MODULE - IIMODULE - II 14 Hrs 14 Hrs

Investment optionsInvestment options:: company shares,company shares, debentures, bonds,debentures, bonds, convertible securities,convertible securities, hybrid securities, hybrid securities, Fixed deposits,Fixed deposits, Gilt- edged securities,Gilt- edged securities, Post office schemes, Post office schemes,

Company and public Company and public provident funds, provident funds,

Unit trust of India, Unit trust of India, LIC, and insurance LIC, and insurance

schemesschemes Real estate, Real estate,

Investments attributes:Investments attributes: Various investments Various investments

means available in India,means available in India, characteristics features of characteristics features of

financial instruments,financial instruments, Types of financial assets Types of financial assets

and instruments, and instruments, Risk, return, security, Risk, return, security,

maturity, and optional maturity, and optional features. features.

Finance vs. investments- Finance vs. investments- interactive decision interactive decision elements.elements.

THE SPECTRUM OF THE SPECTRUM OF INVESTMENTS: INVESTMENTS:

BANK DEPOSITS\ COMMERCIAL

PAPERS\DEPOSITS\

DEBENTURES \BONDS

BANK DEPOSITS\ COMMERCIAL

PAPERS\DEPOSITS\

DEBENTURES \BONDS

LIFE INSURANCE\POST OFFICE

SAVINGS \OTHER TAX SAVINGS

LIFE INSURANCE\POST OFFICE

SAVINGS \OTHER TAX SAVINGS

REAL ESTATE\PRECIOUS OBJECTS\PRIVATE LENDINGS

REAL ESTATE\PRECIOUS OBJECTS\PRIVATE LENDINGS

MUTUAL FUNDS\ FINANCIAL

DERIVATIVES

MUTUAL FUNDS\ FINANCIAL

DERIVATIVES

EQUITY PREFERENCE SHARES \

EQUITY PREFERENCE SHARES \

INVESTMENT OPPORTUNITIES IN

INDIA

INVESTMENT OPPORTUNITIES IN

INDIA

What are the investment options What are the investment options available?available?

There are several investment instruments available, There are several investment instruments available, some of which are - Fixed Income securities, Mutual Funds, some of which are - Fixed Income securities, Mutual Funds,

Direct Equity, Equity through IPOs, Equity through Direct Equity, Equity through IPOs, Equity through Derivatives, Gold, etc. Derivatives, Gold, etc.

Depending up on your financial goal, age, awareness about Depending up on your financial goal, age, awareness about each instrument and risk appetite, each instrument and risk appetite,

you could choose the right mix.you could choose the right mix.•     Fixed Income InstrumentsFixed Income Instruments•     Mutual FundMutual Fund•   Direct EquityDirect Equity•   Equity through Equity through IPOsIPOs•   Equity through DerivativesEquity through Derivatives•   GoldGold

Fixed Income InstrumentsFixed Income Instruments

IntroductionIntroduction  Fixed Income Securities – Risk free – Fixed Income Securities – Risk free –

A MythA Myth

Characteristics of fixed income Characteristics of fixed income instruments instruments 

Popular Fixed Income InstrumentsPopular Fixed Income Instruments• Bank depositsBank deposits• Company depositsCompany deposits• RBI BondsRBI Bonds• Small saving schemes Small saving schemes

INTRODUCTIONINTRODUCTION If you will ask a cross-section of the investor If you will ask a cross-section of the investor

community, one characteristic which an investment community, one characteristic which an investment should offer, “safety” will top the list. should offer, “safety” will top the list.

By and large, investors are willing to settle for “fixed” By and large, investors are willing to settle for “fixed” and resultantly lower returns as long as their invested and resultantly lower returns as long as their invested capital is safe.capital is safe.

Fixed income investments attempt to address this Fixed income investments attempt to address this need of the investors. need of the investors.

INTRODUCTIONINTRODUCTION

Before the year 2000, fixed income instruments used to carry high Before the year 2000, fixed income instruments used to carry high interest rates (in excess of 10 per cent) mainly due to scarcity of interest rates (in excess of 10 per cent) mainly due to scarcity of capital and high inflation rates prevailing in India. capital and high inflation rates prevailing in India.

