KEYUR'S FINAL MT-II

8/14/2019 KEYUR'S FINAL MT-II

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FINAL REPORT

ON

MANAGEMENT THESIS II

An analysis of investors behavior for investment

preferences during normal time vis--vis recessionary

period with reference to 50 investors in vadodara city

BY

KEYUR A. PRAJAPATI

8NBVD062

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FINAL REPORT

ON

MANAGEMENT THESIS II

SUBMITTED BY:

KEYUR A. PRAJAPATI

8NBVD062

(MBA 2008-2010)

A report submitted in partial fulfillment of the requirements of MBA Program

(Class of 2008-10)

VADODARA

Submitted to-

MR. AMOL RANADIVE



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TABLE OF CONTENTS:

Acknowledgement..04

Preface.05

Introduction........................................................................................................06

Objectives of Study....08

Value addition09

Research Methodology..10

Limitations of the study.....11

How to invest during recession.12

Strategy to make money during recession...14

Investment avenues in India.15

Mutual Funds15

Equity shares.....24

Insurance26

Government Securities..29

Public Provident Funds.33

Bonds...35

Commodities...38

Empirical analysis and interpretations..40

Conclusion and recommendations..51

Bibliography..56



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ACKNOWLEDGEMENT

This project report is an outcome of sincere efforts and cooperation of everyone who helped

me. I conducted this fieldwork program under the supervision of two respectful guides.

CENTRE HEAD : - MR. AURBINDO GHOSH

FACULTY GUIDE : - MR. AMOL RANADIVE

I also express my deep and heartily gratitude and respect to my soft skills trainer Mrs. Durba medam

and Centre Head Mr.Ghosh Sir for their continuous guidance and support.

I am also very much thankful to all for giving me support, guidance and cooperation in conducting

this project. I am grateful to my college and University which gave me an opportunity to get a

practical exposure and understand the theoretical aspects more clearly by placing me in such a reputed

an renowned company and helping me to understand more clearly marketing & finance concepts.

This training would not have been successful without the support and cooperation of my parents,

friends and everyone who ahs helped me in carrying out fieldwork successfully.

Last but no the least, thanks to the omnipresent GOD



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PREFACE

This is an accepted fact that each and every work has two aspects and this universal truth is

also applicable so far as education is concerned, it also has two aspects one is theoretical and the other

is practical. Theoretical knowledge with practical experience is must for every students of

management. Thus practical experience plays a vital role in acquiring the real knowledge in

management study.

After looking to the importance of the practical study, INC Baroda outlined the Management

Thesis II in IV SEM which is helpful for me to explore my self and analyze investors behavior for

investment preferences during normal time vis--vis recessionary period with reference to 50

investors in vadodara city.

From this report I have learnt how to outline the best Thesis on time. How I draft a

management thesis in way that it include objective of this thesis, limitations of this thesis,

methodology of this thesis, schedule and reference of this thesis.



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INTRODUCTION

Savings form an important part of the economy of any nation. With the savings invested in various

options available to the people, the money acts as the driver for growth of the country. Indian

financial scene too presents a plethora of avenues to the investors. Though certainly not the best or

deepest of markets in the world, it has reasonable options for an ordinary man to invest his savings.

One needs to invest to and earn return on your idle resources and generate a specified sum of money

for a specific goal in life and make a provision for an uncertain future. One of the important reasons

why one needs to invest wisely is to meet the cost of inflation. Inflation is the rate at which the cost ofliving increases.

The cost of living is simply what it cost to buy the goods and services you need to live. Inflation

causes money to lose value because it will not buy the same amount of a good or service in the future

as it does now or did in the past. The sooner one starts investing the better. By investing early you

allow your investments more time to grow, whereby the concept of compounding 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 for short term

This project will also help to understand the investors facet before investing in any of the investment

tools and thus to scrutinize the important aspects of the investors before investing that further helped

in analyzing the relation between the features of the products and the investors requirements.



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What is investment?

Investment in Terms of Business Management:

According to business management theories, investment refers to tangible assets like machinery andequipments and buildings and intangible assets like copyrights or patents and goodwill. The decision

for investment is also known as capital budgeting decision, which is regarded as one of the key

decisions.

Investment in Terms of Finance:

In finance, investment refers to the purchasing of securities or other financial assets from the capital

market. It also means buying money market or real properties with high market liquidity. Some

examples are gold, silver, real properties, and precious items.

Financial investments are in stocks, bonds, and 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.

Personal Finance:

According to personal finance theories, an investment is the implementation of money for buying

shares, mutual funds or assets with capital risk.

Real Estate:

According to real estate theories, investment is referred to as money utilized for buying property for

the purpose of ownership or leasing. This also involves capital risk.

Commercial Real Estate:

Commercial real estate involves a real estate investment in properties for commercial purposes such

as renting.

Residential Real Estate:

This is the most basic type of real estate investment, which involves buying houses as real estate

properties.



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VALUE ADDITION

This analysis will help to strengthen investor intimacy. This analysis will also throw light on various

investment avenues available in India that will help in many ways like,

It will help to understand the expectations of the investors about their company from the

perspective of financial performance and corporate social responsibility.

It will provide fresh insights which can help their business continue to flourish.

The expectations of different types of investors regarding particular service requirements can

be identified. The common problem areas faced by the investors can be understood.

It also enhances new services initiatives.

This study will help in gaining a better understanding of what an investor looks for in an

investment option.

It can be used by the financial sector in designing better financial instrument customized to

suit the needs of the investor.

It will also help the agents and brokers in marketing the existing financial instruments.

It will provide knowledge to the investors about the various financial services provided by the

company to their investors.

It will also help the company to understand what is the requirement and expectations of

different categories of investors.

This analysis will be originated in order to empower the investors with detailed research on various

investments avenues available in India. The impact of different stages of economic cycle such as

depression, recession, recovery and inflation, on the perception and behavior of the investors. The

awareness level of the investors about the various investment options and what is the perception of the

investors with regard to the investments they want to make. The analysis also includes investorsbehavior patterns reflected under different circumstances placed in front of them.



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RESEARCH METHODOLOGY

Sampling technique

Initially, a rough draft will be prepared keeping in mind the objective of the research. A pilot study

will be undertaken in order to know the accuracy of the questionnaire. The final questionnaire will be

arrived at only after certain important changes are incorporated. Convenience sampling technique will

be used for collecting the data from different investors. The investors are selected by the conveniencesampling method. The selection of units from the population based on their easy availability and

accessibility to the researcher is known as convenience sampling. Convenience sampling is at its

best in surveys dealing with an exploratory purpose for generating ideas and hypothesis.

Sampling unit:

The respondents who will be asked to fill out the questionnaires are the sampling units. These

comprise ofemployees of MNCs, government employees, self employed and other investors.

Sampling size:

The sample size will be restricted to only 50, which comprised of mainly people from different

regions of vadodara due to time constraints.

Sampling area:

The area of the research is vadodara.



