ananlysis of investment decisions
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INTRODUCTION TO INVESTMENTS
There are many different definitions of what investment and
investing actually means. One of the simplest ways of describing it is using
your money to try and make more money. This can happen in many different
ways.
All investors are different. The common factor is that you
would like to invest money to aim to make it grow or to receive a regular
income from it. We would like to show you that choosing the most suitable
investment for you does not need to be difficult. All you need is the right
help along the way.
The act committing money or capital to an endeavor with the
expectation of obtaining an additional income or profit is known as
investment. Investing means putting your money to work for you.
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NEED FOR THE STUDY
The principal objective of corporate financial management is to
maximize the market value of the equity shares. Hence the key question of
interest to us in this study is,on investment decisions.
We need to study on various investment options that are prevailing
in the financial markets in India. With lots of investment options like banks,
Fixed Deposits, Government bonds, stock market, real estate, gold and
mutual funds the common investor ends up more confused than ever. Each
and every investment option has its own merits and demerits. This project I
have discussed about few investment options available.
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OBJECTIVE OF THE STUDY
The primary objective of the project is to make an analysis of
various investment decision. The aim is to compare the returns given by
various investment decision. To cater the different needs of investor, these
optionsare also compared on the basis of various parameters like safety,
liquidity,risk, entry/exit barriers, etc.
The project work was undertaken in order to have a
reasonable understanding about the investment industry. The project work
includes knowing about the investment decisions like equity, bond, real
estate,gold and mutual fund. All investment decisions are discussed with
their types, workings and returns.
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SCOPE OF THE STUDY
The scope of the project includes acquiring knowledge about
the investment decisions. As a whole this included the detailed study of
investments like their types,benefits, investment options like banks,fixed
deposits,govt bonds,stock market,realestate,mutualfunds.
Any investor before investing should take into consideration
about the the safety, liquidity, returns, entry/exit barriers and tax efficiency
parameters. We need to evaluate each investment option on the above-
mentioned basis and then invest money. Today investor faces too much
confusion in analyzing the various investment options available and then
selecting the best suitable one options are compared on the basis of returns.
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LIMITATIONS OF THE STUDY
The study was limited to only six investment options.
Most of the information collected is secondary data.
The data is compared and analyzed on the basis of performance of the
investment options over the past five years.
While considering the returns from mutual funds only top performing
schemes were analyzed.
It was very difficult to obtain the date regarding the returns yielded by
real estate and hence averages were taken.
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RIGHT HORIZONS Securities and Finance
Company Limited1. RIGHT HORIZONS:
A subsidiary of RIGHT HORIZONE largest and
most recognized private bank in India RIGHT HORIZONS Securities Ltdis premier Indian Investment Bank, with a dominant position in its core
segments of its operations - Corporate Finance including Equity Capital
Markets Advisory Services, Institutional Equities, Retail and Financial
Product Distribution With a full-service portfolio, a roster of blue-chip
clients and performance second to none, we have a formidable reputation
within the industry.
The Corporate Finance team regularly ranks
highest among the leading capital markets league tables and recently topped
the Prime Database League tables for funds mobilized through equity
instruments in the first half of CY 07.
As a result of this membership, RIGHT
HORIZONS Securities Inc. can engage in permitted activities in the U.S.
securities markets. These activities include Dealing in Securities and
Corporate Advisory Services in the United States and providing research
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RIGHT HORIZONS GROUP
investment advice to US investors. RIGHT HORIZONS Securities Inc. is
also registered with the Financial Services Authority, UK (FSA) and the
Monetary Authority of Singapore (MAS) to carry out Corporate Advisory
Services and Dealing in Securities.
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2.CORPORATE FINANCE:
Business Profile:
RIGHT HORIZONS Securities Ltd is a premier
Indian Investment Bank, with a dominant position in its core segments of its
operations - Corporate Finance including Equity Capital Markets Advisory
Services, Institutional Equities, Retail and Financial Product Distribution.
With a full-service portfolio, a roster of blue-chip
clients and performance second to none, they have a formidable reputation
within the industry. Today RIGHT HORIZONS Securities is among the
leading Financial Institutions both on the institutional as well as retail side.
The Corporate Finance team regularly ranks
highest among the leading capital markets league tables and recently topped
the Prime Database League tables for funds mobilized through equity
instruments in the first half of CY 07.
RIGHT HORIZONS Securities Inc., the step-
down wholly owned US subsidiary of the company is a member of the
National Association of Securities Dealers, Inc. (NASD). As a result of this
membership, RIGHT HORIZONS Securities Inc. can engage in permitted
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activities in the U.S. securities markets. These activities include Dealing in
Securities and Corporate Advisory Services in the United States and
providing research and investment advice to US investors. RIGHT
HORIZONS Securities Inc. is also registered with the Financial Services
Authority, UK (FSA) and the Monetary Authority of Singapore (MAS) to
carry out Corporate Advisory Services and Dealing in Securities.
Mergers and Acquisitions:
RIGHT HORIZONS Securities Limited was
amongst the first Indian investment banks to form a dedicated M&A practice
and continues to be a leader by providing innovative and unique solutions to
achieve varied objectives of the client. They offer a full range of advisory
services, which include joint ventures, mergers, acquisitions, divestitures,
spin-offs and , leveraged buyouts. Team members bring a wide range of
skills from diverse backgrounds, including accounting, industry, law and
management consulting.
Equity Capital Markets:
RIGHT HORIZONS Securities Limited is at the
forefront of capital markets advisory having been involved in most major
book building and fixed price offerings over the last decade. They are
amongst the leading underwriters of Indian equity and equity linked
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offerings with unparalled execution capabilities. They provide end-to-end
fund raising solutions, from structuring to placement of the equity
instrument.Their products include Initial Public Offerings (IPOs), Rights
Offerings, Convertible Offerings, and Private Placement and international
offerings, for both, unlisted and listed entities.
Private Equity:
RIGHT HORIZONS Securities Limited has a
dedicated practice to assist companies with capital mobilization through the
private equity / venture capital route across their life-cycle. They assist
companies in raising capital during the seed, growth and expansion and
acquisition financing. They have working relationships with all major
private equity players, both in India and abroad and can facilitate access to
these investors.
Infrastructure Advisory:
RIGHT HORIZONS Securities Limited has a
dedicated infrastructure vertical focused on assisting clients in identifying
and capitalizing on the opportunities thrown up by the all pervasive boom in
the Indian infrastructure sector. The group leverages in-depth industry
experience to provide structured investment banking and M&A solutions
that are integrated with the strategic plans of the companies and add value to
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businesses within the unique complexities and regulatory frameworks of the
relevant industry. The breath and depth of domain expertise combined with
strong product capability enables them to function as a single-window
financial-cum-business advisor and offer integrated "Concept-to-
Commissioning" solutions across product streams.
Awards and Recognition:
Winning is a habit that is assiduously cultivated at
RIGHT HORIZONS Securities Limited (I-Sec). Be
it deals, mandates or awards, they manage them all
in their quite and efficient way.For them winning awards is a matter of pride
and honors. Each new award is a manifestation of their hard work and
commitment to their clients.Since inception, I-Sec's expertise has been time
and again widely recognized by both domestic and international agencies
I-Sec PD has been recognized as the Best Domestic Bond House in India
by Asia money for 2005, 2006, 2007, 2008 and 2008. I-Sec PD has been
awarded the prestigious Best Bond House by Financeasia.com for the years
2001, 2005, 2006, 2007 and 2008. These awards are a strong testimony of
their capabilities and continuing dominant position in the market. The
equities team was adjudged the Best Indian Brokerage House-2003 by
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Asia money. The Corporate Finance group also was awarded a runner-up
Best Merchant Banker by Outlook Money in 2008. RIGHT HORIZONS
Securities (I-Sec) topped the Prime Database League Tables 200.8r money
raised through IPOs/FPOs.
