1. SUMMER TRAINING REPORT
ON
“CHANGING PATTERN OF INVESTMENT
PREFRENCES’’- A STUDY OF RETAIL
INVESTORS IN LUDHIANA
With special reference to
In partial fulfillment of the
Degree of master of buissness administration
Submitted to
Ms. DEEPIKA ARORA
Faculty,PCTE
Submitted by
Anuradha Saini
MBA-2A session(2009-10)
University roll no. 94972238147
Punjab College of Technical Education, Baddowal, Ludhiana
Affilliated to Punjab technical University, Jalandhar
1

2. PREFACE
Although I have put in my best efforts to bring out a good
blend of my theoretical knowledge with the practicality of the Project,
however it is well said and proved that an individual can never be perfect.
Therefore, I look forward for any suggestions for which I would strive to
improve upon in future. However, I must say, this report is not the work
of excellence by scholar; it is a result of assignment to improve myself &
gain confidence. So there is chance of some mistakes, also a critical
appraisal by anyone will be heartily welcomed.
2

3. ACKNOWLEGEMENT
The summer Training Report is a result of cumulative effort of
over a period of one months in the course of which I have received
eternal inspiration and intellectual support from various sources. It is my
pleasure to express my great sense of gratefulness to all those who have
contributed richly to this project and has been conductive in making a
success.
On completion of my study, it gives me great pleasure in expressing my
indebtness to my revered guide Mr. Bikramjit Singh for his unstinted co-
operation, continuous encouragement, valuable guidance and support at
all stages of work.
My sincere thanks are also due to Ms. Deepika Arora for providing the
necessary departmental assistance and support.
I would be failing in my duty if I do not express my thanks to all my
family members, particularly to my father for their inspiration, moral
support and cooperation.
ANURADHA SAINI
3

4. EXECUTIVE SUMMARY
Management ideas without any action based on them mean nothing. That
is why practical experience is vital for any management studies.
Theoretical studies in the class room are not sufficient to understand the
functioning climate and the real problems coming in the way of
management. So, practical exposures are indispensable to such courses.
Thus, practical experience acts as a supplement to the classroom studies.
This report deals with “Changing Pattern of Investment
preferences – A study of retail investors in Ludhiana” has been
completed. I have learnt a lot of new things which could never been
learnt from theory classes.
Main objectives of this project is to find out the investment pattern of
investor’s in Mutual Fund & Life Insurance, to find out what factors
influence them more to choose a particular investment option, particular
company & to find out whether they are satisfied with their investment
decision or not.
In this study I used non-probability sampling technique and
collected data from primary and secondary source. In this study
descriptive research design is used. Area of study is Ludhiana. It is find
out that out of 100 people 60 invest their money while 40 do not invest at
all because of inadequate funds, lack of interest and lack of knowledge.
Majority of people invest their money in both Mutual Funds & Life
insurance .Majority of people take the investment decision on the basis of
brand name and track record and are satisfied from their decision.
4

5. CERTIFICATE-I
This is to certify that the project report title “Changing pattern of investment
preferences-a study of retail investors in Ludhiana” is submitted to Punjab College of
Technical Education, Baddowal in the partial fulfillment of the degree of Masters of
Business Administration of session (2009-2011) affiliated to Punjab Technical
University, Jalandhar is a bonafide research work carried on by Anuradha saini, roll
no 94972238147 in Money Matter Inc. as a summer trainee for six weeks under my
supervision. The assistance and help received during the course of investigation has
been fully acknowledged.
Major Advisor
Ms.Deepika Arora
Faculty Member
PCTE(Baddowal) Ludhiana
5

6. CERTIFICATE-II
This is to certify that the project report title “Changing pattern of investment
preferences-a study of retail investors in Ludhiana” is submitted to Punjab College of
Technical Education, Baddowal in the partial fulfillment of the degree of Masters of
Business Administration of session (2009-2011) affiliated to Punjab Technical
University, Jalandhar is a bonafide research work carried on by Anuradha saini, roll
no 94972238147 in Money Matter Inc. as a summer trainee for six weeks under my
supervision. The assistance and help received during the course of investigation has
been fully acknowledged.
Major Advisor
Mr.bikramjeet singh
(branch manager)
Money Matter Inc.
6

7. PART-A
Sr. No. Contents Page No.
1.1 Introduction of the topic 12
1.1.1 investment 12
1.1.2 investor 12
1.1.3 Types of investors 12-13
1.2 Introduction of company 13
1.3 Historical backround of the company 14
1.4 Money matter inc- key value differerentation 14
1.5 Mision and vision 14-15
1.6 Name and location of branches 15
1.7 products 15-16
1.8 In life insurance 16
1.9 In general insurance 16
1.10 markets 17
1.11 Top executives:
Money matter management team 17
1.12 Other relevant information 18
1.12.1 India- a key market for money matter inc. 18
1.12.2 Next five year goal 18
1.13 Introduction to particular branch 18
1.14 objectives 18
1.15 Their products 18-19
1.16 Their tie up with companies 19
1.17 Market served 20
1.18 Organization chart of the traning unit 20
1.18.1 positions 20
1.18.2 department 20
1.18.2.1 Heads of department 20
1.19 Objectives of sales department 21
1.20 Swot analysis of money matter 21
7

8. PART-B
Chapter Contents Page No.
no.
1 Introduction to topic 21-56
2. Review of Literature 56-63
Objective of study 63
Need of study 63
Limitations of study 63-64
3. Research Methodology 64-67
4. Data Analysis and Interpretation 68-88
5 Recommendation 89
Findings and results 90
Conclusion 91
Bibliography 92
Annexure 93-94
8

9. List of Figure and table:-
Table PARTICULARS PAGE NO.
no.
4.1 Showing the age of respondents 70
4.2 Showing the sex of respodents 71
4.3 Showing the income of respondents 72
4.4 Showing the occupation of respodents 73
4.5 Showing the qualification of respodents 74
4.6 Showing the marital status of respodents 75
4.7 Showing respondents having investment private vs govt. 76
sector.
4.8 Showing respondents prefer for field of investment. 77
4.9 Showing respondents having duration of investment 78
plans.
4.10 Showing the factors that effect the respondents 79
investment scheme
4.11 Showing respondents prefer investment funds 80
4.12 Showing respodents interested investment scheme. 81
4.13 Showing the environmental factors that effect the 82
respondents mutual fund investment.
4.14 Showing the types of communication modes that prefer 83
respondents for their portfolio investment.
4.15 Showing respondents prefer long term investment plans 84
4.16 Showing respondents taking different risk in investment 85
plans
9

10. List of Figure and table:-
Table PARTICULARS PAGE NO.
no.
4.17 Showing respondents use mutal fund before investment 86
4.18 Showing respondents taking inflation as a risk 87
4.19 Showing respondents taking stock market as a buying 88
opportunity in a down period
4.20 Showing investment having others investment policy. 89
4.21 Showing respondents shift one investment option to 90
others investment option.
10

11. 1.1 INTRODUCTION OF THE TOPIC
1.1.1 INVESTMENT
Investment or investing is a term with several closely-related meanings in
business management, finance and economics, related to saving or deferring
consumption. An asset is usually purchased, or equivalently a deposit is made
in a bank, in hopes of getting a future return or interest from it.
1.1.2 Investor
An investor is any party that makes an Investment.
However, the term has taken on a specific meaning in finance to describe
the particular types of people and companies that regularly purchase equity or
debt securities for financial gain in exchange for funding an expanding
company. Less frequently the term is applied to parties who purchase real
estate, currency, commodity derivatives, personal property, or other assets.
The term implies that a party purchases and holds assets in hopes of achieving
capital gain, not as a profession or for short-term income.
1.1.3 Types of investors
• Individual investors (including trusts on behalf of individuals, and
umbrella companies formed for two or more to pool investment funds)
• Collectors of art, antiques, and other things of value
• Angel investors, either individually or in groups
• Venture capital funds, which serve as investment collectives on behalf
of individuals, companies, pension plans, insurance reserves, or other
funds.
• Investment banks.
11

12. • Businesses that make investments, either directly or via a captive fund
• Investment trusts, including real estate investment trusts
• Mutual funds, hedge funds, and other funds, ownership of which may or
may not be publicly traded.
1.2 INTRODUCTION OF COMPANY
Money Matter Inc.
• A Company which believes in Customer Delight
• A Company that offers a Complete Basket of Financial Solutions.
• A Company with a belief of Changing the Finance Industry in India
MONEY MATTER What Investment Can Be
Money Matter Inc. take pleasure in introducing themselves as marketing and
Distribution Company for Various Financial Products. The major activities and
offerings of the company today are Equity broking, Portfolio Management
Services, Equity Analysis & Research, Distribution of Financial Products, etc.
Money matter are having a Corporate Tie-Ups with Various Companies
Like ICICI Prudential, HDFC Standard Life, Kotak Life Insurance, Aviva, Tata
Aig, LIC etc for life insurance business; Bajaj Allianz, Oriental, United, IFFCO
Tokyo, etc for General Insurance, and almost with all the Leading AMC’s in
India for mutual funds. To broaden the gamut of services offered to the
investors, the company has also recently added Credit Cards, Personal Loans,
Home Loans, and Auto Loans to its basket.
12