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LIMITATIONS OF THE STUDY

This analysis is based upon investors behavior for investment preferences during normal time vis--

vis recessionary period. This analysis would be focusing on the information from the investors about

their knowledge, perception and behavior on different financial products. The various limitations of

the study are:

The total number of financial instruments in the market is so large that it needs a lot of

resources to analyze them all. There are various companies providing these financial

instruments to the public. Handling and analyzing such a varied and diversified data needs a

lot of time and resources.

As the analysis is based on primary as well as secondary data, possibility of unauthorized

information can not be avoided.

Reluctance of the people to provide complete information about them can affect the validity

of the responses.

Due to time and cost constraint, study will be conducted in only selected areas of vadodara.

The lack of knowledge of customers about the financial instruments can be a major limitation.

The information can be biased due to use of questionnaire.



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HOW TO INVEST DURING RECESSION?

During recession careful financial decisions should be done to ensure survival from the economic

challenges. Work and career is on the line and they are often thought to be very fragile sincebusinesses in certain industries will tank because of their inability to deal with recession.

No matter how hard one works for the company or the industry, there are external factors that will

close down the business. For that reason, investors have to be prepared for the worst investors have

to save as much as they can today.

But saving is not a good way to get the most of money. If you take your money to the bank for your

savings account, you can be assured that your money is safely deposited and could be extracted

anytime. But considering the current unemployment and recession, inflation will slowly diminish your

moneys ability to buy things that you need. Even if your money collects an annual interest, it is not

enough to cushion the blow of inflation.

What you need to do is to SMARTLY invest your hard earned savings. Most people think that the

word investment would mean risking your money in stocks hoping without any assurance of success.

But there are actually ways on safe and smart investing. Through these options, you can safely

address inflation and have enough money to use during recession.

Some of the investment options you can consider are:

Certificate of Deposit Forget the savings and time-bound accounts, Certificate of Deposit is one

the smart ways bankers and investors do to stay afloat. In gist, COD enjoys better interest rates which

should be more than enough to address inflation. However, you should remember that this form of

investment is more like time bound accounts. You can withdraw the money earlier but the penalties

are higher.

T-Bills - Treasury bills, especially in stable countries is a good way to ensure the safety of your

funds while gaining a little interest in return. This transaction could be done with a government

certified bank that sells T-Bills. In this transaction, you loan the government some money to use and

in return, you will be gaining some interest as the country improves. The interest rate is a low but if

you are thinking of investing for a very long time, this would be a viable option.



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STRATEGY TO MAKE MONEY DURING A RECESSION

STEP 1- Pick companies with low debt, steady growth, and strong earnings. In order to pick the best

stock from a list of strong companies, pick the one that is farthest from its 52 week high. This is calledValue Investing. Many of the country's wealthiest entities made their money from snatching up

bargained stocks and holding on to them until the market recovered. If you are able to leave your

investments to grow over a 5 to 10 year period, it is pretty likely that you will earn a decent profit.

You simply need to search for well established companies that are sure to be around and stable in the

next 5 to 10 years. Think of companies such as Coca-Cola, General Electric, Proctor and Gamble, and

the like.

STEP 2- Break up your purchasing throughout the year. Do not use all of your investing money to buy

up as many shares as you can at once. In a recession, stocks are likely to continue decreasing in price.

By the end of the year, you will have more stocks for your money than if you would have purchased

them all at once.

STEP 3- Look towards industries that thrive no matter how the economy is doing. People always need

to eat. People always need household supplies, even if they aren't spending as much on them. They

always need utilities. Invest in these companies.

STEP 4- Buy under priced stocks of a company that is estimated to thrive during a recession. These

will be companies that provide a product or service that is "needed" rather than "wanted". Also, since

people spend less money during a recession and usually hesitate to put out cash for large luxury items,

they will more than likely spend on accessories for the items they already have. This can include

video games, digital camera components, mp3 player accessories, etc. Look to invest in these types of

companies.

STEP 5- Implement these tips and use sound judgments before jumping into any investment, your

finances should begin to show promising growth and security in this unstable economic time.

Above mentioned strategy would surely be helpful in making profitable investment during

recessionary period. Now the further discussion will be diverted to the available investment avenues

in India as its detailed knowledge is also essential for selecting the best investment avenue.



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INVESTMENT AVENUES AVAILABLE

IN INDIA

MUTUAL FUND

Types of mutual funds:-

Mutual fund schemes may be classified on the basis of its structure and its objective:-

Based on structure:-

Open-ended Funds:-

An open-end fund is one that is available for subscription all through the year. These do not have a

fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related

prices. The key feature of open-end schemes is liquidity.

Closed-ended Funds

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is

open for subscription only during a specified period. Investors can invest in the scheme at the time of

the initial public issue and thereafter they can buy or sell the units of the scheme on the stock

exchanges where they are listed. In order to provide an exit route to the investors, some close-ended

funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV

related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the

Investor.

Interval Funds:-

Interval funds combine the features of open-ended and close-ended schemes. They are open for saleor redemption during pre-determined intervals at NAV related prices.



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Money Market Funds:-

The aim of money market funds is to provide easy liquidity, preservation of capital and moderate

income. These schemes generally invest in safer short-term instruments such as treasury bills,

certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may

fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and

individual investors as a means to park their surplus funds for short periods.

Load Funds:-

A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell

units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%.

It could be worth paying the load, if the fund has a good performance history.

No-Load Funds:-

A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is

payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire

corpus is put to work.

Tax Saving Schemes:-

These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax

laws as the Government offers tax incentives for investment in specified avenues.Investments made

in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of

the Income Tax Act, 1961. The Act also provides opportunities to investors to savecapital gains u/s

54EA and 54EB by investing in Mutual Funds, provided the capital asset has been sold prior to April

1, 2000 and the amount is invested before September 30, 2000.



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Various types of Mutual Funds:



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Based on Objectives:-

(A)Equity Funds:-Equity funds are considered to be the more risky funds as compared to other fund types,but they also

provide higher returns than other funds. It is advisable that an investor looking to invest in an equity

fund should invest for long term i.e. for 3 years or more. There are different types of equity funds

each falling into different risk bracket. In the order of decreasing risk level, there are following types

of equity funds:-

Aggressive growth funds:-

In Aggressive Growth Funds, fund managers aspire for maximum capital appreciation and invest in

less researched shares of speculative nature. Because of these speculative investments Aggressive

Growth Funds become more volatile and thus, are prone to higher risk than other equity funds.

Growth funds:-

Growth Funds also invest for capital appreciation (with time horizon of 3 to 5 years) but they are

different from Aggressive Growth Funds in the sense that they invest in companies that are expected

to outperform the market in the future. Without entirely adopting speculative strategies, Growth Funds

invest in those companies that are expected to post above average earnings in the future.

Specialty funds:-

Specialty Funds have stated criteria for investments and their portfolio comprises of only those

companies that meet their criteria. Criteria for some specialty funds could be to invest/not to invest in

particular regions/companies. Specialty funds are concentrated and thus, are comparatively riskier

than diversified funds. There are following types of specialty funds:

a) Sector funds:-

Equity funds that invest in a particular sector/industry of the market are known as Sector Funds. The

exposure of these funds is limited to a particular sector (say Information Technology, Auto, Banking,

Pharmaceuticals or Fast Moving Consumer Goods) which is why they are more risky than equity

funds that invest in multiple sectors.

b) Foreign securities funds:-

Foreign Securities Equity Funds have the option to invest in one or more foreign companies. Foreign

securities funds achieve international diversification and hence they are less risky than sector funds.

