Chapter 8: Investment Products 1

CHAPTER 8

Investment Products and Markets: An Introduction

Chapter 8: Investment Products 2

FIXED INCOME INVESTMENTS Savings Account Post Office Savings Account Public Provident Fund Scheme National Savings Certificate Certificates Of Deposit Monthly Income Scheme Marketable Government Issues

Treasury Bills Cash Management Bills Certificates of Indebtedness Treasury Notes and Bonds Agency Issues

Chapter 8: Investment Products 3

Non-marketable Government Issues Dated Government Securities Special Securities

State Development Loans Inflation-protection Securities Capital-indexed Bonds Municipal Bonds

General Obligation Bonds Revenue Bonds

Public Sector Undertaking Bonds

FIXED INCOME INVESTMENTS (Contd.)

Chapter 8: Investment Products 4

FIXED INCOME SECURITIES (Contd.) Corporate Bonds

Debentures Guaranteed Bonds Mortgage Bonds Convertible Bonds Callable Bonds Junk Bonds Zero-Coupon Bonds

Bond Ratings Warrants & Rights Secured Premium Notes Commercial Paper

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TYPES OF PREFERRED STOCK

CumulativeConvertible ParticipatingCallable

Chapter 8: Investment Products 6

TYPES OF COMMON STOCK Blue Chip Non-blue Chip Growth Company Value Large-, Mid-, Small- cap Cyclical Company Defensive Income Speculative Unlisted Penny Miscellaneous

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MUTUAL FUNDS CLOSED-END

Issue a set number of shares and investors trade them on stock exchange

OPEN-END Create more shares when investors want

them

Chapter 8: Investment Products 8

MUTUAL FUNDS (Contd.)

ADVANTAGES Diversification Professional Portfolio Management Liquidity

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MUTUAL FUNDS (Contd.) TYPES OF MUTUAL FUNDS

Aggressive Growth Growth International/Global Growth and Income Fixed Income (Bond) Balanced/Equity Income Specialty/Sector Asset Allocation Money Market Index

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MUTUAL FUNDS (Contd.)

Fees and Expenses Load or Sales Charges Management Fees and Operating Expenses 52(4) and 52 (6) Fees Redemption Fees Trustee Fees

Expense Ratio Higher the ratio, better the manager must

perform to generate a desired return.

Chapter 8: Investment Products 11

READING MUTUAL FUND PROSPECTUS Investment Objectives and Policies Risk Factors Investment Restrictions Past Performance

Chapter 8: Investment Products 12

MUTUAL FUNDS FEES AND EXPENSES Load or Sales Charges Management Fees and Operating Expenses 52 (4) and 52 (6) Fees Redemption Fees Trustee Fees Expense Ratio Lock-in Period

Chapter 8: Investment Products 13

FEE REDUCTION STRATEGIES Select Right Asset Class Take Advantage of Fund Break Sign Letter of Intent Time the Liquidation Invest Fund Distributions Consolidate Investments Utilize Group Discounts Find a Seller

Chapter 8: Investment Products 14

MUTUAL FUND RATING SERVICES Morningstar India

Industry’s best resource for comprehensive, unbiased and accurate mutual fund information

Lipper India Leading global mutual fund information company analyzing

fund companies and financial intermediaries Standard & Poor’s

Leading global provider for mutual fund information and analysis

CRISIL Crisil has developed methodology based on global best practices Thomas Financial

Global provider of data, analysis, and information tools

Chapter 8: Investment Products 15

TRADITIONAL INDEX FUNDS Index funds hold shares in all the companies

that make up an index like S&P BSE 500 ADVANTAGES

Fewer Capital Gains Keeping Pace with Selected Index Painless Strategy

Lower Cost

Chapter 8: Investment Products 16

TRADITIONAL INDEX FUNDS (Contd.)

PITFALLS OF INDEX FUNDS Downside Risk Skewed Weighting Systems Divergence between Index Funds Tax Ramifications Narrow Focus Value Added by Money Managers Increased Volatility

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NEW HORIZON IN INDEX FUNDS iShares International Index Investing with

iShares Nifty Fifty Funds Exchange-traded Index Funds

Chapter 8: Investment Products 18

ANNUITY AND LIFEINSURANCE PRODUCTS Deferred Annuity Equity-Indexed Annuity Variable Life Insurance Variable Universal Life Unit-Linked Products

Chapter 8: Investment Products 19

SOPHISTICATEDINVESTMENT PRODUCTS

Real Estate Investment Trusts Investment Derivatives• Options• Option Spreads• Straddle, strip, strap, and strangle• Futures• Eurodollar Futures• Swaps

Chapter 8: Investment Products 20

SOPHISTICATED INVESTMENT PRODUCTS (Contd.) Short Selling Money Control Goldman Sachs Nifty Exchange-traded Scheme Goldman Sachs Liquid Exchange-traded

Scheme Goldman Sachs Gold Exchange-traded Scheme Exchange Traded Index Investing

Chapter 8: Investment Products 21

MARKET BENCHMARKS CNX NIFTY CNX NIFTY JUNIOR LIX 15 CNX 100 CNX 200 CNX 500 NIFTY MID-CAP 50 CNX MID-CAP INDEX CNX SMALL-CAP INDEX S&PBSE SENSEX S&P BSE 100 S&P BSE 200 S&P BSE 500 S&P BSE MID-CAP INDEX S&P BSE SMALL-CAP INDEX