With the opening up of the Indian economy, flow of foreign funds in With the opening up of the Indian economy, flow of foreign funds in India, consistently high savings of Indian investors, declining India, consistently high savings of Indian investors, declining inflation and several other economic factors.inflation and several other economic factors.

Interest rates started declining from the year 2000 onwards from a Interest rates started declining from the year 2000 onwards from a high of approximately 12 per cent in late 1990’s they came down to high of approximately 12 per cent in late 1990’s they came down to approximately 6 per cent in 2005!approximately 6 per cent in 2005!

FIXED INCOME INSTRUMENTS FIXED INCOME INSTRUMENTS RISK FREE – A MYTHRISK FREE – A MYTH

Though, fixed income instrument do offer an element Though, fixed income instrument do offer an element of safety and stability of returns, they are not risk free.of safety and stability of returns, they are not risk free.

The two primary risks associated with fixed income The two primary risks associated with fixed income investing are: investing are:

Interest rate riskInterest rate risk Credit RiskCredit Risk

Interest Rate Risk:Interest Rate Risk: When interest rates rise, fixed income When interest rates rise, fixed income

investments lose value. investments lose value.

This is because the investor will continue to earn This is because the investor will continue to earn the same (lower) interest rate until the the same (lower) interest rate until the investment matures while market interest rates investment matures while market interest rates have already gone up. have already gone up.

In order to compensate for a lower interest rate In order to compensate for a lower interest rate compared to the market rate, the fixed income compared to the market rate, the fixed income investment will thus have to be priced at a lower investment will thus have to be priced at a lower rate. rate.

For example, if a Rs 100 bond is fetching 7 per cent interest For example, if a Rs 100 bond is fetching 7 per cent interest and market rates have moved to 9 per cent, the bond will and market rates have moved to 9 per cent, the bond will now be worth 77.8 per cent of its face value (coupon rate of now be worth 77.8 per cent of its face value (coupon rate of 7 per cent divided by market rate of 9 per cent multiplied 7 per cent divided by market rate of 9 per cent multiplied by 100), i.e. Rs 77.8 (77.8 per cent of the face value of Rs by 100), i.e. Rs 77.8 (77.8 per cent of the face value of Rs 100). 100).

Thus, if the bond is sold at this price, the new investor will Thus, if the bond is sold at this price, the new investor will earn 9 per cent from this bond.earn 9 per cent from this bond.

Credit Risk:Credit Risk: This risk herein is that the borrower may default on interest This risk herein is that the borrower may default on interest

and/or principal repayment. and/or principal repayment.

For example, a company borrowing fixed deposits from For example, a company borrowing fixed deposits from investors may default on servicing its obligations (interest investors may default on servicing its obligations (interest and/or principal repayment) in case it is going through a bad and/or principal repayment) in case it is going through a bad patch.patch.

Characteristics of fixed income Characteristics of fixed income instrumentsinstruments

Some of the characteristics which fixed income instruments offer are: Some of the characteristics which fixed income instruments offer are:

Fixed interest rate:Fixed interest rate:Fixed income instruments offer a pre-determined rate of return which is Fixed income instruments offer a pre-determined rate of return which is applicable for the term of the investment.applicable for the term of the investment.

Fixed term:Fixed term:

Fixed income instruments come with a fixed investment term. Fixed income instruments come with a fixed investment term.

Depending on the instrument you may have the facility of undertaking a Depending on the instrument you may have the facility of undertaking a pre-mature withdrawal. pre-mature withdrawal.

Normally there is a directly proportional relationship between interest rate Normally there is a directly proportional relationship between interest rate and tenure, longer the tenure higher the interest rate.and tenure, longer the tenure higher the interest rate.

COMPOUNDINGCOMPOUNDING::Simply put, in compounding, the interest that you Simply put, in compounding, the interest that you earn on the fixed income gets re-invested and earn on the fixed income gets re-invested and earns interest. earns interest.

In other words ‘interest earns interest’. In other words ‘interest earns interest’.

A cumulative fixed deposit is a perfect example of A cumulative fixed deposit is a perfect example of compounding at work. compounding at work.

As and when the interest accrues on the deposit, it gets re-As and when the interest accrues on the deposit, it gets re-invested to earn further interest. invested to earn further interest.