However, foreign securities funds are exposed to foreign exchange rate risk and country risk.

c) Mid-Cap or Small-Cap Funds:-

Funds that invest in companies having lower market capitalization than large capitalization companies



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are called Mid-Cap or Small-Cap Funds. Market capitalization of Mid-Cap companies is less than that

of big, blue chip companies (less than Rs. 2500 crore but more than Rs. 500 crore) and Small-Cap

companies have market capitalization of less than Rs. 500 crore. Market Capitalization of a company

can be calculated by multiplying the market price of the company's share by the total number of its

outstanding shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as

of Large-Cap Companies which gives rise to volatility in share prices of these companies and

consequently, investment gets risky.

d) Option income funds:-

While not yet available in India, Option Income Funds write options on a large fraction of their

portfolio. Proper use of options can help to reduce volatility, which is otherwise considered as a

risky instrument. These funds invest in big, high dividend yielding companies, and then sell options

against their stock positions, which generate stable income for investors.

Diversified mutul funds:-

Except for a small portion of investment in liquid money market, diversified equity funds invest

mainly in equities without any concentration on a particular sector(s). These funds are well diversified

and reduce sector-specific or company-specific risk. However, like all other funds diversified equity

funds too are exposed to equity market risk. One prominent type of diversified equity fund in India is

Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of investments by

ELSS should be in equities at all times. ELSS investors are eligible to claim deduction from taxable

income (up to Rs 1 lakh) at the time of filing the income tax return. ELSS usually has a lock-in period

and in case of any redemption by the investor before the expiry of the lock-in period makes him liable

to pay income tax on such income(s) for which he may have received any tax exemption(s) in the

past.

Equity Index Funds: -

Equity Index Funds have the objective to match the performance of a specific stock market index. The

portfolio of these funds comprises of the same companies that form the index and is constituted in the

same proportion as the index. Equity index funds that follow broad indices (like S&P CNX Nifty,

Sensex) are less risky than equity index funds that follow narrow sectoral indices (like BSE BANK

INDEX or CNX Bank Index etc). Narrow indices are less diversified and therefore, are more risky.

Value funds:-

Value Funds invest in those companies that have sound fundamentals and whose share prices are

currently under-valued. The portfolio of these funds comprises of shares that are trading at a low Price

to Earnings Ratio (Market Price per Share / Earning per Share) and a low Market to Book Value

(Fundamental Value) Ratio. Value Funds may select companies from diversified sectors and are



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exposed to lower risk level as compared to growth funds or specialty funds. Value stocks are

generally from cyclical industries (such as cement, steel, sugar etc.) which make them volatile in the

short-term. Therefore, it is advisable to invest in Value funds with a long-term time horizon as risk in

the long term, to a large extent, is reduced.

Equity income or dividend yield funds:-

The objective of Equity Income or Dividend Yield Equity Funds is to generate high recurring income

and steady capital appreciation for investors by investing in those companies which issue high

dividends (such as Power or Utility companies whose share prices fluctuate comparatively lesser than

other companies' share prices). Equity Income or Dividend Yield Equity Funds are generally exposed

to the lowest risk level as compared to other equity funds.

(B)Debt/Income funds:-Funds that invest in medium to long-term debt instruments issued by private companies, banks,

financial institutions, governments and other entities belonging to various sectors (like infrastructure

companies etc.) are known as Debt / Income Funds. Debt funds are low risk profile funds that seek to

generate fixed current income (and not capital appreciation) to investors. In order to ensure regular

income to investors, debt (or income) funds distribute large fraction of their surplus to investors.

Although debt securities are generally less risky than equities, they are subject to credit risk (risk of

default) by the issuer at the time of interest or principal payment. To minimize the risk of default, debt

funds usually invest in securities from issuers who are rated by credit rating agencies and are

considered to be of "Investment Grade". Debt funds that target high returns are more risky. Based on

different investment objectives, there can be following types of debt funds:-

Diversified Debt Funds:-

Debt funds that invest in all securities issued by entities belonging to all sectors of the market are

known as diversified debt funds. The best feature of diversified debt funds is that investments are

properly diversified into all sectors which results in risk reduction. Any loss incurred, on account of

default by a debt issuer, is shared by all investors which further reduces risk for an individual investor.

Focused Debt Funds:-

Unlike diversified debt funds, focused debt funds are narrow focus funds that are confined to

investments in selective debt securities, issued by companies of a specific sector or industry or origin.

Some examples of focused debt funds are sector, specialized and offshore debt funds, funds that

invest only in Tax Free Infrastructure or Municipal Bonds. Because of their narrow orientation,

focused debt funds are more risky as compared to diversified debt funds. Although not yet available in

India, these funds are conceivable and may be offered to investors very soon.



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High Yield Debt funds: -

As we now understand that risk of default is present in all debt funds, and therefore, debt funds

generally try to minimize the risk of default by investing in securities issued by only those borrowers

who are considered to be of "investment grade". But, High Yield Debt Funds adopt a different

strategy and prefer securities issued by those issuers who are considered to be of "below investment

grade". The motive behind adopting this sort of risky strategy is to earn higher interest returns from

these issuers. These funds are more volatile and bear higher default risk, although they may earn at

times higher returns for investors.

Assured Return Funds: -

Although it is not necessary that a fund will meet its objectives or provide assured returns to investors,

but there can be funds that come with a lock-in period and offer assurance of annual returns to

investors during the lock-in period. Any shortfall in returns is suffered by the sponsors or the Asset

Management Companies (AMCs). These funds are generally debt funds and provide investors with a

low-risk investment opportunity. However, the security of investments depends upon the net worth of

the guarantor (whose name is specified in advance on the offer document). To safeguard the interests

of investors, SEBI permits only those funds to offer assured return schemes whose sponsors have

adequate net-worth to guarantee returns in the future. In the past, UTI had offered assured return

schemes (i.e. Monthly Income Plans of UTI) that assured specified returns to investors in the future.

UTI was not able to fulfill its promises and faced large shortfalls in returns. Eventually, government

had to intervene and took over UTI's payment obligations on itself. Currently, no AMC in India offers

assured return schemes to investors, though possible.

Term Plan Fixed Series:-

Fixed Term Plan Series usually are closed-end schemes having short term maturity period (of less

than one year) that offer a series of plans and issue units to investors at regular intervals. Unlike

closed-end funds, fixed term plans are not listed on the exchanges. Fixed term plan series usually

invest in debt / income schemes and target short-term investors. The objective of fixed term plan

schemes is to gratify investors by generating some expected returns in a short period.

(C)GILT FUNDS:-Also known as Government Securities in India, Gilt Funds invest in government papers (nameddated

securities) having medium to long term maturity period. Issued by the Government of India, these

investments have little credit risk (risk of default) and provide safety of principal to the investors.

However, like all debt funds, gilt funds too are exposed to interest rate risk. Interest rates and prices of



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debt securities are inversely related and any change in the interest rates results in a change in the NAV

of debt/gilt funds in an opposite direction.