Primary dealership:
RIGHT HORIZONS Securities Primary
Dealership Limited is an acknowledged leader in the Indian fixed income
and money markets, with a strong franchise across the spectrum of interest
rate products and services institutional sales and trading, resource
mobilization and research. One of the first entities to be granted Primary
Dealership license by RBI, I-Sec PD has made pioneering contributions
since inception to debt market development in India.
Innovation and insight in rate markets drive I-Sec
PDSs relationship with clients. They actively assist clients in providing
interest rate structures to suit their objectives. I-Sec PD Sales team has
developed a strong network of relationships covering institutional investors
such as banks, mutual funds, insurance companies, provident funds and non-
banking finance companies. These relationships are serviced by a wide
distribution network with footprints across the country. The Capital Markets
desks profound understanding of resource requirements of clients coupled
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with I-Sec PDs client relationships make them Arranger of choice.
I-Sec PD is also credited with pioneering debt
market research in India. Their in-depth research and independent and well-
considered market commentaries are widely read and acclaimed.
I-Sec PDs expertise and leadership position have
been consistently recognized by domestic and international agencies. I-Sec
PD has been recognized as the Best Domestic Bond House in India byAsia
money for 2004, 2005, 2006, 2007 and 2008. It has also been awarded the
prestigious Best Bond House by Financeasia.com for the years - 2004,
2005, 2006, 2007 and 2008. These awards are a strong testimony of their
capabilities and continuing dominant position in the market.
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1.Institutional Equities:
I-Sec assists global institutional investors to make
the right decisions through insightful research coverage and a client focused
Sales and Dealing team. A 30-member strong dedicated and specialized
research team ensures flow of well thought-out and well-researched stock
ideas and portfolio strategies.
The Sales and Dealing team has demonstrated
strong sales and execution capabilities of actionable ideas to clients which
have resulted in good relationships across geographies. I-Sec enjoys the first
mover and market leader advantage in the derivatives segment.
Volumes achieved by the Debt Market Group over the past 5 years (Rs. bn)
Instruments 2007-08 2006-07 2005-06 2004-05 2003-04
Govt. Securities 100 99 1,25 1,12 84
Debt Placements 23 28 13 8 12
Non-SLR Securities 7 66 13 13 13
Derivatives 91 65 70 46 19
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The equity group leverages research and
distribution reach to domestic and foreign institutional investors in case of
public offerings. The research team tracks over 15 key sectors of the Indian
economy and publishes in-depth research reports every year.
The equity group acts as a bridge for
institutional investors and corporate clients with the markets.
For its expertise, RIGHT HORIZONS
Securities has been adjudged as the Best Brokerage House" by Asia Money
in 2003, a prestigious financial journal.
2.Retail Equities:
RIGHT HORIZONS Securities has the largest
reach to the retail segment through its two pioneering brands1.RIGHT HORIZONSdirect.com and
2.RIGHT HORIZONS direct.
RIGHT HORIZONSdirect.com is the most
comprehensive website, which allows you to invest in Shares, Mutual funds,
Derivatives (Futures and Options), IPO, Commodities and other financial
products Subscribers benefit from the unique 3-in-1 package - a demat
account, a trading account, and a bank account, thus giving the customer an
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efficient and hassle free trading platform. An adept research team facilitates
the consumer in taking more informed investment decisions.
RIGHT HORIZONSdirect.com is the leader in the online share trading
space with over 1.2 million customers, which translates to a market share of
over 65%.
The firm has been winning the prestigious
Outlook Money Indias Best e-Brokerage House for 2003-2004, 2005-
2006 and 2007-08.
The e-brokerage firm also won the CNBC
AWAZ Consumer Award for the Most Preferred Brand of Financial
Advisory Services.
RIGHT HORIZONS Securities has also set up a
unique model of neighborhoods financial superstores called RIGHT
HORIZONS direct. With an avowed purpose of turning money to wealth
the stores offer a slew of financial products like Mutual Fund, IPO, Loans as
well as Share trading and assist customers in investing their funds wisely
in options of their choice.
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Board of Directors
RIGHT HORIZONS Securities Primary Dealership Limites
Mr. S. Mukherji, Chairman
Nitin Jain, Managing Director & CEO
Ms. Vishakha Mulye
Mr. A. Murugappan
Mr. Subir Saha
Mr. Uday Chitale
RIGHT HORIZONS Securities Limited
Mr. K. V. Kamath, Chairman
Mr. S. Mukherji, Managing Director & CEO
Ms. Kalpana Morparia
Mr. V. Vaidyanathan
Mr. Nitin Jain
Mr. A. Murugappan, Executive Director
Mr. Uday Chitale
Mr. Anup Bagchi, Executive Director
RIGHT HORIZONS Securities Holdings, Inc.
Mr. Gopakumar P
Mr. A. Murugappan
Mr. Subir Saha
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Mr. Nitin Jain
Mr. A. Murugappan, Executive Director
Mr. Uday Chitale
Mr. Anup Bagchi, Executive Director
INSURANCE:
Insurance could be defined both in law and
economics as form of risk management primarily used to hedge against the
risk of a contingent loss. It is also defined as equitable transfer of the risk
of a potential loss, from one entity to another, in exchange for the premium.
Insurer is the company that sells the insurance.
Insurance rate is a factor used to determine the amount, a called the
premium, to be charged for a certain amount of insurance coverage.
Principles of insurance:
Commercially insurable risks typically share 7 common characteristics.
1.A large number of homogeneous exposure units.
2.Definite loss.
3.Accidental loss.
4.Large loss.
5.Affordable premium.
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6.Calculable loss.
Insurers business model:
Profit = earned premium +invst income
- incurred loss underwriting expenses.
Life and general insurance in India is
still a nascent sector with huge potential for various global players with the
life insurance premiums accounting to 2.5% of the countrys GDP while
general insurance premiums to 0.65% of Indias GDP. In organization
totally is based on these business model. No one should not cross these
business models . The insurance sector in India has gone through a number
of phases and changes, particularly in the recent years, when the govt. in
1999 opened up the insurance sector by allowing the private companies to
solicit insurance and also the allowing FDI up to 26%. Ever since, the Indian
insurance sector is considered as a booming market with every global
insurance company wanting to have a lions share. Currently the largest life
insurance company is still owned by the government.
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Major Players In Indian Insurance
Life Insurance:
Public :
Life Insurance Corporation of India.
Private:
HDFC Standard Life Insurance.
Max New York Life Insurance.
RIGHT HORIZONS Prudential Life Insurance.
Om Kotak Mahindra Life Insurance.
Birla Sun-Life Insurance.
TATA AIG Life Insurance.
SBI Life Insurance.
ING Vysya Life Insurance.
Bajaj Allianz Life Insurance.
MetLife Insuranc.
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Reliance Life Insurance Company Limited.
Bharti AXA.
General Insurers:
Public:
National Insurance.
New India Assurance.
Oriental insurance.
United India Insurance.
Agriculture Insurance Company of India Ltd.
Private:
Bajaj Allianz General Insuran.
RIGHT HORIZONS Lombard General Insurance.
IFFCO-Tokio General Insuran .
Reliance General Insurance.
Royal Sundaram Alliance Insurance.
TATA AIG General Insurance.
Cholamandalam General Insurance.
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Export Credit Guarantee Corporatio .
HDFC Chubb General Insurance.
Literature Reviews
What this Right Horizons is about?
This Right Horizons will explain what a literature review is and offer
insights into the form and construction of a literature review in the
humanities, social sciences, and sciences.
Introduction:
OK. You've got to write a literature review. You dust off a novel and a book
of poetry, settle down in your chair, and get ready to issue a "thumbs up" or
"thumbs down" as you leaf through the pages. "Literature review" done.
