Task-1

Good Investment Decision make investor earn more profits explain.

Meaning of Investment –

In general terms, investment means the use money in the hope of making more money.

Definitions of Investment –

Investment may be defined as the purchase by an individual or institutional investor of a

financial or real asset that produces a return proportional to the risk assumed over some future
investment period.” – F. Amling

“Investment defined as commitment of funds made in the expectation of some positive rate of
return. If the investment is properly undertaken, the return will commensurate with the risk the
investor assumes.”- Fisher & Jordan
Good Investment Decision –

 Choose company carefully :-

The key to successful investing in finance companies is to choose company carefully where you
are going to invest. Investors must have a feel for the level of risk attached to their investment - it
is about asking the right questions of who you are giving your money to.

 liquidity:-

look for companies that ensure sufficient levels of cash stays with the business.
Strong levels of liquidity are another important feature to look for in a finance company.
Liquidity is a term used to describe how easy it is to convert assets to cash. The most liquid
asset, and what everything else is compared to, is cash. This is because it can always be used
easily and immediately.
Investors should always look for a finance company with a well-capitalized balance sheet with
high levels of equity and shareholder ownership. A reliable way of getting a measure of this is by
looking at the gearing ratio.

 Gearing ratio:-
Investors should always look for a finance company with a well-capitalized balance sheet
with high levels of equity and shareholder ownership. A reliable way of getting a
measure of this is by looking at the gearing ratio.
Gearing ratio is another way of looking at equity which is essentially how much a finance
company owns of itself, set against how much it borrows. The higher the gearing ratio;
the stronger the equity position.
 Previous performance:-

Looking for a good companies that are run by experienced and highly skilled people and have a
history of profitability.

Previous performance, governance structures and board membership are valuable pointers for
determining the strength and integrity of a finance company. Asking questions about prior
investment decisions will give some indication as to the reliability and trustworthiness of finance
companies. Also look into the experience of the board of directors, do they have credible
backgrounds, is there a mix of independent directors on the board?

Year on year growth with a history of profitability are also important features an investor should
look for in a finance company. While past performance is no guarantee of future performance it
is one indicator of reliability.

 Know their lending criteria:–

Ask questions like what and where do they lend to and how much have they written off in bad
debts? How much lending is deemed related party lending.
  Well-capitalised balance sheet:-

Level of assets compared to liabilities. Look for a finance company that has cash flowing in
more regularly than paid out?

 Short term or long term:

Generally speaking, short term can be more risky than long term. While the payoff is quicker on
this type of investment, it is also much more risky. The bigger the risk the bigger the reward.

 Interest rate:-

A high rate of interest may not be the only factor favouring the outlet for investment. The investor has to
include in his portfolio several kinds on investments. Stability of interest is as important as receiving a
high rate of interest.

 Taxation :-

Taxation is one of the crucial factors in a person’s savings. Tax planning is an essential part of overall
investment planning. If the investment or disinvestment in securities in made without considering the
various provisions of the tax laws, the investor may find that most of his profits have been eroded by the
payment of taxes. Proper planning could lead to a substantial increase in the amount of tax to be paid. On
the other hand, good tax planning and investing in tax savings schemes not only reduces the tax payable
by the investor but also helps him to save taxes on other incomes.

 Investment Channels:-
Apart from putting aside savings in savings banks where interest is low, investors have the choice of a
variety of instruments. The question to reason out is which is the most suitable channel? Which media
will give a balanced growth and stability of return? The investor in his choice of investment will have to
try and achieve a proper mix between high rate of return and stability of return to reap the benefits of
both. Some of the instruments available are corporate stock, provident fund, life insurance, fixed deposits
in corporate sector, Unit Trust Schemes and so on.
Task-2

Capital market:-
Capital market refers to the organization and the mechanism through which the companies, other
institutions and the government raise long-term funds. So it constitutes all long-term borrowings from
banks and financial institutions, borrowings from foreign markets and raising of capital by issuing various
securities such as shares debentures, bonds, etc. For trading of securities there are two different segments
in capital market.

One is primary market and the other is, secondary market. The primary market deals with new/fresh issue
of securities and is, therefore, known as new issue market.

The secondary market on the other hand, provides a place for purchase and sale of existing securities and
is known as stock market or stock exchange.

Definition:-

A financial market in which long-term debt obligations and equity securities are bought and
sold.