(D)MONEY MARKET / LIQUID FUNDS:-Money market / liquid funds invest in short-term (maturing within one year) interest bearing debt

instruments. These securities are highly liquid and provide safety of investment, thus making money

market / liquid funds the safest investment option when compared with other mutual fund types.

However, even money market / liquid funds are exposed to the interest rate risk. The typical

investment options for liquid funds include Treasury Bills (issued by governments), Commercial

papers (issued by companies) and Certificates of Deposit (issued by banks).

Hybrid funds:-

As the name suggests, hybrid funds are those funds whose portfolio includes a blend ofequities, debts

and money market securities. Hybrid funds have an equal proportion of debt and equity in their

portfolio. There are following types of hybrid funds in India:

Balanced Funds:-

The portfolio of balanced funds includes assets like debt securities, convertible securities, and equity

and preference shares held in a relatively equal proportion. The objectives of balanced funds are to

reward investors with a regular income, moderate capital appreciation and at the same time

minimizing the risk of capital erosion. Balanced funds are appropriate for conservative investors

having a long term investment horizon.

Growth-and-Income Funds:-

Funds that combine features of growth funds and income funds are known as Growth-and-Income

Funds. These funds invest in companies having potential for capital appreciation and those known for

issuing high dividends. The level of risks involved in these funds is lower than growth funds and

higher than income funds.

Asset Allocation Funds:-

Mutual funds may invest in financial assets like equity, debt, money market or non-financial

(physical) assets like real estate, commodities etc.. Asset allocation funds adopt a variable asset

allocation strategy that allows fund managers to switch over from one asset class to another at any

time depending upon their outlook for specific markets. In other words, fund managers may switch

over to equity if they expect equity market to provide good returns and switch over to debt if they

expect debt market to provide better returns. It should be noted that switching over from one asset

class to another is a decision taken by the fund manager on the basis of his own judgment and

understanding of specific markets, and therefore, the success of these funds depends upon the skill of

a fund manager in anticipating market trends.



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(E)OTHERS:- Commodity funds:-

Those funds that focus on investing in different commodities (like metals, food grains, crude oil etc.)

or commodity companies or commodity futures contracts are termed as Commodity Funds. A

commodity fund that invests in a single commodity or a group of commodities is a specialized

commodity fund and a commodity fund that invests in all available commodities is a diversified

commodity fund and bears less risk than a specialized commodity fund. "Precious Metals Fund" and

Gold Funds (that invest in gold, gold futures or shares of gold mines) are common examples of

commodity funds.

Real Estate Funds:-

Funds that invest directly in real estate or lend to real estate developers or invest in shares/securitized

assets of housing finance companies, are known as Specialized Real Estate Funds. The objective of

these funds may be to generate regular income for investors or capital appreciation.

Exchange Traded Funds (ETF):-

Exchange Traded Funds provide investors with combined benefits of a closed-end and an open-end

mutual fund. Exchange Traded Funds follow stock market indices and are traded on stock exchanges

like a single stock at index linked prices. The biggest advantage offered by these funds is that they

offer diversification, flexibility of holding a single share (tradable at index linked prices) at the same

time. Recently introduced in India, these funds are quite popular abroad.

Fund of Funds:-

Mutual funds that do not invest in financial or physical assets, but do invest in other Mutual Fund

schemes offered by different AMCs, are known as Fund of Funds. Fund of Funds maintain a portfolio

comprising of units of other mutual fund schemes, just like conventional mutual funds maintain a

portfolio comprising of equity/debt/money market instruments or non financial assets. Fund of Funds

provide investors with an added advantage of diversifying into different mutual fund schemes with

even a small amount of investment, which further helps in diversification of risks. However, the

expenses of Fund of Funds are quite high on account of compounding expenses of investments into

different mutual fund schemes.



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THE STOCK EXCHANGES:-

A marketplace in which to buy or sell something makes life a lot easier. The same applies to stocks. A

stock exchange is an organization that provides a marketplace in which investors and borrowers trade

stocks. Firstly, the stock exchange is a market for issuers who want to raise equity capital by selling

shares to investors in an Initial Public Offering (IPO). The stock exchange is also a market for

investors who can buy and sell shares at any time.

a) Trading shares on the stock exchange:

As an investor in the INDIA, you can't buy or sell shares on a stock exchange yourself. You need to

place your order with a stock exchange member firm (a stockbroker) who will then execute the order

on your behalf. The NSE AND BSE are the leading stock exchange in the INDIA. Trading is done

through computerized systems.

b) The trading process:-

If you decide to buy or sell your shares, you need to contact a stockbroker who will buy or sell the

shares on your behalf. After receiving your order, the stockbroker will input the order on the SETS or

SEAQ system to match your order with that of another buyer or seller. Details of the trade are

transmitted electronically to the stockbroker who is responsible for settling the trade. You will then

receive confirmation of the deal.

c) Types of shares available on the stock exchange:-

You cannot trade all stocks on the stock exchange. To be listed on a stock exchange, a stock must

meet the listing requirements laid down by that exchange in its approval process. Each exchange has

its own listing requirements, and some exchanges are more particular than others. It is possible for a

stock to be listed on more than one exchange. This is known as a dual listing.



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INSURANCE

People need insurance in the first place. An insurance policy is primarily meant to protect the incomeof the familys bread earners. The idea is if any one or both die their dependents continue to live

comfortably. The circle of life begins at birth follower by education, marriage and eventually after a

lifetime of work we look forward to life of retirement. Our finances too tend to change as we go

through the various phases of life. In the first twenty of our life, we are financially and emotionally

dependents on our parents and there are no financial commitments to be met. In the next twenty years

we gain financial independence and provide financial independence to our families. This is also the

stage when our income may be unable to meet the growing expenses of a young household. In the

next twenty as we see our investments grow after our children grow and become financially

independent. Insurance is a provision for the distribution of risks that is to say it is a financial

provision against loss from unavoidable disasters. The protection which it affords takes form of a

guarantee to indemnify the insured if certain specified losses occur. The principle of insurance so far

as the undertaking of the obligation is concerned is that for the payment of a certain sum the guarantee

will be given to reimburse the insured. The insurer in accepting the risks so distributes them that the

total of all the amounts is paid for this insurance protection will be sufficient to meet the losses that

occur. Insurance then provide divided responsibility. This principle is introduced in most stores where

a division is made between the sales clerk and the cashiers department the arrangement dividing the

risks of loss. The insurance principle is similarly applied in any other cases of divided responsibility.

As a business however insurance is usually recognized as some form of securing a promise of

indemnity by the payment of premium and the fulfillment of certain other stipulations.

Types of insurance

Term insurance plans

Term insurance is the cheapest form of life insurance available. Since a term insurance contract only

pays in the event of eventuality the life cover comes at low premium rates . Term insurance is a usefu

tool to purchase against risk of early death and protection of an asset.

Endowment plans

Endowment plans are savings and protection plans that provide a dual benefit of protection as well as

savings. Endowment plans pay a death benefit in the event of an eventuality should the customer

survive the benefit period a maturity benefit is paid to the life insured.



