Analysis of Investment Strategie1

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Analysis of investment strategies

Project ReportOn

ANALYSIS OF INVESTMENT

STRATEGIES

Submitted in Partial Fulfillment for the Award of the Diploma ofPost Graduate Diploma in Management

(Session 2009-11)

INSTITUTE OF MANAGEMENT STUDIES, NOIDA

A UGC Recognized InstituteA-8B, Plot C, Sector-62, Noida

Submitted to: Submitted By:SURABHI SINGH SHANTI SWAROOP MISHRA(Internal Guide) Roll No.-PGD09113

PGDM VI TrimesterSec-A

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DECLARATION

I, SHANTI SWAROOP MISHRA bearing Roll No PGD09113 of Class PGDM VI

TRIMESTER of the Institute of Management Studies, Noida hereby declare that the

Project Report-607 entitled ANALYSIS OF INVESTMENT STRATEGIES is an

original work and the same has not been submitted to any other Institute for the award

of any other diploma. The suggestions as approved by the faculty were duly

incorporated.

Countersigned

Signature of Faculty Guide SHANTI SWAROOP MISHRA

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ACKNOWLEDGMENT

I would like to begin with a special note of gratitude and heartfelt thanks to

Ms.Surabhi Singh my supervisor (faculty), who gave me the opportunity to complete

my market survey project report on analysis of investment strategies.

I am extremely grateful to my mentor Mr. Kaship Pandey and his constant

encouragement and valuable suggestions throughout my training and project for their

cooperation extended to me. I am extremely indebted to them for sharing their

valuable time, comments and encouraging suggestions which guided and inspired me

throughout the preparation of the project.

At last I want to thanks my Parents and family without whom I would not be able to

have courage and determination to do whatever I am planning in my professional as

well as personal life.

At last but not the least, I am very thankful to all the faculty members of PGDM also.

SHANTI SWAROOP MISHRA

ROLL NO. - PGD09113

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CONTENTS

SNo. PARTICULARS

PAGE

NO.

ACKNOWLEDGMENT 3

LIST OF FIGURESAND GRAPHS 5

CHAPTER1 INDUSTRY DETAILS 6-15

1.1 EXECUCTIVE SUMMARY 7

1.2 INVESTMENTS 8

1.3 INVESTMENT NEEDS OF AN INVESTORS 8-101.4 INVESTMENT PLANNING 11-13

1.5 INVESTMENT PROCESS 13-15

CHAPTER2 DETAILS OF INVESTMENT STRATEGIES IN INDIA 16-28

2.1 GOLD 17

2.2 STOCK MARKET 18

2.3 REAL ESTATE 18,19

2.4 MUTUAL FUND 19-262.5 ULIPs 26

2.6 FIXED DEPOSITS 27

2.7 GOVERNMENT BONDS 27

2.8 CORPORATE BONDS 27

2.9 MONEY BACK-INSURANCE 27

2.10 ENDOWMENT INSURANCE 28

CHAPTER

3 DATA ANALYSIS & INTERPRETATION 29-47CHAPTER4 RECOMMENDATIONS, CONCLUSION & FINDINGS 48-50

4.1 RECOMMENDATIONS 49

4.2 FINDINGS & CONCLUSION 49,50

5 BIBLIOGRAPHY 51


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Page 5

FIGURES, TABLE & GRAPHS

PARTICULARS PAGE NO.

FIGURE 1 9

FIGURE 2 14

FIGURE 3 20

FIGURE 4 22

GRAPH 1 30

GRAPH 2 31

GRAPH 3 32

GRAPH 4 33

GRAPH 5 34

GRAPH 6 35

GRAPH 7 36

GRAPH 8 37

GRAPH 9 38

GRAPH 10 39

GRAPH 11 40GRAPH 12 41

GRAPH 13 42

GRAPH 14 43

GRAPH 15 44

GRAPH 16 45

GRAPH 17 46

GRAPH 18 47


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CHAPTER 1

INDUSTRY DETAILS

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1.1 EXECUTIVE SUMMARY

In todays world of globalization and world of multinationals, a lot of opportunities

are available with the investors to invest their money in different investment avenues

like mutual funds, ULIPs, and real estate along with effective financial management.

For achieving the same, focused and specific knowledge in this particular stream is

required.

The outlook of a typical Indian investor needs to be changed from being a

conservative to a more dynamic approach.

