in India is more than Rs. 30000 crores.
Number of gold jewelry manufacturing units is almost 100000.
Number of people employed more than 500000.
Gems &Jewellery constitute 25 percent of India‟s exports and about 10
percent of our import bill constitutes gold import.
Official estimates of the stock of gold in India are 9000 tons; unofficial
estimates of the stock of gold in India are 12000 to 14000 tons.
Gold held by the reserve bank of India as on 31st March, 2010 was 358 tons.
Gold production in India is 2 tons per annum.

India has the highest demand for gold in the world and more than 90
percent of this gold is acquired in the form of jewellery. The movement of
gold prices is one of the important variables determining demand for gold.
The increase in the irrigation, technological change in agriculture have
generated large marketable surplus; and a highly skewed rural income
distribution is another factors contributing to additional demand for gold.
Types of Gold
Some of the popular modes of investing in gold are gold coin investing,
gold stock investing, gold bullion investing etc,. Before investors decide to
invest in the gold he or she must decide which form suits in terms of
convenience, convertibility and preference. Some of the popular forms of
investment are as follows
i - Raw Gold
This is the most common form of gold. However it is not regarded to be
safe and maintenance becomes difficult. If planning to invest in large
quantities this method is extremely unsuitable. One should think of
adopting this method carefully because adequate safety measures like
keeping them in a bank locker is required.
ii - Jewellery
This form of investment is also equally famous. This form of investment
can be especially beneficial if investors are planning to trade them to the
consumers and households. The advantage of raw gold and jewellery are
that they facilitate liquidity in no time. However investor have to take lot of
care to maintain jewellery and it is not advisable to opt this method unless
or otherwise gold investments are full time trade.
iii - Gold Coin
This form of investment is advantageous when compared with the earlier
two forms because it is easily portable. However there are lots of gold coins
specific to national boundaries and must have a clear idea of their values
before trading with them. It is also very easy to convert gold coins to other
forms and as well as selling them for cash.
iv - Exchange Traded Funds (ETF)
ETFs are beneficial gold investment plan if investors do not want to
indulge for paying premiums and commissions. As it is similar to shares in
the stock market, it is accessible for the investors effortlessly. ETF is
treated like a normal stock therefore only need to make payment for the
stockbroker‟s commission. The management procedure is comparable to
the mutual funds but do not need to deal with paper works and
unnecessary expenses. But do remember that ETFs have a stipulated cost
v - Gold Mining Companies
The gold mining companies have distributed public shares therefore
investor can opt for these shares. This is considered a brilliant option for
investing in gold. The gold mining share prices will shoot up with the
steady increase in the price of gold bullion.