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Whole of life plans

A whole of life plan provides life insurance cover to an individua upto a specified age . A whole of

life plan is suitable for an individual who is looking for an extended life insurance cover and /or wants

to pay premium over as long as tenure as possible to reduce the amount of upfront premium payment.

Pension plans

Pension plans allow an individual to save in a tax deffered manner. An individual can either

contribute through regular premiums or make a single premium investments. Savings accumulate over

the deferment period. Once the contract reaches the vesting age , the individual has the option of

choosing an annuity plan from a life insurance company. An annuity is paid till the life the lifetime of

the insured or a pre-determined period depending upon the annuity option chosen by the life insured.

Unit Linked Insurance Plans

Unit linked insurance plan (ULIP) is life insurance solution that provides for the benefits of risk

protection and flexibility in investment. The investment is denoted as units and is represented by the

value that it has attained called as Net Asset Value (NAV). The policy value at any time varies

according to the value of the underlying assets at the time.

In a ULIP, the invested amount of the premiums after deducting for all the charges and premium for

risk cover under all policies in a particular fund as chosen by the policy holders are pooled together to

form a Unit fund. A Unit is the component of the Fund in a Unit Linked Insurance Policy.

The returns in a ULIP depend upon the performance of the fund in the capital market. ULIP investors

have the option of investing across various schemes, i.e, diversified equity funds, balanced funds, debt

funds etc. It is important to remember that in a ULIP, the investment risk is generally borne by the

investor.

In a ULIP, investors have the choice of investing in a lump sum (single premium) or making premium

payments on an annual, half-yearly, quarterly or monthly basis. Investors also have the flexibility to

alter the premium amounts during the policy's tenure. For example, if an individual has surplus funds,

he can enhance the contribution in ULIP. Conversely an individual faced with a liquidity crunch has the option

ofpaying a lower amount (the difference being adjusted in the accumulated value of his ULIP). ULIP

investors can shift their investments across various plans/asset classes (diversified equity funds,

balanced funds, debt funds) either at a nominal or no cost.



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Expenses Charged in a ULIP

Premium Allocation Charge:

A percentage of the premium is appropriated towards charges initial and renewal expenses apart from

commission expenses before allocating the units under the policy.

Mortality Charges:

These are charges for the cost of insurance coverage and depend on number of factors such as age,

amount of coverage, state of health etc

Fund Management Fees:

A fee levied for management of the fund and is deducted before arriving at the NAV.

Administration Charges:

This is the charge for administration of the plan and is levied by cancellation of units.

Surrender Charges:

Deduction is made for pre-mature partial or full encashment of units.

Fund Switching Charge:

Usually a limited number of fund switches are allowed each year without charge, with subsequent

switches, subject to a charge.

Service Tax Deductions:

Service tax is deducted from the risk portion of the premium.



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GOVERNMENT SECURITIES

Government securities (G-secs) are sovereign securities which are issued by the Reserve Bank of

India on behalf of Government of India, in lieu of the Central Government's market borrowing

program.

The term Government Securities includes:

Central Government Securities.

State Government Securities

Treasury bills

The Central Government borrows funds to finance its 'fiscal deficit'.The market borrowing of the

Central Government is raised through the issue of dated securities and 364 days treasury bills either by auction

or by floatation of loans.

In addition to the above, treasury bills of 91 days are issued for managing the temporary cash

mismatches of the Government. These do not form part of the borrowing program of the Central

Government.

Types of Government Securities

Government Securities are of the following types:-

(a) Dated Securities are generally having fixed maturity and fixed coupon securities usuallycarrying semi-annual coupon. These are called dated securities because these are identified by

their date of maturity and the coupon, e.g., 11.03% GOI 2012 is a Central Government

security maturing in 2012, which carries a coupon of 11.03% payable half yearly. The key

features of these securities are:

They are issued at face value.

Coupon or interest rate is fixed at the time of issuance, and remains constant till

redemption of the security.

The tenor of the security is also fixed.

Interest /Coupon payment is made on a half yearly basis on its face value.

The security is redeemed at par (face value) on its maturity date.



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(b)Zero Coupon bonds are bonds issued at discount to face value and redeemed at par. Thesewere issued first on January 19, 1994 and were followed by two subsequent issues in 1994-95

and 1995-96 respectively. The key features of these securities are:

They are issued at a discount to the face value.

The tenor of the security is fixed.

The securities do not carry any coupon or interest rate. The difference between the

issue price (discounted price) and face value is the return on this security.


(c) Partly Paid Stock is stock where payment of principal amount is made in installments over agiven time frame. It meets the needs of investors with regular flow of funds and the need of

Government when it does not need funds immediately. The first issue of such stock of eight

year maturity was made on November 15, 1994 for Rs. 2000 crore. Such stocks have been

issued a few more times thereafter. The key features of these securities are:

They are issued at face value, but this amount is paid in installments over a specified

period.

Coupon or interest rate is fixed at the time of issuance, and remains constant till

redemption of the security.

The tenor of the security is also fixed.



(d)Bonds with Call/Put Option: First time in the history of Government Securities market RBIissued a bond with call and put option this year. This bond is due for redemption in 2012 and

carries a coupon of 6.72%. However the bond has call and put option after five years i.e. in

year 2007. In other words it means that holder of bond can sell back (put option) bond to

Government in 2007 or Government can buy back (call option) bond from holder in 2007.

This bond has been priced in line with 5 year bonds.

(e) Floating Rate Bonds are bonds with variable interest rate with a fixed percentage over abenchmark rate. There may be a cap and a floor rate attached thereby fixing a maximum and

minimum interest rate payable on it. Floating rate bonds of four year maturity were first

issued on September 29, 1995, followed by another issue on December 5, 1995. Recently

RBI issued a floating rate bond, the coupon of which is benchmarked against average

yield on 364 Days Treasury Bills for last six months. The coupon is reset every six

months.



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The key features of these securities are:

They are issued at face value

Coupon or interest rate is fixed as a percentage over a predefined benchmark rate at

the time of issuance. The benchmark rate may be Treasury bill rate, bank rate etc. Though the benchmark does not change, the rate of interest may vary according to the

change in the benchmark rate till redemption of the security. The tenor of the security

is also fixed.



(f) Capital indexed Bonds are bonds where interest rate is a fixed percentage over the wholesaleprice index. These provide investors with an effective hedge against inflation. These bonds

were floated on December 29, 1997 on tap basis. They were of five year maturity with a

coupon rate of 6 per cent over the wholesale price index. The principal redemption is linked

to the Wholesale Price Index. The key features of these securities are:

They are issued at face value.

Coupon or interest rate is fixed as a percentage over the wholesale price index at the

time of issuance. Therefore the actual amount of interest paid varies according to the

change in the Wholesale Price Index.

The tenor of the security is fixed.


The principal redemption is l inked to the Wholesale Price Index.

Benefits of Investing in Government Securities

No tax deducted at source

Additional Income Tax benefit u/s 80L of the Income Tax Act for Individuals

Qualifies for SLR purpose

Zero default risk being sovereign paper

Highly liquid.

