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original and bonafide work under taken by me impartial fulfillment for the award of ( PGDFM at
submitted to any other university or institution for the award of any Degree/Diploma.
Akshay Kejriwal SAP No. 77215001307
EXECUTIVE SUMMARY
In today’s scenario there has been a major change i.e. economic prosperity all over. The entire world is talking about the robust growth rates in this part of the world. Higher income levels and booming stock markets have led to more and more numbers of high net worth investors (HNIs). This means the availability of huge investible surplus. The investors with higher risk appetite want to experiment and try new and exotic products in the name of diversification. This has resulted in emergence of new options within the same or fresh asset classes. There are more products available within each asset class be it Equity, Mutual Fund, Gold, Real Estate. The common perception of investors is to buy when the market supports in uptrend and not to invest in the falling time. They wait for the stabilization in the market; so in this research, we would like to draw a clear picture on the trends of traders and investors. Markets have personalities because investors have emotions. Markets are ultimately driven by people and stock prices are what individuals make them out to be. People have a tendency to see their own actions and decisions as totally rational, when the truth is they may not be. Key points on investor behaviors: ✓ Investments are often thought of as pieces of paper rather than part ownership of a company. ✓ (^) Investors are often impatient to sell a good stock. ✓ Investors often make a distinction between money easily made from investments, savings or tax refunds and hard-earned money – found money is more readily spent or wasted. ✓ People tend to think in extremes – the highly probable news is considered certain, while the improbable is considered impossible. ✓ Investors often take a short-term viewpoint. Recent market losses lead to suspicion and caution, while recent gains lead to action. ✓ Investors may overestimate their skills; attributing success to ability they don’t possess and seeing order in information or data where it doesn’t exist. ✓ Investors follow the crowd, and are heavily influenced by other investors or compelling news; they fail to check out the real facts. ✓ Investors become obsessed with prices and trend-watching, rather than solid information.
Taken as a whole, these psychologies really have only one effect, that is - a financial decision is taken that lacks accuracy. And these errors are strongest when uncertainty, inexperience, attitudes and market pressures come together to undermine decision-making ability.
silver, real properties, and precious items. These are called ‘investment vehicles’. Financial investments are investment in stocks, bonds, commodities and many other types of security investments. Indirect financial investments can also be done with the help of mediators or third parties, such as pension funds, mutual funds, commercial banks, and insurance companies. According to personal finance theories, an investment is the implementation of money for buying shares or mutual funds or purchasing an asset with the involvement of the factor of capital risk.
WHEN TO START INVESTING?
The sooner one starts investing the better. By investing early you allow your investments more time to grow, whereby the concept of compounding (as we shall see later) increases your income, by accumulating the principal and the interest or dividend earned on it, year after year.
The three golden rules for all investors are:
✓ Invest early ✓ Invest regularly ✓ Invest for long term and not short term
WHAT CARE SHOULD ONE TAKE WHILE INVESTING?
Before making any investment, one must ensure to:
✓ 1. Obtain written documents explaining the investment. ✓ 2. Read and understand such documents.
✓ 3. Verify the legitimacy of the investment. ✓ 4. Find out the costs and benefits associated with the investment. ✓ 5. Assess the risk-return profile of the investment. ✓ (^) 6. Know the liquidity and safety aspects of the investment. ✓ 7. Ascertain if it is appropriate for your specific goals. ✓ 8. Compare these details with other investment opportunities available. ✓ 9. Examine if it fits in with other investments you are considering or you have already made.
✓ 10. Deal only through an authorised intermediary. ✓ 11. Seek all clarifications about the intermediary and the investment. ✓ 12. Explore the options available to you if something were to go wrong, and then, if satisfied, make the investment.
WHAT ARE VARIOUS OPTIONS AVAILABLE FOR INVESTMENT?
✓ Physical assets like real estate, gold/jewellery, commodities etc. and/or
✓ Financial assets such as fixed deposits with banks, small saving instruments with post offices, insurance/provident/pension fund etc. or securities market related instruments like shares, bonds, debentures etc.
What are various Financial options available for investment?
Short-term:-
Briefly speaking, savings bank account, money market/liquid funds and fixed deposits with banks may be considered as short-term financial investment options.