Right? Wrong! The "literature" of a literature review refers to any collection
of materials on a topic, not necessarily the great literary texts of the world.
"Literature" could be anything from a set of government pamphlets on
British colonial methods in Africa to scholarly articles on the treatment of a
torn ACL. And a review does not necessarily mean that your reader wants
you to give your personal opinion on whether or not you liked these sources.
What is a literature review, then?
A literature review discusses published information in a particular subject
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area, and sometimes information in a particular subject area within a certain
time period. A literature review can be just a simple summary of the sources,
but it usually has an organizational pattern and combines both summary and
synthesis. A summary is a recap of the important information of the source,
but a synthesis is a re-organization, or a reshuffling, of that information. It
might give a new interpretation of old material or combine new with old
interpretations. Or it might trace the intellectual progression of the field,
including major debates. And depending on the situation, the literature
review may evaluate the sources and advise the reader on the most pertinent
or relevant.
But how is a literature review different from an academic
researchpaper?
While the main focus of an academic research paper is to support your own
argument, the focus of a literature review is to summarize and synthesize the
arguments and ideas of others. The academic research paper also covers a
range of sources, but it is usually a select number of sources, because the
emphasis is on the argument. Likewise, a literature review can also have an
"argument," but it is not as important as covering a number of sources. In
short, an academic research paper and a literature review contain some of the
same elements. In fact, many academic research papers will contain a
literature review section. But it is the aspect of the study (the argument or
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the sources) that is emphasized that determines what type of document it is.
Why do we write literature reviews?
Literature reviews provide you with a handy guide to a particular topic. If
you have limited time to conduct research, literature reviews can give you an
overview or act as a stepping stone. For professionals, they are useful reports
that keep them up to date with what is current in the field. For scholars, the
depth and breadth of the literature review emphasizes the credibility of the
writer in his or her field. Literature reviews also provide a solid background
for a research paper's investigation. Comprehensive knowledge of the
literature of the field is essential to most research papers.
Let's get to it! What should I do before writing the literature
review?Clarify
If your assignment is not very specific, seek clarification from your
instructor:
1.Roughly how many sources should you include?
2.What types of sources (books, journal articles, websites)?
3.Should you summarize, synthesize, or critique your sources by discussing
a common theme or issue?
4.Should you evaluate your sources?
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5.Should you provide subheadings and other background information?
Find models:
Look for other literature reviews in your area of interest or in the discipline
and read them to get a sense of the types of themes you might want to look
for in your own research or ways to organize your final review. You can
simply put the word "review" in your search engine along with your other
topic terms to find articles of this type on the Internet or in an electronic
database. The bibliography or reference section of sources you've already
read are also excellent entry points into your own research.
Narrow your topic:
There are hundreds or even thousands of articles and books on most areas of
study. The narrower your topic, the easier it will be to limit the number of
sources you need to read in order to get a good survey of the material. Your
instructor will probably not expect you to read everything that's out there on
the topic, but you'll make your job easier if you first limit your scope.
And don't forget to tap into your professor's (or other professors') knowledge
in the field. Ask your professor questions such as: "If you had to read only
one book from the 70's on topic X, what would it be?" Questions such as this
help you to find and determine quickly the most seminal pieces in the field.
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INVESTMENT DECISIONS
Introduction:
These days almost everyone is investing in somewhere even if its a
savings account at the local bank or a checking account the earns interest or
the home they bought to live in.. Even though it may seem the everyone and
their brothers knows exactly who, what and when to invest in so they can
make killing, please dont be fooled. Majorities of investor typically jumpon
the latest investment bandwagon and probably dont know as much about
whats out there as you think.
Before you can confidently choose an
investment path that will help you achieve your personal goals and
objectives, its virtually important that you understand the basics about the
types of investments available. Knowledge is your strongest ally when it
comes to weeding out bad investment advice and is crucial to successful
investing whether you go at it alone or use a professional.
The investment option before you is many.
Pick the right investment tool based on the risk profile, circumstance, time
available etc. if you feel the market volatility is something, which you can
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live with then buy stocks.
TYPES OF INVESTMENT OPTIONS
A brief preview of different investment options is given below:
1.Equities:Investment in shares of companies is investing in equities.
Stocks can be brought/sold from the exchanges (secondary market) or via
IPOs Initial Public Offerings (primary market). Stocks are the best long-
term investment options wherein the market volatility and the resultant risk
of losses, if given enough time, are mitigated by the general upward
momentum of the economy. There are two streams of revenue generation
from this from of investment.
2. Dividend:Periodic payments made out of the companys profits are
termed as dividends.
3.Bonds:It is a fixed income (debt) instrument issued for a period of more
than one year with the purpose of raising capital. The central or state
government, corporations and similar institutions sell bonds. A bond is
generally a promise to repay the principal along with fixed rate of interest on
a specified date, called as the maturity date. Other fixed income instruments
include bank deposits, debentures, preference shares etc.
The average rate of return on bond and securities in India has been around
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10-13% p.a.
4.Mutual Fund: These are open and close-ended funds operated by an
investment company, which raises money from the public and invests in a
group of assets, in accordance with a stated set of objectives. It is a
substitute for those who are unable to invest directly in equities or debt
because of resource, time or knowledge constraints. Benefits include
diversification and professional money management. Shares are issued and
redeemed on demand, based on the funs net asset value, which is determined
at the end of each trading session. The average rate of return as a
combination of all mutual funds put together is not fixed but is generally
more than what earn is fixed deposits.In the recent past, Mutual Funs have
given a return of 18 35%.
5.Real Estate:For the bulk of investors the most important asset in their
portfolio is a residential house. In addition to a residential house, the more
affluent investors are likely to be interested in either agricultural land or maybe in semi-urban land and the commercial property.
6.Life insurance:In broad sense, life insurance may be reviewed as an
investment. Insurance premiums represent the sacrifice and the assured the
sum the benefits. The important types of insurance policies in India are:
Endowment assurance policy.
Money back policy.
Whole life policy.
Term assurance policy.
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Unit-linked insurance plan.
ALL ABOUT EQUITY INVESTMENT
Stocks are investments that represent ownership or equity in a
corporation. When you buy stocks, you have an ownership share however
small in that corporation and are entitled to part of that corporations
earnings and assets.Stock investors called shareholders or stockholders make
money when the stock increases in value or when the company theissued the
stock pays dividends, or a portion of its profits, to its shareholders.Some
companies are privately held, which means the shares are available a limited
number of people, such as the companys founders, its employees, and
investors who fund its development. Other companies are publicly traded,
which means their shares are available to any investor who wants to buy
them.
The IPO:
A company may decided to sell stock to the public for a
number of reasons such as providing liquidity for its original investor or
raising money. The first time a company issues stock is the initial public
offering (IPO), and the company receives the proceeds from that sale. After
that, shares of the stock are treaded, or brought and sold on the securities
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markets among investors, but the corporation gets no additional income. The
price of the stock moves up or down depending on how much investors are
willing to pay for it.Occasionally, a company will issue additional shares of
its stocks, called a secondary offering, to raise additional capital.
Types of Stocks :
With thousands of different stocks trading on U.S. and
international securities markets, there are stocks to suit every investor and to
complement every portfolio. For example, some stocks stress growth, while
others provide income. Some stocks flourished during boom time, while
others may help insulate your portfolios value against turbulent or
depressed markets. Some stocks are pricey, while others are comparatively
inexpensive. And some stocks are inherently volatile, while others tend to be
more stable in value.