And for the purpose banks are trying to lure the investors by educating and spreading

awareness among them through different modes of promotion. Banks provides an

opportunity to the investor to combat the problem of information overload and to use

the information in a more effective and efficient manner.

This project includes the study of different investment alternatives available to the

investors according to their risk bearing potential. A Survey was conducted to get the

primary data to judge the investors perception before investing in any of the

investment tools and thus to scrutinize the important aspects for the investors before

investing that further helped in analyzing the relation between the features of the

products and the investors requirements.

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1.2 INVESTMENTS

Savings form an important part of the economy of any nation. Income is either spent

or saved. With the savings invested in various options available to the people, the

money acts as the driver for growth of the country. Indian financial scene too

represents plethora of avenues to the investors.

An investment can be described as an asset that is purchased with the hope that it

will generate income or appreciate in the future. In an economic sense, an investment

is the procuring of the goods that are not consumed today but are consumed in the

future to generate wealth. In finance, investment is the purchase of a financial product

or item of value with an expectation of favorable future returns.

Investments, unlike works of art, cannot afford the luxury of experimenting. Investing

is not guesswork. It takes more than just a tip; it needs training to plan, instinct to

pick and sheer intellect to make it work for the investor. Human nature is fickle, his

wants keep changing. To achieve future goals one need to channelize the existing

resources and make fresh investments.

An investment can be described as perfect if it satisfies all the needs of the investors.

Most investors and advisors spend a great deal of time understanding the merits of the

thousands of investments available in India. Little time, however is spent

understanding the needs of the investor.

1.3 THE INVESTMENT NEEDS OF AN INVESTOR

The investment needs of an investor are basically his everyday life needs converted

into financial terms. These include the normal living expenses, accommodation,

rations, as well as education, health, recreation transport, special occasions like

marriages ,festivals etc.

These needs are defined over the rest of the life. These needs tend to remain the same

over the years. It is the current lifestyle and the lifestyle desired in future that

determines the stance of investors towards investments.

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Most of the investors have eight common needs from their investments:

(Fig-1)

Wealth accumulation: People make investments in order to accumulate

wealth. An individual is considered affluent who has accumulated substantial

wealth. Accumulated funds provide greater control over the selection of

investment options. As the wealth of an investor increases they wants to hold

an increasing share of their assets in the form of long term, higher return

instruments.

Comfort factor: This means how much you are comfortable, your peace of

mind while making an investment. Avoiding discomfort is probably a greater

need.

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Wealthaccumulation

Comfort

factor

Tax

efficiency

Preservationof capital

Life cover

Income

simplicity

Ease ofwithdrawal

Investors

need for

investments


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Tax efficiency: By minimizing the taxes, one can keep more investment

working for himself. Every rupee saved in taxes goes towards wealth addition.

Preservation of capital: The basic purpose of preserving the capital is to

prevent the loss of an investments total value. The investors must ensure that

their portfolio is producing return that is at least equal to inflation. This is

perhaps the strongest need of the investors, who have suffered often due to

failures.

Life cover: The investors look for investments that offer good return with the

adequate life cover in order to avoid uncertainties and eventualities.

Income: The ultimate need of each household is to earn a regular income by

investing their money at regular intervals. This will help them in meeting

regular everyday expenditure.

Simplicity: Investment instruments are fairly complex, but investors need to

understand what is being done with their money. A financial planner or

advisor should deliver simplicity to investors.

Ease of withdrawal: This refers to the withdrawal of the funds from the

investments as and when required. It is normally prompted by a need to spend

capital, or a need to change investments. Access to long term investment at

short notice can only be had at a considerable cost.

Perfect investment would have been achieved if all the above needs had been met to

satisfaction. But there is always a trade off involved in making investments.

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The Ideal Investment strategy should be a customized one for each investor depending

upon his risk appetite, his satisfaction level, return he is getting and his expectations.

Accurate investment planning gives accurate results.

1.4INVESTMENT PLANNING

Investment Planning involves identifying the financial goals and assets throughout the

life and prioritizing them. This will help in realizing the future goals. Investment

planning is important because it helps in deriving the maximum profit from the

investments. While planning for investment, it is important to establish clear financial

goals. It is also important to identify the resources required to achieve those goals and

the risk appetite which an individual is willing to undertake.

Investment Planning also helps to decide upon the right investment strategy. Besides

individual needs, investment strategy would also depend upon age, risk tolerance, rate

of inflation.