13. Money matter are opening their branches in Punjab and Rajasthan in the
first phase and are planning to open 20 branches across Punjab and Rajasthan
within a year. And for the same we are having openings at various levels in the
field of Marketing/Sales and HR.
1.3 Historical Background of the Group:-
Money Matter Inc. was started by Mr. Prem Pal Sharma in 2002 in Rajasthan. In
Rajasthan they work under the name of Money Matter Wealth Advisors Pvt. Ltd. It
has its head office in Delhi. It Has six branches in Rajasthan. In Punjab, Money
Matter Inc. start their services in 5th September 2008. Right now they have four
branches in Punjab. For Punjab Region they have their head office in Mohali
1.4 Money Matter Inc. - Key Value Differentiation
 Great Leadership
– Passionate, Balanced, Disciplined
 Customer-centric Business Models
– Relationship v/s Product Positioning
 Want to be a Leader in Commercial / SME, Mass Consumer &
Mass Self-employed segments
 Enabling management model and culture
 Empowerment within defined boundaries
 Embed the right values & behavior across the organization
1.5 vision and mission:
vision Enabling Success, Enriching Lives,
Spread Smiles
Mission To create superior
long-term shareholder value in
financial sectors across Emerging Markets
• Organic Growth
13

14. • Acquire and Transform
• Improve Productivity
• Optimize Capital
• Risk-Reward Balance
PILLARS Right Organizationa Processes Execution
people l Alignnt Discipline
Caring ; Honesty ; Passion to Excel ; Team Work ; Disciplined
values Professionalism
1.6 Name and location of braches
Locations:
– Mohali (Punjab)
– Sri Ganganagar (Rajasthan)
– AnupGarh (Rajasthan)
– Suratgarh (Rajasthan)
– Ramsinghpur (Rajasthan)
– Ludhiana (Punjab)
Upcoming Branches:
– Jalandhar (Punjab)
– NawanShahar (Punjab)
– Amritsar (Punjab)
– Jalandhar (Punjab
1.7 PRODUCTS
• Insurance
• Mutual Funds
• Share
14

15. • Corporate FD’s & Corporate Loans
• Portfolio Management Services
• Gold
• Bonds
1.8 IN LIFE INSURANCE
• Tata AIG
• Kotak Life Insurance
• Aviva Life Insurance
• ICICI Prudential
• LIC
• Bajaj Allianz
• Birla Sun Life
• HDFC Standard Life
• SBI
• Reliance Life
1.9 In General Insurance
• Tata AIG General Insurance
• Reliance General Insurance
• Bajaj Allianz General Insurance
• Royal Sundram
• United
• National
• Oriental
• New India
• Iffco Tokyo
15

16. • ICICI Lombard
• Star Health
1.10 Markets:-
Money Matter Inc. focuses Domestic Market only. They give their services mainly in
two states Rajasthan and Punjab.
1.11 TOP EXCUTIVES :
MONEY MATTER MANAGEMENT TEAM:
• Prem Pal Sharma, Chief Operating Officer
Experience: 24 yrs
Having a rich experience of working at various levels with various renowned
companies:
Dunlop India Ltd.: Manager Operations (for Gujrat, M.P, Punjab, J&K,
H.P,Chandigarh)
Marketing Manager- Industrial Products Division
Indag Rubber Ltd.: Manager Administration/ CFA- BDM
Gates India : Manager Sales
Birla Tyres Ltd.: Zonal Coordinator Logistics. (for Punjab, J&K, H.P.,
Haryana, U.P, & Delhi )
• Gaurav Sharma, Strategic Unit Head
Experience: 6yr 6 Months
Worked with ICICI Prudential Life Insurance Co. Ltd, Kotak Life
Insurance,
AVIVA Life Insurance.
Shallu, Head Administration & Finance- Strategic Unit
Experience : 7 yrs
Worked with ICICI Prudential, Reliance Industries & Chandigarh
16

17. Administration
• Santosh Kumar Dubey, Head Sales- Strategic Unit
Experience: 8 yrs
Worked with SBI LIFE,HDFC SLIC, ICICI Prudential
1 .12 Other Relevant Information :
1.12.1 India - A key market for Money Matter Inc.
• Provides MMI with access to one of the most rapidly growing
economies.
• Large under and un-served segments.
• Banking intermediation is still at low levels provides significant
opportunity for a new entrant.
• Availability of talent, state-of-art lower cost technology, and steadily
improving infrastructure.
• Foreign Direct Investment inflows expected to double to $11Bln.
• Increasing levels of foreign trade .
1.12.2 Next Five Year Goal
• Achieve market share of 5% (top own-branch players) within target
segment.
• Serve a satisfied customer base of ~2 million customers.
• Be the best employer in financial services industry in India,
attracting diverse talent due to its unique business model and wide
product range
1.13 Introduction to Particular Branch:-
Money Matter Inc.
SCF – 1C, Urban Estate, Phase – 1
17

18. Dugri, Ludhiana
1.14 Objective:-
“Money Matter Inc. wants to be the Preferred
Partner for all Financial Needs of the Customer”
1.15 THEIR PRODUCTS
Monet matter a wealth Management inc. which deals in all the almost all
investment option present in market.
Insurance
•
Demat Account
•
Mutual Funds
•
Bonds
•
Share
•
Debenture
•
Corporate FD’s
•
Gold
•
1.16 Their realation with companies:
• Tata AIG
• Kotak Life Insurance
• Aviva Life Insurance
• ICICI Prudential
• LIC
• Bajaj Allianz
• Birla Sun Life
• HDFC Standard Life
• SBI
• Reliance Life
• Star Health
• ICICI Lombard
• Tata AIG General Insurance
• Reliance General Insurance
• Bajaj Allianz General Insurance
18

19. • Royal Sundram
• United
• National
• Oriental
• New India
• Iffco Tokyo
1.17 Market Served:-
The Money Matter Inc. serves domestic market only in Punjab
1.18 Organization Chart of the Training Unit
1.18 .1 Positions
Relationship Manager / Branch Manager – Mr. Bikramjeet Singh
Assistant Relation Manager - Mr. Veer Davinder Singh and Mr. Yashpal Sharma
1.18.2 Departments:-
There are basically two departments are there in Money Matter Inc.
19

20. 1) Human Resource / Administration
2) Sales
1.18.2.1 Heads of Department:-
For Human Resource / Administration Ms. Navjeet Kaur and Mr. Amandeep Singh
are HOD’s.For Sales Mr. Bikramjeet Singh
1.19 Objectives of Sales Department:-
1. To improve sales strategies.
2. To make the people aware about the new products.
3. To give the best possible services
1.19.1 Objectives of HR Department:-
1. To provide best working environment.
2. To handle the grievances of the employees
3. To retain the employees..
1.20 SWOT ANALYSIS OF MONEY MATTEr
20

21. 21

22. 22

23. PART-B
Chapter Contents Page No.
no.
1 Introduction to topic 21-56
2. Review of Literature 56-63
Objective of study 63
Need of study 63
Limitations of study 63-64
3. Research Methodology 64-67
4. Data Analysis and Interpretation 68-88
5 Recommendation 89
Findings and results 90
Conclusion 91
Bibliography 92
Annexure 93-94
CHAPTER – 1
23

24. 1.1 INTRODUCTION TO TOPIC
INVESTOR
An investors is a person or entity that purchases assets with the objective of
receiving a finiancial return. The assets an investors may buy range widely but
include stocks, bonds, real estate,commodities and collectibles. The portfolio of
an investors commonly include a variety of assets that balance the rewards and
risks of each investment. An investotrs is distinguished from a speculator who
seeks to make quick ,large gains from the price increase on risky
assets.generally, an investor has a longer time horizon for achieving a return,
which may include regular cash payments from the income the assets generates
capital appreciation from the rise in the asset price or both a young investors
tends to buy assets with price appreciation potential, because a 25 years old
1.2 RETAIL INVESTORS?
An investor who invests small amounts of money for himself/herself rather than on
behalf of anyone else. Retail investors are the polar opposite of institutional investors,
which are large firms who invest on behalf of clients. Some investment vehicles
require minimum investments so as to discourage retail investors from them. Retail
investors are thought to be risk-averse and poorly informed compared to other
investors, though there is disagreement as to how true that is. See also: Odd-Lot
Theory.
1.3 TYPE OF INVESTORS
• Individual investors (including trusts on behalf of individuals, and
umbrella companies formed for two or more to pool investment funds)
• Collectors of art, antiques, and other things of value
• Angel investors, either individually or in groups
• Venture capital funds, which serve as investment collectives on behalf
of individuals, companies, pension plans, insurance reserves, or other
funds.
• Investment banks.
• Businesses that make investments, either directly or via a captive fund
• Investment trusts, including real estate investment trusts
24