Growth & Income:
Some stocks are considered growth investments, while
others are considered value investments. From an investing perspective, the
best evidence of growth is an increasing price over time. Stocks of
companies that reinvest their earnings rather than paying them out as
dividends are often considered potential growth investments. So are stocks
of young, quickly expanding companies. Value stocks, in contrast, are the
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stocks of companies that problems, have been under performing their
potential, or are out of favor with investors. As result, their prices tend to be
lower than seems justified, though they may still be paying dividends.
Investors who seek out value stocks expect them to stage a comeback.
Market Capitalization:
One of the main ways to categorize stocks is by their
market capitalization, sometimes known as market value. Market
capitalization (market cap) is calculated by multiplying a companys current
stock price by the number of its existing shares. For example, a stock with a
current market value of $30 a share and a hundred million shares of existing
stock would have a market cap of $3 billion.
P/E ratiO:
A popular indicator of a stocks growth potential is its
price-to-earnings ratio, or P/E or multiple can help you gauge the price
of a stock in relation to its earnings. For instance, a stock with a P/E of 20 is
trading at a price 20 times higher than its earnings.A low P/E may be a sign
that a company is a poor investment risk and that its earnings are down. But
it may also indicate that the market undervalues a company because its stock
price doesnt reflect its earnings potential. Similarly, a stock with a high P/E
may live up to investor expectations of continuing growth, or it may be
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overvalued.
Investor demand:
People buy a stock when they believe its a good
investment, driving the stock price up. But if people think a companys
outlook is poor and either dont invest or sell shares they already own, the
stock price will fall. In effect, investor expectations determine the price of a
stock.For example, if lots of investors buy stock A, its price will be driven
up. The stock becomes more valuable because there is demand for it. But the
reverse is also true. If a lot of investors sell stock Z, its price will plummet.
The further the stock price falls, the more investors sell it off, driving the
price down even more.
The Dividends:
The rising stock price and regular dividends that
reward investors and give them confidence are tied directly to the financial
health of the company.Dividends, like earnings, often have a direct influence
on stock prices. When dividends are increased, the message is that the
company is prospering. This in turn stimulates greater enthusiasm for the
stock, encouraging more investors to buy, and riving the stocks price
upward. When dividends are cut, investors receive the opposite message and
conclude that the companys future prospects have dimmed. One typical
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consequence is an immediate drop in the stocks price.
Earnings and Performance:
Investor enthusiasm for a stock can
sometimes take on a momentum of its own, driving prices up independent of
a companys actual financial outlook. Similarly, disinterest can drive prices
down. But to a large extent, investors base their expectations on a
companys sales and earnings as evidence of its current strength and future
potential.When a companys earnings are up, investor confidence increases
and the price of the stock usually rises. If the company is li9sin g money or
not making as much as anticipated , the stock price usually falls, sometimes
rapidly.
Intrinsic Value:
A companys intrinsic value, or underlying
value, is closely tied to its prospects for future success and increased
earnings. For that reason, a companys future as well as its current assets
contributes to the value of its stock.
You can calculate intrinsic value by figuring
the assets a company expects to receive in the future and subtracting its
long-term debt. These assets may include profits, the potential for increased
efficiency, and the proceeds from the sale of new company stock. The
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potential for new shares affects a companys intrinsic value because offering
new shares allows the company to raise more money.
Analysts looking at intrinsic value divide a companys
estimated future earnings by the number of it s existing shares to determine
whether a stocks current price is a bargain. This measure allows investors
to make decisions based on a companys future potential independent of
short-term enthusiasm or market hype.
Stock Splits:
If a stocks price increases dramatically the issuing company may split the
stock to bring the price per share down to a level that stimulates more
trading. For example, a stock selling at $100 a share may be split 2 for 1
doubling the number of existing shares and cutting the price in half.
The split doesnt change the value of your investment, at least initially. If
you had 100 shares when the price was $100 a share, youll have 200 shares
worth $50 a share after the split. Either way, thats $10000. But if the price
per share moves back toward the pre-split price, as it may do your
investment will increase in value. For example if the price goes up to $75 a
share your stock will be worth $15000, a 50% increase.Investors who hold a
stock over many years, through a number of splits, may end up with a
substantial investment even if the price per share drops for a time.
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Stock Research and Evaluation:
Before investing in a stock, its important to research the issuing
company and understand how the investment is likely to perform, for
example, youll want to know ahead of time whether you should anticipate a
high degree of volatility, or more stable slower growth. A good place to start
is the companys 10 k report, which it must file with the Securities and
Exchange Commission (SEC) each year. Its extremely detailed and quite
dry, but it is through. Youll want to pay attention to the footnotes as well as
the main text, since they often provide hints of potential problems.
Company News and Reports:
Companies are required by law to keep shareholders up to date on
how the business is doing. Some of that information is provided in the firms
annual report, which summarizes the companys operations for individual
investors. A summary of current performance is also provided in the
companys quarterly reports.
Buying and Selling Stock:
To buy or sell a stock you usually have to go through a broker.
Generally the more guidance you want from your broker the higher the
brokers fee. Some brokers usually called full-service brokers provide a
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range of service beyond filling buy and sell orders for clients such as
researching investments and helping you develop long and short-term
investment goals.
Discount brokers carry out transactions for clients at lower
fees than full-service brokers but typically offer more limited services. And
for experienced investors who trade often and in large blocks of stock there
are deep-discount brokers whose commissions are even lower.
Online Trading is the cheapest way to trade stocks. Online
brokerage firms offer substantial discounts while giving you fast access to
your accounts through their Web Sites. You can research stocks track
investments and you to trade before and after normal market hours. Most of
todays leading full-service and discount brokerage firm make online trading
available to their customers. Online trading is an extremely cost-effective
option for independent investors with a solid strategy who are willing to
undertake their own research. However the ease of making trades and the
absence of advice may tempt some investors to trade in and out of stocks too
quickly and magnify the possibility of locking in short-term losses.
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All ABOUT BONDS INVESTMENT
Have you ever-borrowed money? Of course you have
whether we hit our parents up for a few bucks to buy candy as children or
asked the bank for a mortgage most of us have borrowed money at some
point in our lives.
Just as people need money so do companies and
governments. A company needs funds to expand into new markets, while
governments need money for everything from infrastructure to social
programs. The problem large organizations run into is that they typically
need far more money than the average bank can provide. The solution is to
raise money by issuing bonds (or other debt instruments) to a public market.
Thousands of investors then each lend a portion of the capital needed. Really
a bond is nothing more than a loan for which you are the lender. The
organization that sells a bond is known as the issuer. Your can think of a
bond as an IOU given by a borrower (the issuer) to a lender (the investor).
Of course, nobody would loan his or her hard-earned money
for nothing. The issuer of a bond must pay the investor something extra for
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the privilege of using his or her money. This extra comes in the form of
interest payments, which are made at a predetermined rate and schedule. The
interest rate is often referred to as the coupon. The date on which the issuer
has to repay the amount borrowed (known as face value) is called the
maturity date. Bonds are known as fixed-income securities because you
know the exact amount of cash youll get back if you hold the security until
maturity. For example, say you buy a bond with a face value of $1000 a
coupon of 8% and a maturity of 10 years. This means youll receive a total
of $80 ($1000*8%) of interest per year for the next 10 years. Actually
because most bonds pay interest semi-annually youll receive two payments
of $40 a year for 10 years. When the bond matures after a decade, youll get
your $1000 back.
Face Value / Par Value:
The face value (also known as the par value or principal)
is the amount of money a holder will get back once a bond matures. Newly
issued bond usually sells at the par value. Corporate bonds normally have a
par value of $1000 but this amount can be much greater for government
bonds. What confuses many people is that the par value is not the price of
the bond. A bonds price fluctuates throughout its life in response to a
number of variables (more on this later). When a bond trades at a price
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above the face value, it is said to be selling a premium. When a bond sells
below face value it is said to be selling at a discount.