Investment Planning also helps in striking a right balance between risk and returns. By

prudent planning, it is possible to achieve an optimal mix of risk and returns that suits

particular needs and requirements.

Investment means putting the money to work to earn more money. Investing even a

small amount can produce considerable rewards over the long term, especially if

investing regularly. But one needs to decide how much he wants to invest and where

to invest.

SIX KEYS TO SUCCESSFUL INVESTING:

A successful investor maximizes gain and minimizes loss. There are six principles

that may help an investor in investing successfully.

LONG TERM COMPOUNDING : the nest egg may get bigger and

bigger :

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This is the ever mounting effect. Compounding gives earnings on the earnings

being reinvested. The longer the money is put into an investment avenue, the

greater the return one can get. The thing is that the money left alone in an

investment can earn significant return over time.

ENDURING SHORT TERM PAIN FOR LONG TERM GAIN: Riding

out market volatility :

The financial arena is very unpredictable; still, its important to remember two

things:

1. The diversified portfolio of investments helps in reducing the risk and

improving the opportunities for gain.

2. During any given period of market or economic turmoil, some categories of

assets or even some investments tend to be less volatile than. Thus one can

minimize risk by diversifying holdings among different classes of assets as

well as among different individual assets within each class

Asset Allocation : Spreading the wealth

Asset allocation is the process by which you spread your investment amount

over several categories of assets, usually referred to as asset class. These

classes includes stocks, bonds, cash (and equivalents), real estate and

insurance products. By dividing your investment amount among asset classes

that do not respond to the same market forces in the same way at the same

time, you can minimize the effects of market volatility while maximizing the

return in the long run.

Considering Liquidity :

Liquidity refers to how quickly you can convert an investment into cash

without the loss of principal. Liquidity needs must affect your investment

choices. E.g.: if you need money in next 1-3 years then invest in short term

bonds, certificates of deposits or savings account.

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Rupee cost averaging : Doing it consistently and often

Rupee cost averaging is the method of accumulating shares of stock or a

mutual fund by purchasing a fixed rupee amount of these securities at

regularly scheduled intervals over an extended time. When the price is high

your rupee investment will buy less but when the prices are low then the same

investment will buy more shares.

Review your portfolio: buy and hold , dont buy and forget

Your portfolios long term success will depend on periodically reviewing it.

1.5 THE INVESTMENT PROCESS:

As investors, we would like all like to beat the market handily, and we would all like

to pick great investments on instinct.

However, while intuition is undoubtedly a part of the process of investing, it is just

part of the process. As investors, it is not surprising that we focus so much of our

energy and efforts on investment philosophies and strategies, and so little on the

investment process.

It is far more interesting to read about how Peter Lynch picks stocks and what makes

Warren Buffet a valuable investor, than it is to talk about the steps involved in

creating a portfolio or in executing trades. Though it does not get sufficient attention,

understanding the investment process is critical for every investor for several reasons:

1. The investment process outlines the steps in creating a portfolio, and emphasizes

the sequence of actions involved from understanding the investors risk preferences toasset allocation and selection to performance evaluation.

2. The investment portfolio provides a structure that allows investors to see the source

of different investment strategies and philosophies.

3. The investment process emphasizes the different components that are needed for an

investment strategy to by successful, and by so doing explain why so many strategies

that look good on paper never work for those who use them.

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FIVE STEP INVESTMENT PLAN

Investment is a science, not an art; we suggest a five stage investment plan that may

be practiced by investors looking for multiplying their hard earned money.

Need Analysis and Profiling

Internalizing and Evaluating the

Available Avenues

Mapping and Matching the Profile

Designing an Optimum Portfolio

Continuous Monitoring and Portfolio

Management

(Fig-2)

The first step is performing a Need Analysis check. The requirements and

expectations of the investor should be determined. The needs should be separated

from the desires. The facts that should be taken into account are their age, profession,

number of dependents and their income. By doing this check, the risk profile of the

investor should be designed.

The next step would be internalizing the needs. Various investment options should be

analyzed. The risk-return profile of investment products is evaluated in this step.

Every investment product varies according to its return potential and riskiness.

Investments giving a high return are generally volatile and risky. The products giving

a lower rate of return usually are less risky. Therefore, all the available avenues

should be evaluated.

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The next step would be mapping the risk-return profile of the investor on to the

investment portfolio. The investment products are matched with the risk return profile

of the investors. All the investment alternatives that offer expected rate of return are

selected for consideration.

