Comparative Analysis of Investment Options

Prepared by:Nayan Patel08BS0001817

InvestmentThe money you earn is partly

spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called Investment.

Investment OptionsEquityMutual FundGoldFixed Deposits (FD's)Public Provident Fund (PPF)National Savings Certificate (NSC)Kisan Vikas Patra (KVP)Post Office - Monthly Income Scheme (MIS)Post Office Time Deposit Account

Objectives

o To find out best investment option for different categories of investors for different goals

o Study of liquidity, Risk and Return of each investment options.

o To find out preference of the investors for investment options.

Methodology

Data Collection: Primary Data Secondary Data

Data Analysis: Graph Table

Mahindra & Mahindra Financial Services Ltd.MissionCompany ProfileProducts - Investment Advisory Service - Mutual Fund Distribution

EquityBest instrument to beat the

inflationBSE and NSE provide platform to

trade the shares.Last five year return for Sensex is

101% and nifty return is 93.4%Last five year average return

27.2% with S.D 19.95%

YEAR SENSEX RETURN NIFTY RETURN

STANDARD DEVIATION OF SANSEX

SANDERD DEVIATION

OF NIFTY

2004 6602.69 13.07989779 1771.9 81.1388264 10.19424131 38.1425089

2005 9397.93 42.33486655 2035.65 14.8851515 10.49214548 8.70591393

2006 13786.91 46.70156088 3402.55 67.1480854 13.57986465 28.249561

2007 20286.99 47.14675007 3821.55 12.3142937 13.89466095 10.5237849

2008 9647.31 -52.44582858 4734.5 23.8895213 56.52792677 2.33886303

2009 11876.43 23.1061301 3020.95 -36.19284 3.104624451 44.823508

AVERAGE 10102.634 27.49673211 2823.614286 27.1971731 19.95051215 21.7164922

Strategy to invest in equity marketCurrent quarterly earning per

shareAnnual earning per shareNew ThingsShares outstandingLeadersInstitutional sponsorshipGeneral Market

Mutual FundRegulated by AMFI a apex bodyMany investor with common

financial objectives pool their money

Concept of mutual fund

Type of Mutual fundlast 1 yr Return last 2 yr return last 3 yr return last 5 yr retturn Standard Deviation

Equity: FMCG -20.45 -2.3 -5.7 17.97 4.33Equity: banking -32.1 -2.92 9.46 17.02 8.4Equity: Diviersified -32.71 -10.01 -5.81 15.89 5.43Equity: Tax planning -33.45 -9.57 -7.15 15.24 5.58Equity: Index -29.19 -7.37 -1.9 14.03 4.47Equity: Auto -21.81 -15.72 -13.76 4.49 4.43Equity: Pharma -18.52 -8.79 -8.51 6.16 4.42Equity: Technology -40.73 -28.03 -12.41 9.97 4.89Equity: speciality -28.73 -10.93 -0.49 8.4 5.39

Hybrid: Equity oriented -20.75 -3.97 -1.03 12.49 4Hybrid: Monthly income 3.51 6.52 5.94 7.58 0.9Debt: Short term 11.3 10.34 9.19 7.43 0.0988Debt: Floting rate ST 8.43 8.3 7.92 6.96 0.0121Debt: Floting rate LT 8.55 8.4 7.93 6.7 0.0228Debt: Liquid plus 8.29 8.31 7.94 6.46 0.05

Debt: Ultra short term 7.51 7.55 7.43 6.46 0.0246Debt: mediuma term 11 9.3 7.92 5.8 0.13Gilt: Medium & long term 14.99 10.91 8.8 5.71 0.77Gilt: short term 8.04 7.18 6.65 5.45 0.19AVERAGE -10.3589 -1.2 1.18 9.48474 2.817805

Advantages of mutual fundProfessional Management DiversificationConvenient administrationReturn potentialLow costLiquidityTransparencyFlexibilityChoice of SchemeWell regulated

Strategy to invest in Mutual FundIdentify investment needsChoose the right mutual fundSelect the ideal mix of schemeInvest regularlyStart Early

GoldHistorical valueNegative co relation with equityBest hedging instrument.ETF advantagesTaxation

S No Parameter Jeweller Bank Gold ETF

1 How Gold is held Physical (Bars /Coins) Physical (Bars /Coins)Dematerialized (Electronic Form)

2 Pricing

Differs from one to another. Neither transparent nor standard.

Differs from bank to bank. Not Standard.

Linked to International Gold Prices and very transparent.