Coupon (The Interest Rate):
The coupon is the amount the bondholder will receive as
interest payments. Its called a coupon because sometimes there are
physical coupons on the bond that you tear off and redeem for interest.
However this was more common in the past. Nowadays records are more
likely to kept electronically.
As previously mentioned most bonds pay interest every six
months but its possible for them to pay monthly, quarterly or annually. The
coupon is expressed as a percentage of the par value. If a bond pays a
coupon of 10% and its par value is $1000 then itll pay %100 of interest a
year. A rate that stays as a fixed percentage of the par value like this is a
fixed-rate bond. Another possibility is an adjustable interest paymentknown
as a floating-rate bond. In this case the interest rate is tied to market rates
through an index such as the rate on Treasury bills.
You might think investors will pay more for a high coupon than for a low
coupon. All things being equal a lower coupon means that the price of the
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bond will fluctuate more.
Maturity:
The maturity date is the date in the future on which the
investors principal will be repaid. Maturities can range from as little as one
day to as long as 20 years (though terms of 100 years have been issued).
A bond that matures in one year is much more predictable and
thus less risky than a bond that matures in 20 years. Therefore in general the
longer the time to maturity the higher the interest rate. Also all things being
equal a longer-term bond will fluctuate more than a shorter-term bond.
Issuer:
The issuer of a bond is a crucial factor to consider, as the issuers
stability is your main assurance of getting paid back. For example, the U.S
government is far more secure than any corporation. Its default risk (the
chance of the debt not being paid back) is extremely small so small that
U.S government securities are known as risk-free assets. The reason behind
this is that a government will always be bale to bring in future revenue
through taxation. A company on the other hand must continue to make
profits, which is far from guaranteed. This added risk means corporate bond
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must offer a higher yield in order to entire investors this is the risk / return
tradeoff in action.
The bond rating system helps investors determine a
companys credit risk. Think of a bond rating as the report card for a
companys credit rating. Blue-chip firms, which are safer investments, have
a high rating, while risky companies have to low rating. The chart below
illustrates the different bond rating scales from the major rating agencies in
the U.S.
Moodys Standard and Poors and Fitch Ratings:
Bond Rating Grade Risk Moodys S&P / Fitch
Aaa AAA Investment Highest QualityAa AA Investment High Quality
A A Investment Strong
Baa BBB Investment Medium Grade
Ba, B BB, B Junk Speculative
Caa/Ca/C CCC/CC/C Junk Highly Speculative
C D Junk In Default
Notice that if the company falls below a certain credit
rating, its grade changes from investment quality to junk status. Junk bonds
are aptly named: they are the debt of companies in some sort of financial
difficulty. Because they are so risky, they have to offer much higher yields
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than any other debt. This brings up an important point: not all bonds are
inherently safer than stocks. Certain types of bonds can be just risky, if not
riskier, than stocks.
Yield to Maturity:
Of course, these matters are always more complicated
in real life. When bond investor refers to yield, maturity (YMT). YTM is
more advanced yield calculation that show the interest payment you will
receive (and assumes that you will reinvest the interest payment at the same
rate as the current yield on the bond) plus any gain (if you purchased at
discount) or loss (if you purchased at a premium).Knowing how to calculate
YTM isnt important right now. In fact, the calculation is rather
sophisticated and beyond the scope of this tutorial. The key point here is
that YTM is more accurate and enables you to compare bond with different
maturities coupons.
The link between Price and yield:
The relationship of yield to price can be summarized
as follows: when price goes up, goes down and vice versa. Technically,
youd say the bonds and its yield are inversely related.Heres a commonly
asked question: How can high yield and high prices both be good when they
cant happen at the same time? The answer depends on your point of view.
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If you are a bond buyer, you want high yields. A buyer wants to pay $800
for the $1,000 bond, which gives the bond, a high yield of 12.5%. On the
other hand, if you already own a bond, youve locked in your interest rate, so
you hope the price of the bond goes up. This can cash out by selling your
bond in the future.
Price in the Market:
So far weve discussed the factors of face value,
coupon, maturity, issuers and yield. All if these characteristics of a bond
play a role in its price, However, the factor that influences a bond more than
any other is the level of prevailing interest rates in the economy. When
interest rates rise, the prices of bonds in the market fall, thereby raising the
yield of older bonds and bringing them into line with newer bonds being
issued with higher coupons. When interest rates fall the prices of bonds in
the market rise, thereby lowering the yield of the older bonds and bringing
them into line with newer bonds being issued with lower coupons.
Different Types of Bonds:
Government bonds
Municipal bonds
Corporate bonds
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Government Bonds:
In general, fixed-income securities are classified
according to the length of time before maturity. These are the three main
categories:
Bill debt securities maturing in less than one year,
Notes debt securities maturing in one to 10 years.
Bonds - debt securities maturing in more than 10 years.
Municipal Bonds:
Municipal bonds, known as munis, are the next
progression in terms of risk. Cities dont go bankrupt that often, but it can
happen. The major advantage to munis is that the returns are free from
federal tax. Furthermore, local governments will sometimes make their debt
non-taxable for residents, thus making some municipal bonds completely
tax-free. Because of these tax savings, the yield on a muni a usually lower
than that of a taxable bond. Depending on your personal situation, a muni
can be great investment on an investment on an after-tax basis.
Corporate Bonds:A company can issued bonds just as it can issue
stock. Large corporations have a lot of flexibility as to how much debt they
can issue: the limit is whatever the market will bear. Generally, a short-term
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corporate bond is less than five years; intermediate is five to 12 years, and
long term is over 12 years.
Corporate bonds are characterized by higher
yi8eld because there is a higher risk of a company defaulting than a
government. The upside is that they can also be the most rewarding fixed-
income investments because of the risk the investor must take on. The
companys credit quality is very important: the higher the quality, the lower
the interest rate the investor receives.
Other variations on corporate bonds include
convertible bonds, which the holder can convert into stock, and callable
bonds, which allow the company to redeem an issue prior to maturity.
Risks:
As with any investment, there are risks inherent
in buying even the most highly related bonds. For example, your bond
investment may be called, or redeemed by the issuer, before the maturity
date. Economic downturns and poor management on the part of the bond
issuer can also negatively affect your bond investment. These risks can be
difficult to anticipate, but learning how to better recognize the warning signs
and knowing how to respond will help you succeed as a bond investor.
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ALL ABOUT GOLD INVESTMENT
Gold is the oldest precious metal known to man. Therefore, it
is a timely subject for several reasons. It is the opinion of the more objective
market experts that the traditional investment vehicles of stocks and bonds
are in the areas of their all-time highs and may due for a severe correction.
Why gold is good as old is an intriguing question. However,
we think that the more pragmatic ancient Egyptians were perhaps more
accurate in observing that golds value was a function of its pleasing
physical characteristics its scarcity.
WORLD GOLD INDUSTRY:
Gold is primarily monetary asset and partly a commodity.
The Gold market is highly liquid and gold held by central banks, other
major institutions and retail Jeweler keep coming back to the market.
Economic forces that determine the price of gold are different from,
and in many cases opposed to the forces that influence most financial
assets.
Indian is the worlds largest gold consumer with an annual demand of
800 tons.
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World Gold Markets:
Physical - London, Zurich, Istanbul, Dubai, Singapore, Hong Kong,
Mumbai.
Futures NYMEX in New York, TOCOM in Tokyo.
Indian Gold Market:
Gold is valued in India as a savings and investment vehicle and is the
second preferred investment after bank deposits.
India is the worlds largest consumer of gold in jeweler as investment.
In July 1997 the RBI authorized the commercial banks to import gold
for sale or loan to jewelers and exporter. At present, 13 banks are
active in the import of gold.
This reduced the disparity between international and domestic prices
of gold from 57 percent during 1986 to 1991 to 8.5 percent in 2001.