Then an optimum portfolio is designed for the investor. The basket of investment

avenues selected in the previous step are given due weightage and appropriate amount

of money is invested in each of the investment avenue so as to get the maximum

return with minimum possible risk.

Finally a continuous watch on the portfolio is extremely important. Fundamental

analysis of the investment products done would only help in selecting the right

product but the right time of entry or exit from a particular stream is evaluated by

doing a technical analysis.

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CHAPTER2

DETAILS OF INVESTMENT STRATEGIES IN INDIA

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INVESTMENT STRATEGIES IN INDIA :

A well-planned investment strategy is essential before having any investment

decisions. An investment strategy is centered on a risk-return tradeoff for a potential

investor. High return investment instruments such as real estate and mutual funds

usually have more risks associated with it than low return-low risk investment

opportunities.

2.1. GOLD: Gold continues to be the most popular form of investment from a verylong time. It had been a safe haven for Indian investors since ages. People prefer to

invest in gold because the returns are usually high and above all gold is a very famous

ornament. Even if they don't get good returns they wont face losses because their

cosmetic purposes will be served.

Some tend to posses gold even as a matter of prestige. It is regarded to be a good

source of investment as it controls inflations and even helps to raise finances in the

future.

Investing in gold is no doubt a profitable option as it can be quickly converted to cash.

It is a convenient as you can carry it easily wherever you go unless the quantity is

very high. Since the performance of gold market s directly proportional to stock

market it becomes easy to make calculations.

GOLD INVESTMENT STRATEGIES:

Investors need to be very careful before investing in gold because unlike stock and

other markets investor does not have the option of investing a small amount. So a lot

of research is done before allocating the amount.

Some investors buy gold when the price increases because of the popular

belief that it will increase furthermore and they can make profits by selling

them.

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Some investors buy gold when the price declines so that they can be sold at a

higher profit when the price increases.

2.2. STOCK MARKET:

Investing in a stock market is a complex and complicated task for the amateur or

average investor. Investing in the stock market requires a sound stock market

investing strategy. The focus of stock investing is on the return.

Stock market investing can be either conservative or aggressive. Thus it is always

preferred to weight the expected return against the risks that may be involved.

Indian stock markets particularly the BSE and the NSE, had been a preferred

destination not only for the Indian investors but also for the foreign investors.

TYPES OF STOCKS:

1. Common stock: Common stockis a form of corporate equity ownership, a type of

security.Common stock is what the majority of the public holds as individuals.

2. Preferred stock: Preferred stock actually has fewer rights than one get with

common stocks. Companies that have preferred stock will usually get first call on the

dividends ahead of common stock which means they are able to pay consistent

dividends. Preferred stock usually carries no voting rights.

2.3. REAL ESTATE:

Real estate investment involves the commitment of funds to property with an aim to

generate income through rental or lease and to achieve capital appreciation. Real

estate refers to immovable property, such as land, and everything else that is

permanently attached to it, such as buildings. When a person acquires real estate, s/he

also acquires a set of rights, including possession, control and transfer rights.

Investing in real estates involves lot of risks and at the same time it happens to be

lucrative if one is able to strike the right deal.

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The real estate industry in India is attracting huge investments. Private equity players

are facilitating large investments, banks are disbursing loans to builders, and financial

institutions are floating real estate funds. These funds have been disbursed by

investment bankers, banks, and housing finance companies in India. It is expected that

the cumulative investments by various groups into Indian real estate market could rise

to $1.5bn. Funds are giving returns to the tune of 16-20%.

Real Estate Investment: Rental

Investors allocate their money in real estate investment with an aim to rent the

property out to a tenant. The owner earns a continuous stream of rent from the tenant,

but is responsible for paying the mortgage, taxes and any costs associated with

maintaining the property. The owner also benefits from capital appreciation.

Real Estate Trading

Real estate traders hold properties for only a short span of time aiming to sell them at

a profit. This process is called flipping properties. Investors aim at purchasing

significantly undervalued properties. Such owners may or may not invest money into

improving the property before putting it back on sale. A bear market could result in

substantial losses for a real estate trader, since the investment is large.

2.4. MUTUAL FUNDS:

A mutual fund is an investment vehicle that comprises a pool of funds collected from

a large number of investors who invest in securities such as stocks, bonds, and short

term money market instruments. The portfolio of a mutual fund is structured and

maintained by fund managers. Investors have professional fund managers that invest

in the stock market collectively on behalf of investors.