25. • Mutual funds, hedge funds, and other funds, ownership of which may or
may not be publicly traded.
1.4 INVESTMENT?
Savings form an important part of the economy of any nation. 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 presents a
plethora of avenues to the investors. Though certainly not the best or deepest of
markets in the world, it has reasonable options for an ordinary man to invest his
savings.
An investment can be described as perfect if it satisfies all the needs of Fll
investors. So, the starting point in searching for the perfect investment would
be to examine investor needs. If all those needs are met by the investment, then
that investment can be termed the perfect investment. 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 and ensuring that the most appropriate investments are
selected for him.
Three golden rules used by investors:
• Invest early
• Invest regularly
• Invest for long term not for short term
The project will help you to understand the investment fact before investing in
any of investment tools and thus to scrutinize the important aspects of investors
before investing that further help in analyzing the relation between the features
of the products and investment requirements.
25

26. 1.5 INVESTMENT TERM IS USED DIFFERNTLY:
The term "investment" is used differently in economics and in finance.
Economists refer to a real investment (such as a machine or a house), while
financial economists refer to a financial asset, such as money that is put into a
bank or the market, which may then be used to buy a real asset.
 Business Management
The investment decision (also known as capital budgeting) is one of the
fundamental decisions of business management: managers determine the assets
that the business enterprise obtains. These assets may be physical (such as
buildings or machinery), intangible (such as patents, software, goodwill), or
financial (see below). The manager must assess whether the net present value
of the investment to the enterprise is positive; the net present value is
calculated using the enterprise's marginal cost of capital.
 Economic
In economics, investment is the production per unit time of goods, which are
not consumed but are to be used for future production. Examples include
tangibles (such as building a railroad or factory) and intangibles (such as a year
of schooling or on-the-job training). In measures of national income and
output, gross investment I is also a component of Gross domestic product
(GDP), given in the formula GDP = C + I + G + NX. I is divided into non-
residential investment (such as factories) and residential investment (new
houses). "Net" investment deducts depreciation from gross investment. It is the
value of the net increase in the capital stock per year.
 Finance
In finance, investment is buying securities or other monetary or paper
(financial) assets in the money markets or capital markets, or in fairly liquid
26

27. real assets, such as gold, real estate, or collectibles. Valuation is the method
for assessing whether a potential investment is worth its price.
 Personal Finance
Within personal finance, money used to purchase shares, put in a collective
investment scheme or used to buy any asset where there is an element of capital
risk is deemed an investment. Saving within personal finance refers to money
put aside, normally on a regular basis. This distinction is important, as
investment risk can cause a capital loss when an investment is realized; unlike
saving(s) where the more limited risk is cash devaluing due to inflation.
In many instances the terms saving and investment are used interchangeably,
which confuses this distinction. For example many deposit accounts are labeled
as investment accounts by banks for marketing purposes. Whether an asset is a
saving(s) or an investment depends on where the money is invested: if it is cash
then it is savings, if its value can fluctuate then it is investment.
 Real-Estate
In real estate, investment is money used to purchase property for the sole
purpose of holding or leasing for income and where there is an element of
capital risk. Unlike other economic or financial investment, real estate is
purchased.
Broad of speaking, a person can make use of his income in three alto
natives. They are saving, investment and expenditure. If he saves more then he
will have to reduce on his expenses and vice versa. To meet the current and
future financial requirement of the person, a right combination of these is
essential. These few lines explain the importance of a right combination of the
three activities. This is what we mean by investor investment pattern & thus
comes the need of awareness initiatives for this concept.
27

28. An Investor has many objects for doing the investment some are doing
investment for security purpose some are doing for high return purpose and
some for tax benefits. Same income and age group people follow different
pattern of investment and to understand this pattern is very complex.
Researchers try to find out the investment pattern of Investor’s in Mutual Fund
& Life Insurance.
1.6 INVESTMENT OBJECTIVES:
1.6.1 primary objectives
The options for investing our savings are continually increasing, yet every
single investment vehicle can be easily categorized according to three
fundamental characteristics - safety, income and growth - which also
correspond to types of investor objectives. While it is possible for an investor
to have more than one of these objectives, the success of one must come at the
expense of others. Here we examine these three types of objectives, the
investments that are used to achieve them and the ways in which investors can
incorporate them in devising a strategy.
 Safety
Perhaps there is truth to the axiom that there is no such thing as a
completely safe and secure investment. Yet we can get close to ultimate
safety for our investment funds through the purchase of government-issued
securities in stable economic systems, or through the purchase of the
highest quality corporate bonds issued by the economy's top companies.
Such securities are arguably the best means of preserving principal while
receiving a specified
rate of return.
The safest investments are usually found in the money market and include such
securities as Treasury bills (T-bills), certificates of deposit, commercial paper
or bankers' acceptance slips; or in the fixed income (bond) market in the form
of municipal and other government bonds, and in corporate bonds. The
28

29. securities listed above are ordered according to the typical spectrum of
increasing risk and, in turn, increasing potential yield. To compensate for their
higher risk, corporate bonds return a greater yield than T-bills.
 Income
However, the safest investments are also the ones that are likely to have the
lowest rate of income return, or yield. Investors must inevitably sacrifice a
degree of safety if they want to increase their yields. This is the inverse
relationship between safety and yield: as yield increases, safety generally
goes down, and vice versa.
Most investors, even the most conservative-minded ones, want some level of
income generation in their portfolios, even if it's just to keep up with the
economy's rate of inflation. But maximizing income return can be an
overarching principle for a portfolio, especially for individuals who require a
fixed sum from their portfolio every month. A retired person who requires a
certain amount of money every month is well served by holding reasonably
safe assets that provide funds over and above other income-generating assets,
such as pension plans.
 Growth Of Capital
This discussion has thus far been concerned only with safety and yield as
investing objectives, and has not considered the potential of other assets to
provide a rate of return from an increase in value, often referred to as a capital
gain. Capital gains are entirely different from yield in that they are only
realized when the security is sold for a price that is higher than the price at
which it was originally purchased. (Selling at a lower price is referred to as a
capital loss.) Therefore, investors seeking capital gains are likely not those who
need a fixed, ongoing source of investment returns from their portfolio, but
rather those who seek the possibility of longer-term growth.
Growth of capital is most closely associated with the purchase of
common stock, particularly growth securities, which offer low yields but
29

30. considerable opportunity for increase in value. For this reason, common stock
generally ranks among the most speculative of investments as their return
depends on what will happen in an unpredictable future. Blue-chip stocks, by
contrast, can potentially offer the best of all worlds by possessing reasonable
safety, modest income and potential for growth in capital generated by long-
term increases in corporate revenues and earnings as the company matures. Yet
rarely is any common stock able to provide the near-absolute safety and
Income-generation of government bonds.
1.6.2 SECONDARY OBJECTIVES
 Tax Minimization
An investor may pursue certain investments in order to adopt tax minimization
as part of his or her investment strategy. A highly paid executive, for example,
may want to seek investments with favorable tax treatment in order to lessen
his or her overall income tax burden. Making contributions to an IRA or other
tax-sheltered retirement plan, such as a 401k, can be an effective tax
minimization strategy.
 Marketability Liquidity
Many of the investments we have discussed are reasonably illiquid, which
means they cannot be immediately sold and easily converted into cash.
Achieving a degree of liquidity, however, requires the sacrifice of a certain
level of income or potential for capital gains. Common stock is often
considered the most liquid of investments, since it can usually be sold within a
day or two of the decision to sell. Bonds can also be fairly marketable, but
some bonds are highly illiquid, or non-tradable, possessing a fixed term.
Similarly, money market instruments may only be redeemable at the precise
date at which the fixed term ends. If an investor seeks liquidity, money market
assets and non-tradable bonds aren't likely to be held in his or her portfolio.
In brief, choosing a single strategic objective and assigning weightings to all
30

31. other possible objectives is a process that depends on such factors as the
investor's temperament, his or her stage of life, marital status, family situation,
and so forth. Out of the multitude of possibilities out there, each investor is sure
to find an appropriate mix of investment opportunities. You need only be
concerned with spending the appropriate amount of time and effort in finding,
studying and deciding on the opportunities that match your objectives.
1.7 ROLE OF ADVISER:
A Partner in Achieving Your Financial Goals.
vestment Advisor
For years, most people who wanted to invest in the stock market worked with a
traditional stockbroker who provided advice for free and was compensated, via
commission, when a product was sold. Each stockbroker had access to a limited array
of investment products, so many of them conducted capital markets research, picked
securities and managed client portfolios themselves. Although this arrangement is still
the dominant business model in the insurance industry and at many major brokerage
firms, the model is changing.
Developments in the field of information technology have led to efficiencies that now
enable investment advisors to access some of the country’s most successful
investment specialists in every area of the business from small cap stocks and
municipal bonds to blue chip stocks and hedge funds. They can also access firms that
specialize in capital markets research, the construction of asset allocation models, the
evaluation of money management firms and the creation of investment portfolios
designed to meet specific objectives (e.g.. long-term growth, current income, etc.).
Many of these services are provided on a fee-basis. The fee is generally a percentage
of the amount invested. If the assets grow, the advisor is rewarded for the success
because the fee percentage is now calculated on a larger asset base. If difficult
markets reduce the assets, the advisor’s fee falls because the fee percentage is now
calculated on a smaller asset base. So, in a reversal of the traditional model, advisors
are paid to give advice and, in many cases, earn nothing from the sale of a specific
investment product.
1.8 INVESTMENT COMPANIES IN INDIA:
31

