1
Final Project Report–
“ A Study of the Risk and Return of alternative Investment Opportunities availa le to !i"h #et $orth Individuals – A %ase Study of I#& 'ysya (ank )imited*
+ear Sir Re", Application for -valuation of Project Report I am pleased to su mit here$ith my project report entitled “a study of the Risk and Return of alternative Investment Opportunities availa le to !i"h #et $orth Individuals in India – A case study of I#& 'ysya (ank )imited*. $hich provides detailed information for my project e/ecuted at I#& 'ysya (ank )imited0 1his project report has een prepared y me in part fulfillment of the Post &raduate %ertification in (usiness 2ana"ement0 1he same has een su mitted for your kind evaluation and appraisal0
Contents
Abstract 1. Introduction 1010 Area of mana"ement 3
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1040 %ompany profile 5 1060 )iterature orro$ed 7 106010 Risk. Return and +iversification 18 106040 !i"h #et 9orth Individuals 14 106060 Investment options of !#I:s 1; a0 2utual funds 13 0 (ank deposits 46 c0 &overnment Securities 4; d0 %orporate (onds 4< e0 )ife Insurance Policy 45 f0 &old 4= "0 )and 68 h0 ->uity 68 i0 IPO:s 61 j0 Preference Shares 61 1060; Instruments of investment provided y I#& 'ysya (ank 64 1060< Instruments of investment not provided y I#& 'ysya (ank 65 2. Methodology 6= 3. Problem Statement 6= 4. Body/Analysis ;010 S9O1 Analysis ;0101 ->uity Shares 67 ;0104 (ank +eposits ;8 ;0106 )ife Insurance Policy ;1 ;010; )and ;4 ;010< 2utual Funds ;6 ;0103 &old ;; ;0105 Preference Shares ;< ;010= IPO:s ;< ;0107 &overnment Securities ;3 ;01018%orporate (onds ;5 ;04 1a ular representation of various investment instruments ;= ;06 Analysis of each Investment Avenue ;0; Analysis of investment ha its of I#& 'ysya:s !#I:s ;0< 1hreats posed to Professional Investment Advisors . !"ecuti#e summary ;7 <8 <6 <;
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$. Conclusion A%%endi" & 'uestionnaire
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Bibliogra%hy
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Abstract
Portfolio 2ana"ement has een an inte"ral part for any investor0 -ach Investor. $hether small or i" is tryin" to ma/imi?e his@ her returns y makin" a diversified investment0 1o diversify the investment the risk and return trade off of each investment avenue has to e
; studied0 1herefore the study of portfolio mana"ement and risk and return is very important of an investor0 #o$ days there are professional investment advisors $ho study the risk and return portfolio of each investor and desi"n the most $ell suited portfolio from him@ her0 (anks also provide professional investment advice0 1his has opened up a hu"e market for the advisors and has ecome very competitive0 I#& 'ysya (ank also provides professional advise to its clients0 A common pro lem faced y the ank:s advisors is that they have a lo$ conversion rate on the advice "iven y them0 1herefore a study and analysis has een conducted on a sample of 18 !#I:s of the ank to analy?e their investment portfolio and risk appetite0 An analysis of the ank:s products is also conducted to understand them in detail0 1hen the re>uired su""estions are made to the investment advisors to improve the conversion rate and retain !#I:s0
1.1 Area *+ Management
1he area of study. $hich my project report covers. is financial mana"ement0 In financial mana"ement my project report covers t$o su jects,
< ? Port+olio management of I#& 'ysya ank:s !#I clients andA ? ,is- and return analysis of each investment avenue open to a !#I client0
.inancial Management
Finance is an area of study $hich is namely concerned $ith t$o distinct areas i0e0 financin" and investin"0 9e $ill e dealin" $ith financial mana"ement relatin" to investment activities0 1his area of finance deals $ith findin" out the est com ination or portfolio of financial assets and thus focuses attention on the allocation of funds once they are ac>uired0 1his area focuses attention $hether an investor should put all his money in one financial asset or in a com ination of different financial assets0 It studies and addresses the $ays in $hich individuals raise. allocate and use monetary resources over time. takin" into account the risks entailed in their projects0 It is the application of a set of techni>ues that individuals use to mana"e their financial affairs. particularly the differences et$een income and e/penditure and the risks of their investments0 An entity $hose income e/ceeds its e/penditure can lend or invest the e/cess income0 On the other hand. an entity $hose income is less than its e/penditure can raise capital y orro$in" or sellin" e>uity claims. decreasin" its e/penses. or increasin" its income0 /e 0ill be +ocusing on those entities 0ho ha#e sur%lus income and are loo-ing +or a#enues o+ in#estment0 1herefore $e $ill further "o into portfolio mana"ement of individuals and risk and return analysis of each investment avenue0
,is- And ,eturn Analysis
1he most important motive for an investor to invest is to earn a return on their investment0 !o$ever. selectin" investments on the asis of ma/imi?ation of return is not enou"h0 1he investor also considers the risk associated $ith the investment0 ,eturn means the enefit. $hich arises out of any investment or undertakin"0 In financial mana"ement $e are primarily concerned $ith the return paid to an individual investor0 Return can e paid in one "o or at re"ular intervals0 Return is the foremost important reason for an investor to make an investment0 1he investor is al$ays ready to undertake ne$ investment opportunities if the return paid are hi"h0 ,is- means the varia ility of an investment or security returns0 It means that the future returns of the investor are unpredicta le0 It can e stated as the possi ility that the actual outcome of the a financial decision may not e the same as estimated0 It refers to possi ility of receivin" or not receivin" the estimated return $hich can e >uantified and measured0 /e 0ill be discussing the ris- and return o+ each in#estment a#enue.
