PFP-Assignment by Anupam kumar

8/4/2019 PFP-Assignment by Anupam kumar

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Personal financial planning

Comparative analysis of three

investment alternatives



Introduction: - Comparative analysis is very important when anybody

decided to invest their money in financial market. As we all know that investment in financialmarket is very risky and according to the risk analysis where there high risk there will chance of high return also. In this regard comparative analysis is very important to take any financialdecision.

There are many investment options available for the people in the market, but there are mainly five

investment options, which are considered to be as most popular and most effective investment options

available in the current market scenario. In general, almost 95-98% people do invest in these, since the

Expected Rate of Return is much higher than any other investment options, irrespective of the amount of

risk is very high in some of the cases. These investment options are:

This investment option is most popular and safest option available in the market. With almost every

working people invest in fixed deposits; this investment option leads the chart of four investment options

because of its safety and popularity. Though the amount of return is much lesser than the other three

options, this option heads the table as it has almost no risk of losing the invested amount. Also, it is the

oldest among the other three, so the trust factor of people is very high.

In this study I have taken three financial investment alternatives for

comparative analysis which are as follows

1. Post Office Monthly Income Scheme 2011

2. Mutual fund-Motilal Oswal Assets Management Ltd

3. Fixed deposit



1. Post Office Monthly Income Scheme 2011

This scheme appeals to conservative investors with traditional values, and for good reason.

This scheme offers monthly income and is a safe, guaranteed-by-the-government option. For retirees, widows and others looking for a steady income, it can be ideal. The Post Office Monthly Income Scheme, or PO MIS, is offered by Indian Post Offices. A lumpsum amount is deposited with the post office and monthly interest earned each month is paid outto you. As the scheme is offered by post offices, it is backed by the government. Thus, the PO MIS isone of the safest investments available. Interest

The rate of interest offered on PO MIS is 8% per annum (year). Interest is paid out every month but direct credit to your bank account remains a problem as Post Offices are not thattechnologically advanced in India, as such one needs to go and collect the monthly income fromthe PO directly. However if you have a savings account in the same post office then interest can be credited directly to your account. A 5% bonus is paid on maturity of the fund, therefore, theeffective yield works out to 8.9% per year. The interest earned is fully taxable. There is no tax deducted at source (TDS). The investment inPO MIS is exempt from wealth tax. Who is eligible to invest?

Only individuals can invest in PO MIS. You can either open a single or joint account. A NonResident Indian (NRI) or Hindu Undivided Family (HUF) cannot open a PO MIS account. Investment Limit

There is an upper limit on investment in a PO MIS scheme. You cannot invest more than Rs 4.5Lakhs in a single account. If you invest jointly (2/3 names), the limit is Rs 9 Lakhs. Theminimum investment is Rs 1,500. Duration

The tenure of PO MIS is 6 years – your investment is locked in for this time period.

Number of AccountsAny number of accounts can be opened, but the total investment cannot exceed the upper limitacross all the accounts. Nomination

You can specify the nominee at the time of opening the account, or at any time later. Premature withdrawal, encashment, closure & Penalty



Premature withdrawal of the invested amount is allowed after 1 year of opening the account. If the account is closed between 1 and 3 years of opening, 2% of the deposited amount is deductedas penalty. If it is closed after 3 years of opening, 1% of the deposited amount is charged as penalty. The bonus amount is forfeited when you close the account early.Risk factor- generally these type of investment has no risk. The people who belong to middle or

lover middle class are invest in this scheme because they do not want to take risk on their financial investment

Impact of Budget 2011- there is no major impact of budget 2011 on these investment

alternatives. Because the interest rates was marginal increased and risk factor is remains constant

2. Mutual fund- Motilal Oswal Assets

Management Ltd

Mutual Funds are essentially investment vehicles where people with similar investment

objective come together to pool their money and then invest accordingly. Each unit of any

scheme represents the proportion of pool owned by the unit holder (investor).