32. • Bajaj Allianz
• Equity India
• Indian Investment Centre
• Merc Holding Pvt. Ltd.
• Sarabhai Holding Pvt. Ltd.
• Shah Financial Group
• Stanrose Mafatlal Investment and Finance Ltd.
• Tata Investment Corporation Ltd.
• Toss Financial Services Pvt. Ltd.
• Veronica Financial Services Ltd.
1.9 INVESTMENT OPTION AVAILBLE IN THE MARKET:
While some plans accrue short term profits some are long term deposits. The first
step towards investing in Indian market is to evaluate individual requirements for cash,
competence to undertake involved risks and the amount of returns that the investor is
expecting. Below are Top 10 Investment Options in India which assure safe and
satisfactory returns.
• Investments in Bank Fixed Deposits (FD)
Fixed Deposit or FD is accrues 8.5% of yearly profits, depending on the bank's
tenure and guidelines, which makes it's widely sought after and safe
investment alternative. The minimum tenure of FD is 15 days and maximum
tenure is 5 years and above. Senior citizens are entitled for exclusive rate of
interest on Fixed Deposits.
• Investments in Insurance policies
Insurance features among the best investment alternative as it offers services
to indemnify your life, assets and money besides providing satisfactory and
risk free profits. Indian Insurance Market offers various investment options
with reasonably priced premium. Some of the popular Insurance policies in
India are Home Insurance policies, Life Insurance policies, Health Insurance
policies and Car Insurance policies.
Some top Insurance firm in India under whom you can buy insurance scheme
are LIC, SBI Life, ICICI Prudential, Bajaj Allianz, Birla Sunlife, HDFC
Standard Life, Reliance Life, Max NewYork Life, Metlife, Tata AIG, Kotak
Mahindra Life, ING Life Insurance, etc.
• Investments in National Saving Certificate (NSC)
National Saving Certificate (NSC) is subsidized and supported by government
of India as is a secure investment technique with a lock in tenure of 6 years.
There is no utmost limit in this investment option while the highest amount is
32

33. estimated as Rs 100. The investor is entitled for the calculated interest of 8%
which is forfeited two times in a year. National Saving Certificate falls under
Section 80C of IT Act and the profit accrued by the investor stands valid for
tax deduction up to Rs 1, 00,000.
• Investments in Public Provident Fund (PPF)
Like NSC, Public Provident Fund (PPF) is also supported by the Indian
government. An investment of minimum Rs 500 and maximum Rs 70, 000
is required to be deposited in a fiscal year. The prospective investor can
create it PPF account in a GPO or head post office or in any sub-divisions
of the centralized bank.
PPF also falls under Section 80C of IT Act so investors could gain income
tax deduction of up to Rs 1, 00,000. The rate of interest of PPF is
evaluated yearly with a lock in tenure of maximum 15 years. The basic
rate of interest in PPF is 8%.
• Investments in Stock Market
Investing in share market yields higher profits. Influenced by unanticipated
turn of market events, stock market to some extent cannot be considered as the
safest investment options. However, to accrue higher gains, an investor must
update himself on the recent stock market news and events.
• Investments in Mutual Funds
Mutual Fund firms accumulate cash from willing investors and invest
it in share market. Like stock market, mutual fund investment are also
entitled for various market risks but with a fair share of profits.
• Investments in Gold Deposit Scheme
Controlled by SBI, Gold Deposit Scheme was instigated in the year
1999. Investments in this scheme are open for trusts, firms and HUFs
with no specific upper limit. The investor can deposit invest minimum
of 200 gm in exchange for gold bonds holding a tariff free rate of
interest of 3% - 4% on the basis of the period of the bond varying with
a lock in period of 3 to 7 years.
Moreover, Gold bonds are not entitled of capital gains tax and wealth
tariff. The sum insured can be accrued back in cash or gold, as per the
investor's preference.
• Investments in Real Estate
Indian real estate industry has huge prospects in sectors like
commercial, housing, hospitality, retail, manufacturing, healthcare etc.
Calculated realty demand for IT/ITES industry in 2010 is estimated at
150mn sq.ft. around the chief Indian cities. Termed as the "money
making industry", realty sector of India promises annual profits of 30%
to 100% through real estate investments.
• Investments in Equity
Private Equity is expanding at a fast pace. India acquired US $13.5 billion in
33

34. 2008 under equity shares and featured among the top 7 nations in the world. In
2010, the total equity investment is predicted to increase upto USD 20 billion.
Indian equities promise satisfactory returns and have more than 365 equity
investments firms functioning under it.
• Investments in Non Resident Ordinary (NRO) funds
Investing in domestic (NRO) is one of the best investment alternatives for
NRIs who wish to deposit their income accrued abroad and maintain it in
Indian rupees. The deposited amount along with the interest is completely
repatriable. Investment can be done in Indian financial institutions
including the Non Banking Finance Companies which are listed with RBI.
The interest returns accrued on in this account is entitled under IT Act and
is subject to 30% tax reduction at source including the appropriate
surcharge and education cess. The NRI investor can repatriate upto USD 1
million every year, for genuine reasons, by forfeiting valid tariffs.
1.10 INVESTORS PREFRE TO INVEST MONEY:
 MUTUAL FUNDS
 LIFE INSURANCE
 STOCK MARKET
1.10.1 Mutual funds:
A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is then invested in
capital market instruments such as shares, debentures and other securities. The
income earned through these investments and the capital appreciations realized
are shared by its unit holders in proportion to the number of units owned by
them. Thus a Mutual Fund is the most suitable investment for the common man
as it offers an opportunity to invest in a diversified, professionally managed
basket of securities at a relatively low cost.
34

35. 1.10.2 TYPES OF MUTUAL FUNDS
BY STRUCTURE
• Open-Ended Schemes
• Close-Ended Schemes
• Interval Schemes
BY INVESTMENT OBJECTIVE
• Growth Schemes
• Income Schemes
• Balanced Schemes
• Money Market Schemes
OTHER SCHEMES
• Tax Saving Schemes
• Special Schemes
Index Schemes
Sector Specific Schemes
1.10.3 FEATURES THAT INVESTORS LIKE IN MUTUAL
FUND
35

36. If mutual funds are emerging as the favorite investment vehicle, it is because of
the many advantages they have over other forms and avenues of investing,
particularly for the investor who has limited resources available in terms of
capital and ability to carry out detailed research and market monitoring. The
following are the major advantages offered by mutual funds to all investors.
♦ Portfolio diversification: Mutual Funds normally invest in a well-
diversified portfolio or securities. Each investor in a fund is a part owner
of all of the fund’s assets. This enables him to hold a diversified
investment portfolio even with a small amount of investment that would
otherwise require big capital.
♦ Professional management; Even if an investor has a big amount of
capital available to him, he lacks the professional attitude that is
generally present in the experienced fund manager who, ensures a much
better return than what an investor can manage on his own. Few
investors have the skills and resources of their own to succeed in today’s
fast moving, global and sophisticated markets.
♦ Reduction/ diversification of risk: An investor in a mutual fund
acquires a diversified portfolio, no matter how small his investment.
Diversification reduces the risk of loss, as compared to investing
directly in one or two shares or debentures or other instruments. When
an investor invests directly, all the risk of potential loss is his own. A
fund investor also reduces his risk in another way. While investing in
the pool of funds with other investors any loss on one or two securities
is also shared with other investors. This risk reduction is one of the most
important benefits of a collective investment vehicle like the mutual
fund.
♦ Reduction of transaction costs: What is true of risk is also true of the
transaction costs. A direct investor bears all the costs of investing such
as brokerage or custody of securities. When going through a fund, he
36