Port+olio Management1
3 A portfolio is a mi/ture of investment avenues0 An investor usually maintains a portfolio0 1he aim of mana"in" a portfolio is to diversify and reduce risk and ma/imi?e return. $hich is also other$ise kno$n as Bnot puttin" all your e""s in a sin"le asket:0 Port+olio Management is the processes. practices and specific activities to perform continuous and consistent evaluation. prioriti?ation. ud"etin". and finally selection of investments that provide the "reatest value and contri ution to the strate"ic interest of the investor0 1hrou"h portfolio mana"ement. the investor can e/plicitly assess the tradeoffs amon" competin" investment opportunities in terms of their enefit. costs. and risks0 1he portfolio of each I#&:s !#I has een analy?ed and on the asis of that various investment options open for these customers throu"h the ank have een su""ested0 -ach customer has the limit of risk he@she can undertake0 1his has also een looked into and under the limitations. $hich are the est options availa le have een advised0
1.2 Com%any Pro+ile I#& 'ysya (ank )td0is a joint venture et$een 'ysya (ank )td. a premier ank in the Indian Private Sector and I#&. a "lo al financial po$erhouse of +utch ori"in0 I#& 'ysya (ank $as incorporated in Octo er 4884. after o tainin" necessary clearance from the Reserve (ank of India0
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'ysya (ank $as founded in 1768 to e/tend a helpin" hand to those $ho $ere deprived of ankin" services0 Since then the (ank has made rapid strides and has carved a distinct identity of ein" India:s Premier Private Sector (ank0 In 17=<. the (ank ecame the num er one private sector ank in India0 I#& &roup is a "lo al financial services company of +utch ori"in $ith 1<8 years of e/perience. providin" a $ide array of ankin". insurance and asset mana"ement services in over 3< countries0 I#&:s over 11;.888 employees $ork daily to satisfy a road customer ase, individuals. families. small usiness. lar"e corporations. institutions and "overnments0 (ased on market capitali?ation. I#& is one of the 48 lar"est financial institutions $orld$ide and ranked in the topC18 in -urope0 I#& is the num er one financial services company in the (enelu/ home market0 I#& services its retail clients in these markets $ith a $ide ran"e of retailC ankin". insurance and asset mana"ement services0 I#&:s $holesale ankin" activities operate $orld$ide ut $ith a primary focus on the (enelu/ countries0 In the Dnited States. I#& is a topC< provider of retirement services and life insurance0 In %anada. they are the top property and casualty insurer0 I#& +irect is a leadin" direct ank $ith over 1< million customers in nine lar"e countries0 In the "ro$th markets of Asia. %entral -urope and South America $e. for e/ample. provide life insurance0 9e are also a lar"e asset mana"er $ith assets under mana"ement of around -DRO <88 illion0 I23 4ysya 5as a grou%6 has 3 businesses in India1 • I#& )ife Insurance • I#& 'ysya (ank • I#& 2utual Fund I#& 'ysya (ank is a premier private sector ank $ith a 58Cyear herita"e and 10< million satisfied customers0 I#& 'ysya 2utual Fund is a mid si?ed asset mana"ement company $ith a retail investor focus0
7he Immediate Bene+it to I23 4ysya Ban- 8td1 • • Pride of havin" ecome a mem er of "lo al financial services "iant. $ith an asset ase of Rs0;=;7 thousand crores Presence of the "roup in over 3< countries. servin" over 38 million customers across the "lo e0
= • Pride of this "lo al identity. the ack up a financial po$er house and the status of ein" the first Indian International (ank. $ould also "reatly enhance productivity. profita ility resultin" in improved performance for the ank to translate into hi"her returns. to all stake holders
I#& 'ysya "roup a customer –oriented company $ith a clear or"ani?ation and strate"y that is founded on value ased mana"ement0 1hey have a stron" position in mature markets $here $e $ant to "enerate further "ro$th throu"h proper e/ecution of our usiness fundamentals and $e focus on "ro$th in retirement services. direct ankin" and life insurance in developin" markets0 1hat $ay $e try to offer our share holders a hi"her return than the avera"e of our peers0
1.3.1 7heory on ,is-9 ,eturn and :i#ersi+ication
1here are many types of risk involved in financial decisions, ? Ca%ital ,is-1 the risk of incurrin" a capital loss due to do$n$ard chan"es in the market price of a security is defined as the capital risk of a security0 Investment in most of the e>uity shares has this type of risk runnin" $ith them0 ? Income ris-, this is the risk of variation in return availa le from the security0 1his risk is almost nil in onds. de entures and preference shares ? :e+ault ris-1 the risk involved in default in payment of interest or repayment of principal amount y the company is called default risk0 1his risk is nil in "overnment onds0 From the point of vie$ of nature and attitude investors can e classified as, ? ,is- a#erse1 those investors $ho avoid takin" risk and prefer only those investments. $hich have nil or relatively lo$er risk0 ? ,is- see-ers1 those investors $ho are ready to take risk if the return is sufficient enou"h0 If "iven the choice et$een t$o risky investments. a risk seeker investor $ould prefer the riskier one0 ? 2eutrals1 those investors $ho do not care much a out the risk0 1heir investment decisions are ased on other factors other than risk and return0
Se#eral +actors are to be considered 0hile deciding the %ort+olio as sho0s1 10 8i;uidity and Mar-etability o+ the Port+olio , 1he portfolio must e such as to provide li>uidity $henever re>uired0 All funds should never e locked in lon"Cterm de t securities even if they are less risky0
7 40 7a" Planning, Portfolio selections are made in vie$ of ta/ provisions in relation to revenue incomes as $ell as capital "ains0 1he investor should plan the portfolio in a $ay as to minimi?e ta/ lia ility0 60 Ca%ital 3ains1 %ertain securities may provide lo$er returns in the short run. ut have a "reat potentiality of capital "ains in the lon" run and also provide a hed"e a"ainst inflation0 ;0 Minimi<ation o+ the 7otal ,is- Position1 9hile selectin" a portfolio. an investor should consider the total risk of the portfolio rather than the risk of any particular investment only0 1he investor should minimi?e his total risk0 <0 Industry :i#ersi+ication1 An efficient portfolio should consist of an investment made in different industries of diverse nature0 B#ever put all the e""s in the same asket: is the principle0 7he total ris- o+ a %ort+olio can be bi+urcated into t0o %arts as +ollo0s1 10 Systematic or Mar-et ,is-1 It is that part of total risk $hich cannot e eliminated y diversification0 1he part of the risk that arises ecause every security has a uilt in tendency to move in line $ith the fluctuations of the market0 1he systematic risk refers to the fluctuations in return due to "eneral factors in the market0 1he systematic risk refers to fluctuation in return due to "eneral factors in the market such as money supply. inflations. economic recession. industrial policy. interest rate policy of the &overnment. credit policies. ta/ policies etc0 40 =nsystematic ,is-1 1he unsystematic risk is one. $hich can e eliminated y di#ersi+ication0 1he risk represents the fluctuations in returns of a security due to factors specific to the particular firm only and not the market as a $hole0
Diversification: is a riskCmana"ement techni>ue that mi/es a $ide variety of
investments $ithin a portfolio in order to minimi?e the impact that any one security $ill have on the overall performance of the portfolio0 +iversification lo$ers the risk of portfolio0 Academics have comple/ formulas to demonstrate ho$ this $orks. then comes up the concept of portfolio mana"ement0
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There are three main practices that can help you ensure the best diversification:
10 Spread your portfolio amon" multiple investment vehicles such as cash. stocks. onds. and mutual funds and perhaps even some real estate0 40 'ary the risk in your securities0 EouFre not restricted to choosin" only lue chip stocks0 In fact. it $ould e $ise to pick investments $ith varied risk levelsA this $ill ensure that other areas offset lar"e losses0 60 'ary your securities y industry0 1his $ill minimi?e the impact of industryC specific risks
/e 0ill no0 discuss 0hat ris->return trade>o++ means.