vi - Gold Certificates
In this type of investment plan these certificates will be a proof of the
amount of gold purchased. Investors have three options here to invest as
he or she can buy physical gold or trade through certificates or opt for a
gold accumulation plan. In case of gold accumulation, investor can buy
gold each month for a fixed sum at a standard market price. There is a
stable rise in the graph of gold investment so it is a preferred option for
many people to invest in gold according to the existing financial situation.
 Advantages of Investing in Gold
Gold has been a useful commodity throughout the economic history of
mankind. In the earlier civilizations gold used to be a currency itself. There
used be to coins made of gold and silver. The gold remained in the market
as a standard for trading purposes till the beginning of the 20th century. In
the second half of the previous century gold was replaced by paper
currencies the world over. Here are the few benefits of investing in gold.
i - Stability in Trading Value
Although there have been some down turns but over the last few decades
gold has overall seen a surge in its value. It has been used as a way of
preserving wealth. Take the example of its equivalence to US dollar. In the
early 70s, one ounce of gold equaled 35 $ which has now risen to 1000$.
The value of dollar might have decreased due to various reasons chief of
them being an increase in the amount of money available in the market.
ii - Economic Weapon
From the various statistics of the central banks and IMF it is evident that
almost one fifth of the reserves are in the form of gold. Had the gold not
been a symbol of security the economists would have never preserved the
wealth of the country in the form of the gold. It is also used against the
inflation. The buying power of the gold owner is preserved or increases
with the increase of inflation. Inflation can harm in the long run when
buying goods at an increased price or when currency is devalued.
iii - Lesser Production of Gold
Like any other mineral gold reserves have also started to deplete. This has
resulted in lesser production of gold from the gold producing countries.
On the other hand the human population is increasing all the time. This
has automatically resulted in a supply demand gap which in turn increases
the price of gold further.
iv - Immune
Gold has immune from the geo political situations. Throughout the history
of mankind there have been a variety of changes in political landscapes of
the different countries, resulting in a collapse of their monetary system.
 Disadvantages of Investing in Gold
Gold investment is no doubt a thrilling option. However they are not free
from limitations. Many investors blindly take decisions on the basis of the
ups and downs in the stock markets and this creates havoc especially when
the gold market is demonstrating a different behavior. Gold investment is
very important as it contributes to the national and international economy.
Here are few disadvantages to invest in gold.
i - Massive Growth Potential is Curtailed Right Now
Gold has seen a near meteoric rise in value over the last decade, but that
has mostly been exhausted. What that means to potential investors is that
gold has much strength, but massive growth potential is not one of them.
The problem for gold in growth terms is that the market itself is highly
evaluated. Everyone knows the value of investing in gold and that takes
away a lot of the opportunity. In other markets, there are opportunities and
sectors where people still have not discovered the potential that exists. The
value of gold is likely to rise slowly in the coming years, but other options
are also available that enjoys rapid growth potential.
ii - Lack of Constant Revenue from Dividends
With many investment types, like real estate or stocks, investors can reap
the rewards of their investment without having to sell their asset. This
happens with dividends, which comes from stocks and come in the form of
rent payments when own a real estate property. The good thing about
dividend earnings is that investor can take the money from those items and
reinvest right back in the investment. Real estate owners take their money
and put it back into the property, adding value. Stock investors typically
just reinvest their dividends automatically in order to purchase more stock.
Gold does not offer any dividends. When investor purchase coins, bars or
bullion, he or she own those items and the value is derived when sell them.
This is a downside that investors have to consider, because many of them
depend upon the residuals to power further investments. Though gold
provides a nice, steady, stable investment type, it does not offer extra
“perk” that is often seen a staple of the financial world.
iii - Must Provide Physical Storage Space for Gold
One of the important things that many gold investors cite as a positive can
be considered a negative by others. Investors who buy gold typically like to
have it on hand. They do this because the entire point of gold is to have
something tangible in case the system itself fails miserably. Though
investors can have certificates to account for their gold ownership, this
defeats the purpose of investing in gold in the first place. With that in
mind, if investor own actual physical gold, they need to have safe place to
store it. Because gold coins are small and can be easily stolen, investor
cannot leave them laying around. If it is not properly stored then it can be
dangerous to keep gold in home.
Gold investment has its own advantages and disadvantages and investors
are very well aware about opportunities and threats for investing in gold.
But in a current scenario it is desirable to have solid gold investment in
investor‟s portfolio.
Chit Fund
Chit funds have been a popular savings scheme in several parts of India. It
has paved it‟s way as a convenient finance option amongst businessmen,
small scale industrialists and other small time investors. Though very often
shrouded by news of fraudulence, they have still managed to retain their
popularity. Chit funds evolved years ago, when the present system of
banking did not exist. Few families in a village would get together to form a
chit or a group, to save money and to avail of loans amongst the group
formed. A sensible person is chosen to manage the group. This informal
system of saving prevailed only on trust. Gradually, as groups became
larger and the money involved became huge, many companies started chit
fund schemes with attractive offers. Thus to provide regulation for chit
funds and for matters connected therewith, the government introduced the
Chit Funds Act in 1982.

A chit fund is a savings and borrowing scheme, in which a group of people

enter into an agreement to contribute fixed amounts periodically for a
specified period of time. The amount so collected or the chit value is
distributed among each of the persons in turns, which is determined by way
of lots or an auction. Chit funds provide an opportunity to save excess cash
on a daily, weekly or monthly basis, and give an easy access to it in case of
emergency. Chit fund schemes possess a predetermined chit value and
duration. The amount collected from members is auctioned out every
month. Bidders can bid up to a maximum of this total collected value. The
difference between the gross sum collected and the actual auction amount,
known as thediscount, is then equally distributed among subscribers, or, is
deducted from the next month’s premium.
a - Benefits of Investing in Chit Fund
It inculcates the habit of compulsory regular saving.
It earns dividends every month. So the net effective rate of return
proves to be pretty attractive.
For any unexpected financial requirement, bidding for the lump sum
amount, could prove to be a better option than going through the
hassles of a loan.
Chit fund investments are not affected by any market fluctuations.
Finance option through chit funds are easier to repay through the
remaining monthly installments.