37. has the benefit of economies of scale; the funds pay lesser costs because
of larger volumes, a benefit passed on to its investors.
♦ Liquidity: Often, investors hold shares or bonds they cannot directly,
easily and quickly sell. Investment in a mutual fund, on the other hand,
is more liquid. An investor can liquidate the investment by selling the
units to the fund if open-end, or selling them in the market if the fund is
closed-end, and collect funds at the end of a period specified by the
mutual fund or the stock market.
♦ Convenience and flexibility: Mutual fund management companies
offer many investor services that a direct market investor cannot get.
Investors can easily transfer their holdings from one scheme to the other,
get updated market information
But roses have thorns as well…
While the benefits of investing through mutual funds far outweigh the
disadvantages, an investor and his advisor will do well to be aware of a few
shortcomings of using the mutual funds as investment vehicles.
♦ No Control over Costs: an investor in a mutual fund has any control
over the overall cost of investing. He pays investment management fees
as long as he remains with the fund, albeit in return for the professional
management and research. Fees are usually payable as a percentage of
the value of his investments. Whether the fund value is rising or
declining. A mutual fund investor also pays fund distribution costs,
which he would not incur in direct investing. However, this shortcoming
only means that there is a cost to obtain the benefits of mutual fund
services. However, this cost is often less than the cost of direct investing
by the investors.
♦ No Tailor-made Portfolios: Investors who invest on their own can
build their own portfolios of shares, bonds and other securities.
Investing through funds means he delegates this decision to the fund
37

38. managers. The very high-net-worth individuals or large corporate
investors may find this to be a constraint in achieving their objectives.
However. Most mutual funds help investors overcome this constraint by
offering families of schemes-a large number of different schemes –
within the same fund. An investor can choose from different investment
plans and construct a portfolio of his choice.
♦ Poor Reach: Lack of deeper distribution networks and channels is
hurting the growth of the industry. This is an area of concern for the MF
industry, which has not been able to penetrate deeper into the country
and has been limited to few metros.
♦ Banks still dominate: The biggest hindrance to the growth of the
mutual fund industry lies in its inability to attract the savings of the
public, which constitutes the major source of investment in the other
developed countries. A large pool of money in the savings in India is
still with the state –run and private banks.
1.10.4 The structure and organization of Mutual Funds as per SEBI
guidelines is as follows:
38

39. (a) Sponsor
Sponsor is the company which sets up the Mutual Fund e.g. Kothari Pioneer
Mutual Fund have sponsor Pioneer Investment Management, Inc., USA and the
Investment Trust Of India Ltd. (ITI). The Investment Trust Of India (Pvt.) Ltd.
was established in 1946 and is one of the India well known Financial Services
Companies. To promote the Mutual Fund, the sponsor has to meet the criteria
laid down by SEBI. The criteria broadly deal with sufficient experience, net
worth, and past record in terms of fair dealing & integrity. Those who qualify
these criteria are permitted by SEBI to setup Mutual Funds.
(b) Asset Management Company (AMC)
AMC manages the funds of various Schemes: AMC employs a large number of
professional for investment and research. It plays a key role in the running of a
Mutual Fund and it operates under the supervision and guidance of the trustee.
For example, Kothari Pioneer AMC Ltd. has been appointed as the investment
manages Kothari Pioneer Mutual Fund and operates its various schemes under
the provisions of the investment Management Agreement entered into with
Kothari Pioneer Mutual Fund on July 29,1993. The AMC can be a private or
39

40. public limited company either listed or not. The AMC may be a new or
existing, should have a minimum 40 percent stake paid up in the paid-up equity
of the AMC to be set up the sponsor. The minimum net worth of the AMC is
stipulated at Rs. 5 crore. The Memorandum and Articles Of Association of the
AMC Company should have the approval of SEBI. AMC is authorized to do
business, if the following condition of SEBI are fulfilled.
(1) AMC, which are already existing, should have a sound track record,
general reputation and fairness in all other business transactions.
(2) The directors of AMC should be persons of high repute and standing
having at least 10 years of professional experience in the relevant fields
such as portfolio management, investment analysis, and in financial
administrator.
(3) At least 50 percent of the Board of AMC should be independent director
not connected with sponsoring organization.
(4) The AMC should at all times have a minimum net worth of Rs. 5 crore.
Except in the case of Bank sponsored AMC where the Prior concurrence of
RBI is required. SEBI may withdraw the authorization granted to any AMC, if
it is not serving in the interest of investors. The board of trustees, of a Mutual
Fund, will appoint another AMC or liquidate the Mutual Fund as may be
necessary with in there months of withdrawal.
(c) Trustee
The trustees are an important link in the working of a Mutual Fund. Trustees
are people with long experience and who have earned a name for themselves
for integrity and excellence in their fields. It is the responsibility of the trustees
to see that AMC always act in the best interest in the investors. Thus they carry
40

41. the crucial responsibility of safe guarding the interest of the investors. They do
this by constant monitoring of the operations of the scheme. AMC supplies all
information demanded by trustees on a regular basis i.e. quarterly.
Establishing a separate trust company should carry out trusteeship functions. At
least 50 percent of the Board of Trustee shall be independent and should not
have any affiliation with the sponsoring institution or any of its subsidiaries.
The trustees have to submit a six monthly report to the SEBI and an annual
report to the investors in the fund.
(d) Custodian
The SEBI while granting the authorization for setting up of a Mutual Fund,
would also approve the custodian as part of the package. The custodian should
be different from the AMC. The sponsor and trustee companies cannot act as
custodian. If the sponsor has a custodian division, it can act for other Mutual
Fund not set up by the sponsor. The approval of any agency as custodian would
depend upon its track record, experience, and qualify of service,
computerization and other infrastructure facilities. The approval of Mutual
Fund involves the approval of sponsor, AMC, trustee and custodian all
together, who are responsible for the management of fund. Each scheme
floated by Mutual Fund should have prior registration with SEBI. The AMC
should prepare a proportion/letter of offer for each to decide the proposal
within 30 days of its receipt, filing within SEBI before inviting public. SEBI
has to decide the proposal within 30 days of its receipt, failing which SEBI
clearance is presumed. Mutual Funds are allowed to start and operate both
open-ended and close-ended schemes.
1.10.5 History of the Indian Mutual Fund Industry
41

42. The mutual fund industry in India started in 1963 with the formation of Unit
Trust of India, at the initiative of the Government of India and Reserve Bank
the. The history of mutual funds in India can be broadly divided into four
distinct phases
First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It
was set up by the Reserve Bank of India and functioned under the Regulatory
and administrative control of the Reserve Bank of India. In 1978 UTI was de-
linked from the RBI and the Industrial Development Bank of India (IDBI) took
over the regulatory and administrative control in place of RBI. The first scheme
launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700
crores of assets under management
Second Phase – 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by public
sector banks and Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI
Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec
87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund
(Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC
established its mutual fund in June 1989 while GIC had set up its mutual fund
in December 1990.
At the end of 1993, the mutual fund industry had assets under management of
Rs.47, 004 crores
Third Phase – 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund
families. Also, 1993 was the year in which the first Mutual Fund Regulations
came into being, under which all mutual funds, except UTI were to be
42

43. registered and governed. The erstwhile Kothari Pioneer (now merged with
Franklin Templeton) was the first private sector mutual fund registered in July
1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996. The industry
now functions under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign
mutual funds setting up funds in India and also the industry has witnessed
several mergers and acquisitions. As at the end of January 2003, there were 33
mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India
with Rs.44,541 crores of assets under management was way ahead of other
mutual funds.
Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI
was bifurcated into two separate entities. One is the Specified Undertaking of
the Unit Trust of India with assets under management of Rs.29,835 crores as at
the end of January 2003, representing broadly, the assets of US 64 scheme,
assured return and certain other schemes. The Specified Undertaking of Unit
Trust of India, functioning under an administrator and under the rules framed
by Government of India and does not come under the purview of the Mutual
Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and
LIC.
It is registered with SEBI and functions under the Mutual Fund Regulations.
With the bifurcation of the erstwhile UTI which had in March 2000 more than
Rs.76,000 crores of assets under management and with the setting up of a UTI
Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with
recent mergers taking place among different private sector funds, the mutual
fund industry has entered its current phase of consolidation and growth. As at
43

44. the end of September, 2004, there were 29 funds, which manage assets of
Rs.153108 crores under 421 schemes.
1.10.6 WHAT IS INSURANCE?
Insurance, in law and economics, is a form of risk management primarily used
to hedge against the risk of a contingent loss. Insurance is defined as the
equitable transfer of the risk of a potential loss, from one entity to another, in
exchange for a premium. Insurer, in economics, is the company that sells the
insurance. Insurance rate is a factor used to determine the amount, called the
premium, to be charged for a certain amount of insurance coverage. Risk
management, the practice of appraising and controlling risk, has evolved as a
discrete field of study and practice.
1.10.7 Principles of insurance
Commercially insurable risks typically share seven common characteristics.
1. A large number of homogeneous exposure units. The vast majority of
insurance policies are provided for individual members of very large
classes. Automobile insurance, for example, covered about 175 million
automobiles in the United States in 2004. The existence of a large
number of homogeneous exposure units allows insurers to benefit from
the so-called “law of large numbers,” which in effect states that as the
number of exposure units increases, the actual results are increasingly
likely to become close to expected results. There are exceptions to this
criterion. Lloyds of London is famous for insuring the life or health of
actors, actresses and sports figures. Satellite Launch insurance covers
events that are infrequent. Large commercial property policies may
insure exceptional properties for which there are no ‘homogeneous’
exposure units. Despite failing on this criterion, many exposures like
these are generally considered to be insurable.
44