3Buying Premium above gold price Likely to be more Likely to be more Likely to be less

4 Making Charges Charges are incurred Charges are incurred No Charges are incurred

5 Impurity Risk High Nil Nil

6 Storage Requirement Locker / Safe Locker / Safe Demat Account

7 Security of Asset Investor is responsible Investor is responsibleFund House takes the responsibility

8 ResaleConditional and uneconomical

Banks do not buy back

At Secondary Market Prices

9Convenience in Buying / Selling Less convenient Less convenient More Convenient

10 Quantity to Buy /SellAvailable in standard denomination

Available in standard denomination

Minimum is ½ or 1 gram according to the fund

11 Risk of Theft Yes, possible Yes, possible No, Not possible

12 Wealth Tax Yes Yes No

13Long Term Capital Gains Tax Only after 3 years Only after 3 years After 1 year

YEAR PRICE RETURNSTANDARD DEVIATION

2004 19250 11.9186047 2.562078442

2005 18750 -2.5974026 12.8264456

2006 23250 24 5.980758136

2007 27250 17.2043011 1.175473343

2008 35000 28.440367 9.120571733

2009 40000 14.2857143 0.888279167

AVERAGE 27250 15.5419 5.425601071

Fixed Deposits

A)Bank Fixed Deposits Return 4-10%

B) Company Fixed Deposits Generally gives 2-3% more

return than bank.

DAYS BANKRATE OF INTEREST

GENERALFOR SENIOR CITIZEN

91 ING Vysya Bank 7.5 8.5

180 DCB 9 9.5

365 United Bank/ P&SB 9 9.5

365 DCB 10.5 11

365 Yes Bank 9.25 9.75

400 Indus Ind Bank 9.5 10

450 Bank Of Rajasthan 9.5 10

500 SB Patiala 9 9.5

510 Yes Bank 9.75 10.25

555 CBI 8.75 9.25

730 Lakshmi Vilas Bank 10 10.5

750 Bank Of Baroda 9 9.5

900 Allahabad Bank 9 9.5

1000 SBI 8.5 9

INSTITUTION3 YEAR

2 YEAR 1 YEARJagatjit industries 12.5 12 11.5

Tata Motor 10 9.5 9.25Mahindra Finance 10 9.5 9

Ansal Housing 12.5 12 12

Gabriel India 12 11.5 11Jaiprakash Associates 12 11.5 11

Ind Swifts 12.5 12 11.5

Mukund 12 11.75 12

Public Provident FundTax free interest at the rate of 8 per

cent per annum compounded annually.

Deposit up to Rs.70,000 per annum qualifies for tax rebate under Section 88 of the Income Tax Act

Entire deposit in the Account exempt from the Wealth Tax

Balance in the Account cannot be attached under court decree

NSC

Rs.100 grows to Rs.160.10 on maturity with interest rate of 8 per cent compounded half yearly

Minimum investment Rs.100. No maximum limit

Available in denominations of Rs.100, Rs.500, Rs.1000, Rs.5,000 and Rs.10,000

Deposits up to Rs.100000 qualify under section 80C of the Income Tax Act

Interest accruing annually is automatically reinvested, and such re-invested interest will also qualify for tax rebate under section 80C of the Income Tax Act

KVPPARAMETER DESCRIPTION1. Duration 8 years 7 months2. Rate of Interest 8.25%3. Where to invest? Any head post office / sub-post office in cash,

demand draft, local cheques.4. Who can invest? (i). An individual (above 18 years)

(ii). Two / three individuals in joint names.

(iii). A guardian on behalf of a minor.(iv). A Trust

5. Denomination of Certificates Rs. 100/-, Rs. 500/-, Rs. 1000/-, Rs. 10000/- , Rs. 50000/-

6. How much to invest? No limits7. Withdrawals (i). On maturity (8 years and 7 months)

(ii). Premature after 2 years and 6 months.

(iii). Any time in case of death of holder / any of the holders.

8. Tax benefits (i). No deduction of Income Tax at source.

Post Office Monthly Income Scheme

Monthly Income Scheme is an ideal scheme for VRS takers and retired persons, seeking fixed monthly income

Interest at the rate of 8 per cent per annum

Additionally bonus of 10 per cent of the deposit amount on maturity after six years

No TDS applicable for interest

Deposit range starts from Rs.1000, which goes up to Rs.300,000 in case of single Account and up to Rs.600,000 in case of joint Account

Post Office Time Deposit Account

Interest payable annually but calculated on quarterly basis

Minimum Rs.200, no maximum limit on amount

Account can be opened by individuals.