The market for long term investment funds in the form of stocks, bonds, commercial paper etc.
 CAPITAL MARKET IN INDIA

On the basis of status OnOn

thethe Basis
Basis of
of Stages
On the basis of status
Stages

Organized Unorganized
Unorganized
Organized
Prima
Primary Secondary
Central Commercial Financial
Central Commercial Financial
Bank Bank Institutions
Institutions
Bank Bank
. &stockmarket
&stock market ShareSares Debenture
Debenture Bond
e

IndigenousMoney
Indigenous Money Chit
Chit Hire
Hire Investment
Investment
Banker Lenders
Banker Lenders Funds Purchase Co.
Companies
Fund Purchase
s

Shares Bond debenture

Equity
Equity Preference
Preference
. Share
Share Share Share s

Fig. 1 Diagram of capital market

Structure Capital Market:-
 
Indian Capital Market is broadly composed of:-
 
i) Gild Edged Market / Government Securities Market.
 
ii) Corporate / industrial Securities market.
 
iii) Long Term Loans market / Developmental Financial Institutions.
 
iv) Financial Intermediaries.
 

(1)Gild-Edged Market:-
 

This market deals in government and semi government securities and so it is also called
‘Government securities market'.
  This market deals with securities such as bonds issued by Central / State Government and these
securities carry fixed interest rates.
 The investors in government securities are mainly financial institutions like commercial banks,
IFCI, LIC, GIC, SFC, SIDC, Provident funds, RBI and individuals. These institutions are often
compelled by the law to invest a certain % of their funds in government securities.
  RBI plays a very important role in this market.

(2)Corporate / Industrial Securities Market:-

 
The Corporate Security Market provides long – term funds to the companies.
It deals with shares and debentures of old and new companies.
  This market is further divided into:
 Primary market (new issues market)
 Secondary Market (old issues market).
  Primary Market:-
  It is a market for new issues. It deals with those securities that are issued to the public for the
first time. So, it is also called New Issues Market. It deals with the raising of fresh capital in the
form of equity shares, preference shares, debentures, bonus, right issues, deposits, etc.  It
includes all institutions dealing in the issue of fresh claims.
 
Secondary Market:-
 The secondary market deals with securities that are already issued by companies. It facilitates
trading in securities and operates through stock exchanges.
The secondary market helps to provide liquidity and marketability to the outstanding equity and
debt instruments.
It provides immediate valuation of securities and thus induces company to perform efficiently.
The secondary market has three types of stock exchanges that provide liquidity to the investor
through trading transactions (buying and selling of securities) with the help of brokers and other
financial intermediaries. The 3 types of stock exchanges are
 Regional Stock Exchange.
 National Stock Exchange.
 Over the Counter Exchange of India.
Out of the 23 recognised stock exchanges in India, The National Stock Exchange (NSE) and the
Bombay Stock Exchange (BSE) are the two premier stock exchanges.
They operate under the rules and regulations of the Government and SEBI.
 
  (3)Long Term Loans Market / Development Financial Institutions:-
  Developmental financial institutions were established to provide medium term / long term loans
to the industrial sector.
 These institutions include Industrial Finance Corporation of India (IFCI), Industrial
Development Bank of India (ICICI), Industrial Development Bank of India (IDBI), Industrial
Investment Bank of India (IIBI), The Export and Import Bank of India (EXIM BANK), State
Finance Corporations (SFCs), state Industrial Corporations (SIDCs), etc.

 Industrial Finance Corporation of India (IFCI):-

It is the oldest SFI set up in1948 with the primary objective of providing long-term and
medium-term finance to large industrial enterprises. It provides financial assistance for setting up
of new industrial enterprises and for expansion or diversification of activities. It also provides
support to modernization and renovation of plant and equipment in existing industrial units. It
can grant loan or subscribe to debentures issued by companies repayable in not more than 25
years.
 Industrial Development Bank of India (IDBI):-
It was set up in 1964 as a subsidiary of Reserve Bank of India for providing financial assistance
to all types of industrial enterprises without any restriction on the type of finance and the amount
of funds. It could also refinance loans granted by other financial institutions and offer guarantees
for the loans raised from the capital market or scheduled banks. It also discounts and rediscounts
the commercial bills of exchange.

 Industrial Investment Bank of India (IIBI):-

The erstwhile Industrial Reconstruction Bank of India (IRBI), an institution which was set up for
rehabilitation of small units has been reconstituted in 1997 as Industrial Investment Bank of
India. It is a full fledged all purpose development bank with adequate operational flexibility and
autonomy. After the reconstruction its focus has changed from rehabilitation finance to
development banking.