45. 2. Definite Loss. The event that gives rise to the loss that is subject to
insurance should, at least in principle, take place at a known time, in a
known place, and from a known cause. The classic example is death of
an insured on a life insurance policy. Fire, automobile accidents, and
worker injuries may all easily meet this criterion. Other types of losses
may only be definite in theory. Occupational disease, for instance, may
involve prolonged exposure to injurious conditions where no specific
time, place or cause is identifiable. Ideally, the time, place and cause of
a loss should be clear enough that a reasonable person, with sufficient
information, could objectively verify all three elements.
3. Accidental Loss. The event that constitutes the trigger of a claim should
be fortuitous, or at least outside the control of the beneficiary of the
insurance. The loss should be ‘pure,’ in the sense that it results from an
event for which there is only the opportunity for cost. Events that
contain speculative elements, such as ordinary business risks, are
generally not considered insurable.
4. Large Loss. The size of the loss must be meaningful from the
perspective of the insured. Insurance premiums need to cover both the
expected cost of losses, plus the cost of issuing and administering the
policy, adjusting losses, and supplying the capital needed to reasonably
assure that the insurer will be able to pay claims. For small losses these
latter costs may be several times the size of the expected cost of losses.
There is little point in paying such costs unless the protection offered
has real value to a buyer.
5. Affordable Premium. If the likelihood of an insured event is so high, or
the cost of the event so large, that the resulting premium is large relative
to the amount of protection offered, it is not likely that anyone will buy
insurance, even if on offer. Further, as the accounting profession
formally recognizes in financial accounting standards (See FAS 113 for
example), the premium cannot be so large that there is not a reasonable
chance of a significant loss to the insurer. If there is no such chance of
45

46. loss, the transaction may have the form of insurance, but not the
substance.
6. Calculable Loss. There are two elements that must be at least estimate
able, if not formally calculable: the probability of loss, and the attendant
cost. Probability of loss is generally an empirical exercise, while cost
has more to do with the ability of a reasonable person in possession of a
copy of the insurance policy and a proof of loss associated with a claim
presented under that policy to make a reasonably definite and objective
evaluation of the amount of the loss recoverable as a result of the claim.
7. Limited risk of catastrophically large losses. The essential risk is
often aggregation. If the same event can cause losses to numerous
policyholders of the same insurer, the ability of that insurer to issue
policies becomes constrained, not by factors surrounding the individual
characteristics of a given policyholder, but by the factors surrounding
the sum of all policyholders so exposed. Typically, insurers prefer to
limit their exposure to a loss from a single event to some small portion
of their capital base, on the order of 5%. Where the loss can be
aggregated, or an individual policy could produce exceptionally large
claims, the capital constraint will restrict an insurers appetite for
additional policyholders. The classic example is earthquake insurance,
where the ability of an underwriter to issue a new policy depends on the
number and size of the policies that it has already underwritten. Wind
insurance in hurricane zones, particularly along coastlines, is another
example of this phenomenon. In extreme cases, the aggregation can
affect the entire industry, since the combined capital of insurers and
reinsures can be small compared to the needs of potential policyholders
in areas exposed to aggregation risk. In commercial fire insurance it is
possible to find single properties whose total exposed value is well in
excess of any individual insurer’s capital constraint. Such properties are
generally shared among several insurers, or are insured by a single
insurer who syndicates the risk into the reinsurance market.
46

47. 1.10.8 WHY LIFE INSURANCE?
You think twice before taking the plunge into buying insurance. Is buying
insurance a necessity now? Spending an 'extra' amount as premium at regular
intervals where you do not see immediate benefits does not seem a necessity at
the moment.
Well you could be wrong. Buying Insurance cannot be compared with
any other form of investment. Insurance gives you a life long benefit and the
returns will definitely come but only when you need it the most i.e. at the right
time. Besides buying insurance early in life is one of the wise decisions you
could take. Because the premium you would be paying would be comparatively
lower.
Insurance is not about how much more it can offer you when the stock
market is at its peak. It may not be an attractive investment option. But weigh
the pros and cons and consider how much more it offers at a small price.
Most important of all it provides you with that unique sense of security
that no other form of investment provides. It gives you a sense of financial
support especially during that time of crisis irrespective of the fluctuations in
the stock market. Insurance provides for your career goals right from your
childhood years.
If the earning member of the family is no more your child's educational
needs will not suffer. In fact his higher education too will be provided for. You
need not spend sleepless nights thinking about how to save for your child's
marriage. Life Insurance will take care of that typical once-in-a-life-time
spending on marriages.
An accident or a disability may be devastating but an insurance policy
can be of utmost support for the family during such times too. Besides it
provides for additional benefits such as bonuses. You need not worry about
47

48. your retirement years. The rising prices, taxes, and your lifestyle will be taken
care of easily. And you can relax and spend your old age in comfort and peace.
Life insurance today plays a major role in ones life at various stages.
Considering the benefits it offers one cannot but give a thought to buying an
insurance policy at the earliest.
1.10.9 NEED FOR LIFE INSURANCE
The need for life insurance comes from the need to safeguard our family. If you
care for your family’s needs you will definitely consider insurance.
Today insurance has become even more important due to the disintegration of
the prevalent joint family system, a system in which a number of generations
co-existed in harmony, a system in which a sense of financial security was
always there as there were more earning members.
Times have changed and the nuclear family has emerged. Apart from other
pitfalls of a nuclear family, a high sense of insecurity is observed in it today
besides, the family has shrunk. Needs are increasing with time and fulfillment
of these needs is a big question mark.
Insurance provides a sense of security to the income earner as also to the
family. Buying insurance frees the individual from unnecessary financial
burden that can otherwise make him spend sleepless nights. The individual has
a sense of consolation that he has something to fall back on.
From the very beginning of your life, to your retirement age insurance can take
care of all your needs. Your child needs good education to mould him into a
good citizen. After his schooling he needs to go for higher studies, to gain a
professional edge over the others - a necessity in this age where cutthroat
competition is the rule. His career needs have to be fulfilled.
1.10.10 SIX TIPS FOR INVESTING IN LIFE INSURANCE
48

49. 1. Understand Why You Need It: - While most people may need life
insurance at some point in their life, don't buy a policy just because you heard
it was a good idea. Life insurance is designed to provide families with financial
security in the event of the death of a spouse or parent. Life insurance
protection can help pay for mortgages, a college education, help to fund
retirement, provide charitable bequests and of course is a key element in estate
planning. In short, if others depend on your income for support, you should
strongly consider life insurance. Even if you don't have any of these needs
immediately, you still may want to consider purchasing a small "starter" policy,
if you anticipate you will have them in the future. The reason: the younger you
are, the less expensive life insurance will be.
2. Determine the Amount of Coverage You Need: - The amount of money
your family or heirs will receive after your death is called a death benefit. To
determine the proper amount of life insurance an online calculator, like the one
available at this site, can be helpful. You can also get a ballpark figure using
any number of formulas. The easiest way is to simply take your annual salary
and multiply by 8. A more detailed method is to add up the monthly expense
your family will incur after your death. Remember to include the one-time
expenses at death and the ongoing expenses such as a mortgage or school bills.
Take the ongoing expenses and divide by .07.That indicates you'll want a lump
sum of money earning approximately 7% each year to pay those ongoing
expenses. Add to that amount any money you'll need to cover one-time
expenses and you'll have a rough estimate of the amount of life insurance you
need. As useful as calculators and rough estimates are, there are some things
they don't do.
They cannot provide you with any final answers. Calculators only allow you to
perform "hypothetically," recalculating and generating new results as you make
and input new assumptions. Using these tools and educating yourself on the
workings of life insurance and other financial products, however, can help you
49

50. feel more comfortable when discussing your needs with such professionals as a
New York Life agent.
3. Find the Right Type of Policy:-Once you've got an estimate of how much
insurance you'll need, it's time to think about the type of policy that best fits
your needs. Today life insurance comes in many varieties, but there are four
basic type’s term, whole life, universal life, and variable life. As a first-time
buyer, one will more than likely fit your needs.
.4. Look at the Quality of the Company: - An insurance policy is only as
good as the company that backs it. You want to know for certain that the
company that issues your policy will be around to service it and eventually pay
the death claim. To help you discern the strongest companies, there are several
ratings agencies that rate insurance companies on the quality of their fiscal
fitness, quality of investments, and overall financial soundness. A credit rating
represents an independent assessment of the insurer's ability to pay its claims
on time and meet all its other financial obligations, the bottom line for any life
insurance company.
5. Consult an Agent: - Agents provide an invaluable service. First, an agent
can help you factor in the other "human' elements into your insurance equations
to help you determine the right amount of insurance. The relationship you
develop with an agent can last a lifetime. Second, an agent can help you update
your coverage as your needs change. They can help you guide you through a
lifetime of financial decisions, giving you one less thing to worry about.
6. Increase Your Vocabulary: - Any discussion of insurance will probably
include words such as cash value, premium, dividends, death benefit and more.
To discuss life insurance knowledgeably, it will help to understand the terms.
Below is a brief summary of some common terms. This site offers a complete
glossary of insurance terms.
1.10.11 STOCK MARKET:
50