POPULAR FIXED INCOME POPULAR FIXED INCOME INSTRUMENTSINSTRUMENTS

Fixed income instruments mainly Fixed income instruments mainly include include • Bank Fixed Deposits, Bank Fixed Deposits, • Company Fixed Deposits, Company Fixed Deposits, • RBI Bonds And RBI Bonds And • Post Office Small Savings Scheme Post Office Small Savings Scheme

(POSS). (POSS).

Bank DepositsBank Deposits These are by far one of the core fixed income These are by far one of the core fixed income

opportunities available for the retail investor. opportunities available for the retail investor.

Investment term:Investment term:Bank deposits can be placed for flexible time Bank deposits can be placed for flexible time periods. periods.

The minimum and maximum tenure of these The minimum and maximum tenure of these deposits varies from bank to bank. deposits varies from bank to bank.

Generally, the minimum term of such deposits is 7 Generally, the minimum term of such deposits is 7 days and maximum is 10 years days and maximum is 10 years

Bank DepositsBank Deposits Returns: Returns:

Normally, interest rates on deposits differ from bank to bank Normally, interest rates on deposits differ from bank to bank and are dependent upon the investment tenure of the and are dependent upon the investment tenure of the deposit. (6-10%)deposit. (6-10%)

Bank deposits are mainly of two types Bank deposits are mainly of two types • – – Non-cumulative and cumulative deposits.Non-cumulative and cumulative deposits.

Under the former, interest accumulated on the deposit is paid Under the former, interest accumulated on the deposit is paid out to the deposit holder after specified intervalsout to the deposit holder after specified intervals

whereas in the case of the latter, interest accrued on the whereas in the case of the latter, interest accrued on the deposit is re-invested in the deposit at the pre-determined deposit is re-invested in the deposit at the pre-determined rate of interest. rate of interest.

The interest is then made available to the deposit holder at The interest is then made available to the deposit holder at the end of the term.the end of the term.

Bank DepositsBank Deposits

Risk: Risk:

Since these deposits are provided by banks, they entail a Since these deposits are provided by banks, they entail a minimum level of risk. minimum level of risk.

Moreover, these deposits are insured with the Deposit Moreover, these deposits are insured with the Deposit Insurance and Credit Guarantee Corporation (DICGC) for Rs Insurance and Credit Guarantee Corporation (DICGC) for Rs 1 lakh per deposit which further enhances the safety of these 1 lakh per deposit which further enhances the safety of these instruments.instruments.

Bank DepositsBank Deposits

Liquidity: Liquidity:

Bank deposits allow a great deal of liquidity Bank deposits allow a great deal of liquidity since you can undertake premature since you can undertake premature withdrawals. withdrawals.

In case of a premature withdrawal, you will In case of a premature withdrawal, you will receive interest at the rate applicable for the receive interest at the rate applicable for the term for which the deposit is maintained. term for which the deposit is maintained.

Bank DepositsBank Deposits Tax implications:Tax implications:

For interest income exceeding Rs 5000 in a year on For interest income exceeding Rs 5000 in a year on deposits, banks deduct tax at source (TDS) at 10.2 per cent deposits, banks deduct tax at source (TDS) at 10.2 per cent (10 per cent tax plus 2 per cent surcharge). (10 per cent tax plus 2 per cent surcharge).

Further investments in these deposits, offer a tax rebate Further investments in these deposits, offer a tax rebate under section 80 C of the Income Tax Act up to a maximum under section 80 C of the Income Tax Act up to a maximum of Rs 1 lakh. of Rs 1 lakh.

For claiming the tax benefit, you need to fulfill two For claiming the tax benefit, you need to fulfill two conditions – the deposit is to be kept with a scheduled bank conditions – the deposit is to be kept with a scheduled bank and the term of this deposit should be greater than or equal and the term of this deposit should be greater than or equal to 5 years. to 5 years.

Company DepositsCompany Deposits Certain government companies, manufacturing Certain government companies, manufacturing

companies and Non-banking Finance Companies companies and Non-banking Finance Companies (NBFCs) are authorised by the RBI to issue fixed (NBFCs) are authorised by the RBI to issue fixed deposits to the public.deposits to the public.

These deposits are raised by the companies in order These deposits are raised by the companies in order

to fund their business activities, expansion plans, to to fund their business activities, expansion plans, to provide for capital expenditure etc. provide for capital expenditure etc.