,IS?/,!7=,2 7,A:!>*.. C 1he alance an investor must decide on et$een the desire for lo$ risk and hi"h returns. since lo$ levels of uncertainty Glo$ riskH are associated $ith lo$ potential returns and hi"h levels of uncertainty Ghi"h riskH are associated $ith hi"h potential returns0 -ach investor tries to reach a point of risk@return in his portfolio $here the risk is minimum and return is ma/imum0
1.3.2 @igh 2et 0orth Indi#iduals
A hi"h net $orth individual is a person $ith lar"e personal financial holdin"s0 1raditionally the term used $as millionaire. ut in recent years the term High Net Worth individual G!#IH has ecome the descriptor of choice0 A classification used y the financial services industry to denote an individual or a family $ith hi"h net $orth0 Althou"h there is no precise definition of ho$ rich some ody must e to fit into this cate"ory. hi"h net $orth is "enerally >uoted in terms of li>uid assets over a certain fi"ure0 1he e/act amount differs y financial institution and re"ion0 1he cate"ori?ation is relevant ecause hi"h net $orth individuals "enerally >ualify for separately mana"ed investment accounts instead of re"ular mutual funds0 !#9I:s are in hi"h demand y private $ealth mana"ers0 1hese individuals "enerally demand Gand can justifyH personali?ed services in investment mana"ement. estate plannin". ta/ plannin". and so on0 !#I:s Investi le assets refer to all fi/ed and current assets of the individual ut e/clude his primary d$ellin"0 1hey include a simple savin"s or fi/ed deposit account $ith a financial institution. a securities account $ith a rokera"e firm or an investmentClinked policy $ith an insurance company0 If the !#I has more than one account $ith the entity. the total net investi le assets $ould mean the a""re"ate net invest a le assets of the accounts0 India no$ is home to =6.888 millionaires and the country sa$ the $orldFs second fastest "ro$th. at 1706 per cent. in the num er of hi"h netC$orth individuals in 488<0
Ser#ices 0anted by @igh 2et /orth Indi#iduals1
11 !#I:s are lookin" for professional advise on $ealth mana"ement0 1his is termed as priority ankin"0 Priority ankin" provides t$o major services to !#I:s0 First is $ealth mana"ement and second is portfolio mana"ement0 Private (ankin" in a sense e/pands the definition of portfolio to $ealth mana"ement0 9ealth includes e/istin" as $ell as fresh funds and apart from the traditional e>uity G oth listed and private e>uityH. de t and mutual funds. comprises art. real estate. je$ellery etc0 1he advanta"e anks have in providin" this service is that there is a certain seamless ness in the entire operation. from makin" an investment decision to the proceeds. includin" char"es ein" credited or de ited to your account0 Further. the essence of this usiness is security and confidentiality. $hich is $hat "ood ankin" essentially. is all a out0
7he %ort+olio management %roduct itsel+ 0hich ban-As o++ers can ty%ically9 be bro-en into1
? Ad#isory ser#ices, Fle/i le. un iased investment advice customi?ed to meet client needs0 ? 7ransaction su%%ort, All transactions. oth in the primary and secondary markets facilitated throu"h a panel of rokers0 ? Custodial ser#ices, Important from the point of vie$ of removal of settlement hassles and efficient follo$Cup of all corporate actions0 1hese are a fe$ services demanded y !#I:s from their financial advisors, ? Wealth preservation and risk management ? Estate planning ? Tax planning ? Retirement planning
When it came to selecting a financial provider or advisor - the criteria for high-net-worth investors in order of priority are:
? ? ? ? !ervice "uality# $ersonal relationships with their financial advisors# %alued advice# and &nvestment performance'
1he I#& 'ysya:s team offers customi?ed portfolios for clients that take into account ta/ constraints and the overall risk tolerance of each individual or family office0 Risks $ithin each portfolio are carefully controlled via a disciplined investment process and sophisticated risk mana"ement tools0 I#& 'ysya provides priority ankin" to its !#I:s
14 Priority ankin" is meant for the customer $ho is not really Imass market:0 1he products and services offered remain the same. ut the customer "ets to deal $ith a dedicated Relationship 2ana"er GR2H instead of a faceless entity0 !e or she can "et his >ueries ans$ered on the phone. is visited at his home@office y his R2 and. of course. is invited to a host of events or"ani?ed y the ank. .or I23 4ysya ban- an indi#idual 0ith an in#estment o+ 1 la-hs and abo#e is categori<ed as @2I.
1.3.3 In#estment o%tions o+ @2IAs1
1here are many investment tools an !#I can add to his@her investment portfolio0 1he investment avenues suita le of each individual $ill e different0 1he investment type undertaken y a person can e e/plained $ith the help of the riskCreturn trade off0 ,is-> return trade of can e defined as “7he balance an in#estor must decide on bet0een the desire +or lo0 ris- and high returns9 since lo0 le#els o+ uncertainty 5lo0 ris-6 are associated 0ith lo0 %otential returns and high le#els o+ uncertainty 5high ris-6 are associated 0ith high %otential returnsB. 2ost investors take into consideration this tradeCoff efore makin" their investments0 An investor $ho seeks hi"her returns $ould "enerally venture into the stock markets. $hile one seekin" sta le and secure returns is likely to stick to fi/ed income securities0 1his depends upon the person:s social ack"round. a"e. se/. $ork desi"nation. family. runnin" income. future monetary re>uirements and various fi/ed commitments in life0 If you:re investin" to accumulate $ealth y uyin" individual securities. there are t$o >uestions you need to ans$er in order to limit your risk $hile seekin" a satisfactory return, 10 What investment should you buy( 40 When should you buy them(
The only sound way to make these choices is to research the possibilities until you know as much as you can about:
? ? ? *#erall mar-et 4arious sectors o+ the mar-et 7he com%any issuing the indi#idual stoc- or bond your considering
16 ? 7he su%%ly and demand o+ the securities your considering
For a thorou"h investi"ation. you need to do oth fundamental and technical analysis. either on your o$n or $orkin" $ith an adviser0 Some of the techni>ues may seem intimidatin". and the details over$helmin"0 (ut the information you need is readily availa le0
!#ery ban- and +inancial institute %ro#ides in#estors 0ith #arious instruments o+ in#estments. 7hey are enumerated belo01
1. Mutual +unds 2. Insurance %olicies 3. 3o#ernment securities 4. Cor%orate bonds . .i"ed de%osits $. 8and and %ro%erty (. 3old ). !;uity C. IP*As 1D. Pre+erence shares 9e $ill riefly discuss each product,
Mutual .unds1
1;
:e+inition, a 2utual Fund is a pool of money. collected from investors. and is invested
accordin" to certain investment o jectives0 A mutual fund is created $hen investors put their money to"ether0 It is therefore a pool of the investor:s funds0 1he most important characteristic of a mutual fund is that the contri utors and the eneficiaries of the fund are the same class of people. namely the investors0 1he term mutual means that investors contri ute to the pool. and also enefit from the pool0 1here are no other claimants to the funds0 1he pool of funds held mutually y investors is the mutual fund0 Mutual +unds reduce ris-s +or the in#estors by in#esting in a %ort+olio o+ securities. 1his means the funds are not invested in the same investment avenue0 1hey offer readyC made diversified portfolio. $hich ena les investors to hold diversified portfolios0 2utual funds invest in diversified securities. as the risk and return of different securities do not necessarily move in the same direction. $hich reduces the risk of the portfolio0
7he .und Structure And Its Constituents,
S%onsor
7he Asset Management Co. 5AMC6
7rustee
Clients
1he structure of the mutual fund in India is "overned y the S!BI 5Mutual .und6 ,egulations9 1CC$0 1hese re"ulations make it mandatory for the mutual funs to have a threeCtier structure of S%onsor>7rustee>Asset Management Com%any 5AMC60 1he sponsor is the promoter of the mutual fund and appoints the trustees0 1he trustees are responsi le to the investors in the mutual fund. and appoint the A2% for mana"in" the investment portfolio0 1he A2% Ginvestment mana"ersH is the usiness face of the mutual fund. as it mana"es all the affairs of the mutual fund0 1he mutual fund and the A2% have to e re"istered $ith S-(I0 1he S-(I re"ulations also provide $ho can e the 6 entities and the format of a"reement et$een them0