The gold hoarding tendency is well ingrained in Indian society.
Domestic consumption is dictated by monsoon, harvest and marriage
season. Indian jewellery off takes is sensitive to price increase and
even more so to volatility.
In the cities gold is facing competition from the stock market and a
wide range of consumer goods.
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Facilities for refining, assaying, making them into standard bars in
India, as compared to the rest of the world, are insignificant, both
qualitatively.
How gold stocks up as investment option?
Gold and silver have been popular in India because historically these
acted as a good hedge against inflation. In that sense these metals have been
more attractive than bank deposits or gilt-edged securities.
Despite recent hiccups, gold is an important and popular investment
for many reasons:
In many countries gold remains an integral part of social and religious
customs, besides being the basic form of saving. Shakespeare called
it the saint-seducing gold.
Superstition about the healing powers of gold persists. Ayurvedic
medicine in India recommends gold powder and pills for many
ailments.
Gold is indestructible. It does not tarnish and is also not corroded by
acid-except by a mixture of nitric and hydrochloric acids.
Gold is so malleable that one ounce of the metal can be beaten into a
sheet covering nearly a hundred square feet.
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Gold is so ductile that one ounce of it can be drawn into fifty miles of
thin gold wire.
Gold is an excellent conductor of electricity; a microscopic circuit of
liquid gold printed on a ceramic strip saves miles of wiring in a
computer.
Gold is so highly valued that a single smuggler can carry gold worth
Rs.50 lakh underneath his shirt.
Gold is so dense that all the 90,000 tones estimated to have been
mined through history could be transported by one single modern
super tanker.
Finally, gold is scam-free. So far, there have been no Mundra-type or
Why People Buy Gold?
Industrial applications take advantage of golds high
resistance to corrosion, its malleability, high electrical conductivity and its
ability to adhere firmly to other metals. There is a wide range of industries
from electronic components to porcelain, which use gold. Dentistry is an
important user of gold. The jewellery industry is another.
Acquisition of gold because of its long-proven ability to
retain value and to appreciate in value.Purchases by the central banks and
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international monetary organizations like the International Monetary Fund.
Investment Options:
There has been a shift in demand from jewellery
(ornamentation) to coins and bars (investments). Coins cost less when
compared to jewellery (which has additional making charges). Assayed,
certified coins and bars are available through authorized banks. Demand for
jewellery remains strong in traditional circles though gold-plated jewellery is
also becoming popular.
Worldwide more than 600 exchange listed
structured products based on gold are available. Street track an ETF owned
by the World Gold Council is listed on the NYSE. Commodity brokers like
Kotak are offering capital protected bonds; these are open for a specific
period (usually one year) with gold as the underlying asset. On appreciation
profit is shared and if the price falls the capital is safe.
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ALL ABOUT MUTUAL FUND INVESTMENT
A Mutual Fund is an entity that pools the money of many
investorsits Unit-Holders -- to invest in different securities. Investments
may be in shares, debt securities, money market securities or a combination
of these. Those securities are professionally managed on behalf of the Unit-
Holder and each investor hold a pro-rata share of the portfolio i.e. entitled to
any profits when the securities are sold but subject to any losses in value as
well.
Mutual Funds and sell stocks, bonds or other securities. A
Fund raises money to make its purchases, known as its underlying
investments by selling shares in the fund. Earnings the fund realizes on its
investment portfolio, after the trading costs and expenses of managing and
administering the fund are subtracted are paid out to the funds shareholders.
Mutual Fund Set Up:
A Mutual Fund is set up in the form of a trust, which has
Sponsor, Trustees, Asset Management Company (AMC), and custodian. The
trust is established by a sponsor or more than one sponsor who is like
promoter of a company. The trustees of the mutual fund hold its property for
the benefit of the unit holders. Asset Management Company (AMC)
approved by SEBI manages the funds by making investments in various
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types of securities. Custodian, who is registered with SEBI, holds the
securities of various schemes of the fund in its custody. The trustees are
invested with the general power of superintendence and direction over
AMC. They monitor the performance and compliance of SEBI Regulations
by the mutual fund.
SEBI Regulations require that at least two thirds of the
directors of Trustee Company or board of trustee must be independent. I.e.
they should not be associated with the sponsors. Also 50% of the directors of
ANC must be independent. All mutual funds are required to be registered
with SEBI before they launch any scheme. However, Unit Trust of India
(UTI) is not registered with SEBI (as on January 15, 2002).
Types of Funds:
Stock funds also called equity funds- invest primarily in stocks.
Bond funds invest primarily in corporate or government bonds
Balanced funds invest in both stocks and bonds.
Money market funds make short-term investment and try to keep their
share value fixed at $1 a share.
Every fund in each category has a price known as its net
asset value (NAV) and each NAV differs based on the value of the funds
holdings and the number of shares investors own. The price changes once a
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day, at a 4 pm EST, when the markets close for the day. All transactions for
the day buys and sells are executed at that price.
Schemes According to Maturity Period:
A mutual fund scheme can be classified into open-ended scheme or
close-ended scheme depending on its maturity period.
Open Ended Fund/Scheme:
An open-ended fund or scheme is one that is available for
subscription and repurchase one continuous basis. These schemes do not
have a fixed maturity period. Investors can conveniently buy and sell units at
Net Asset Value (NAV) related prices, which are declared on a daily basis.
The key feature of Open-End Schemes is liquidity.
Close-Ended Fund / Scheme:
A Close-Ended Fund or Scheme has a stipulated maturity period
e.g. 5-7 years. The fund is open for subscription only during a specified
period at the time of launch of the scheme. 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 the units arelisted.
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
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one of the two exit routes is provided to the investor i.e. either repurchase
facility or through listing on stock exchanges. These mutual funds schemes
disclose NAV generally on weekly basis.
Schemes according to Investment Objective:
A Scheme can also be classified a growth scheme, income scheme or
balanced scheme considering its investment objective. Such schemes may be
open-ended or close-ended schemes as described earlier. Such schemes may
be classified mainly as follows.
Growth / Equity Oriented Scheme:
The aim of growth funds is to provide capital appreciation over the
medium to long-term. Such schemes normally invest a major part of their
corpus in equities. Such funds have comparatively high risks. These schemes
provide different options to the investors like dividend option, capital
appreciation etc. And the investors may choose an option depending on their
preference. The investors must indicate the option in the application form.
The mutual funds also allow the investors to change the options at a later
date. Growth schemes are good for investors having a long-term outlook
seeking appreciation over a period of time.
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Reinvestment:
Being able to reinvest your distributions to buy additional shares is
another advantage of investing in mutual funds. You can choose that option
when you open a new account, or at any time while you own shares. And of
course you also have the option to receive your distributions if you need the
income the fund would provide.
By investing regularly, you build the
investment base on which future earnings will be able to accumulate, a
process known as compounding. The more you have invested, the greater
youre potential for future growth. And because the fund handles the
process, rolling over distributions into new shares as they are paid, you dont
have to budget for investing or remember to write the check.
Risk:
There is always the risk that a mutual fund wont meet its investment
objective or provide the return you are seeking. And some funds are by
definition, riskier than others. For example a fund that invests in small new
companies-whether for growth or value expose you to the risk that the
companies will not perform as well as the fund manager expects. And in
market downturns, falling prices for a funds underlying investment may
produce a loss rather than a gain for the fund
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ALL ABOUT REAL ESTATES INVESTMENT
Before the stock market and mutual funds became popular
places for people to put their investment dollars, investing in real estate was
extremely popular. We still maintain that investing in real estate is not just
for land barons or the rich and famous. As a matter of fact, the home we buy
and live in is often our biggest investment.