Like bank deposits, even these deposits can be placed Like bank deposits, even these deposits can be placed for a fixed tenure and at a pre-determined rate of for a fixed tenure and at a pre-determined rate of interest. interest.

Company DepositsCompany Deposits Investment tenure: Investment tenure:

Company deposits can be placed for a period ranging from 6 Company deposits can be placed for a period ranging from 6 months to 5 years.months to 5 years.

Returns:Returns:Interest rates on these deposits are based on two factors – the Interest rates on these deposits are based on two factors – the term of the deposit and the credit rating given to the deposit term of the deposit and the credit rating given to the deposit scheme.scheme.

This rating summarizes the company’s ability to repay the This rating summarizes the company’s ability to repay the principal and interest amounts of the deposit upon maturity to principal and interest amounts of the deposit upon maturity to the deposit holder.the deposit holder.

Company DepositsCompany Deposits

On the basis of safety and credit quality of these deposit On the basis of safety and credit quality of these deposit programs, the rating agency assigns either of the following programs, the rating agency assigns either of the following grades: ‘AAA’, ‘AA+’, ‘AA’, ‘AA-’, ‘A+’, ‘A’, ‘A-’, ‘BBB+’, grades: ‘AAA’, ‘AA+’, ‘AA’, ‘AA-’, ‘A+’, ‘A’, ‘A-’, ‘BBB+’, ‘BBB’, ‘BBB-’, ‘BB+’, ‘BB’, ‘BB-’, ‘B+’, ‘B’, ‘B-’, ‘C’ and ‘BBB’, ‘BBB-’, ‘BB+’, ‘BB’, ‘BB-’, ‘B+’, ‘B’, ‘B-’, ‘C’ and ‘D’ wherein ‘AAA’ signifies utmost safety and low risk; ‘D’ wherein ‘AAA’ signifies utmost safety and low risk; whereas grades below ‘BB’ entail greater degrees of risk and whereas grades below ‘BB’ entail greater degrees of risk and are prone to default. are prone to default.

Higher the rating, lower will be the interest rate.Higher the rating, lower will be the interest rate.

The deposit term, credit rating and type of company are The deposit term, credit rating and type of company are determinants of the interest rate on these deposits. determinants of the interest rate on these deposits.

Company DepositsCompany Deposits

Risk:Risk:

Though these deposits offer higher returns as compared to Though these deposits offer higher returns as compared to bank deposits, they are unsecured in nature. bank deposits, they are unsecured in nature.

In case of a default on the part of the company, the deposit In case of a default on the part of the company, the deposit holder has no way of recovering his money back. The only holder has no way of recovering his money back. The only recourse available is to approach the requisite grievance recourse available is to approach the requisite grievance redressal agencies.redressal agencies.

Company DepositsCompany Deposits

Liquidity:Liquidity: Most companies do not permit premature withdrawal Most companies do not permit premature withdrawal from these deposits and hence these instruments are from these deposits and hence these instruments are highly illiquid. highly illiquid.

However, some banks extend loan facilities against However, some banks extend loan facilities against these deposits.these deposits.

Company DepositsCompany Deposits

Tax implications:Tax implications:

Income earned on company deposits Income earned on company deposits attract tax at personal income tax attract tax at personal income tax rate applicable to you. rate applicable to you.

RBI BondsRBI Bonds RBI Relief Bonds are issued by the Reserve Bank of RBI Relief Bonds are issued by the Reserve Bank of

India and are a popular tax-saving tool. India and are a popular tax-saving tool.

These bonds are currently available under two These bonds are currently available under two options – an 8 per cent bond which is taxable and a options – an 8 per cent bond which is taxable and a 6.5 per cent tax-free bond. 6.5 per cent tax-free bond.

A number of banks such as the UTI, SBI etc. A number of banks such as the UTI, SBI etc. undertake the distribution of such bonds on behalf of undertake the distribution of such bonds on behalf of the RBI. the RBI.

RBI BondsRBI Bonds Investment tenure: Investment tenure:

Maturity period of the 8 per cent RBI Bond is 6 years and for Maturity period of the 8 per cent RBI Bond is 6 years and for the 6.5 per cent RBI Bond is 5 yearsthe 6.5 per cent RBI Bond is 5 years

Returns:Returns: As the name suggests, the 8 per cent RBI Bonds carry an 8 per As the name suggests, the 8 per cent RBI Bonds carry an 8 per cent per annum rate of interest and the 6.5 percent bonds cent per annum rate of interest and the 6.5 percent bonds provide a 6.5 per cent annual interest rate. Interest on such provide a 6.5 per cent annual interest rate. Interest on such bonds is compounded half-yearly.bonds is compounded half-yearly.