Mutual +unds can be structured in the +ollo0ing 0ays,
a0 Com%any +ormC in $hich investors hold shares of mutual fund0 In this structure mana"ement of the fund is in the hands of an elected oard. $hich in turn appoints investment mana"ers to mana"e the fund0
1< 0 7rust +ormC in $hich the funds of the investors are held y the trust. on ehalf of the investors0 1he trust appoints investment mana"ers and monitors their functionin". in the interest of the investors0 G;H
7he bene+its o+ in#esting in mutual +unds are1
• • • • • • Pro+essional management of your money $ho have the e/perience and resources to thorou"hly analy?e the economy and financial markets. and spot "ood opportunities0 :i#ersi+ication y $hich $ith smaller amounts of investment you can achieve a hi"h de"ree of diversification and reduce your risk0 8i;uidity and con#enience of "ettin" ack your money easily $henever you $ant and there is very less paper $ork to do0 -asy to track your investments0 7a" bene+its are also availa le for certain schemes0 G<H A++ordability Investors individually may lack sufficient funds to invest in hi"hC "rade stocks0 A mutual fund ecause of its lar"e corpus allo$s even a small investor to take the enefit of its investment strate"y0 /ell>,egulated All 2utual Funds are re"istered $ith S-(I and they function $ithin the provisions of strict re"ulations desi"ned to protect the interests of investors0 1he operations of 2utual Funds are re"ularly monitored y S-(I0 G5H
In#estment a#enues o+ mutual +unds
)utual *unds invests into
Stoc-s
Bonds
Money mar-et instruments
Stoc-s1 mutual funds invest into stocks. $hich represent o$nership or e>uity in a company. popularly kno$n as shares0 Bonds, these represent de t from companies. financial institutions or "overnment a"encies0 Money mar-et instruments, these include shortCterm de t instruments such as treasury ills. certificate of deposits and interC ank call money0
7here are di++erent ty%es o+ mutual +unds. 7he chart belo0 0ill sho0 them
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M=7=A8 .=2:S
Open-Ended funds
Close-Ended Funds
Inter al funds
Inde" .unds Income/ bond +unds
@ybrid/ balanced +und
S%ecialty .unds Money Mar-et +unds ? Sector specific fund ? $egional funds ? Sociall" responsi!le fund ? %a& sa ing schemes 3lobal/ Internationa l .und
!;uity +unds
? ? ? ? ? ?
Growth fund Value fund Blend fund Large-cap fund Mid-cap fund Small-cap fund
? Gilt funds ? Income funds ? MI'(s ? Short-term ? Medium-term ? Long-term
? Glo!al funds ? Foreign funds ? Countr" specific funds ? Emerging mar#et funds
By structure1
?
*%en>ended .unds1 An openCend fund is one that is availa le for su scription all throu"h the year0 1hese do not have a fi/ed maturity0 Investors can conveniently uy and sell units at #et Asset 'alue GJ#A'JH related prices0 1he key feature of openCend schemes is li>uidity0 2ost of the funds in India are openCended funds0
15 Close>ended +und1 A closedCend fund has a stipulated maturity period $hich "enerally ran"in" from 6 to 1< years0 1he fund is open for su scription only durin" a specified period0 Investors can invest in the scheme at the time of the initial pu lic issue and thereafter they can uy or sell the units of the scheme on the stock e/chan"es $here they are listed0 In order to provide an e/it route to the investors. some closeCended funds "ive an option of sellin" ack the units to the 2utual Fund throu"h periodic repurchase at #A' related prices0 S-(I Re"ulations stipulate that at least one of the t$o e/it routes is provided to the investor0 G=H ? Inter#al +unds1 Interval funds com ine the features of openCended and closeC ended schemes0 1hey are open for sale or redemption durin" preCdetermined intervals at #A' related prices0
?
!;uity +unds1
Funds that invest in stocks represent the lar"est cate"ory of mutual funds0 &enerally. the investment o jective of this class of funds is lon"Cterm capital "ro$th $ith some income0 1here are. ho$ever. many different types of e>uity funds ecause there are many different types of e>uities0 1hese funds invest a major part of their corpus in e>uities0 1he composition of the fund may vary from scheme to scheme and the fund mana"er:s outlook on various scripts0
In#estment in e;uity +unds can be di#ided into t0o ty%es1 1. In#estment style1
? 3ro0th +und1 1he o jective of &ro$th Fund scheme is to provide capital appreciation over the medium to lon" term0 1his type of scheme is an ideal scheme for the investors seekin" capital appreciation for a lon" period0 G11H 1hese funds uy shares in companies that are "ro$in" rapidly ut are pro a ly not "oin" to "o out of usiness too >uickly0 &ro$th funds rarely provide dividend income and are considered risky investments ? 4alue +und1 1he term value refers to a style of investin" that looks for hi"h >uality companies that are out of favor $ith the market0 )o$ P@- and priceCtoC ook ratios characteri?e these companies and hi"h dividend yields0 (13) 1hese
funds invest in lar"e and midCsi?ed companies that appear to e overlooked or out of favor0 1hese undervalued stocks tend to pay dividends0
? Blend +und1 1hese funds are a J lendJ of oth "ro$th and value stocks0
2. Si<e o+ In#estment1
? 8arge ca% +unds1 1hese funds uy shares of i" companies0 1hink I(20 1he stock prices for these companies tend to e relatively sta le. and the companies may pay a decent dividend0 In companies $hose market value GK shares outstandin" L current market priceH is lar"e0 (y lar"e. I mean
1= "reater than M7 illion0 1hese J lueCchipJ funds tend to e $ellC esta lished corporations and tend to pay dividends0 ? Mid ca% +unds1 1hese funds uy shares of mediumCsi?e companies0 1he stock prices for these companies are less volatile than the small cap companies. ut more volatile Gand $ith "reater potential for "ro$thH than the lar"e cap companies0 1hese funds invest in midCsi?ed companies $hose market value is more in the ran"e of M1 illion to M7 illion0 ? Small ca% +unds1 1hese funds uy shares of small companies0 1hink ne$ IPOs0 1he stock prices for these companies tend to e hi"hly volatile. and the companies never GeverH pay a dividend0 Eou may also find funds called micro cap. $hich invest in the smallest of pu lically traded companies0
Inde" +unds1
A portfolio of investments that is $ei"hted the same as a stockCe/chan"e inde/ in order to mirror its performance0 1his process is also referred to as "indexing". An inde/ is simply a "roup of stocks chosen to represent a particular se"ment of the market0 Dsually this is accomplished y purchasin" small amounts of each stock in a market0 1he mana"er is not tryin" to find the hot stocks or "reat deals0 Instead. the mana"er is simply tryin" to match a chosen inde"0 1he results are funds that are very cost efficient. meanin" the operatin" costs are very lo$. and often eat most actively mana"ed funds0 G1<H For e/ample. a stock inde/ fund ased on the +o$ Nones Industrial Avera"e $ould uy shares in the 68 stocks that make up the +o$. only uyin" or sellin" shares as needed to invest ne$ money or to cash out investors0 1he advanta"e of an inde/ fund is the very lo$ e/penses0 After all. it doesnFt cost much to run one0
Bond/Income .unds1
An income fund invests in either corporate. "overnment. or municipal de t securities0 A de t security is an o li"ation. $hich pays interest on a re"ular asis0 !ence. this type of fund is desi"ned for investors $ho desire periodic income payments0 1here are. ho$ever. su stantial differences and varyin" de"rees of risk amon" income funds dependin" on the credit >uality of the de t issuer. the maturity of the de t instrument. and prevailin" interest rates0 ? 3ilt>+unds: Invest their corpus in securities issued y &overnment. popularly kno$n as &ilt de t papers0 1hese Funds carry ?ero +efault risk ut are associated
17 $ith Interest Rate risk0 1hese schemes are safer as they invest in papers acked y &overnment0 ? Income +unds1 Invest a major portion into various de t instruments such as onds. corporate de entures and &overnment securities0
?