Mutual Funds in India are financial instruments. These funds are collective investments which

gather money from different investors to invest in stocks, short-term money market financial

instruments, bonds and other securities and distribute the proceeds as dividends. The Mutual

Funds in India are handled by Fund Managers, also referred as the portfolio managers. The

Securities Exchange Board of India regulates the Mutual Funds In India. The share value of the

Mutual Funds in India is known as net asset value per share (NAV). The NAV is calculated on

the total amount of the Mutual Funds in India, by dividing it with the number of shares issuedand outstanding shares on daily basis.

MUTUAL FUNDS IN INDIA – ADVANTAGES:

• The Mutual Funds in India offer flexibility by means of dividend reinvestment,

systematic investment plans and systematic withdrawal plans.

• These funds are available in small units, so they are affordable to the small investors.

• The fees charged for to the custodial, brokerage and others services are very low in case

of Mutual Funds in India.

•

These funds have the option of redeeming or withdrawing money at any point of time.• The Mutual Funds in India have low risk as it is managed professionally.

Like most developed and developing countries the mutual fund cult has been catching on in India.

The important reasons for this interesting occurrence are:



• Mutual funds make it easy and less costly for investors to satisfy their need for capital

growth, income and/or income preservation.

• Mutual fund brings the benefits of diversification and money management to the individual

investor, providing an opportunity for financial success that was once available only to a select

few.

Understanding Mutual funds is easy as it's such a straightforward concept. A mutual fund is a

company that pools the money of many investors, its shareholders to invest in a variety of different

securities.

Investments may be in stocks, bonds, money market securities or some combination of these.

For the individual investor, mutual funds propose the benefit of having someone else manage your

investments and diversify your money over many different securities that may not be available or

affordable to you otherwise. A mutual fund, by its very nature, is diversified -- its assets are invested

in many different securities. Beyond that, there are many different types of mutual funds with

different objectives and levels of growth potential, furthering your odds to diversify.

Investing in mutual has various benefits, which makes it an ideal investment avenue.

Professional investment management :

Diversification :

A crucial element in investing is asset allocation. It plays a very big part in the success of any

portfolio. However, small investors do not have enough money to properly allocate their assets. Low Cost :

A mutual fund let's you participate in a diversified portfolio for as little as Rs.5, 000, and sometimes

less. Convenience and Flexibility :

Investing in mutual funds has its own convenience. While you own just one security rather than

many, you still enjoy the benefits of a diversified portfolio and a wide range of services. Fund

managers decide what securities to trade collect the interest payments and see that your dividends on

portfolio securities are received and your rights exercised. It also uses the services of a high quality

custodian and registrar. Another big advantage is that you can move your funds easily from one fundto another within a mutual fund family.

Liquidity :- In open-ended schemes, you can get your money back promptly at net asset value

related prices.

Transparency :-Regulations for mutual funds have made the industry very transparent. You can

Benefits of mutual

funds:



track the investments that have been made on your behalf and the specific investments made by the

mutual fund scheme to see where your money is going. In addition to this, you get regular

information on the value of your investment.

Variety: - There is no shortage of variety when investing in mutual funds. You can find a mutual

fund that matches just about any investing strategy you select. There are funds that focus on blue-

chip stocks, technology stocks, bonds or a mix of stocks and bonds. The greatest challenge can be

sorting through the variety and picking the best for you.

Mutual fund risks:

Having understood the basics of mutual funds the next step is to build a successful

investment portfolio. Before you can begin to build a portfolio, one should understand

some other elements of mutual fund investing and how they can affect the potential

value of your investments over the years. The first thing that has to be kept in mind is

that when you invest in mutual funds, there is no guarantee that you will end up with

more money when you withdraw your investment than what you started out with.

That is the potential of loss is always there. Even so, the opportunity for investment

growth that is possible through investments in mutual funds far exceeds that concern

for most investors. Here's why.