b - Drawbacks of Investing in Chit Fund

Chit-funds do not offer any predetermined or fixed returns. Higher returns
are earned when there are more number of members in the group or if the
duration of the scheme is longer. One would earn more, when more
members need emergency funds. Thus returns cannot be calculated and
decided when one joins the scheme. With the plethora of chit fund
companies around, the safety of a chit fund lies in choosing the right one.
In a registered chit fund company, under legal binding, the activities are
regulated and institutionalized by the chit fund act, and hence could be
considered safe. However, other unregistered companies operating
informally do exist. One needs to exercise caution while choosing where
he desires to invest.
Chit funds definitely are an attractive option for regular saving. It inculcates
a disciplined approach to financial planning. It has the added advantage of
bringing a combination of savings as well as hassle free borrowing. This
dual purpose investment tool could be a friend in need at times of
unexpected financial emergencies.
Depository Receipts
Depository receipts are a type of negotiable financial security,
representing a security, usually in the form of equity, issued by a
foreign publicly listed company. However, DRs are traded on a local
stock exchange though the foreign public listed company is not traded
on the local exchange. Thus, the DRs are physical certificates, which
allow investors to hold shares in equity of other countries. This types
of instruments first started in USA in late 1920s and are commonly
known as American depository receipt (ADR). Later on these have
become popular in other parts of the world also in the form of Global
Depository Receipts (GDRs). Some other common types of DRs are
European DRs and International DRs.

In nut shell ADRs are typically traded on a US national stock

exchange, such as the New York stock exchange (NYSE) or the
American stock exchange, while GDRs are commonly listed on
European stock exchanges such as the London stock exchange. Both
ADRs and GDRs are usually denominated in US dollars, but these
can also be denominated in Euros.

When a foreign company wants to list its securities on another

country‟s stock exchange, it can do so through depository receipts
(DR) mode. To allow creation of depository receipts, the shares of the
foreign company, which the depository receipts represent, are first of
all delivered and deposited with the custodian bank of the depository
through which they intend to create the depository receipts. On receipt
of the delivery of shares, the custodial bank creates depository receipts
and issues the same to investors in the country where the depository
receipts are intended to be listed. These depository receipts are then
listed and traded in the local stock exchanges of that country.
ADRs were introduced with a view to simplify the physical handling
and legal technicalities governing foreign securities as a result of the
complexities involved in buying shares in foreign countries. Trading in
foreign securities is prone to number of difficulties like different prices
and in different currency values, which keep in changing almost on
daily basis. In view of such problems, U.S. banks found a simple
methodology wherein they purchase a bulk lot of shares from foreign
company and
then bundle these shares into groups, and reissue them and get these
quoted on American stock markets. For the American public ADRs is
simplify investing. So when Americans purchase Infy (the Infosys
Technologies ADR) stocks listed on NASDAQ, they do so directly in
dollars, without converting them from rupees. Such companies are
required to declare financial results according to a standard accounting
principle, thus, making their earnings more transparent. An American
investor holding an ADR does not have voting rights in the company.
The above indicates that ADRs are issued to offer investment routes
that avoid the expensive and cumbersome laws that apply sometimes
to non-citizens buying shares on local exchanges. ADRs are listed on
the NYSE, AMEX, or NASDAQ.
o Indian Depository Receipts (IDR)
SEBI has issued guidelines for foreign companies who wish to raise
capital in India by issuing Indian depository receipts. Thus, IDRs will
be transferable securities to be listed on Indian stock exchanges in the
form of depository receipts. Such IDRs will be created by domestic
depositories in India against the underlying equity shares of the issuing
company which is incorporated outside India. Though IDRs will be
freely priced, yet in the prospectus the issue price has to be justified.
Each IDR will represent a certain number of shares of the foreign
company. The shares will not be listed in India, but have to be listed in
the home country. The IDRs will allow the Indian investors to tap the
opportunities in stocks of foreign companies and that too without the
risk of investing directly which may not be too friendly. Thus, now
Indian investors will have easy access to international capital market.
Depository receipts are allowed to be exchanged for the underlying
shares held by the custodian and sold in the home country and vice-
versa. SEBI has issued guidelines for issuance of IDRs in April, 2006.
Some of the major norms for issuance of IDRs are as follows.

o Rationale for Mutual Funds

Mutual funds offer several advantages over investing in other
investment products. A comparative look at the various investment
products which are available in the market for the purpose of tax
saving would help investor to make an informed decisions for
investment and may find mutual funds option more attractive in terms
of comparatively shorter lock in period and superior returns.
Following table shows the comparative analysis between different
investment avenues.
 Table – 2.2 - Comparative Analysis between Investment Avenues