Flying high on the wings of booming real estate, property in
India has become a dream for every potential investor looking forward to dig
profits. All are eyeing Indian property market for a wide variety of reasons
Its ever growing economy, which is on a continuous rise with 8.1 percent
increase witnessed in the last financial year. The boom in economy increases
purchasing power of its people and creates demand for real estate sector.
Once you have made the decision to become a homeowner, it
usually means you will have to borrow the largest amount you have ever
borrowed to purchase something. This realization may make you want to
bury your head in the sand and sign on the dotted line, but you shouldnt.
For most people, this is the largest purchase they will ever make during their
lifetime, and this makes it all the more important to gather as much
knowledge as possible about what theyre getting into.
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You can also use real estate, whether land or building strictly
as investment vehicles, and depending on your individual situation, you can
do it on a grand or smaller scale. Lets look at the world of real estate and
the investing options available.
Home as an Investment: Owing a home is the most common form of
real estate investing. Let us show you how your home is not just the place
you live, but its also perhaps your largest and safest investment as well.
Investment Real Estate: The in and outs of investing in real estate and
whether its the right investment vehicle for you. Whether you are thinking
in terms of renting out your first home when you move on to a bigger one or
investing in a building full of apartments we will explain what you need to
know.
Real Estate & Property:
Usually, the first thing you look at when you
purchase a home is the design and the layout. But if you look at the house as
an investment, it could prove very lucrative years down the road. For the
majority of us, buying a home will be the largest single investment we make
in our lifetime. Real estate investing doesnt just mean purchasing a house-it
can include vacation homes, commercial prosperities, land (both developed
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and undeveloped), condominiums and many other possibilities. When buying property for the purpose of investing, the most
important factor to consider is the location. Unlike other investments, real
estate is dramatically affected by the condition of the immediate area
surrounding the property and other local factors. Several factors need to be
considered when assessing the value of real estate. This includes the age and
condition of the home, improvements that have been made, recent sales in
the neighborhood, changes to zoning regulations etc. You have to look at the
potential income a house can produce and how it compares to others houses
in the area.
How to Buy or Sell it?
Real estate is almost exclusively bought through real estate agents or
brokers their compensation usually is a percentage of the purchase price of
the property. Real estate can also be purchased directly7 from the owner,
without the assistance of a third party. If you find buying property too
expensive, then consider investing in real estate investment trusts (REITs)
which are discussed in the next section.
Rental Property:
You can buy real estate for rental purposes and receive an income
stream from renters. You may also be able to eventually sell the property for
more than you bought it for and make a good profit. Although, dont forget
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that you will now be a landlord who may have to deal with nonpaying
tenants and destructive tenants. Even if you have the worlds best tenants,
you still have to deal with upkeep of the property and any problems that
come up. Some investors hire a property manager or management company
to manage their investment real estate. This is fine but dont forget to factor
in the management fees when you are calculating your profit from the
investment.
Please remember that rental real estate is subject to different tax
rules than the home you reside in. you may be able to take tax deductions for
losses, capital expenditure and depreciation if you meet certain
requirements, but other deductions specific to principle residence may not be
available to you.
Unimproved Land:
Unimproved land is difficult investment to make a profit in.
Unless you manage to buy a piece of land that is extremely desirable at a
good price and are certain that it is not barred from profitable use for the
neighborhood it is located in (because of zoning or other issues), it will
probably cost you more to own the property than you will ever make selling
it. (Remember you will still have to pay property taxes and will also likely
incur other upkeep costs on the land and you wont be receiving any income
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from rents).
If you have some sort of inside scoop on a piece of land (for
example the person in the house on the lot next to the land is a wealthy
recluse and does not want the property built upon so you can name your
price to sell it to him) or plan on developing it yourself (building you home
on a piece of property next to a lake), in that case it may be a good
investment.
Second Homes:
Second Homes or vacation homes should be purchased
primarily for vacation purposes not investment purposes. Most people end
up with a loss on their vacation home properties because even if you can
manage to rent the home, the costs of owning the home almost always
exceed the rental income it bring in.
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ALL ABOUT LIFE INSURANCE INVESTMENT
Life Insurance is income protection in the event of your death. The
person you name, as your beneficiary will receive proceeds from an
insurance company to offset the income lost as a result of your death. You
can think of life insurance as a morbid from of gambling: if you lived longer
than the insurance company expected you to then you would lose the bet.
But if you died early, then you would win because the insurance company
would have to pay out your beneficiary.
Insurers (or underwriters) look carefully at decades worth of data to
try to predict exactly how long you will live. Insurance underwriters classify
individuals based on their height, weight, lifestyle (i.e. whether or o not they
smoke) and medical history (i.e. if they have had any serious health
complications). All these variables will determine what rate class category a
person fits into. This doesnt mean that smokers and people who have had
serious health problems cant be insured, it just means theyll pay different
premiums.
There are two very common kinds of life insurance term life and
permanent life. Term life insurance is usually for a relatively short period of
time, whereas a permanent life policy is one that you pay into throughout
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your entire life. These payments are usually fixed from the time you
purchase your policy. Basically, the younger you are when you sign-up for
this type of insurance, the cheaper your monthly payments will be.
Need for life insurance:
Risks and uncertainties are part of lifes great adventure accident,
illness, theft natural disaster theyre all built into the working of the
Universe, waiting to happen. Insurance then is mans answer to the vagaries
of life. If you cannot beat man-made and natural calamities, well at least be
prepared for them and their aftermath.
Types of life Insurance:
Most of the products offered by Indian Life insurers are developed and
structured around these basic policies and are usually an extension or a
combination of these policies. So, the different types of insurance policies
are
1.Term Insurance Policy:
A term insurance policy is a pure risk cover for a specified period of
time. What this means is that the sum assured is payable only if the
policyholder ides within the policy term. For instance, if a person
buys Rs.2 lakh policy for 10-years period? Well, then he is not
entitled to any payment; the insurance company keeps the entire
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premium paid during the 10-year period.
What if he survives the 10-year period? Well, then he is not entitled to
any payment; the insurance company keeps the entire premium paid
during the 10-year period.
So, there is no element of savings or investment in such a policy. It is
a 100 percent risk cover.
2.Endowment Policy:
Combining risk cover with financial savings, an
endowment policy is the most popular policies in the world of life insurance.
In an Endowment Policy, the sum assured is payable even if the
insured survives the policy term.
If the insured dies during the tenure of the policy, the insurance firm
has to pay the sum assured just as any other pure risk cover.
A pure endowment policy is also a form of financial saving whereby
if the person covered remains alive beyond the tenure of the policy; he
gets back the sum assured with some other investment benefits.
3.Whole Life Policy:
As the name suggests, a Whole Life Policy is an insurance cover
against death, irrespective of when it happens.
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Under this plan, the policyholder pays regular premiums until his
death, following which the money is handed over to his family.
This policy, however fails to address the additional needs of the
insured during his post-retirement years. It doesnt take into account a
persons increasing needs either. While the insured buys the policy at young
age, his requirements increase over time. By the time he dies, the value of
the sum assured is too low to meet his familys needs. As a result of these
drawbacks, insurance firms now offer either a modified Whole Life Policy
or combine in with another type policy.
4.Money Back Policy:
These policies are structured to provide sums required as anticipated
expenses (marriage, education etc) over a stipulated period of time.
With inflation becoming a big issue, companies have realized that
sometimes the money value of the policy is eroded. That is why with
profit policies are also being introduced to offset some of the losses
incurred on account of inflation.
A portion of the sum assured is payable at regular intervals. On
survival the remainder of the sum assured is payable.
In case of death, the full sum assured is payable to the insured.
The premium is payable for a particular period of time.
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Annuities and Pension:
In annuity, the insurer agrees to pay the insured a
stipulated sum of money periodically. The purpose of an annuity is toprotect
against risk as well as provide money in the form of pension at regular
intervals. Over the years, insurers have added various features to basic
insurance policies in order to address specific needs of a cross section of
people.