MIPAs1 Invests around =8O of their total corpus in de t instruments $hile the
rest of the portion is invested in e>uities0 It "ets enefit of oth e>uity and de t market0 1hese scheme ranks sli"htly hi"h on the riskCreturn matri/ $hen compared $ith other de t schemes0 ? Short>term Bond .unds1 usually means the holdin"s have up to t$o years left to maturity0 1his includes ills. %+s. and commercial paper0 ? Intermediate>term Bond .unds1 usually means the holdin"s have et$een t$o years to ten years until maturity0 1his includes notes. ? 8ong>term Bond .unds1 usually means the holdin"s have over ten years left to maturity0
@ybrid/balanced +und1
!y rid mutual funds have een around since the late 1748s0 1hey are funds that are invested in common stock. preferred stock. onds. and may have an international or a cash component as $ell0 @ybrid mutual +unds may be suited +or1 10 Investors $ho are just startin" out and $ant diversification $ithin a sin"le fund. and 40 1hose $ho $ant a simplified portfolio of only one or t$o funds0 60 One type of a hy rid mutual fund is called a J alanced fundJ0 1hese funds "enerally have lo$ volatility and are popular $ith investors seekin" current income and "ro$th potential0 1he fund:s o jectives and the fund mana"er determine the ratio of stocks to onds0 Funds $ith B alanced: or Bincome: in the name normally have a fi/ed ratio from $hich they can:t deviate0 On the avera"e. their ratio of stocks to other investments is appro/imately 38,;80 2ana"ers of alanced funds can. ho$ever. shift this ratio one $ay or the other to take advanta"e of hi"h interest rates or stock market "ro$th0 1hese funds may e e>uityC oriented and ske$ed to$ard stocks. or incomeCoriented and ske$ed to$ard onds0
Money Mar-et +unds1
A money market fund is a type of mutual fund that is re>uired y la$ to invest in lo$C risk securities0 1hese funds have relatively lo$ risks compared to other mutual funds and pay dividends that "enerally reflect shortCterm interest rates0 Dnlike a Jmoney market deposit accountJ at a ank. money market funds are not federally insured0 2oney market funds typically invest in "overnment securities. certificates of deposits. commercial paper of companies. and other hi"hly li>uid and lo$Crisk securities0 1hey
48 attempt to keep their net asset value G#A'H at a constant M1088 per sharePonly the dividend yield "oes up and do$n0 (ut a money market:s per share #A' may fall elo$ M1088 if the investments perform poorly0 9hile investor losses in money market funds have een rare. they are possi le0 Althou"h money market mutual funds are amon" the safest types of mutual funds. it still is possi le for money market mutual funds to fail. ut it is unlikely0 In fact. the i""est risk involved in investin" in money market funds is the risk that inflation $ill outpace the fundsF returns. there y erodin" the purchasin" po$er of the investorFs money0
7y%es o+ money mar-et mutual +unds are,
? Prime +unds ? 3o#ernment +unds ? 7a">e"em%t +unds
S%ecialty mutual +unds1
1his classification of mutual funds is more of an allCencompassin" cate"ory that consists of funds that have proved to e popular ut donFt necessarily elon" to the cate"ories $eFve descri ed so far0 1his type of mutual fund for"oes road diversification to concentrate on a certain se"ment of the economy0 ? Sector +unds are tar"eted at specific sectors of the economy such as financial. technolo"y. health. etc0 Sector funds are e/tremely volatile0 1here is a "reater possi ility of i" "ains. ut you have to accept that your sector may tank0 ? ,egional +unds make it easier to focus on a specific area of the $orld0 1his may mean focusin" on a re"ion Gsay )atin AmericaH or an individual country Gfor e/ample. only (ra?ilH0 An advanta"e of these funds is that they make it easier to uy stock in forei"n countries. $hich is other$ise difficult and e/pensive0 Nust like for sector funds. you have to accept the hi"h risk of loss. $hich occurs if the re"ion "oes into a ad recession0 ? Socially res%onsible funds Gor ethical fundsH invest only in companies that meet the criteria of certain "uidelines or eliefs0 2ost socially responsi le funds donFt invest in industries such as to acco. alcoholic evera"es. $eapons or nuclear po$er0 1he idea is to "et a competitive performance $hile still maintainin" a healthy conscience0 ? 7a" sa#ing schemes1 1he o jective of 1a/ Savin" schemes is to offer ta/ re ates to the investors under specific provisions of the Indian Income 1a/ )a$s0 Investments made under some schemes are allo$ed as deduction u@s == of the Income 1a/ Act0
3lobal mutual +und1
1his type of mutual fund makes its investment in international markets0 1hey invest eyond the national oundaries in forei"n lands0 1hey invest in forei"n companies0
Ban- de%osits1
41
Meaning1 9hen you deposit a certain sum in a ank $ith a fi/ed rate of interest and a
specified time period. it is called a ank Fi/ed +eposit GF+H0 At maturity. you are entitled to receive the principal amount as $ell as the interest earned at the preCspecified rate durin" that period0 1he rate of interest for (ank Fi/ed +eposits varies et$een ; and 11 per cent. dependin" on the maturity period of the F+ and the amount invested0 1he interest can e calculated monthly. >uarterly. halfCyearly. or annually. and varies from ank to ank0 1hey are one the most common savin"s avenue. and account for a su stantial portion of an avera"e investorFs savin"s0 1he facilities vary from ank to ank0 Some services offered are $ithdra$al throu"h che>ues on maturityA reak deposit throu"h premature $ithdra$al. and overdraft facility etc0 Interest income from (ank F+ >ualifies for e/emption under section =8). $hich means the interest income is e/empt up to limit of Rs 78880
7here are t0o basic ty%es o+ +i"ed de%osit accounts1
10 7ime de%osit C $here you a"ree to deposit money for a fi/ed period0 1he lon"er the period and the "reater the amount. the hi"her the interest rate0 Fi/ed periods ran"e from one month to one year0 7he interest rate is higher than call de%osit 40 Call de%osit C $here you a"ree to $ithdra$ money only after "ivin" a period of notice to us0 1here is a minimum deposit for settin" up fi/ed deposit accounts0 It helps you to save money y forcin" you to keep your money intact for a certain period0 !o$ever. if in any case you need to $ithdra$ money efore the maturity date. you can al$ays come to us and special arran"ements could e made0 Interest loss and an early $ithdra$al char"e $ill result from such chan"es0
.eatures