 Small Industries Development Bank of India (SIDBI):-

It was set up in 1990 as a principal financial institution for the promotion, financing and
development of small-scale industrial enterprises. It is an apex institution of all the banks
providing credit facility to small-scale industries in our country. It undertakes a wide range of
promotional and development activities for improving the inherent strength of SSI units and
creating avenues for the economic development of the rural poor.

 State Financial Corporations (SFCs):-

In order to provide financial assistance to all types of industrial enterprises (proprietary and
partnership firms as well as companies) most of the states of our country have set up SFCs. The
primary objective of these corporations is to accelerate the pace of Industrial development
in their respective states. SFCs provide finance in the form of long-term loans or through
subscription of debentures, offer guarantee to loans raised from other sources and take up
underwriting of public issues of shares and debentures made by companies.
 State Industrial Development Corporations (SIDCs): -
These corporations were set up in 1960s and early 1970s by most state governments for
promotions and development of medium and large-scale industries in their respective states.
In addition to providing financial assistance to industrial units, they also undertake a variety of
promotional activities. They also implement the various incentive schemes of the central and
state governments.
 Unit Trust of India (UTI):-
It was set up in 1964 as an investment trust with capital of Rs. 5 crore subscribed by Reserve
Bank of India, LIC, State Bank of India and other financial institutions. It has been playing an
important role in mobilizing the savings of the community through sale of units under various
Schemes and channelizing them into corporate investments. It has also been extending financial
assistance to the companies by way of term loans, bills rediscounting, equipment leasing and hire
purchase financing.

Other Financial Institutions:-

Apart from the above special financial institutions, there are a few other organizations, which
act as important source of long-term finance. These are:

 Life Insurance Corporation of India (LIC):-

It was set up in 1956 on nationalization of life insurance business in India. Primarily it carries on
the business of life insurance and deploys the funds in accordance with national priorities and
objectives. It invests mainly in government securities and shares, debentures and bonds of
companies. It also extends financial assistance to banks and other institutions for social
development and infrastructure facilities.
  General Insurance Corporation of India (GIC):-
It was established in 1973 on nationalization of general insurance business in India. Like LIC,
its investment priority is socially oriented sectors of the economy, and invests its funds in
government securities and share and debentures of companies. It also provides term loans and
underwriting facility to new and existing industrial undertakings.

 Export and Import Bank of India (EXIM Bank):-

The Export and Import Bank of India was set up on January, 1982 to take over the operations of
international finance wing of the IDBI and act as an apex institutions in the field of financing
foreign trade. The main functions of the Bank are: (i) financing of export and import of goods
and services; (ii) granting deferred payment credit for medium and long term duration; (iii)
providing loans to Indian parties to enable them to contribute to share capital of joint ventures in
foreign countries and; (iv) extending refinance facilities to commercial banks in respect of export
Credit.
(4) Financial Intermediaries:-
  They comprise of merchant banks, mutual funds, leasing companies, venture capital companies,
etc.
 Merchant banks:-
Merchant banks manage and underwrite new issues, and advise corporate on various financial
aspects.
 Leasing companies:-
Leasing companies provide funds for purchasing plant and machinery.
 Mutual Fund:-
Mutual fund refers to a fund established in the form of a trust by a sponsor to raise money through one or
more schemes for investing in securities. It is a special type of investment institution, which acts as an
investment intermediary that collects or pools the savings of a large number of investors and invests them
in a fairly large and well diversified portfolio of sound investments. This minimizes their risk and
ensures good returns to the investors.
  Venture Capital Institutions
Venture Capital is a form of equity finance designed specially for funding high risk and high
reward projects of young entrepreneurs. It helps them to turn their research and development
projects into commercial ventures by providing them the initial capital and managerial
assistance. The development of venture capital institutions is of recent origin in India. The
concept was formally introduced in 1986-87 when the Government announced the creation of a
venture fund to be operated by IDBI. It was followed by ICICI, IFCI and two public sector banks
(State Bank of India and Canara Bank) who set up separate companies for the purpose.
Conclusion:-
 Thus the capital market structure in India is complex and covers wide range of activities.
 Through provision of long term loans, the capital market brings about effective functioning of
various sectors of the economy. This is very instrumental for the economic development of a
nation.

 
Bibliography:-

http://www.scribd.com/doc/.../Investment-Meaning-Nature-and-Scope

http://www.financialnewsline.com/.../where-should-i-invest-my-money/

http://www.answer.com

http://www.wikipedia.com