Mutual Funds Investment has become a subject of great importance in the present

context, especially when all the investors are keen to diversify their investment to

maintain a balance between Investment Return and Investment Risk. Mutual Funds

Investment not only provides the customers with their much desired diversified

investment portfolio, but also offers the benefit of high liquidity. Investors are free to

sell their mutual fund shares any time to get the back the amount that was invested in

the mutual funds.

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ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organizational

setup of a mutual fund.

(Fig-3)

Mutual funds

Mutual fund is vehicle that facilitates a number of investors to pool their money and

have it jointly managed by a professional money manager

Sponsor

Sponsor is the person who acting alone or in combination with another body corporate

establishes a mutual fund. The Sponsor is not responsible or liable for any loss or

shortfall resulting from the operation of the Schemes beyond the initial contribution

made by it towards setting up of the Mutual Fund.

Trustee

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Trustee is usually a company (corporate body) or a Board of Trustees (body of

individuals). The main responsibility of the Trustee is to safeguard the interest of the

unit holders and ensure that the AMC functions in the interest of investors and in

accordance with the Securities and Exchange Board of India (Mutual Funds)

Regulations, 1996.

Asset Management Company (AMC)

The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund.

At least 50% of the directors of the AMC are independent directors who are not

associated with the Sponsor in any manner. The AMC must have a net worth of at

least 10 crores at all times.

Transfer Agent

The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer

Agent to the Mutual Fund. The Registrar processes the application form, redemption

requests and dispatches account statements to the unit holders. The Registrar and

Transfer agent also handles communications with investors and updates investor

records.

Mutual Funds Classifications

There are wide varieties of Mutual Fund schemes that cater to investor needs,

whatever the age, financial position, risk tolerance and return expectations. The

mutual fund schemes can be classified according to both their investment objective

(like income, growth, tax saving) as well as the number of units (if these are unlimited

then the fund is an open-ended one while if there are limited units then the fund is

close-ended).

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(Fig-4)

BY STRUCTURE

1. Open - Ended Schemes:

An open-end fund is one that is available for subscription all through the year. These

do not have a fixed maturity. Investors can conveniently buy and sell units at Net

Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.

2. Close - Ended Schemes:

A closed-end fund has a stipulated maturity period which generally ranging from 3 to

15 years. The fund is open for subscription only during a specified period. Investors

can invest in the scheme at the time of the initial public issue and thereafter they can

buy or sell the units of the scheme on the stock exchanges where they are listed. In

order to provide an exit route to the investors, some close-ended funds give an option

of selling back the units to the Mutual Fund through periodic repurchase at NAV

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

provided to the investor.

3. Interval Schemes:

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Interval Schemes are that scheme, which combines the features of open-ended and

close-ended schemes. The units may be traded on the stock exchange or may be open

for sale or redemption during pre-determined intervals at NAV related prices.

By investment objective:

Growth Schemes: Growth Schemes are also known as equity schemes. The aim of

these schemes is to provide capital appreciation over medium to long term. These

schemes normally invest a major part of their fund in equities and are willing to bear

short-term decline in value for possible future appreciation.

Income Schemes: Income Schemes are also known as debt schemes. The aim of these

schemes is to provide regular and steady income to investors. These schemes

generally invest in fixed income securities such as bonds and corporate debentures.

Capital appreciation in such schemes may be limited.

Balanced Schemes: Balanced Schemes aim to provide both growth and income by

periodically distributing a part of the income and capital gains they earn. These

schemes invest in both shares and fixed income securities, in the proportion indicated

in their offer documents (normally 50:50).

Money Market Schemes: Money Market Schemes aim to provide easy liquidity,

preservation of capital and moderate income. These schemes generally invest in safer,

short-term instruments, such as treasury bills, certificates of deposit, commercial

paper and inter-bank call money.

BY NATURE

1. Equity fund:

These funds invest a maximum part of their corpus into equities holdings. The

structure of the fund may vary different for different schemes and the fund managers

outlook on different stocks .Equity investments are meant for a longer time horizon,

thus Equity funds rank high on the risk-return matrix.