Long-term :-
National Savings Certificate, Post Office Savings Schemes, Public Provident Fund, Company Fixed Deposits, Bonds and Debentures, Mutual Funds, Insurance etc., are long term financial investment options.
banks offer various facilities such as ATM card, credit card etc. Through debit/ATM card one can take money from any of the ATM centres of the particular bank which will be open 24 hours a day. Through credit card one can avail shopping facilities from any shop which accept the credit card. And many of the banks also give internet banking facility through with one do the transactions like withdrawals, deposits, statement of account etc.
ii. Fixed Deposits (FD's): A fixed deposit is meant for those investors who want to deposit a lump sum of money for a fixed period; say for a minimum period of 15 days to five years and above, thereby earning a higher rate of interest in return. Investor gets a lump sum (principal + interest) at the maturity of the deposit. Bank fixed deposits are one of the most common savings scheme open to an average investor. Fixed deposits also give a higher rate of interest than a savings bank account. The facilities vary from bank to bank. Some of the facilities offered by banks are overdraft (loan) facility on the amount deposited, premature withdrawal before maturity period (which involves a loss of interest) etc. Bank deposits are fairly safer because banks are subject to control of the Reserve Bank of India. Features:- Bank deposits are fairly safe because banks are subject to control of the Reserve Bank of India (RBI) with regard to several policy and operational parameters. The banks are free to offer varying interests in fixed deposits of different maturities. Interest is compounded once a quarter, leading to a somewhat higher effective rate. The minimum deposit amount varies with each bank. It can range from as low as Rs. 100 to an unlimited amount with some banks. Deposits can be made in multiples of Rs. 100/- Before opening a FD account, try to check the rates of interest for different banks for different periods. It is advisable to keep the amount in five or ten small deposits instead of making one big deposit. In case of any premature withdrawal of partial amount, then only one or two deposit need be prematurely uncashed. The loss sustained in interest will, thus, be less than if one big deposit were to be encased. Check deposit receipts carefully to see that all particulars have been properly and accurately filled in. The thing to consider before investing in an FD is the rate of interest and the inflation rate. A high inflation rate can simply chip away your real returns.
Returns: - The rate of interest for Bank Fixed Deposits varies between 4 and 11 per cent, depending on the
maturity period (duration) of the FD and the amount invested. Interest rate also varies between each bank. A Bank FD does not provide regular interest income, but a lump-sum amount on its maturity. Some banks have facility to pay interest every quarter or every month, but the interest paid may be at a discounted rate in case of monthly interest. The Interest payable on Fixed Deposit can also be transferred to Savings Bank or Current Account of the customer. The deposit period can vary from 15, 30 or 45 days to 3, 6 months, 1 year and 1.5 years to 10 years.
Duration 15-30 days 30-45 days 46-90 days 91-180 days 181-365 days 1-2 years 2-3 years 3-5 years INTREST VARIES FOR THE PERIOD OF INVESTMENT
Advantages: -
Bank deposits are the safest investment after Post office savings because all bank deposits are insured under the Deposit Insurance & Credit Guarantee Scheme of India. It is possible to get loans up to75- 90% of the deposit amount from banks against fixed deposit receipts. The interest charged will be 2% more than the rate of interest earned by the deposit.
What is National Savings Certificate?
National Savings Certificates (NSC) is certificates issued by Department of post, Government of India and is available at all post office counters in the country. It is a long term safe savings option for the investor. The scheme combines growth in money with reductions in tax liability as per the provisions of the Income Tax Act, 1961. The duration of a NSC scheme is 6 years.
Features: NSCs are issued in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000 for a maturity period of 6 years. There is no prescribed upper limit on investment. Individuals, singly or jointly or on behalf of minors and trust can purchase a NSC by applying to the Post Office through a representative or an agent. One person can be nominated for certificates of denomination of Rs. 100- and more than one person can be nominated for higher denominations. The certificates are easily transferable from one person to another through the post office. There is a nominal fee for registering the transfer. They can also be transferred from one post office to another.
One can take a loan against the NSC by pledging it to the RBI or a scheduled bank or a co-operative society, a corporation or a government company, a housing finance company approved by the National Housing Bank etc with the permission of the concerned post master. Though premature encashment is not possible under normal course, under sub-rule (1) of rule 16 it is possible after the expiry of three years from the date of purchase of certificate.
Tax benefits are available on amounts invested in NSC under section 88, and exemption can be claimed under section 80L for interest accrued on the NSC. Interest accrued for any year can be treated as fresh investment in NSC for that year and tax benefits can be claimed under section 88.
Return: It is having a high interest rate at 8% compounded half yearly. Post maturity interest will be paid for a maximum period of 24 months at the rate applicable to individual savings account. A Rs denomination certificate will increase to Rs. 1601 on completion of 6 years.
Interest rates for the NSC Certificate of Rs 1000
Year Rate of Interest
1 year Rs 81. 2 year Rs 88. 3 year Rs 95. 4 years Rs103. 5 years Rs 111. 6 years Rs 120.