Risk:Risk:RBI is the central governing bank of our country and therefore RBI is the central governing bank of our country and therefore these bonds carry zero risk since they are issued by the these bonds carry zero risk since they are issued by the government.government.

RBI BondsRBI Bonds Liquidity: Liquidity:

• The 8 per cent bonds cannot be encashed prior to their The 8 per cent bonds cannot be encashed prior to their maturity. maturity.

• However, the 6.5 percent tax-free savings bond can be However, the 6.5 percent tax-free savings bond can be redeemed after a minimum lock-in period of 3 years from the redeemed after a minimum lock-in period of 3 years from the date of issue. date of issue.

• Also, these are non-tradable securities and therefore cannot Also, these are non-tradable securities and therefore cannot be sold on the debt market.be sold on the debt market.

Tax implications:Tax implications:For the 6.5 per cent bond, interest received is For the 6.5 per cent bond, interest received is completely exempt from income tax. But, for the 8 completely exempt from income tax. But, for the 8 percent RBI relief bond, interest is taxable according to percent RBI relief bond, interest is taxable according to the personal income tax rate applicable to you. the personal income tax rate applicable to you.

Small saving schemesSmall saving schemes

The Post Office Savings Schemes (POSS) are a popular The Post Office Savings Schemes (POSS) are a popular savings destination as they offer guaranteed returns and are savings destination as they offer guaranteed returns and are risk-free as they are backed by the government. risk-free as they are backed by the government.

Name of the Scheme

TenureRate of Return per

annumLiquidity* Tax applicable

National Saving Certificates

6 years 8.16% LowBenefits of Section

80 C applicable.

Kisan Vikas Patras 8 years 7 months 8.40% Low

Returns added to your income and taxed accordingly.

Post Office Time 1 Year 6.25% to Low Returns

Deposit2 years, 3 years or 5

years

7.5% depending on the duration of the deposit

 

Returns added to your income and taxed accordingly.

Post Office Recurring Deposit

5 Year 7.45% Low

Returns added to your income and taxed accordingly.

Post Office Monthly Income Plan

6 Year 8% Low

Returns added to your income and taxed accordingly.

Mutual FundMutual Fund A Mutual Fund is a trust that pools the savings of a A Mutual Fund is a trust that pools the savings of a

number of investors who share a common financial number of investors who share a common financial goal. goal.

The money thus collected is invested by the fund The money thus collected is invested by the fund manager in different types of securities depending manager in different types of securities depending upon the objective of the scheme. upon the objective of the scheme.

These could range from shares to debentures to These could range from shares to debentures to money market instruments. money market instruments.

The income earned through these investments The income earned through these investments and the capital appreciation realized by the and the capital appreciation realized by the scheme are shared by its unit holders in scheme are shared by its unit holders in proportion to the number of units owned by proportion to the number of units owned by them. them.

Mutual Fund Process

Mutual FundsMutual Funds More specifically,More specifically,

NAV = (Market value of the fund's investments + NAV = (Market value of the fund's investments + Current assets + Accrued income) - Current Current assets + Accrued income) - Current Liabilities - Accrued Expenses / (Total Number of Liabilities - Accrued Expenses / (Total Number of units outstanding)units outstanding)

Investors who wish to purchase or sell units of a Investors who wish to purchase or sell units of a mutual fund after the scheme is fully functional must mutual fund after the scheme is fully functional must do so at a price that is linked to the NAV.do so at a price that is linked to the NAV.

Mutual FundsMutual Funds FORMATION OF A MUTUAL FUNDFORMATION OF A MUTUAL FUND: :

The domestic mutual fund industry is governed by the The domestic mutual fund industry is governed by the Securities and Exchange Board of India, Securities and Exchange Board of India,

Mutual Fund regulations and the Indian Trusts Act, 1882. Mutual Fund regulations and the Indian Trusts Act, 1882.