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2. Debt funds:

The objective of these Funds is to invest in debt papers. Government authorities,

private companies, banks and financial institutions are some of the major issuers of

debt papers. By investing in debt instruments, these funds ensure low risk and provide

stable income to the investors. Debt funds are further classified as:

Gilt Funds: Invest their corpus in securities issued by Government, popularly known

as Government of India debt papers. These Funds carry zero Default risk but are

associated with Interest Rate risk..

Income Funds: Invest a major portion into various debt instruments such as bonds,

corporate debentures and Government securities.

MIPs: Invests maximum of their total corpus in debt instruments while they take

minimum exposure in equities. It gets benefit of both equity and debt market. These

scheme ranks slightly high on the risk-return matrix when compared with other debt

schemes.

Short Term Plans (STPs): Meant for investment horizon for three to six months.

These funds primarily invest in short term papers like Certificate of Deposits (CDs)

and Commercial Papers (CPs). Some portion of the corpus is also invested in

corporate debentures.

Liquid Funds: Also known as Money Market Schemes, These funds provides easy

liquidity and preservation of capital. These schemes invest in short-term instruments

like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are

meant for short-term cash management of corporate houses and are meant for an

investment horizon of 1day to 3 months. These schemes rank low on risk-return

matrix and are considered to be the safest amongst all categories of mutual funds.

3. Balanced funds:

As the name suggest they, are a mix of both equity and debt funds. They invest in

both equities and fixed income securities, which are in line with pre-defined

investment objective of the scheme. These schemes aim to provide investors with the

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best of both the worlds. Equity part provides growth and the debt part provides

stability in returns.

Advantages of Mutual Funds:

1. Professional Management - The basic advantage of funds is that, they are

professional managed, by well qualified professional. Investors purchase funds

because they do not have the time or the expertise to manage their own portfolio. A

mutual fund is considered to be relatively less expensive way to make and monitor

their investments.

2. Diversification - Purchasing units in a mutual fund instead of buying individual

stocks or bonds, the investors risk is spread out and minimized up to certain extent.

The idea behind diversification is to invest in a large number of assets so that a loss in

any particular investment is minimized by gains in others.

3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a

time, thus help to reducing transaction costs, and help to bring down the average cost

of the unit for their investors.

4. Liquidity - Just like an individual stock, mutual fund also allows investors to

liquidate their holdings as and when they want.

5. Simplicity - Investments in mutual fund is considered to be easy, compare to other

available instruments in the market, and the minimum investment is small. Most AMC

also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with

just Rs.50 per month basis.

Disadvantages of Mutual Funds

1. Professional Management- Some funds doesnt perform in neither the market, as

their management is not dynamic enough to explore the available opportunity in the

market, thus many investors debate over whether or not the so-called professionals are

any better than mutual fund or investor himself, for picking up stocks.

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2. Costs The biggest source of AMC income is generally from the entry & exit load

which they charge from investors, at the time of purchase. The mutual fund industries

are thus charging extra cost under layers of jargon.

3. Dilution - Because funds have small holdings across different companies, high

returns from a few investments often don't make much difference on the overall

return. Dilution is also the result of a successful fund getting too big. When money

pours into funds that have had strong success, the manager often has trouble finding a

good investment for all the new money.

4. Taxes - when making decisions about your money, fund managers don't consider

your personal tax situation. For example, when a fund manager sells a security, acapital-gain tax is triggered, which affects how profitable the individual is from the

sale. It might have been more advantageous for the individual to defer the capital

gains liability.

2.5. ULIPs:

ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance

policy which provides a combination of risk cover and investment. The dynamics ofthe capital market have a direct bearing on the performance of the ULIPs. They are

remarkably alike to mutual funds in terms of their structure and functioning.

.

The allocated (invested) portionsof the premiums after deducting for all the charges

and premium for risk cover under all policies in a particular fund as chosen by the

policy holders are pooled together to form a Unit fund.

Investment returns from ULIP may not be guaranteed. In unit linked

products/policies, the investment risk in investment portfolio is borne by the

policy holder. Depending upon the performance of the unit linked funds chosen; the

policy holder may achieve gains or losses on his/her investments.

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2.6. FIXED DEPOSITS:

A fixed deposit account allows depositing money for a set period of time, thereby

earning a higher rate of interest in return. A fixed deposit gives higher rate of interest

than a savings bank account. These are generally a low risk prepositions as the

commercial banks are believed to return the amount due without default. By and large

these FDs are the preferred choice of risk averse Indian investors who rate safety of

capital and ease of investment above all parameters.