Transparency in transactions and simplified settlement procedures through

CSGL/NSDL



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National Savings Certificate

National Savings Certificate, popularly known as NSC, is a time-tested tax saving instrument that

combines adequate returns with high safety. NSCs are an instrument for facilitating long-term

savings. A large chunk of middle class families use NSCs for saving on their tax, getting double

benefits. They not only save tax on their hard-earned income but also make an investment which are

sure to give good and safe returns.

How to Invest

National Savings Certificates are available at all post-offices. The application can be made either in

person or through an agent. Post office agents are active in nooks and corners of the country.

Following types of NSC are issued:

Single Holder Type Certificate: This can be issued to: (a) An adult for himself or on behalf of a

minor (b) A Trust.

Joint 'A' Type Certificate: Issued jointly to two adults payable to both holders jointly or to the

survivor.

Joint 'B' Type Certificate: Issued jointly to two adults payable to either of the holders or to the

survivor.

Who can Invest

o An adult in his own name or on behalf of a minor

o A trust

o Two adults jointly

Denominations and Limit

National Savings Certificates are available in the denominations of Rs. 100 Rs 500, Rs. 1000, Rs.

5000, & Rs. 10,000. There is no maximum limit on the purchase of the certificates. So it is for you to

decide how much you want to put in the NSCs. This is of course a huge benefit for you can decide as

much as your budget allows.

Maturity

Period of maturity of a certificate is six years. Presently interest paid is 8 % per annum half yearly

compounded. Maturity value of a certificate of any other denomination is at proportionate rate.



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Premature encashment of the certificate is not permissible except at a discount in the case of death of

the holder(s), forfeiture by a pledgee and when ordered by a court of law.

Tax Benefits

Interest accrued on the certificates every year is liable to income tax but deemed to have been

reinvested.

Income Tax rebate is available on the amount invested and interest accruing under Section 88 of

Income Tax Act, as amended from time to time.

Income tax relief is also available on the interest earned as per limits fixed vide section 80L of Income

Tax, as amended from time to time.

Public Provident Fund

Public Provident Fund, popularly known as PPF, is a savings cum tax saving instrument. It also serves

as a retirement planning tool for many of those who do not have any structured pension plan covering

them. The balances in PPF account cannot be attached by any authority normally.

How to Open Account

Public Provident Fund account can be opened at designated post offices throughout the country and at

designated branches of Public Sector Banks throughout the country.

Who can Open Account

The account can be opened by an individual in his own name, on behalf of a minor of whom he is a

guardian.

Tabs on Investment

Minimum deposit required in a PPF account is Rs. 500 in a financial year. Maximum deposit limit is

Rs. 70,000 in a financial year. Maximum number of deposits is twelve in a financial year.

MaturityThe maturity period of the account is 15 years.

Rate of interest is 8% compounded annually.

One deposit with a minimum amount of Rs.500/- is mandatory in each financial year.



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The amount of deposit can be varied to suit the convenience of the account holders.

The account holder can retain the account after maturity for any period without making any further

deposits. In this case the account will continue to earn interest at normal rate as admissible till the

account is closed.

The account holder also has an option to extend the PPF account for any period in a block of 5 years

at each time, after the maturity period of 15 years.

Lapse in Deposits

If deposits are not made in a PPF account in any financial year, the account will be treated as

discontinued. The discontinued account can be activated by payment of the minimum deposit of

Rs.500/- with default fee of Rs.50/- for each defaulted year.

Premature Closure or Withdrawal

Premature closure of a PPF Account is not permissible except in case of death. Nominee/legal heir of PPF

Account holder cannot continue the account after the death.

Premature withdrawal is permissible in the 7th year of the account subject, to a limit of 50% of the

amount at credit preceding three year balance. Thereafter one withdrawal in every year is permissible.

Account Transfer

The Account is transferable from one post Office / bank to another and from post Office to bank or from a bank

to a post office.

Tax Benefits

Deposits in PPF are eligible for rebate under section 80-C of Income Tax Act.

The interest on deposits is totally tax free.

Deposits are exempt from wealth tax.



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BONDS

A bond is a debt security, in which the authorized issuer owes the holders a debt and, depending onthe terms of the bond, is obliged to pay interest (the coupon) and/or to repay the principal at a later

date, termed maturity. It is a formal contract to repay borrowed money with interest at fixed intervals.

Thus a bond is like a loan: the issuer is the borrower, the bond holder is the lender, and the coupon is

the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in

the case of government bonds, to finance current expenditure. Certificates of deposit (CDs) or

commercial paper are considered to be money market instruments and not bonds. Bonds must be

repaid at fixed intervals over a period of time. Bonds are issued by public authorities, credit

institutions, companies and supranational institutions in the primary markets. The most common

process of issuing bonds is through underwriting. In underwriting, one or more securities firms or

banks, forming a syndicate, buy an entire issue of bonds from an issuer and re-sell them to investors.

The security firm takes the risk of being unable to sell on the issue to end investors. However

government bonds are instead typically auction.

Different types of bonds available in India.

(a) The convertible bond lets a bondholder exchange a bond to a number of shares of theissuer's common stock.

(b)The exchangeable bond allows the exchange for shares of a corporation other than theissuer.

(c) The Fixed rate bonds have a coupon that remains constant throughout the life of the bond.(d)The Floating rate notes (FRNs) have a coupon that is linked to an index. Common indices

include: money market indices, such as LIBOR or Euribor, and CPI (the Consumer Price

Index). Coupon examples: three month USD LIBOR + 0.20%, or twelve month CPI + 1.50%.

FRN coupons reset periodically, typically every one or three months. In theory, any Index

could be used as the basis for the coupon of an FRN, so long as the issuer and the buyer can

agree to terms.(e) Zero-coupon bonds don't pay any interest. They are issued at a substantial discount to par

value. The bond holder receives the full principal amount on the redemption date. An

example of zero couponbonds are Series E savings bonds issued by the U.S. government.



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Zero-coupon bonds may be created from fixed rate bonds by a financial institutions separating

"stripping off" the coupons from the principal. In other words, the separated coupons and the

final principal payment of the bond are allowed to trade independently. See IO (Interest Only)

and PO (Principal Only).

(f) Inflation linked bonds, in which the principal amount and the interest payments are indexedto inflation. The interest rate is normally lower than for fixed rate bonds with a comparable

maturity (this position briefly reversed itself for short-term UK bonds in December 2008).

However, as the principal amount grows, the payments increase with inflation. The government of

the United Kingdom was the first to issue inflation linked Gilts in the 1980s. Treasury Inflation-

Protected Securities (TIPS) and I-bonds are examples of inflation linked bonds issued by the

U.S. government.Other indexed bonds, for example equity-linked notes and bonds indexed on a

business indicator (income, added value) or on a country's GDP.