At the cornerstone of investing is the basic principal that the greater the risk you take,the greater the potential reward. Risk then, refers to the volatility -- the up and down

activity in the markets and individual issues that occurs constantly over time. This

volatility can be caused by a number of factors -- interest rate changes, inflation or

general economic conditions. It is this variability, uncertainty and potential for loss,

that causes investors to worry. We all fear the possibility that a stock we invest in will

fall substantially. Different types of mutual funds have different levels of volatility or

potential price change, and those with the greater chance of losing value are also the

funds that can produce the greater returns for you over time. You might find it helpful

to remember that all financial investments will fluctuate. There are very few perfectly

safe havens and those simply don't pay enough to beat inflation over the long run.

Motilal Oswal mutual fund

Motilal Oswal Mutual Fund is one of the leading asset management schemes of India and is



managed by Motilal Oswal Asset Management Company Ltd. Motilal Oswal Mutual Fund is

sponsored by Motilal Oswal Securities Limited which was founded in the year 1987 and since then,

it has flourished as a major financial company with its core ethics of focus on customer first attitude,

ethical and transparent business practices and research based value investing. The company has an

expert team of investment professional who will guide you to the best investment solutions. The

financial firm offers a wide selection of financial products and services such as Wealth Management,

Broking & Distribution, Commodity Broking, Portfolio Management Services, Institutional Equities,

Private Equity, Investment Banking Services and Principal Strategies.

Motilal Oswal MOSt Shares M50 ETF

OBJECTIVES:-

Motilal Oswal MOSt Shares M50 ETF (MOSt Shares M50) seeks investment return thatcorresponds (before fees and expenses) generally to the performance of the MOSt 50 Basket(Underlying Basket), subject to tracking error.

Structure: - Ended Exchange Traded Fund

Inception Date: July 27, 2010

Face Value (Rs/Unit):- Rs 10

Minimum Investment: Rs. 10,000 and in multiples of Re. 1 thereafter.

Entry Load: Nil

Exit Load: Nil.

Latest NAV

Scheme Name NAV (Net

AssetValue)

Repurchas

e Price

Sale Price Date

MOSt Shares M50 70.2042 70.2042 70.2042 07-Sep-2011

Motilal Oswal MOSt Shares Midcap 100 ETF



Objective: -Motilal Oswal MOSt Shares Midcap 100 ETF (Most Shares M100) seeks

investment return that corresponds (before fees and expenses) to the performance of CNX

Midcap Index (Underlying Index), subject to tracking error.

Structure: Open Ended Index Exchange Traded Fund

Inception Date: January 31, 2011

Face Value (Rs/Unit): Rs. 10


Entry Load: Nil.

Exit Load: Nil.

Latest NAV

Scheme Name NAV (Net

Asset

Value)

Repurchas

e Price

Sale Price Date

MOSt Shares M100 7.6040 7.6040 7.6040 07-Sep-2011

Motilal Oswal MOSt Shares NASDAQ-100 ETF

Objective: - Motilal Oswal Most Shares NASDAQ-100 ETF (Most Shares NASDAQ 100)

seeks investment return that corresponds (before fees and expenses) generally to the performance

of the NASDAQ-100 Index, subject to tracking error.

Structure: Open Ended Index Exchange Traded Fund

Inception Date: Rs. 10


Entry Load: Nil

Exit Load: Nil.

Latest NAV

Scheme Name NAV (Net Repurchas Sale Price Date



Asset

Value)

e Price

Motilal Oswal MOSt Shares NASDAQ-

100 ETF (MOSt Shares NASDAQ 100)99.8579 99.8579 99.8579 07-Sep-2011

Target - Motilal Oswal Asset Management, a Mumbai-based exchange-traded fund boutique

specialist and subsidiary of Motilal Oswal Securities, is targeting overseas institutional investors

with its India ETFs.

The company is focusing on these investors with two India-focused ETFs: the Motilal Oswal

Most Shares M50 ETF, launched in June 2010, and the Motilal Oswal Most Shares Midcap 100

ETF, launched in January.

The Most Shares M50 ETF is based on the Standard & Poor’s CNX Nifty 50, which includes 50

of around 1,300 companies listed on India’s National Stock Exchange. Those 50 stocks capture

around 60% of that index’s market capitalisation. The fund had Rs1,860bn ($41m) in assets as of

end-April and has the largest investors’ base, estimated at 14,000, among all the ETFs in India.