51. A stock market or equity market is a public market (a loose network of economic
transactions, not a physical facility or discrete entity) for the trading of company stock
and derivatives at an agreed price; these are securities listed on a stock exchange as
well as those only traded privately.
The size of the world stock market was estimated at about $36.6 trillion US at the
beginning of October 2008.[1] The total world derivatives market has been estimated
at about $791 trillion face or nominal value,[2] 11 times the size of the entire world
economy.[3] The value of the derivatives market, because it is stated in terms of
notional values, cannot be directly compared to a stock or a fixed income security,
which traditionally refers to an actual value. Moreover, the vast majority of
derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is
offset by a comparable derivative 'bet' on the event not occurring). Many such
relatively illiquid securities are valued as marked to model, rather than an actual
market price.
The stocks are listed and traded on stock exchanges which are entities of a corporation
or mutual organization specialized in the business of bringing buyers and sellers of
the organizations to a listing of stocks and securities together. The largest stock
market in the United States, by market cap, is the New York Stock Exchange, NYSE.
In Canada, the largest stock market is the Toronto Stock Exchange. Major European
examples of stock exchanges include the London Stock Exchange, Paris Bourse, and
the Deutsche Börse. Asian examples include the Tokyo Stock Exchange, the Hong
Kong Stock Exchange, the Shanghai Stock Exchange, and the Bombay Stock
Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the
BMV.
1.10.12 HISTORY OF STOCK MARKET :
In 12th century France the courratiers de change were concerned with managing and
regulating the debts of agricultural communities on behalf of the banks. Because these
men also traded with debts, they could be called the first brokers. A common
misbelief is that in late 13th century Bruges commodity traders gathered inside the
house of a man called Van der Beurze, and in 1309 they became the "Brugse Beurse",
institutionalizing what had been, until then, an informal meeting, but actually, the
family Van der Beurze had a building in Antwerp where those gatherings occurred;[6]
the Van der Beurze had Antwerp, as most of the merchants of that period, as their
primary place for trading. The idea quickly spread around Flanders and neighboring
counties and "Beurzen" soon opened in Ghent and Amsterdam.
In the middle of the 13th century, Venetian bankers began to trade in government
securities. In 1351 the Venetian government outlawed spreading rumors intended to
lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence
also began trading in government securities during the 14th century. This was only
possible because these were independent city states not ruled by a duke but a council
of influential citizens. The Dutch later started joint stock companies, which let
shareholders invest in business ventures and get a share of their profits - or losses. In
1602, the Dutch East India Company issued the first share on the Amsterdam Stock
Exchange. It was the first company to issue stocks and bonds.
51

52. The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have been the
first stock exchange to introduce continuous trade in the early 17th century. The
Dutch "pioneered short selling, option trading, debt-equity swaps, merchant banking,
unit trusts and other speculative instruments, much as we know them".[7] There are
now stock markets in virtually every developed and most developing economies, with
the world's biggest markets being in the United States, United Kingdom, Japan, India,
China, Canada, Germany, France, South Korea and the Netherlands.
1.10.13 BENEFITS TO INVESTING IN STOCK MARKET:
The stock market is one of the most important sources for companies to raise money.
This allows businesses to be publicly traded, or raise additional capital for expansion
by selling shares of ownership of the company in a public market. The liquidity that
an exchange provides affords investors the ability to quickly and easily sell securities.
This is an attractive feature of investing in stocks, compared to other less liquid
investments such as real estate.
History has shown that the price of shares and other assets is an important part of the
dynamics of economic activity, and can influence or be an indicator of social mood.
An economy where the stock market is on the rise is considered to be an up-and-
coming economy. In fact, the stock market is often considered the primary indicator
of a country's economic strength and development. Rising share prices, for instance,
tend to be associated with increased business investment and vice versa. Share prices
also affect the wealth of households and their consumption. Therefore, central banks
tend to keep an eye on the control and behavior of the stock market and, in general, on
the smooth operation of financial system functions. Financial stability is the raison
d'être of central banks.
Exchanges also act as the clearinghouse for each transaction, meaning that they
collect and deliver the shares, and guarantee payment to the seller of a security. This
eliminates the risk to an individual buyer or seller that the counterparty could default
on the transaction.
Riskier long-term saving requires that an individual possess the ability to manage the
associated increased risks. Stock prices fluctuate widely, in marked contrast to the
stability of (government insured) bank deposits or bonds. This is something that could
affect not only the individual investor or household, but also the economy on a large
scale. The following deals with some of the risks of the financial sector in general and
the stock market in particular. This is certainly more important now that so many
newcomers have entered the stock market, or have acquired other 'risky' investments
(such as 'investment' property, i.e., real estate and collectables).
With each passing year, the noise level in the stock market rises. Television
commentators, financial writers, analysts, and market strategists are all overtaking
52

53. each other to get investors' attention. At the same time, individual investors,
immersed in chat rooms and message boards, are exchanging questionable and often
misleading tips. Yet, despite all this available information, investors find it
increasingly difficult to profit. Stock prices skyrocket with little reason, then plummet
just as quickly, and people who have turned to investing for their children's education
and their own retirement become frightened. Sometimes there appears to be no rhyme
or reason to the market, only folly.
This is a quote from the preface to a published biography about the long-term value-
oriented stock investor Warren Buffett. Buffett began his career with $100, and
$100,000 from seven limited partners consisting of Buffett's family and friends. Over
the years he has built himself a multi-billion-dollar fortune. The quote illustrates some
of what has been happening in the stock market during the end of the 20th century and
the beginning of the 21st century.
1.10.14 Leveraged strategies:
Stock that a trader does not actually own may be traded using short selling; margin
buying may be used to purchase stock with borrowed funds; or, derivatives may be
used to control large blocks of stocks for a much smaller amount of money than
would be required by outright purchase or sale.
Short selling
In short selling, the trader borrows stock (usually from his brokerage which holds its
clients' shares or its own shares on account to lend to short sellers) then sells it on the
market, hoping for the price to fall. The trader eventually buys back the stock, making
money if the price fell in the meantime and losing money if it rose. Exiting a short
position by buying back the stock is called "covering a short position." This strategy
may also be used by unscrupulous traders in illiquid or thinly traded markets to
artificially lower the price of a stock. Hence most markets either prevent short selling
or place restrictions on when and how a short sale can occur. The practice of naked
shorting is illegal in most (but not all) stock markets.
Margin buying
In margin buying, the trader borrows money (at interest) to buy a stock and hopes for
it to rise. Most industrialized countries have regulations that require that if the
borrowing is based on collateral from other stocks the trader owns outright, it can be a
maximum of a certain percentage of those other stocks' value. In the United States,
the margin requirements have been 50% for many years (that is, if you want to make a
$1000 investment, you need to put up $500, and there is often a maintenance margin
below the $500).
A margin call is made if the total value of the investor's account cannot support the
loss of the trade. (Upon a decline in the value of the margined securities additional
funds may be required to maintain the account's equity, and with or without notice the
margined security or any others within the account may be sold by the brokerage to
53

54. protect its loan position. The investor is responsible for any shortfall following such
forced sales.)
Regulation of margin requirements (by the Federal Reserve) was implemented after
the Crash of 1929. Before that, speculators typically only needed to put up as little as
10 percent (or even less) of the total investment represented by the stocks purchased.
Other rules may include the prohibition of free-riding: putting in an order to buy
stocks without paying initially (there is normally a three-day grace period for delivery
of the stock), but then selling them (before the three-days are up) and using part of the
proceeds to make the original payment (assuming that the value of the stocks has not
declined in the interim).
1.11The different factors that effecting the investors investment pattern
• Security of original capital: The chance of losing some capital has been a
primary need. This is perhaps the strongest need among investors in India, who
have suffered regularly due to failures of the financial system.
• Wealth accumulation: This is largely a factor of investment performance,
including both short-term performance of an investment and long-term
performance of a portfolio. Wealth accumulation is the ultimate measure of the
success of an investment decision.
• Comfort factor: This refers to the peace of mind associated with an
investment. Avoiding discomfort is probably a greater need than receiving
comfort. Reputation plays an important part in delivering the comfort factor.
• Tax efficiency: Legitimate reduction in the amount of tax payable is an
important part of the Indian psyche. Every rupee saved in taxes goes towards
wealth accumulation.
• Life Cover: Many investors look for investments that offer good return with
adequate life cover to manage the situations in case of any eventualities.
• Income: This refers to money distributed at intervals by an investment, which
are usually used by the investor for meeting regular expenses. Income needs
54