A mutual fund is constituted as a public trust created under the A mutual fund is constituted as a public trust created under the Indian Trusts Act, 1882 and has a three tier structure, in order Indian Trusts Act, 1882 and has a three tier structure, in order to prevent potential conflicts of interest. to prevent potential conflicts of interest.

The three main entities are the Sponsor, the Board of Trustees The three main entities are the Sponsor, the Board of Trustees and the Asset Management Company (AMC).and the Asset Management Company (AMC).

The Sponsor The Sponsor

The sponsor of a mutual fund is the promoter The sponsor of a mutual fund is the promoter who establishes a mutual fund and gets it who establishes a mutual fund and gets it registered with SEBI. The sponsor also forms registered with SEBI. The sponsor also forms a ‘trust’ and appoints a Board of Trustees to a ‘trust’ and appoints a Board of Trustees to ensure that the mutual fund adheres to all the ensure that the mutual fund adheres to all the rules and regulation framed by the regulator. rules and regulation framed by the regulator.

Mutual FundsMutual Funds The TrusteesThe Trustees

The Board of Trustees is responsible for protecting investors’ The Board of Trustees is responsible for protecting investors’ interests and ensuring that the fund operates within the regulatory interests and ensuring that the fund operates within the regulatory framework. framework.

The trustees appoint bankers, custodians and depositories, transfer The trustees appoint bankers, custodians and depositories, transfer agents and lastly, and most importantly, the AMC (if authorized by agents and lastly, and most importantly, the AMC (if authorized by the Trust Deed) that plays a very critical role when it comes to the Trust Deed) that plays a very critical role when it comes to achieving the objectives of the mutual fund.achieving the objectives of the mutual fund.

The trustees are responsible for ensuirng that the AMC has proper The trustees are responsible for ensuirng that the AMC has proper systems and procedures in place and has appointed key personnel systems and procedures in place and has appointed key personnel including Fund Managers and Compliance Officer. including Fund Managers and Compliance Officer.

The AMCThe AMC

Under the broad supervision and direction of Under the broad supervision and direction of the trustees the Asset Management Company the trustees the Asset Management Company (AMC) acts as the investment manager of the (AMC) acts as the investment manager of the trust. The AMC charges a fee for the services trust. The AMC charges a fee for the services that it renders. The trustees delegate the task of that it renders. The trustees delegate the task of floating schemes and managing corpuses to floating schemes and managing corpuses to AMCs, who are investment experts. AMCs, who are investment experts.

MUTUAL FUND PROCESS

ADVANTAGES OF MUTUAL FUNDS

Professional Management Diversification Convenient Administration Return Potential Low Costs Liquidity Transparency Flexibility Choice of schemes Tax benefits Well regulated

Category : Equity - Tax Planning        

Scheme Name Assets Size   3 Mnths 1 Yr

  Rs. Crore Date Rtn. (%) Rtn. (%)