The Most Shares Midcap M100 ETF is based on the CNX (Crisil NSE 50 Index) Midcap Index.

The fund has Rs1.190bn in assets as of end-April. Crisil stands for the Credit Rating Information

Services of India Limited, while the NSE stands for the National Stock Exchange of India. The

two formed a joint venture index service provider called the India Index Services and Products

Ltd. Both the S&P CNX Nifty 50 and the CNX Midcap Index are developed and maintained by

IISL.

India’s ETF business is still in its initial stage. Only around 1% of the total assets in mutual funds

is invested in ETFs, lower than 6% in the US and 3.5% in Europe, Rakesh says. Only around 1%

of India’s total population has depositary accounts, the owners of which could trade securities

and ETFs.

There were 25 ETFs listed on the Bombay Stock Exchange and 20 listed on the National Stock

Exchange of India, as of May 16.

Motilal Oswal’s major competitor, Benchmark Asset Management, was acquired by Goldman

Sachs Asset Management in March, as reported.

Motilal Oswal also runs portfolio management services, or managed account services, for 5,000

high-net-worth clients, with aggregate assets under management of 350m. All the managed

accounts are invested in long-only equities. The company also provides sub advisory services to

some offshore funds investing in India. It is a sub advisor to Gemini Most India Fund, a Units

Fund launched in February in the UK with about $10m in assets.



Impact of budget 2011- In his budget speech, our Finance Minister has said “Currently,

only FIIs and sub-accounts registered with the SEBI and NRIs are allowed to invest in mutualfund schemes. To liberalize the portfolio investment route, it has been decided to permit SEBI-registered Mutual Funds to accept subscriptions from foreign investors who meet KYCrequirements for equity schemes. This would enable Indian Mutual Funds to have direct access to

foreign investors and widen the class of foreign investors in Indian equity market.”

After being at the receiving end of rapid regulatory changes, these indeed point to better times,especially because overseas investors are expected to be mature and therefore longer term in their orientation especially considering that the long-term India growth story remains intact.

However, I would stop just short of popping the champagne because aspects like KYC, incometax and investor caps have yet to be unraveled.

Having said that, the industry should begin with obtaining approvals from overseas regulators sothat it can exploit this very substantial opportunity.

Now for the not-so-bad news which seems to have had wider coverage.

The Section 115(r) of the Income Tax Act has been amended so that with effect June 1, 2011 all‘persons’ other than an individual or a Hindu Undivided Family (HUF) will now on be subjectedto Dividend Distribution Tax (DDT) at 30 percent instead of 20 percent on income distributed bydebt funds defined by SEBI as money market & cash funds and to DDT at 30 percent instead of 25 percent on other debt funds. This change therefore, only impacts investors in the dividendoption.

However, with effect April 1, 2011 the surcharge of 7.50 percent has been reduced to 5.0 percentwhich reduces the impact to around 3 percent and 6 percent in the case of cash and other debtfunds respectively.

There is no change in the position of individuals or HUFs (DDT at 12.5 percent on cash funds

and 25 percent on other debt funds).

3.Fixed deposit as a investment alternatives

1. Fixed deposits offered by Banks:

Considered as the safest of all options, banks have been the roots of the financial systems in

India. Promoted as the means of social development, banks in India have indeed played an

important role in not only urban areas, but also in rural upliftment. For an ordinary person

though, banks have acted as the safest avenue wherein a person deposits money and earns

interest on it. The two main modes of investment in banks, savings accounts and fixed

deposits have been effectively used by one and all.



However, today the interest rate structure in the country is headed southwards, keeping in line

with global trends. With the banks offering just above in their fixed deposits for one year, the

yields have come down substantially in recent times. Add to this, inflammatory pressure in

the economy and we have a position where the savings are not earning. The inflation is

creeping up almost 8% at times, this means the value of money saved goes down instead of

going up. This effectively mars any chance of gaining investments from the banks.