(g) Asset-backed securities are bonds whose interest and principal payments are backed byunderlying cash flows from other assets. Examples of asset-backed securities are mortgage-

backed securities (MBS's), collateralized mortgage obligations (CMOs) and collateralized

debt obligations (CDOs).Subordinated bonds are those that have a lower priority than other

bonds of the issuer in case of liquidation. In case of bankruptcy, there is a hierarchy of

creditors. First the liquidator is paid, then government taxes, etc. The first bond holders in line

to be paid are those holding what is called senior bonds. After they have been paid, the

subordinated bond holders are paid. As a result, the risk is higher. Therefore, subordinated

bonds usually have a lower credit rating than senior bonds. The main examples of

subordinated bonds can be found in bonds issued by banks, and asset-backed securities. The

latter are often issued in tranches. The senior tranches get paid back first, the subordinated

tranches later.

(h)Perpetual bonds are also often called perpetuities. They have no maturity date. The mostfamous of these are the UK Consols, which are also known as Treasury Annuities or Undated

Treasuries. Some of these were issued back in 1888 and still trade today, although the

amounts are now insignificant. Some ultra long-term bonds (sometimes a bond can last

centuries: West Shore Railroad issued a bond which matures in 2361 (i.e. 24th century)) are

virtually perpetuities from a financial point of view, with the current value of principal near

zero.

(i) Bearer bond is an official certificate issued without a named holder. In other words, theperson who has the paper certificate can claim the value of the bond. Often they are registered

by a number to prevent counterfeiting, but may be traded like cash. Bearer bonds are very



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risky because they can be lost or stolen. Especially after federal income tax began in the

United States, bearer bonds were seen as an opportunity to conceal income or assets. U.S.

corporations stopped issuing bearer bonds in the 1960s, the U.S. Treasury stopped in 1982,

and state and local tax-exempt bearer bonds were prohibited in 1983. Registered bond is a

bond whose ownership (and any subsequent purchaser) is recorded by the issuer, or by a

transfer agent. It is the alternative to a Bearer bond. Interest payments, and the principal upon

maturity, are sent to the registered owner.

(j) Municipal bond is a bond issued by a state, U.S. Territory, city, local government, or theiragencies. Interest income received by holders of municipal bonds is often exempt from the

federal income tax and from the income tax of the state in which they are issued, although

municipal bonds issued for certain purposes may not be tax exempt.Book-entry bond is a

bond that does not have a paper certificate. As physically processing paper bonds and interest

coupons became more expensive, issuers (and banks that used to collect coupon interest for

depositors) have tried to discourage their use. Some book-entry bond issues do not offer the

option of a paper certificate, even to investors who prefer them.

(k)Lottery bond is a bond issued by a state, usually a European state. Interest is paid like atraditional fixed rate bond, but the issuer will redeem randomly selected individual bonds

within the issue according to a schedule. Some of these redemptions will be for a higher value

than the face value of the bond.

(l) War bond is a bond issued by a country to fund a war.(m)Serial bond is a bond that matures in installments over a period of time. In effect, a $100,000,

5-year serial bond would mature in a $20,000 annuity over a 5-year interval.

(n)Revenue bond is a special type of municipal bond distinguished by its guarantee ofrepayment solely from revenues generated by a specified revenue-generating entity associated

with the purpose of the bonds. Revenue bonds are typically "non-recourse," meaning that in

the event of default, the bond holder has no recourse to other governmental assets or

revenues.



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COMMODITIES

A commodity is a normal physical product used by everyday people during the course of their lives,

or metals that are used in production or as a traditional store of wealth and a hedge against inflation.

For example, these commodities include grains such as wheat, corn and rice or metals such as copper,

gold and silver. The full list of commodity markets is numerous and too detailed. The best way to

trade the commodity markets is by buying and selling futures contracts on local and international

exchanges. Trading futures is easy, and can be accessed by using the services of any full or on-line

futures brokerage service. Traditionally, there is an expectation when trading commodity futures of

achieving higher returns compared to shares or real estate, so successful investors can expect much

higher returns compared to more conventional investment products.

The process of trading commodities, as mentioned above, must be facilitated by the use of trading

liquid, exchangeable, and standardized futures contracts, as it is not practical to trade the physical

commodities. Futures contracts give the investor ease of use and the ability to buy or sell without

delay. A futures contract is used to buy or sell a fixed quantity and quality of an underlying

commodity, at a fixed date and price in the future. Futures contracts can be broken by simply

offsetting the transaction. For example, if you buy one futures contract to open then you sell one

futures contract to close that market position.

The execution method of trading futures contracts is similar to trading physical shares,

but futures contracts have an expiry date and are deliverable.Futures contracts have an expiry date and

need to be occasionally rolled over from the current contract month to the following contract month.

The reason is because the biggest advantage to trading commodity futures, for the private investor is

the opportunity to legally short-sell these markets. Short-selling is the ability to sell commodity

futures creating an open position in the expectation to buy-back at a later time to profit from a fall in

the market.

If you wish to trade the up-side of commodity futures, then it will simply be a buy-to-open and sell-to-

close set of transactions similar to share trading.



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The commodity markets will always produce rising of falling trends, and with the

abundance of information and trading opportunities available there is no reason for any investor to

exclusively trade the share market when there is potential profits from trading commodity futures.

The increased use of commodity trading vehicles in investment management has led practitioners to

create investable commodity indices and products that offer unique performance opportunities for

investors in physical commodities. As is true for stock and bond performance, as well as investment

in managed futures and hedge fund products, commodity-based products have a variety of uses.

Besides being a source of information on cash commodity and futures commodity market trends, they

are used as performance benchmarks for evaluation of commodity trading advisors and provide a

historical track record useful in developing asset allocation strategies. However, the investor benefits

of commodity or commodity-based products lie primarily in their ability to offer risk and return trade-

offs that cannot be easily replicated through other investment alternatives. Previous research that

direct stock and bond investment offers little evidence of providing returns consistent with direct

commodity investment. Commodity-based firms may not be exposed to the risk of commodity price

movement. Thus for investors, direct commodity investment may be the principal means by which

one can obtain exposure to commodity price movements.

The commodities that are traded in the market

Gold

Copper

Silver

Sugar

Wheat

Zeera

Guar



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EMPIRICAL ANALYSIS AND INTERPRETATIONS

(A)Table showing different age group of the respondents (investors).AGE NUMBER OF RESPONDENTS

18-25 6

26-35 22

36-51 15

51 & Above 7

Inference: the sample consists of 50 investors belonging to different age group. As the chart shows

that the majority of respondents belong to the age group of 26-35 years i.e., 44%, followed by the age

group of 36-51 years i.e., 30% and then 14% contribution by the age group of 51 years & above and

12% by the age group of 18-25 years. The major long term decisions generally executed between the

ages of 26-45 years.

(B) Educational Qualification of the respondents.

Educational qualification No. of investorsUndergraduate 07

graduate 26

Post graduate and above 17



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Inference: the total 26 number of respondents are graduate i.e. 52% of total population, followed by

17 number of respondents who are post graduate covering 34% of total population and 7 respondents

are undergraduate.

(C) Occupation of investors.

Occupation Number of respondentsGovernment service 12

Private service 27

Entrepreneurs 02

others 09

Inference: as per the above chart, its evident that the majority is dominated by the respondentsengaged in private service i.e., 27(54%), followed by government employees i.e., 12 (24%). The

analysis also covers up 2 entrepreneurs and 9 respondents engaged in other businesses not falling

under above categories.