(ank deposits are fairly safe ecause anks are su ject to control of the Reserve (ank of India GR(IH $ith re"ard to several policy and operational parameters0 1he anks are free to offer varyin" interests in fi/ed deposits of different maturities0 Interest is compounded once a >uarter. leadin" to a some$hat hi"her effective rate0 1he minimum deposit amount varies $ith each ank0 It can ran"e from as lo$ as Rs0 188 to an unlimited amount $ith some anks0
Ad#antages
(ank deposits are the safest investment after Post office savin"s ecause all ank deposits are insured under the +eposit Insurance Q %redit &uarantee Scheme of India0 It is possi le to "et a loan up to5<C 78O of the deposit amount from anks a"ainst fi/ed deposit receipts0 1he interest char"ed $ill e 4O more than the rate of interest earned y the deposit0 One can "et a ank F+ at any ank. e it nationali?ed. private. or forei"n0 Eou have to open a F+ account $ith the ank. and make the deposit0 G
7he de%osit %eriod can #ary +rom 1 9 3D or 4 days to 39 $ months9 1 year9 1. years to 1D years0 G elo$ one croreH
44 :uration 5 C 1< days 13 C ;8 days ;1 –;; days ;<C38 days 31C78 days 71 – 117 days 148 days 141 – 63; days 63<C633 days 635 days to 18 years Interest rate 5E6 %er annum 40<8O 60<8O ;088 O <0<8O 5088O 50<8O 505<O 50<8O =04<O 504<O
3o#ernment Securities1
:e+inition1 &overnment
onds are securities issued y the %entral and State "overnments0 As anker to the "overnment. the Reserve (ank of India re"ularly services the payment of interest and the principal on these securities0 Since these are soverei"n paper. the onds are re"arded as the safest0 1he other advanta"es of the "overnment securities are that they are trada le and can e used as collateral for loans0 1here is no deduction at source G1+SH on interest payments on "overnment securities0 (ut for individuals. interest income up to Rs 6.888 per annum is only e/empt from income ta/0
7he bene+its o+ in#esting in a go#ernment security are1
10 Sa+ety1 1he Rero +efault Risk is the "reatest attraction for investments in &overnment Securities0 It enjoys the "reatest amount of security possi le. as the &overnment of India issues it0 !ence they are also kno$n as &iltC-d"ed Securities orF&iltsF0 40 .i"ed Income1 +urin" the term of the security there is likely to e fluctuations in the &overnment Security prices and thus there e/ists a price risk associated $ith investment in &overnment Security0 !o$ever. the return on the holdin" of investment is fi/ed if the security is held till maturity and the effective yield at the time of purchase is kno$n and certain0 In other $ords the investment ecomes a fi/ed income investment if the uyer holds the security till maturity0 60 Con#enience1 &overnment Securities do not attract deduction of ta/ at source G1+SH and hence the investor havin" a nonCta/a le "ross income need not file a return only to o tain a 1+S refund0 ;0 Sim%licity1 1o uy and sell &overnment Securities all an individual has to do is call his @ her ->uity (roker and place an order0 If an individual does not trade in the ->uity markets. he @ she has to open a demat account and then can commence
46 tradin" throu"h any ->uity roker0 <0 8i;uidity1 &overnment Security $hen actively traded on e/chan"es $ill e hi"hly li>uid. since a national tradin" platform is availa le to the investors0 30 :i#ersi+ication1 &overnment Securities are availa le $ith a tenor of a fe$ months up to 68 years0 An investor then has a $ide time hori?on. thus providin" "reater diversification opportunities0
7he +actors9 0hich a++ect the %rice o+ go#ernment securities1
1he price of a &overnment Security in the markets is determined y the forces of demand and supply. as is the case in any market0 1he price of a &overnment Security in the marketplace also depends on a num er of other factors and $ill fluctuate accordin" to chan"es in, ? -conomic conditions0 ? &eneral money market conditions includin" the position of money supply. in the economy0 ? Interest rates prevalent in the market and the rates of ne$ issues0 ? %redit >uality of the issuer
Cor%orate Bonds1
(onds issued y a corporation are called corporate onds0 9hen a company needs to raise funds for some type of investment or e/penditure. they often turn to the pu lic markets for fundin"0 One $ay to do this is to issue additional stock in the company. ut this has implications on the value of the shares and dilutes o$nership0 1he other major option is to sell onds to the pu lic and take on de t0 Sellin" onds is often more attractive to companies than "ettin" a loan from a ank0 %orporate onds are de ts issued y industrial. financial and service companies to finance capital investment and operatin" cash flo$0 Investors in corporate onds have a $ide ran"e of choices $hen it comes to ond structures. coupon rates. maturity dates. credit >uality and industry e/posure0 Investors in corporate onds have a $ide ran"e of choices $hen it comes to ond structures. coupon rates. maturity dates. credit >uality and industry e/posure0 9hen you uy a ond. you are lendin" money to the corporation that issued it0 1he corporation promises to return your money. or principal. on a specified maturity date0 Dntil that time. it also pays you a stated rate of interest. usually semiannually0 1he interest payments you receive from corporate onds are ta/a le0 Dnlike stocks. onds do not "ive you an o$nership interest in the issuin" corporation0
4; 1he onds are fully ta/a le. and they are issued in maturities ran"in" from less than one year to a out 68 years Galthou"h there are a fe$ corporate onds that mature in more than 68 yearsH0
7y%es o+ Issuers
1here are five main classifications of issuers representin" various sectors that issue corporate onds, G43H
10 40 60 ;0 <0 Pu lic utilities 1ransportation companies Industrial corporations Financial services companies %on"lomerates
Bene+its o+ In#esting in Cor%orate Bonds
Investors uy corporate for a variety of reasons, ? Attracti#e yields %orporate usually offer hi"her yields than compara leCmaturity "overnment onds or %+s0 1his hi"hCyield potential is "enerally accompanied y hi"her risks0 ? :e%endable income People $ho $ant steady income from their investments. $hile preservin" their principal. include corporate in their portfolios0 ? Sa+ety %orporate onds are evaluated and assi"ned a ratin" ased on credit history and a ility to repay o li"ations0 1he hi"her the ratin". the safer the investment0 ? :i#ersity %orporate onds provide the opportunity to choose from a variety of sectors. structures and creditC>uality characteristics to meet your investment o jectives0 ? Mar-etability If you must sell a ond efore maturity. in most instances you can do so easily and >uickly ecause of the si?e and li>uidity of the market0