Type of Investment Return Safety Risk Liquidity

Treasury Bills Moderate or Low High Low High

Certificate of Deposits Moderate or Low High Low High

Commercial Paper Moderate or Low High Low High

Dated Govt. Securities Moderate or Low High Low High

Equity Shares High / Moderate Low High High/Low

Preference Shares Moderate Moderate Moderate Low

Debentures / Bonds Moderate Moderate Moderate Low

Bank Deposits Moderate or Low High Low High

Post Office Deposits Moderate or Low High Low Moderate

Provident Fund Moderate or Low High Low Moderate

Employee Provident
Fund Moderate or Low High Low Moderate

Insurance Schemes Moderate or Low High Low Low

Mutual Funds High High or Moderate High High

Real Estate High or Moderate High or Moderate High Low

Gold/Silver Moderate or Low High Moderate Moderate

Although the table provides a qualitative evaluation of various financial

products, the comparison serves as a useful guide towards determining
the best option. It is clear from the above that equity investing in
general has good potential in terms of return, liquidity and
convenience. However, as discussed in the previous section, individual
stocks can give varied performance, one stock being more liquid than
another or one stock giving lower return than another. For this reason,
equity investing is fraughtwith risk and is not ideal for every individual
investor. It is recommended only for investors who are willing to invest
the time required for research in stock selection or have access to
sound financial advices and possess the capacity to bear the inherent
risk.
Bonds/Debentures issued by institutions are an attractive option.
Bonds are a stable option in terms of fixed returns, and are
recommended for the risk averse investors. However, bonds can lose
value when general interest rates go up. Bonds are also subject to
credit risk or risk of default by the borrower. In case of corporate
bonds, the risk must be assessed in terms of the strength of the
borrower as indicated by the credit rating assigned to the bonds. In the
absence of credit rating, it is extremely difficult for the investor to
decide on the quality of the bonds or debentures. The secondary
market in corporate bonds in India is also very thin, leading to lack of
liquidity for the investors who wish to sell.
Treasury bills, commercial paper and government securities fall short
on several counts like return capital appreciation. Certificate of
deposits also fall short on several counts and are recommended only if
the issuing company and the deposits on offer are rated highly by
credit rating agencies.
The major advantage of bank deposits relative to other products is the
liquidity they offer. Banks are usually willing to give loans against fixed
deposits at a nominal charge over the interest rate applicable to the
deposits. Deposits rates offered by banks vary as per RBI directives
and the interest rate scenario in the economy. Bank deposits score
high on safety, as the return of capital is guaranteed to the depositor by
the bank. However, the financial soundness of the bank is important
to look at.
PPF/EPF and post office deposits combine stability with a respectable
return. Its tax exempt status makes it an attractive mechanism for the
small investor to build his savings portfolio. However the lock in
period involved in PPF/EPF and post deposits means that the investor
loses out in terms of liquidity, particularly during the early years of the
scheme. Being a government supported investment, PPF scores very
high on safety, compared to bank deposits.
Insurance could become a serious investment vehicle once the
insurance market in India is opened to private players. In today‟s
scenario the opportunity cost in terms of return is too high for
insurance to be compared on even terms with the other options. Its
liquidity is also extremely low, though safety is considered high at
present for the government owned LIC as the only insurer.

Some of the reasons that go strongly in favor of mutual funds are their
lowest risk factors owing to diversification of assets in to various sectors
and scripts or instruments within. As with the risk, the costs of unit
share too are spread across making them affordable by almost any
one. Fund managers allocate available funds in a specified proportion
among various instruments of investments. Consider a fund being well
diversified across the spectrum of exchange listed stocks and bonds
which yield a guaranteed return in addition to being invested in money
markets and real estates.
From the comparative analysis provided above, it emerges that each
investment has its strengths and weakness. Some options seek to
achieve superior returns, but with correspondingly higher risk. Other
provide safety, but at the expense of liquidity and growth. Options
such as bank deposits offer safety and liquidity, but at the cost of
return. Mutual funds seek to combine the advantages of investing in
each of these alternatives while dispensing with the shortcomings.
Clearly, it is in the investor‟s interest to focus his investment on
mutual funds.
As has been discussed, mutual funds offer several benefits that are
unmatched by other investment options. Post liberalization, the
industry has been growing at a rapid pace and has crossed Rs. 700000
crores size in terms of its assets under management.
However, the inflow under the industry is yet to overtake the inflows
in banks. Rising inflation, falling interest rates and a volatile equity
market make a deadly cocktail for the investor for whom mutual funds
offer a route out of the impasse. The investments in mutual funds are
not without risks because the same forces such as regulatory
frameworks, government policies, interest rate structures, performance
of companiesetc, that rattle the equity and debt markets, act on mutual
funds too. But it is the skill of the managing risks that investment
managers seek to implement in order to strive and generate superior
returns than otherwise possible that makes them a better option than
many others.

The above description proves the superiority of mutual funds among

all other investment avenues. So, the researcher has opted this
investment avenue for further thorough research purpose.