Flexible period of Account, ranging from One year to Five years.

Premature closure is possible.

Comparisons of Different Government Scheme

SCHEMERATE OF RETURN

DURATION

COMAPUNDING FREQUENCY

MINIMUM AMMOUNT

MAXIMUM AMMOUNT

TAX BENEFIT

BONUS

PPF 8% 15 YEARS ANNUALY 500 70000 80 C

KVP 8.25%8 YEAR 7 MONTH ANNUALY 100 NO LIMIT NIL

NSC 8% 6 YEARHALF YEARLY 100 NO LIMIT 80 C

MIS 8% 6 YEAR ANNUALY 1000

3 LACS FOR SINGAL ACCOUNT NIL 10%

6 LACS FOR JOINT ACCOUNT

POTD 6% 1 YEAR ANNUALY 200 NIL

6.50% 2 YEAR ANNUALY NO LIMIT NIL

7.25% 3 YEAR ANNUALY NIL

7.50% 5 YEAR ANNUALY 80 C

RETURN SAFTEY VOLATILITY LIQUIDITYCONVINIENCE

Equity High Low High High ModerateMutual Fund High High Moderate High HighGold(ETF) High High High High ModerateBank Fixed Deposits Low High Low High HighCompany Fixed Deposits Moderate Low Low Low ModeratePublic Provident fund Moderate High Low Moderate HighNational Saving Certificate Moderate High Low Low HighKisan Vikas Patra Moderate High Low Low HighPost Office-Monthly Income Scheme Moderate High Low Low HighPost Office-Time Deposits Low High Low Moderate High

LOW MODERATE HIGH

Bank Deposits

Equity, Mutual Fund,

Gold HIGH

Post office-TD PPF MODEARATE

Insurance

Company Fixed Deposits,

NSC,KVP, Post office-MIS LOW

RETURN

LIQUIDITY

LIQUIDITY Vs RETURN

RISK Vs RETURN

RETURN

RISK

LOW MODERATE HIGH

Company Fixed Deposit

Equity, Gold HIGH

Post office-MIS,NSC,KVP MODEARATE

Bank Deposit, Post office-TD, Insurance PPF

Mutual Fund LOW

RESEARCH AND ANALYSIS & FINDINGS

(1)AWARNESS ABOUNT THE INVESTMENT OPTIONS

(2)PREFERRED AVENUES FOR INVESTMENT

(3)GOAL OF THE INVESTMENT

(4)BEST INVESTMENT OPTION FOR WEALTH CREATION

(5)BEST INVESTMENT OPTION FOR RETIREMENT PLANNING

(6)BEST INVESTMENT OPTION FOR TAX PLANNING

(7)CRITERIA TO COMPARE INVESTMENT OPTIONS

(8)SOURCES OF INFORMATION FOR INVESTOR

(9)MODE OF THE INVESTMENT

10)INVESTMENT STRATEGY FOR TODAY VALATILE MARKET

(11)BEST INVESTMENT OPTION TO BEAT INFLATION

(12)WEIGHTAGE OF FIXED RETURN INVESTMENT OPTIONS IN INVESTOR PORTFOLIO

SUGGESTION AND RECOMMANDATION

The most vital problem spotted is of ignorance. Investors should be made aware of the benefits. Nobody will invest until and unless he is fully convinced. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing. 

Mutual funds offer a lot of benefit which no other single option could offer. But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should try to change their mindsets. The advisors should target for more and more young investors. Young investors as well as persons at the height of their career would like to go for advisors due to lack of expertise and time. 

Distributors or Mutual Fund Company needs to give the training of the Individual Financial Advisors about the Fund/Scheme and its objective, because they are the main source to influence the investors. 

Before making any investment Financial Advisors should first enquire about the risk tolerance of the investors/customers, their need and time (how long they want to invest). By considering these three things they can take the customers into consideration.

Systematic Investment Plan (SIP) is easy for monthly salaried person as it provides the facility of do the investment in EMI. Though most of the prospects and potential investors are not aware about the SIP. There is a large scope for the companies to tap the salaried persons. 

There is huge potential for fixed deposit in the today volatile market. Company should concentrate on the high safety with high return. ‘Brand’ name is the key factor.

Investment products with high return have great demand in market because most of people investing to create wealth.

PPF is the most competitor of Mutual Fund for long term planning and tax planning, so Asset Management Company should have concentrate on lower down the risk. 

Thank You