55. tend to be fairly constant because they are related to lifestyle and are well
understood by investors.
• Simplicity: Investment instruments are complex, but investors need to
understand what is being done with their money. A planner should also deliver
simplicity to investors.
• Ease of withdrawal: This refers to the ability to invest long term but
withdraw funds when desired. This is strongly linked to a sense of ownership.
It is normally triggered by a need to spend capital, change investments or cater
to changes in other needs. Access to a long-term investment at short notice can
only be had at a substantial cost.
• Communication: This refers to informing and educating investors about the
purpose and progress of their investments. The need to communicate increases
when investments are threatened.
• Security of original capital is more important when performance falls.
• Performance is more important when investments are performing well.
• Failures engender a desire for an increase in the comfort factor.
Perfect investment would have been achieved if all the above-mentioned needs
had been met to satisfaction. But there is always a trade-off involved in making
investments. As long as the investment strategy matches the needs of investor
according to the priority assigned to them, he should be happy.
The Ideal Investment strategy should be a customized one for each investor
depending on his risk-return profile, his satisfaction level, his income, and his
expectations. Accurate planning gives accurate results. And for that there must
be an efficient and trustworthy roadmap to achieve the ultimate goal of wealth
maximization.
1.12 METHOD USED BY INVESTORS TO ANALIZE THE
MARKET AND MARKET CONDITION;
55

56. 1. Technical analysis
This method of analysis is used by a "momentum" investor. Technical
analysis looks at the price fluctuations that occur in the stock market. The
investor bases the decision to buy or sell on what he feels the price will do
next.
2. Fundamental analysis#1
Fundamental analysis is used by the "growth" investor. This type of analysis
decides if a certain company is a good investment based on the earnings of the
company, growth sales, and margins of profit.
3. Fundamental analysis #2. A "value" investor uses this type of
analysis. This method of analysis is similar to the analysis that a growth
investor uses but is slightly different. A value investor takes a close look at
those companies in the stock market that have a low value. The investor looks
at stocks that are currently cheap and low but that have the potential to make a
good comeback.
Most stock investment clubs use the fundamental method of analysis to
make most of their investing decisions.
They find companies that are listed on the stock market that show good growth,
profit, and earnings but that are still cheap to buy and haven’t yet reached their
potential.
Members of the investment club buy this stock and hold on to it for several
years so long as the fundamentals, as listed previously, continue to hold strong.
This type of investment strategy is called "buy and hold".
1.13 DIFFERENT TYPES OF RISK INVOLVE IN
INVESTMENT SECTORS :
In investing parlance, risk refers to the probability of a monetary loss or
56

57. actual returns from an investment being lower than the expected returns. There is an
inverse relationship between investing risk and return. Investment options that are risky
need to offer higher returns than those that are less risky in order to attract investors and
make it worthwhile to take on the additional risk.
A US Treasury bond is considered to be among the safest investments and
equities.
are associated with higher risks. However, every investment involves risk, the
difference being in the degree and the type.
Capital risk: This refers to the risk of losing the capital invested.
Currency risk: If one holds assets in a foreign currency, changes in the
exchange rate can cause fluctuations in the asset value. A decline in the value
of the foreign currency vis-à-vis the investor’s domestic currency will result in
a reduction in the value of the asset in terms of the home currency. This is
known as currency risk or exchange rate risk.
Liquidity risk: The risk associated with a delay in the trade of an asset is
known as liquidity risk. An asset sale may be difficult due to the small size of
the market or low demand, preventing the owner from converting the asset into
cash.
Credit risk: The risk associated with the inability of the borrower to repay the
principal is known as credit risk. For instance, the owner of a corporate bond
could suffer losses in case the issuing company declares bankruptcy and is
unable to redeem the bond.
Inflation risk: Inflation erodes the value of a currency. The possibility of the
value of an asset declining due to contraction in the purchasing power of a
currency is called inflation risk.
57

58. Interest rate risk: The possibility of devaluation of an interest-baring asset
(such as bonds, stocks and loans) due to a change in the interest rate is known
as interest rate risk.
MARKET RISK: This refers to the possibility of a decline in the value of an
investment due to a change in price. Price fluctuations may be caused by
changes in the interest rate, foreign exchange rate
, inflation or demand and supply situation.
Legal risk: The risk associated with changes in laws and regulations is called
legal risk.
Counterparty risk: This refers to the risk of the other party in an agreement
defaulting. For instance, the risk faced by an option owner of the other party
not selling the underlying asset as agreed is called their counterparty risk.
There are a number of other risks that an investor may be exposed to. Before
making a choice of investment, it is critical to understand the risk involved and
ways in which one can minimize risk exposure.
CHAPTER -2
2.1 LITERATURE REVIEW
The process of reading, analyzing, evaluating, and summarizing scholarly materials
about a specific topic. The results of a literature review may be compiled in a report
or they may serve as part of a research article, thesis, or grant proposal.
The literature review includes the academic books, journals, internet access,
magazines etc.
• Business Statistics by “S.P Gupta &M.P. Gupta”- The information
regarding the statistical tools and their limitations in different fields the
research is given in this section. This section explains why to use
correlation and what are the situations in which correlation can be used,
and what does correlation means.
58

59. • Research Methodology by “C.R. Kothari” The information regarding
the basics of research and research methodology , what are the different
types of research designs, what is problem statement, what are the
sources of data collection and what are the methods of data collection is
given in this section
• Financial Management by “I.M. Pandey”- The information regarding
nature of financial management, portfolio management, risk-return
relationship,options,derivatives and valuation of shares have been
understood from this book.
• WORK BOOK by “Association Of Mutual Funda In India”-The
information about the basic knowledge and working of mutual funds in
India is taken from this book.
• Daniel Kahneman and Amos Tversky (1979) originally described
“ Prospect Theory” and found that
individuals were much more distressed by prospective losses than they
were happy by equivalent gains.
Some economists have concluded that investors typically consider the
loss of $1 twice as painful as the
pleasure received from a $ gain. Individuals will respond differently to
equivalent situations depending
on whether it is presented in the context of losses or gains.
• Ippolito (1992) and Bogle (1992) reported that fund selection
by investors is based on past performance
of the funds and money flows into winning funds more rapidly than
they flow out of losing funds.
59

60. • Robert J. Shiller (1993) reported that many investors do not
have data analysis and interpretation skills.
This is because, data from the market supports the merits of index
investing, passive investors are more
likely to base their investment choices on information received from
objective or scientific sources.
• Goetzman (1993) and Grubber (1996) studied the ability of
investors to select funds and found evidence
to support selection ability among active fund investors.
• Grinblatt and Titman, 1992; Brown and Goetzman, 1997; Lunde et
al., 1999; Chevalier and Ellison, 1999; Kothari and Warner, 2001),
although others have focused on the risk-return characteristics of bond
mutual funds (Philpot et al., 2000; Blake et al., 1993). Some studies
(Indro et al., 1999; Morey and Morey, 1999; Sirri and Tufano, 1998)
have also investigated the different methods of predicting fund
performance by using tools, such as neural networks or benchmarking.
Recent literature, however, proposes the use of integrated or hybrid
models for predicting fund performance. Tsaih et al. (1998), for
example, develop a hybrid artificial intelligence technique to implement
trading strategies in the S & P 500 stock index futures market. Their
empirical results show that their system outperformed the passive buy-
and-hold investment strategy during the six-year testing period. The
authors suggest that the hybrid approach facilitates the development of
more reliable intelligent systems than standalone expert systems models.
• Phillip (1995) reported that there is a change in financial
decision-making and investor behaviour as a
result of participating in investor education programmes
sponsored by employees.
60

61. • Mittra (1995) discussed factors that were related to individuals risk
tolerance, which included years until retirement, knowledge
sophistication, income and net worth.
• Berhein and Garnette (1996) affirmed Philip’ s findings and
further stated that a serious national
campaign to promote savings through education and information
could have a measurable impact on financial behaviour.
• Malkiel (1996) suggested that an individual’s risk tolerance
is related to his/her household situation, lifecycle stage and
subjective factors.
• Guiso, Jappelli and Terlizzese (1996), Bajtelsmit and VenDerhei
(1997), Powell and Ansic (1997), Jianakoplos and Bernasek (1998),
Hariharan, Chapman and Domain (2000), Hartog, Ferrer-I-
Carbonell and Jonker (2002) concluded that males are more risk
tolerant than females.
• Raja Rajan (1997, 1998) highlightened segmentation of
investors on the basis of their characteristics, investment size,
and the relationship between stage in life cycle of the investors
and their investment pattern.
• Some recent studies have begun to address the issue of
understanding investor behavior (e.g., Zheng, 1999; Harliss and
Peterson, 1998; Goetzmann and Peles, 1997; Alexander et al. 1997,
1998; Bogle, 1992). These studies have aroused scholarly interest in
understanding how investors make investment decisions. A study by
Alexander et al. (1998) examines responses of randomly selected
61