Banks in India can be categorized into non-scheduled banks and scheduled banks. Scheduled

banks constitute of commercial banks and co-operative banks. There are about 67,000

branches of Scheduled banks spread across India. During the first phase of financial reforms,

there was a nationalization of 14 major banks in 1969.

As far as the present scenario is concerned the banking industry is in a transition phase. The

Public Sector Banks (PSBs), which are the foundation of the Indian Banking system account for more than 78 per cent of total banking industry assets.

On the other hand the Private Sector Banks in India is witnessing immense progress. They are

leaders in Internet banking, mobile banking, phone banking, ATMs. On the other hand the Public

Sector Banks are still facing the problem of unhappy employees. There has been a decrease of 20

percent in the employee strength of the private sector in the wake of the Voluntary Retirement

Schemes (VRS).

List of the banks and their fixed deposit rates:

Name of the Banksnnn Fixed deposit

rates

ABN AMRO Bank 5-6.75%

Allahabad Bank 5.5-6%

Andhra Bank 5.5-6%

Axis Bank 6.5-7.3%

Bank of Baroda 6-7%Bank of India 6.75-7%

Barclays Bank 5-5.5%

Canara Bank 7-7.5%

Citi Bank 4.25-4.5%

Corporation Bank 5-5.5%

Dena Bank 6.75-7.5%

Deutsche Bank 3-4.5%



Dhanalakshmi Bank 6.5-8%

Federal Bank 6.5-7.5%

HDFC Bank 5.5-7%

Hongkong Sanghai Banking Corp.

Ltd.

8-8.75%

ICICI Bank 5.25-7.5%IDBI Bank 7-7.75%

Indian Overseas Bank 6-7.5%

Indusind Bank 7-8.25%

ING Vysya Bank 5.75-7.75%

Jammu and Kashmir Bank 5.5-6%

Karnataka Bank 7-8%

Karur Vysya Bank 7-8.25%

Kotak Mahindra Bank 6-7%

Oriental Bank of Commerce 5.5-6%

Punjab National Bank 5.5-6.5%SBI 6.25-7%

Standard Chartered Bank 4.5-7.25%

State Bank Of B&J 6.75-7.5%

State Bank of Hyderabad 6.5-7.5%

State Bank of Indore 6.75-7.5%

State Bank of Mysore 6.5-7.25%

State Bank of Travankore 4.25-5.75%

Syndicate Bank 7-7.5%

UCO Bank 6.5-7%

Union Bank of India 5.50%United Bank Of India 6.5-7.5%

Vijaya Bank 5.5-6%

YES Bank 7.25-7.75%

Source: various bank’s websites

2. Fixed deposits offered by Post Offices:

Just like banks, post offices in India have a wide network. Spread across the nation, they offer

financial assistance as well as serving the basic requirements of communication. Among allsaving options, Post office schemes have been offering the highest rates. Added to it is the fact

that the investments are safe with the department being a Government of India entity. So the two

basic and most sought features, those of return safety and quantum of returns were being

handsomely taken care of.



Though certainly current market position is not the most efficient systems in terms of service

standards and liquidity; these have still managed to attract the attention of small, retail investors.

However with the government investing its intention of reducing the interest rates in small

savings options, this avenue is expected to lose some of the investors. Public Provident Funds act

as options to save for the post retirement period for most people and have been considered good

option largely due to the fact that returns were higher than most other options and also helped

people gain from tax benefits under various sections. This option too is likely to lose some of its

sheen on account of reduction in the rates offered.

3. Company fixed deposits:

Another oft-used route to invest has been the fixed deposit schemes floated by companies.

Companies have used fixed deposit schemes as a means of mobilizing funds for their options and

have paid interest on them. The safer a company is rated, the lesser the return offered has been

the thumb rule.

However, there are several potential roadblocks are there.

Firstly, of all the danger of financial positions of the company not being understood by the

investor lurks. The investors rely on intermediaries who more often than not, don’t reveal the

entire truth.