8i+e Insurance Policy
Meaning1 )ife insurance is a form of insurance that pays monetary proceeds upon the
death of the insured covered in the policy0 -ssentially. a life insurance policy is a contract et$een the named insured and the insurance company $herein the insurance company a"rees to pay an a"reed upon sum of money to the insuredFs named eneficiary so lon" as the insuredFs premiums are current0 1he cost of life insurance varies dependin" on such factors as the insuredFs a"e. health. and occupation0 For e/ample. the premium for a 4<CyearCold. male. nonCsmoker in e/cellent health $ill e far less e/pensive than a similar policy for a 3<CyearCold male
4< smoker0 Similarly. a sky dive instructor $ould have to pay much hi"her premiums for life insurance than $ould a li rarian0 )ife insurance is availa le in a num er of different forms to fit the tastes of the proposed insured0 Some of the typical forms of life insurance policies include, $hole life. varia le life. and term life0 7erm li+e insurance %olicies e"in $ith lo$ premiums durin" the initial sta"es of the policy and these premiums increase steadily as the insured "ro$s older0 1here is no cash uildCup in a term policy and. accordin"ly. the death enefit $ill not increase0 9ith $hole life and varia le life insurance. a portion of each premium pays for the insurance and the remainder serves as a ta/Cfree investment0 A 0hole li+e %olicy sets a premium at the e"innin" of the policy and that premium does not chan"e over the life of the policy0 1his form of insurance allo$s for a cash uildCup durin" the insuredFs life0 1his cash uildCup can e used durin" the course of the policy or it $ill simply serve to increase the death enefit in the end0 In a #ariable li+e %roduct. the premium remains the same over the life of the policy. and there should e a cash uildCup as lon" as the various mutual funds selected y the insured perform $ell0
2eed +or a li+e insurance %olicy1
? Protection> Eou need life insurance to e there and protect the people you love. makin" sure that your family has a means to look after itself after you are "one0 It is a thou"htful usiness concept desi"ned to protect the economic value of a human life for the enefit of those financially dependent on him0 1hat:s a "ood reason0 Supposin" you suffer an injury that keeps you from earnin"S 9ould you like to e a financial urden on your family. already losin" out on your salaryS 9ith a life insurance policy. you are protected0 Eour family is protected0 ? ,etirement> )ife insurance makes sure that you have re"ular income after you retire and also helps you maintain your standard of livin"0 It can ensure that your postCretirement years are spent in peace and comfort0 ? Sa#ings and In#estments> Insurance is a means to Save and Invest0 Eour periodic premiums are like Savin"s and you are assured of a lump sum amount on maturity0 A policy can come in really handy at the time of your child:s education or marria"eT (esides. it can e used as supplemental retirement incomeT ? 7a" Bene+its> )ife insurance is one of the est ta/ savin" options today0 Eour ta/ can e saved t$ice on a life insurance policyConce $hen you pay your premiums and once $hen you receive maturity enefits0 2oney saved is money earned0
Contract and Policy
An insurance contract cannot cover all conceiva le risks0 An insurance contract that violates a statute is contrary to pu lic policy. or plays a part in some prohi ited activity $ill e held unenforcea le in court0 A contract that protects a"ainst the loss of ur"lary tools. for e/ample. is contrary to pu lic policy and unenforcea le0
43
Insurable Interest
1o >ualify for an insurance policy. the insured must have an insura le interest. meanin" that the insured must derive some enefit from the continued preservation of the article insured. or stand to suffer some loss as a result of that articleFs loss or destruction0 )ife insurance re>uires some familial and pecuniary relationship et$een the insured and the eneficiary0 Property insurance re>uires that the insured must simply have a la$ful interest in the safety or preservation of the property0
Claims
1he most common issue in insurance disputes is $hether the insurer is o li"ated to pay a claim0 1he determination of the insurerFs o li"ation depends on many factors. such as the circumstances surroundin" the loss and the precise covera"e of the insurance policy0 If a dispute arises over the lan"ua"e of the policy. the "eneral rule is that a court should choose the interpretation most favora le to the insured0 An insurance company may deny or cancel covera"e if the insured party concealed or misrepresented a material fact in the policy application0 If an applicant presents an unaccepta ly hi"h risk of loss for an insurance company. the company may deny the application or offer prohi itively hi"h premiums0 A company may cancel a policy if the insured fails to make payments0 A company may refuse to pay a claim if the insured intentionally caused the loss or dama"e0
G61H
3old1
&old is the standard y $hich the value of anythin" is assessedA it is universally accepted0 India has een a traditional "oldChoarder0 Indians love "old0 Investment in "old can e done directly throu"h o$nership. or indirectly throu"h certificates. accounts. shares. futures etc0 2ost investors $ould not recommend storin" "old oneself Ge0"0 in oneFs home or uried in the "ardenH ut to use a ank or dealer0 &old prices have seen an up$ard trend in the past 6 years0 1hou"h the earlier decades sa$ a relatively poor performance y the precious metal. "old prices are likely to rise steadily over the lon"er term0 1his investment opportunity is sho$in" an ups$in" a"ain0 9ith uncertainty in the stock market and decline in the DS dollar. investors are takin" a fresh look at "old as an investment option0 &old $orks as a perfect hed"e a"ainst investment in other assets0 In fact. $hen other investments take a eatin". "old investment tends to sta ili?e0 As a lon" term investor. holdin" on to "old investment is a "ood tip0
.actors a++ecting the %rices o+ gold1
? Gold DemandCObviously the higher the demand for Gold, the higher its price. Certain nations hold the metal in high regard and often use it for major purchases or investments (by purchasing jewelry etc). China and India are very important consumers where there seems to be a emerging business
45 population loo ing to invest in some physical cash assets. Gold, !latinum and "iamonds are also heavily used in industry. ?