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(D)Yearly gross income of the investors.

Income groups Number of investors

Below 120000 08120000 300000 14

300000 500000 17

500000 & above 11

Inference: according to income group of investors, maximum no. of investors is in income group of 3

lac 5 lac i.e., they constitute approximately 34% which is followed by the income group falls in the

range between 1.2 lac 3 lac (28%) and 22% are in the income group of 5 lac & above and remaining

falls in the income group of below 1.2 lac.

(E)Percentage of income investors invest.

% of income invested No. of investors

5% - 10% 10

10% - 20% 21

20% & above 19



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Inference: as per the graph, it can be seen that 21 investors like to invest 10% to 20% of their income,

followed by 19 investors who would prefer 20% or more of their income to be invested. The rest 10

investors have restricted the corpus to 5% to 10% of their income. One can conclude that increased

income would lead to considerable amount of saving as the marginal increase in expenditures would

be less than marginal increase in income which would result into more saving and boost investment.

(F) Most ideal or preferred investment avenues.

Investment avenues Degree of preference given

Mutual funds 87%

Equity shares 24%

Insurance 92%

Government securities 97%

Real estate 60%

commodities 17%



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Inference: from the above graph, it can be concluded that the most ideal or preferred investment for

majority of investors are mutual funds (87%), insurance (92%) and government securities (97%). If I

need to explain why these three avenues are dominating the rest is because of the features that they

carry along with them like diversification, security, liquidity, trust and reliability. There wasnt even a

single investor who didnt invest in any of these avenues. The preference of the investors measured in

percentage is itself witnessed to the fact that todays investors reliance on such investment avenues is

unaffected no matter whether economy is going through recession or depression. The strategy may

change but the proportion allocated to such securities would remain unaffected to considerable level.

The next ideal investment is real estate, which has got 60% preference by the investors, followed by

equity shares and commodities which have been awarded 24% and 17% preferences respectively by

the investors.

(G) While investing, which of the following factor or factors would you consider themost?

Factors degree of preferences

Liquidity 80%

Low risk 100%

High and regular return 100%

Capital appreciation 75%



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Inference: as the graph clearly indicates that the major concern for any investor is to have maximum

return considering minimum amount of risk. Different investors have different purposes to achieve by

way of investing their money. Some may prefer to invest short term to achieve short term objectives;

such investors may not consider capital appreciation as vital features of investment but may prefer to

earn high return with low risk. On the other hand if the purpose of investment is of long term in nature

then such investor would obviously go for capital appreciation. Liquidity is also a vital aspect of any

investment but still it depends on the nature of investment and the objective for which it is made. If

the nature of investment is long term then the investor may not concerned about its present level of

liquidity but its not the same in case of short term investment. When the economy is going through

the phase of recession, most of the investors concern is about liquidity and capital appreciation as

such investments are tied up with long maturity duration.

(H) What induces to invest in a particular investment avenues?

Factors Degree of preference

Tips 10%

News 45%

Research report 80%

Personal homework 15%



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Inference: most of the investors believe that the most reliable source of information is research report

as it is a mix of in-depth analysis based on past performance and future expectations measured in

terms of probabilities, as a result 80% preference were given to research report by investors. The next

trustable source of information was news, on which 45% of investors would like to rely. The rest

sources namely personal homework and tips were not given as important as the previous sources.

Such situation arises only in case of equity stocks and that too when investor is willing to go for long

term investment. In case of mutual funds, the portfolio of investor is managed and directed by

professionals, so there is no need for investors to worry about once he clearly specifies the objectives

of his investment.

(I) Risk appetite of the investors.

types Degree of preference

High risk 30%

Medium risk 45%

Low risk 95%

No risk/safe investment 60%



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Inference: there is not doubt that if the investors were given an option then they would obviously go

for low risk. The most preferred risk appetite as per the analysis is low risk with 95% degree of

preference. The next preference was given to no risk and safe investment which was 60%, followed

by 45% awarded to medium risk and 30% to high risk. Every individual has different risk tolerance

capacity and its one of the major factor determining the choice of investment to be made. The

uncertainty may give unexpected returns to the investors but the question arises whether he is willing

to risk his principle amount in such volatile market. As a result the risk tolerance level has a vital role

to play in deciding risk appetite of any investor.

(J) Pattern of investing or trading.

patterns No. of investors

Repeatedly invest in same set of stocks 14

Invest in variety of stocks 29

Depends on other factors 07



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Inference: as the chart shows, there were 29 investors who liked to invest in variety of stocks and the

reason or the benefit they derive out of is because of the element of diversification present in such

varieties. During recession also, there are some stocks which perform better then others for e.g.

FMCG. The degree of diversification is very crucial to cope up with unsystematic risk. 14 investors

would like to invest repeatedly in same set of stocks and remaining would prefer to rely on other

factors for investing.

(K)While investing what are your investment objectives?a) To receive regular income

b) To plan for future commitment(child education, marriage etc)

c) To have safe retirement period



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Inference: as the graph shows, the majority of investors prefer to safeguard their retirement period.

Out of 50 respondents 39 respondents are engaged in employments with different sectors so no doubt

about this decision. Respondent falling under the age group of 18 25 years would also like to receive

regular income along with those who are at and above 51 years of age. The behavior of the group

falling under 18 25 years is also willing to take considerable amount of risk by investing into equity

funds. I have found that they are rather risk takers and not risk avoiders.

(L)What is the preferred portfolio of investment?portfolio Preference of investors

Equity 20%

Debt 55%

balanced 90%

Inference: as it can be witnessed from the above graph that 90% preference is given to the balanced

portfolio because of simple reason that is diversification among debt and equity stocks in such a way

that it will provide optimum return for the degree of risk undertaken by the investors. The second

preference is given to debt as it provides steady return no matter how volatile the market is. Andinvestment in equity is awarded with 20% weight, as such investment would be made by short term

investors anticipating to get volatile return and they commonly have short position over such

investment.



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(M)The reaction of investors in recession (bear market).

Options Preference

To take advice from professionals 22

To withdraw 05

To wait till market recover 09

To invest 14

Inference: as the graph depicts that 22 investors would like to take the advice of professionals in caseof bear market situation. There are 9 investors who would like to wait till market recovers. There are

14 investors who believe that this is the right time to invest money keeping in mind long term

objectives in mind and 5 investors would like to withdraw from the market before situation gets more

worst for their investments. Here one interesting fact is that mutual fund has become the most

convenient source of investment over the past couple of years because it provides variety of stocks

under one roof and the investment can be made according to the objectives of individual. This distinct

feature has changed the behavior of investors to a considerable extent.



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The challenge of diversification

A majority of financial advisors believe that:

Very few investors rebalance as often as they should

Attention to top performers causes clients to lose focus and

Volatile markets can make hard for client to stick to their plan.

2. Common investing behaviorsAll too often decision making about investing is influenced by emotions and unconscious biases that

cause people to make sub-optimal choices. Among the most damaging are those biases that drive

individuals to chase strong investment returns, which make investors reluctant to rebalance portfolios

and cause them to overreact to short-term volatility. Following are some sample of behaviors that

undermine su

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KEYUR'S FINAL MT-II