Secondly, liquidity is a major problem with the amount being received months after the due

dates. Premature redemption is generally not entertained without cuts in the returns offered and

though they present a reasonable option to counter interest rate risk (especially when the

economy is headed for a low interest regime), the safety of amount has been found lacking. Many

cases like the Kuber Group and DCM Group fiascoes have resulted in low confidence in this

option.

Risk Factor- in this alternative the risk factor is very low

Impact of budgets 2011- Due to budget 2011 the fixed deposit rates are slightly

changed between 0.25%-1.00%.



Conclusion

There are allots of investment alternatives are available for investors to choose a medium for

their financial investment. Those who are ready to take high risk are getting high return. The

government securities and fixed deposits are the investment alternatives where there is no risk or

risk is very low and investment in mutual funds and equity market are very risky compare to

fixed deposits but returns are very high. So people should always careful about their investment

decisions and must analyze the risk factor and their benefits and returns. The following

comparable graph and table shows that returns of share markets and fixed deposits or gold.

Investment options Returns per annum

Stock market 17%Bank fixed deposits 9%Gold 5.7%

The people invest in share market bcz-------

Historically shares have outperformed all the other investment instruments and given the

maximum returns in the long run. In the twenty-five year period of 1980-2005 while the other



instruments have barely managed to generate returns at a rate higher than the inflation rate

(7.10%), on an average shares have given returns of about 17% in a year and that does not even

take into account the dividend income from them. Were we to factor in the dividend income as

well, the shares would have given even higher returns during the same period.

Suggestions

The followings are the suggestion should be must analyze before taking

financial investment decisions

How to predict market risk?It is difficult to predict market risks. The only thing we can say here is that start noticing all the

small signs early. If the election results are feared to lead to a fall in the stock market, notice the

signals beforehand. Read Sebi's bulletins and track companies whose shares prices are very

volatile.

How people can minimize their risk and maximize their return?

Buy when stocks are falling, sell when these are rising. This works well when you are a long-

term investor and there is an extended bear or Bull Run. Don't try to second guess or predict that

the market will fall today and rise tomorrow. Even seasoned investors cannot do that!

2. Don't try to guess the market's favorites

Your instincts might tell you that pharma or technology stocks are hot due to certain policies or

events, but remember millions of investors have already guessed that and bought these stocks.

The prices of these stocks would therefore be at a higher level when you buy them. Instead focus

on the long term and don't get swayed by short-term events.

3. Aim for the long haul

Short-term investing is prone to higher risks. When investing in stocks, aim to get good returns

after a period of three to five years at the minimum. Also churn your portfolio periodically and based on the progress that a company makes in a quarter or in six months, decide whether to hold

the stock or get out of it.

4. Avoid hot tips



You may have overheard some news about a stock or your friend may advise that a particular

stock is all geared to move up. Avoid such tips like the plague and your investments will remain

safe.

5. Blue-chips are safe bets

Blue-chip companies are there because they have done well in the past and have a high market

capitalization. It is a likely guess that they will maintain their track record and give you higher

returns even in future. Therefore invest in companies that have a good track record.

6. Slow and steady stream of investments

Set aside a certain portion of your earnings every month and invest that sum in shares

irrespective of the market conditions. This way, over a period of time you can amass a substantial

number of shares of the stocks in your portfolio.

7. Think portfolioDon't put all your earnings in a single stock. Try to have a diverse portfolio of stocks. This way

even if one stock doesn't do well, you are still well protected. Also invest across sectors, since

any problem in one sector would affect all stocks in the sector. As a thumb rule, if you have

investments of up to Rs50, 000 invest in two to three stocks. For about Rs150, 000 invest in three

to five stocks, for around Rs500, 000 have five to seven stocks and around ten stocks for higher

amounts.

8. Don’t invest all your savings

Always maintain a core set of reserves. You should never touch these reserves for investing, so

that even in the worst case you still have some money. Typically these reserves should be your salary of about six months.

9. Be level-headed

Invest wisely, don't get swayed by rumors and allow Sharekhan to be your guide at all times.

Investment success won't happen overnight, so avoid overreacting to short term market swings.

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