How to Buy or Sell it?
There are thousands of insurance brokers and
banks across North America. Keep in mind that you will usually have to pay
a commission for the salesperson
Strengths:
Life insurance provides excellent peace of mind it eases concerns
about what will happen to your loved ones if you die suddenly.
A life insurance policy is a relatively low risk investment
Weaknesses:
If you live a long life, your family likely wont get the full value out
of your policy.
Cash value funds can fluctuate depending on the financial markets.
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The task of data collection begins after a research problem
has been defined and research design/plan chalked out. While deciding about
the method of data collection to be used for the study, the researcher should
keep in mind two types of data viz., primary and secondary.
1.Primary data:
The primary data are those which are collected afresh and for
the first time, and thus happen to be original in character
In this primary data collection method has two types of methods that are
1.Observation method:
The observation method is the most commonly used
method especially in studies relating to behavioral sciences. In a way wewill
observe things around us, but this sort of observation is not scientific
observation. Observation becomes a scientific tool and the method of data
collection for the researcher
2.Interview method:
The interview method of collecting data involves
presentation of oral-verbal stimuli and reply in terms of oral-verbal
responses. This method can be used through personal interviews and, if
possible, through telephone interviews
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2.Secondary data:
Secondary data means data that are already available i.e., they
refer to the data which have already been collected and analyzed by
someone else.
Researcher must be very careful in using secondary data. He
must make a minute scrutiny because it is just possible that the secondary
data may be unsuitable or may be inadequate in the content of the problem
which the researcher wants to study.
By way of caution, the researcher, before using secondary
data, must see the possess following characteristics.
RELIABILITY OF DATA
SUITABILITY OF DATA
ADEQUASY OF DATA
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DATA COLLECTION
Equities, Bonds, Real Estate, Gold, Mutual Funds and Life
Insurance were identified as major types of investment decision.
Data is collected through primary data collection & secondary
data collection.
1.Primary data collection:
The information collected directly without any reference is
primary data. In the study it is mainly through conversation with concerned
officers or staff members either individually or collectively. The data
includes:
1. Conducting personal interviews with the officers of the company
2. Individual observations and inferences.
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3. From the people who are directly involved with the business transactions
of the firm.
2.secondary data collection:
The secondary data for the project regarding investment
and various investment decisions were collected from websites,
textbooks and magazines.
Equity returns at a glance:
If we have a look at equity returns of the past 7 years it is like this:
SENSEX:
YEAR INDIEX* ABSOLUTE PERCENTAGE (%)
2000 3972 0 0
2001 3262 -710 -17.88
2002 3377 115 3.52
2003 5838 2461 72.88
2004 6602 764 13.08
2005 9397 2795 42.34
2006 13786 4389 46.70
2007 13908 122 0.88
2008 20323 6415 31.57
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0
5000
10000
15000
20000
25000
2000 2001 2002 2003 2004 2005 2006 2007 2008
Interpretation:
From the above chart , it can be seen that during the period 2000-01 there is agradual decrease in the index value of the company and there is a ve value of
absolute & percentage value.During the period 2001-2008 it is gradually
increased in the index value of the company.
BSE100:
YEAR INDEX ABSOLUTE PERCENTAGE
2000 2032 0 0
2001 1559 -477 -23.38
2002 1664 107 6.88
2003 3076 1412 84.74
2004 3580 506 16.46
2005 4953 1373 38.32
2006 6982 2029 40.96
2007 7026 44 0.65
2008 9132 2106 23.06
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0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2000 2001 2002 2003 2004 2005 2006 2007 2008
Interpretation:
From the above chart , it can be seen that during the period 2000-01 there is a
gradual decrease in the index value of the company and there is a ve value of
absolute percentage value.During the period 2001-2008 it is gradually increased
in the index value of the company.
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BSE200 :
Interpretation:
From the above chart ,
it can be seen thatduring the period 2000-
01 there is a gradual
decrease in the index
value of the company
and there is a ve value of absolute & percentage value.During the period 2001-
2008 it is gradually increased in the index value of the company.
YEAR INDEX* ABSOLUTE PERCENTAGE (%)
2000 437 0 0
2001 340 -95 -21.96
2002 394 53 15.54
2003 766 372 94.41
2004 884 118 15.66
2005 1186 300 33.86
2006 1655 469 39.54
2007 1662 7 0.42
2008 2160 498 23.05
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0
500
1000
1500
2000
2500
2000 2001 2002 2003 2004 2005 2006 2007 2008
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BSE500 :
YEAR INDEX* ABSOLUTE PERCENTAGE
2000 1304 0 0
2001 1005 -299 -22.93
2002 1176 171 17.01
2003 2368 1192 101.20
2004 2779 413 17.46
2005 3795 1016 36.56
2006 5268 1473 38.86
2007 5295 25 0.47
2008 6883 1588 23.07
0
1000
2000
3000
4000
5000
6000
7000
8000
2000 2001 2002 2003 2004 2005 2006 2007 2008
Interpretation:
From the above chart , it can be seen that during the period 2000-01 there is agradual decrease in the index value of the company and there is a ve value of
absolute & percentage value.During the period 2001-2008 it is gradually
increased in the index value of the company.
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Gold returns at a glance:
The trend of gold prices in India in the last few years is given in the following table.
0
200
400
600
800
1000
1200
2000 2001 2002 2003 2004 2005 2006 2007 2008
Interpretation:From the above chart , it can be seen that during the period 2000-04 it is gradually
increased price value of the company and there is a +ve value of absolute &
percentage value.During the period 2005-2006 it maintained the same price level
of Rs 517 in ihe company.
YEAR PRICE ($)* ABSOLUTE PERCENTAGE (%)
2000 272 - -
2001 278 6 2.20
2002 346 68 24.46
2003 414 68 19.65
2004 438 24 5.79
2005 517 79 18.03
2006 517 79 18.03
2007 636 119 23.01
2008 995 359 36.08
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Mutual Funds return at a glance:
E Q U I T Y T A X S A V ING NAV 1 YR 2 YR 3 YR
Magnum Tax Gain 47.7 107.70 93.40 112.30
Principal Tax Savings 74.60 91.20 59.30 73.70
HDFC Tax Saver 138.50 104.60 83.60 91.60
0
20
40
60
80
100
120
140
160
NAV 1 YR 2 YR 3 YR
MAGNUM TAX
GAIN
PRINCIPAL TAX
GAIN
HDFC TAX
SAVER
Interpretation:
During the NAV period,HDFC tax saver has the highest value of 138.50 and
magnum tax gain has the lowest value of 47.7.In the same way in the 1st year
magnum tax gain has the highest value of 107.70 and Principal tax savings haslowest value of 91.20.In the 2nd year magnum tax gain has the highest value of
93.40 and principal tax savings has the lowest value of 59.30.In the 3rd year
magnum tax gaining has the highest value of 112.30 and HDFC tax saver has the
lowest value of 91.60.
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Equity balanced:
E Q U IT Y B A L A N C E DNAV 1 YR 2 YR 3 YR
Magnum Balanced32.4
074.60 53.40 63.70
Kotak Balanced 23.8
071.10 49.10 52.80
HDFC Prudential 96.3
061.80 42.90 55.90
0
20
40
60
80
100
120
NAV 1 YR 2 YR 3 YR
MAGNUM
BALANCED
KOTAK
BALANCED
HDFC
PRUDENCE
Interpretation:
During the NAV period,HDFC Prudential has the highest value of 96.30 and
Kotak Balanced has the lowest value of 23.80.In the same way in the 1st
yearmagnum balanced has the highest value of 74.60 and HDFC Prudential has lowest
value of 61.80.In the 2nd year magnum balanced has the highest value