Magnum Tax Gain Scheme (D) 2406.7 Aug-31-07 15.78 48.94

Magnum Tax Gain Scheme (G) 2406.7 Aug-31-07 15.79 48.94

Reliance Tax Saver (ELSS) Fund - (G) 1858.4 Aug-31-07 15.13 37.83

HDFC Tax Saver Fund (G) 1200.82 Aug-31-07 11.94 32.87

Fidelity Tax Advantage Fund (G) 907.86 Jul-31-07 12.66 43.84

HDFC Long Term Advantage Fund (G) 780.76 Aug-31-07 9.27 29.36

ICICI Pru Tax Plan - (G) 708.97 Aug-31-07 8.26 12.73

Franklin India Taxshield - (G) 469.18 Aug-31-07 16.15 36.3

Birla Sun Life Tax Relief '96 422.34 Aug-31-07 18.34 53.1

UTI-Equity Tax Savings Plan (G) 333.7 Aug-31-07 18.07 34.44

Kotak ELSS (G) 281.43 Aug-31-07 9.51 52.4

Sundaram BNP Paribas Tax Saver (G) 234.89 Aug-31-07 18.85 46.16

HSBC Tax Saver Equity Fund (G) 219.28 Aug-31-07 11.44 0

Principal Tax Saving Fund 218.15 Aug-31-07 10.1 53.36

DSP ML Tax Saver Fund (G) 174.53 Aug-31-07 16.43 36

ABN AMRO Tax Advantage Plan (ELSS) (G) 167.68 Aug-31-07 15.28 40.37

Tata Tax Saving Fund 149.85 Aug-31-07 8.71 34.86

Birla Equity Plan (G) 139.45 Aug-31-07 11.59 0

Principal Personal Tax saver Fund - (G) 76.53 Aug-31-07 16.64 69.95

Lotus India Tax Plan (G) 57.82 Aug-31-07 17.52 0

ATTRIBUTES

BANK DEPOSITS

SHARES BONDS AND DEBENTURES

MUTUAL FUNDS INSURENCE

PROVIDENTFUND

POSTOFFICE

SAVINGS

REALESTATE

RATE OF RETURN

LOW HIGH MODERATE MODERATE LOW LOW LOW HIGH

RISK LOW HIGH HIGH MODERATE LOW NIL NIL HIGH

SAFETY HIGH LOW LOW LOW HIGH HIGH HIGH MODERATE

MARKETABILITY

NIL HIGH HIGH MODERATE NIL NIL HIGH HIGH

TAX SHELTER LOW NIL NIL SIGNIFICANT

HIGH HIGH HIGH NIL

LIQUIDITY HIGH HIGH MODERATE MODERATE MODERATE

MODERATE

HIGH MODERATE

CONVINIENCE HIGH LOW LOW MODERATE HIGH HIGH HIGH LOW

Company Name (3yr. 31-8-07) Open Close Change % Returns

  A B B 151.09 1286 1134.91 751.15

  B H E L 287.28 2040.7 1753.42 610.35

  Bharti Airtel 145.2 960.4 815.2 561.43

  Larsen & Toubro 437.68 2837.05 2399.37 548.2

  Sterlite Inds. 118.16 760.3 642.14 543.45

  Siemens 234.68 1355.15 1120.47 477.45

  Reliance Inds. 402.64 2320.2 1917.56 476.25

  ACC 267.25 1188.5 921.25 344.71

  S A I L 45.3 201.4 156.1 344.59

  H D F C 606.9 2496.6 1889.7 311.37

  St Bk of India 473.55 1886 1412.45 298.27

  HDFC Bank 398.1 1433.3 1035.2 260.04

  ICICI Bank 295.25 1029.25 734 248.6

  M & M 218.38 752.25 533.87 244.47

  Ambuja Cem. 44.49 145.15 100.66 226.25

  Grasim Inds. 1126.1 3426.95 2300.85 204.32

  Tata Power Co. 309.7 854.55 544.85 175.93

  Tata Steel 288.7 794.6 505.9 175.23

  Maruti Suzuki 367.25 976.25 609 165.83

  V S N L 169.5 447.8 278.3 164.19

TAX BENEFITS AND TAX BENEFITS AND IMPLICATIONS OF INVESTING IN IMPLICATIONS OF INVESTING IN

MUTUAL FUNDSMUTUAL FUNDS The dividend distributed by both debt funds and equity funds is The dividend distributed by both debt funds and equity funds is

tax-free in your hands. tax-free in your hands.

In case of equity funds, no dividend distribution tax is payable In case of equity funds, no dividend distribution tax is payable by the mutual fund. by the mutual fund.

However, in the case of debt funds, the mutual fund has to pay a However, in the case of debt funds, the mutual fund has to pay a Dividend Distribution Tax (DDT) of 14.025 per cent (12.5 per Dividend Distribution Tax (DDT) of 14.025 per cent (12.5 per cent tax + 2 per cent education cess + 10 per cent surcharge) on cent tax + 2 per cent education cess + 10 per cent surcharge) on the amount of dividend distributed to individuals. the amount of dividend distributed to individuals.

Direct EquityDirect Equity     Why Equities?Why Equities?     Investing Risks involvedInvesting Risks involved     Valuation approaches for picking stocksValuation approaches for picking stocks   Top-down and bottom-up approachesTop-down and bottom-up approaches

 The P/E yardstick The P/E yardstick Discounted cash flow (DCF) analysis Discounted cash flow (DCF) analysis Economic value added (EVA)-based investing Economic value added (EVA)-based investing

    Why monitor and review your direct equity Why monitor and review your direct equity investments?investments?

    Monitoring methodologies that can be Monitoring methodologies that can be adopted…adopted…

Why Equities?Why Equities? To earn higher returnsTo earn higher returns