Advantages: Tax benefits are available on amounts invested in NSC under section 88, and exemption can be claimed under section 80L for interest accrued on the NSC. Interest accrued for any year can be treated as fresh investment in NSC for that year and tax benefits can be claimed under section 88. NSCs can be transferred from one person to another through the post office on the payment of a prescribed fee. They can also be transferred from one post office to another. The scheme has the backing of the Government of India so there are no risks associated with your investment.
How to start?
Any individual or on behalf of minors and trust can purchase a NSC by applying to the Post Office through a representative or an agent. Payments can be made in cash, cheque or DD or by raising a debit in the savings account held by the purchaser in the Post Office. The issue of certificate will be subject to the realization of the cheques, pay order, DD. The date of the certificate will be the date of realization or encashment of the cheque. If a certificate is lost, destroyed, stolen or mutilated, a duplicate can be issued by the post-office on payment of the prescribed fee.
Returns: The post-office MIS gives a return of 8% interest on maturity. The minimum investment in a Post- Office MIS is Rs 1,000 for both single and joint accounts.
Deposit Rs Monthly Interest Amount returned on maturity 5, 10, 50, 1,00, 2,00, 3,00, 6,00,
Advantages:
Premature closure of the account is permitted any time after the expiry of a period of one year of opening the account. Deduction of an amount equal to 5 per cent of the deposit is to be made when the account is prematurely closed. Investors can withdraw money before three years, but a discount of 5%. Closing of account after three years will not have any deductions. Post maturity Interest at the rate applicable from time to time (at present 3.5%). Monthly interest can be automatically credited to savings account provided both the accounts standing at the same post office. Deposit in Monthly Income Scheme and invest interest in Recurring Deposit to get 10.5% (approx) interest. The interest income accruing from a post-office MIS is exempt from tax under Section 80L of the Income Tax Act, 1961. Moreover, no TDS is deductible on the interest income. The balance is exempt from Wealth Tax.
PPF is among the most popular small saving schemes. Currently, this scheme offers a return of 8 per cent and has a maturity period of 15 years. It provides regular savings by ensuring that contributions
(which can vary from Rs.500 to Rs.70,000 per year) are made every year. For efficient “tax saving” there is nothing better than PPF!
But for those who are looking for liquidity, PPF is NOT a good option. Withdrawals are allowed only after five years from the end of the financial year in which the “first deposit” is made. PPF does not provide any regular income and only provides for accumulation of interest over a 15-year period, and the lump-sum amount (principal + interest) is payable on maturity.
The lump-sum amount that you receive on maturity (at the end of 15 years) is completely tax-free!! One can deposit up-to Rs 70,000 per year in the PPF account and this money will also not be taxed and be removed from your taxable income.
If you are relatively young and have time on your side, then PPF is for you.
How to invest in PPF?
A PPF account can be opened with a minimum deposit of Rs.100 at any branch of the State Bank of India (SBI) or branches of its associated banks like the State Bank of Mysore or Hyderabad. The account can also be opened at the branches of a few nationalized banks, like the Bank of India, Central Bank of India and Bank of Baroda, and at any head post office or general post office. After opening an account you get a pass book, which will be used as a record for all your deposits, interest accruals, withdrawals and loans.
However, be warned: you can have only one PPF account in your name. If at any point it is detected that you have two accounts, the second account that you have opened will be closed, and you will be refunded only the principal, not the interest. Again, two adults cannot open a joint account. The account will have to be opened in only one person’s name. Of course, the person who opens an account is free to appoint nominees.
» Housing Finance Companies. » Financial Institutions. » Government Companies.
Up to what limits can a company accept deposit? A Non-Banking Non-Finance Company (Manufacturing Company) can accept deposit subject to following limits. » Up to 10% of aggregate of paid-up share capital and free reserves if the deposits are from shareholders or guaranteed by directors. » Otherwise up to 25% of aggregate of paid-up share capital and free reserves.
A Non-Banking Finance Company can accept deposits up to following limits : » Equipment Leasing Company can accept four times of its net owned fund.
»Loan or Investment Company can accept deposit upto one and half time of its net owned funds.
What is the period of the deposit? Company Fixed Deposits can be accepted by a Manufacturing Company having duration from 6 months to 3 years. Non-Banking Finance Company can accept deposit from 1 year to 5 years period. A Housing Finance Company can accept deposit from 1 year to 7 years.
Where not to invest? » Companies which offer interest higher than 15%.
» Companies which are not paying regular dividends to the shareholder.
» Companies whose Balance Sheet shows losses.
» Companies which are below investment grade A or under rating.
There is an old saying “DON’T PUT All YOUR EGGS IN ONE BASKET”.
The company deposits should be spread over a large number of companies. This will help the investor to diversify his risk among various companies/industries. Investors should not put more than 10% of their total Investible funds in one company.