2.7. GOVERNMENT BONDS:

A government bond is a bond issued by a national government denominated in the

country's own currency. These are usually risk free bonds because the government

does not default in payments. It can raise taxes to redeem the bond at maturity. The

Central and State governments raise money from the market through a variety of

Small Saving Schemes like National Savings Certificates, Kisan Vikas Patra, Post

Office Deposits etc.

Interest rates offered by them are in the range of 7% - 9%.

2.8. CORPORATE BONDS:

Corporate bonds are issued by companies as a way of raising money to invest in the

business. Corporate bond is a promise to pay a specific sum of money at a fixed date

in the in the future along with the periodic payments of interest They often gives

higher return than the government or municipal bonds, because they are more risky.

Corporate bonds generally have a higher risk of default. Corporate bonds are traded

on major exchanges and are taxable. The bond holder receives interest payments and

the principal, usually repaid on a fixed maturity date.

2.9. MONEY BACK INSURANCE:

Insurance in India is mostly sold and bought as investment products. They are

preferred because of their benefits like life cover, tax savings and satisfactory returns.

This scheme provides for periodic payments of partial survival benefits as follows

during the term of the policy, as long as the policy holder is alive. If policy holder

does not pays his premiums on time, his insurance cover will lapse.

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2.10. ENDOWMENT INSURANCE:

Endowment insurance is equivalent of a savings scheme. Investors have to pay thepremiums for a particular term, and at maturity the accrued bonus and other benefits

are returned to the policyholder if he survives at maturity.

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CHAPTER 3

DATA ANALYSIS & INTERPRETATION

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their preference towards the traditional insurance plans with only 4.5%

investing in gold while 13.6% in FDs.

Majority of the higher age group people have invested in gold with the leastpreference towards capital market. It can be converted easily into cash as and

when required and involves low risk. This shows that people in higher age

groups have preference towards low risk instruments.

3. AGE AND TIME HORIZON

(Graph 3)

As per the survey conducted, younger age investors are investing for higher time

period. This may be because they want safety of their capital and are more focussed

towards their future.

55% of the investors in 35-45 years of age and majority of the investors in 4560

years of age are more inclined towards investing for 3-7years. The reason may be that

this period bring moderate returns with the moderate risk level.

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Investors in the high age group are investing for short durations from 1 to 3 years.

4. AGE AND INVESTIBLE INCOME

(Graph 4)

45 % people belonging to 20-35 years of age make low investments around, less than

15000 investments per month probably because of low income or low interest in

investments. Majority of the people belonging to the middle age group make their

monthly investments of somewhere between Rs 15000- 30000. Around 59 % of the

higher age people also make low investments per month.

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7. GOVERNMENT EMPLOYEE AND INVESTMENT

(Graph 7)

Insurance has become the most preferred and favored avenue among the government

employees because of their firm belief towards government insurance policies like

LIC.

This can be clearly seen from the above figure that only 12% people are investing in

ULIPs. So. People are still not aware about it or it doesnt seem to be attractive

enough for them.

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9. OCCUPATION AND INVESTIBLE INCOME

(Graph 9)

Respondents who belong to the business class seem to be more in favour of investing

Rs30000-Rs50000 per month . Almost 44% of the people belonging to the service

class invest Rs 15000- Rs30000 per month .however, some people i.e 42% belonging

to the same are investing upto Rs 50,000. Government employees seems to be more

in favour of investing Rs 30,000- Rs50,000.

Since retirees are very apprehensive while spending their money so, they invest very

less amount less than Rs15000 per month.

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10.GENDER AND INVESTMENTS :

(graph 10)

From this graph we can conclude that among the males the most preferred investment

option is Mutual fund and the next option preferred by them is ULIP. Among the

females the most favored mode of investments are ULIPs.

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11. RISK APPETITE OF THE INVESTORS

(Graph 11)

Out of all the people surveyed, 45% of the respondents prefer less risk oriented

investments as they have less risk appetite. 38% of the people prefer medium risk

investments while only 17% favoring high risk schemes.

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12. RISK AND TIME HORIZON :

(graph 12)

As it can be clearly seen from the above graph people whose risk bearing potential is

low are investing in the long term instruments like FD. This is because the higher the

time period of an instrument, the lesser the risk involved in it.

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ON THE BASIS OF ANNUAL INCOME :

14. HIGH RISK :

(Graph 14)

Out of all the people 54% of the people belonging to income group Rs L-5L are

willing to take high risk investments and get high returns.

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15. MEDIUM RISK

(graph 15)

Out of all the respondents belonging to the income group Rs 3L- Rs 5L, 45 % are

willing to take moderate level of risk and prefer moderate return and the low income

level group are least prefered in mderate risk instruments.

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16.LOW RISK :

(graph 16)

As per the survey conducted, almost 50% of the investments in low risk schemes

come from the people belonging to the income group Rs2L Rs3L and only 15%

investments coming from the higher income people.

50% of the retirees dont know what to do, they need advice.

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17. ANNUAL INCOME AND TIME HORIZON :

(Graph 17)

People earning less income invest upto 3 years only. People belonging to the higher

income group Rs3L-Rs5L and invest for the longer term upto 7 year .The people

belonging to the group of Rs5L to Rs 7L are investing for more than 7 years. The

reason being they want to spread their risk and settle their future so as to earn good

return on their investments.

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18. SATISFACTION FROM PAST RETURNS

(Graph 18)

Almost 67% of the people are satisfied from the past investments and have earned

good return on them. 21% of the investors are not satified from the past returns. They

either want to change their existing portfolio or do not want to invest further.

However 12% people are somewhat satisfied with the past returns.

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CHAPTER 4

RECOMMENDATIONS,

FINDINGS AND CONCLUSION

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4.1 RECOMMENDATIONS

Insurance company must spread their awareness regading ULIPs among the

people, as they are not aware about it ,which is the next alternative of mutualfund.

Banks must focus on the higher age population to sell their gold coins, through

personalised mail of their account holder, because they feel convenience due

to its liquidity and marketablity.

AMC must focus on low risk financial products to higher age people, as they

prefer safety to their investment rather than growth.

Insurance company should focus on the government employee as they need

safe investment, tax benefits & risk coverage.

4.2 FINDINGS & CONCLUSIONS

The findings of the study were that most of the people prefer to invest in

mutual funds than the ULIPs. This means that the mutual funds are hot selling

cake in the banking industry. There are still some people who are either not

aware of the ULIPs or either ULIPs plans doesnt seem to be attractive enough

for them.

Almost 30% of the people belonging to the higher age group have invested in

gold because of the liquidity, marketability and convenience.

Most of the people are investing for long term rather than short term gains.

Maximum number of respondents are doing investment to save their taxes

while most of the youger people are investing for aggressive growth

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People still lack in knowledge about mutual funds as people are still not

investing large percentage of their investments in mutual funds.

Maximum number of respondents are investing around Rs 15000 Rs 30000income per month in the investments.

As the age is increasing, the risk bearing potential of the respondents is

decreasing. 72% of high age respondents prefer low risk schemes they prefer

safety of their investment rather than growth.

Almost 67% of the people are satisfied from the past investments and have

earned good return on them .

Among the business class people are equally investing in ULIPs and mutual

funds while among the service people most favored investment avenue is

mutual fund which perfectly goes with their moderate risk and moderate return

attitude.

Insurance is still the front runner among the government employees.

Almost 45% of the people who are surveyed have low risk appetite .we can

conclude from the study that investors whose risk bearing capacity is low

invest in the long term instruments like FDs.

54% of the people belonging to the middle income group are willing to take

high risk investments and earn high returns.

Most of the people belonging to the service class have no further investment

plans . they do not want to invest in the current market scenario while business

and the government employees will invest only if they find it necessary for

them to invest.

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BIBLIOGRAPHY

Barber, Brad M., Terrance Odean, and Lu Zheng, 2005, Out of sight, out of mind: The

effects ofexpenses on mutual fund f lows, Journal of Business 78, 20952120.

Bergstresser, Daniel B., John M. R. Chalmers, and Peter Tufano, 2009, Assessing the

costs and benefits of brokers in the mutual fund industry, Review of Financial Studies,

forthcoming.

Websites :

www.amfiindia.com

www.federalreserve.gov

www.360financialliteracy.org

www.deal4investments.com

www.investopedia.com
http://www.amfiindia.com/http://www.federalreserve.gov/http://www.360financialliteracy.org/http://www.deal4investments.com/http://www.investopedia.com/http://www.amfiindia.com/http://www.federalreserve.gov/http://www.360financialliteracy.org/http://www.deal4investments.com/http://www.investopedia.com/

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