llar Price> &old is typically >uoted in +ollars. and if the dollar e"ins to sink then the value of &old tends to increase and viceCversa0
? Mar-et .ear> 9henever the stock markets or political situations look ad then people tends to fly to$ards &old0 Stock market crashes. terrorist attacks. or $ars $ill all tend to push the value of &old up0 ? Mar-et 3reedC As $ith all investments their performance can e self perpetuatin". i0e0 they start doin" $ell and so more people "et interested. the &old funds start appear on the front pa"e of the 2oney section in the tele"raph. and the "eneral pu lic are advised to uy. uy. uy0 1his o viously has the effect of pushin" "old prices. and "old mine share prices up. as everyone $ants to "et in on the act0 G66H
7y%es o+ 3old in#estments1
? ? ? ? ? Bullion coins 3old Bars 3old Certi+icates 3old Accounts 3old Mining Shares
7a" Im%lications
Since there is no income as such from holdin" "old. there is no lia ility for income ta/0 (ut ullion and je$ellery are su ject to capital "ains ta/ and $ealth ta/. $ithout any e/emptions $hatsoever0
,easons +or in#estment in gold1
An investment portfolio $ith an allocation in "old improves the consistency of portfolio performance durin" oth sta le and unsta le periods &old is also a currency hed"e ecause it has an inverse relationship $ith dollar0 &old is also an inflation hed"e as proved y a ;88Cyear study of the purchasin" po$er of "old0 One ounce of "old $ould consistently purchase the same amount of "oods and services. as it $ould have done ;88 years
8and
Real estate investment in India is the sin"le most lucrative option in the modern times0 If you are lookin" to uy a piece of real estate in the county ri"ht no$. many $ould aver that the decision mi"ht $ell e $orth it0 1here are a fe$ factors that "o into such a conclusion – "ood returns and lon"Cterm investment option ein" a fe$0 Since India is emer"in" as a fast "ro$in" economy. real estate is ecomin" a yC$ord for affluence0
4= Investments in commercial land. a"ricultural land. land for schools. factories. industries. hospitals or resorts. land for houses. shoppin" arcades makes ample usiness sense0 G6;H 1he simplicity and transparency of land investment has "ained many follo$ers0 1here are no complicated concepts that investors need to understand. just that there is an everC increasin" demand for uildin" land0 Dnlike stocks and shares. the land investor $ill al$ays have a tan"i le investment they can touch and use0 Furthermore. due to its limited supply and demand. one can also rest assured that land values $ill al$ays e on the rise. havin" already increased ei"ht fold in value over the last t$enty years0
!;uity
->uity shares represent proportionate o$nership in a company0 Investors $ho o$n e>uity shares of a company are entitled to o$nership ri"hts. like votin" for selection of directors on the (oard. share in profits of the company. etc0 Investors $ho o$n e>uity shares in a company are called shareholders0 Shareholders are entitled to share profit of the company in the form of JdividendJ or J onus sharesJ. if (oard of +irectors and majority of the shareholders a"ree0 1he e>uity shareholders are paid an annual dividend dependin" on the profita ility of the firm. $hich is proposed y the (oard and passed in the Annual &eneral 2eetin" of the company0
!;uity in#estment "enerally refers to the uyin" and holdin" of shares of stock on a
stock market y individuals and funds in anticipation of income from dividends and capital "ain as the value of the stock rises0 It also sometimes refers to the ac>uisition of e>uity Go$nershipH participation in a private GunlistedH company or a startup Ga company ein" created or ne$ly createdH0 9hen the investment is in infant companies. it is referred to as venture capital investin" and is "enerally understood to e hi"her risk than investment in listed "oin"Cconcern situations0
Bene+its o+ in#esting in !;uity shares
(enefits accorded to the e>uity shareholders in the form of dividend. ri"hts and onus are termed collectively as corporate enefits0 1hese are normally "iven to those investors $hose names appear in the Re"ister of 2em ers of the company efore the commencement of the (ook %losure period or efore the record date0 +ividend is the share of the profit paid out to the o$ners of the company0
IP*As
IPO stands for initial pu lic offerin"0 An initial %ublic o++ering 5IP*6 is the first sale of a corporationFs common shares to pu lic investors0 1he main purpose of an IPO is to raise capital for the corporation0 9hile IPOs are effective at raisin" capital. they also impose heavy le"al compliance and reportin" re>uirements0 1he term only refers to the first pu lic issuance of a companyFs sharesA any later pu lic issuance of shares is referred to as
47 a Secondary 2arket Offerin"0 IPO:s are often smaller. youn"er companies seekin" capital to e/pand their usiness0 In an IPO. the issuer o tains the assistance of an under$ritin" firm. $hich helps it determine $hat type of security to issue Gcommon or preferredH. est offerin" price and time to rin" it to market0 IPO:s can e a ris-y in#estment0 For the individual investor. it is tou"h to predict $hat the stock $ill do on its initial day of tradin" and in the near future since there is often little historical data $ith $hich to analy?e the company0 Also. most IPO:s are of companies "oin" throu"h a transitory "ro$th period. and they are therefore su ject to additional uncertainty re"ardin" their future value0
7he bene+it o+ %ic-ing u% shares +rom IP* rather than buying +rom stoc- mar-et,
Often companies issue their shares at par or at economic rate to attract pu lic and $hen the shares "et listed in the stock e/chan"e "enerally the prices "o up0 ShortCterm traders immediately sell those shares and make profits0 )on"Cterm investors $ait for their e""s to hatch properly efore sellin"0
7he %rocedure o+ a%%lying shares through IP*
IPO are "enerally heavily advertised in the media and ne$spaper ecause companies $ant to ensure the success of their issue0 1hrou"h this advertisement %ompanies also "et a "ood pu licity for their product0 One must "o throu"h the prospectus very carefully as every detail a out the su scription is clearly mentioned in it0 1he information is also availa le on companyFs site or S-(I $e site0 Fill up the application form carefully0 Application form are availa le at any rokerFs office or on some street kiosks in the financial area of a city0 Fill it up and deposit alon" $ith application money in the form of che>ue or ank demand draft0 If you "et su scription pay the su se>uent call money on time in order to "et relief from penalty or forfeiture0
Pre+erence shares1
%apital stock. $hich provides a specific dividend that. is paid efore any dividends are paid to common stock holders. and $hich takes precedence over common stock in the event of a li>uidation0 )ike common stock. preference shares represent partial o$nership in a company. althou"h preferred stock shareholders do not enjoy any of the votin" ri"hts of common stockholders0 Also unlike common stock. preference shares pay a fi/ed dividend that does not fluctuate. althou"h the company does not have to pay this dividend if it lacks the financial a ility to do so0
7he main bene+its to o0ning %re+erence shares are1
10 1hat the investor has a "reater claim on the company:s assets than common stockholders0 40 Preferred shareholders al$ays receive their dividends first and. 60 In the event the company "oes ankrupt. preferred shareholders are paid off efore common stockholders0
68 In general9 there are +our di++erent ty%es o+ %re+erred stoc-1 ? Cumulati#e %re+erred> this means that if this yearFs dividend $asnFt paid. then it $ill e carried for$ard to ne/t year ? 2on>cumulati#e> this means that if a year:s dividend $asn:t paid. then it $ill not e carried for$ard to the ne/t year ? Partici%ating Pre+erence share> the o$ner of such a share has the ri"ht to participate in. or receive. additional dividends over and a ove the fi/ed percenta"e dividend0 ? Con#ertible > %re+erred stoc-C then the shareholders have the option at some sta"e of convertin" them into ordinary shares0
1.3.4 Instruments o+ in#estment %ro#ided by I23 4ysya Ban- 8td
I#& 'ysya in India is active in life insurance. asset mana"ement and ankin"0 I#& 'ysya (ank intends to rin" to its customers in India a ran"e of inte"rated financial solutions tailored to meet customer needs in ankin"0 I#& 'ysya provides a $ide ran"e of investment opportunity to its hi"h net $orth individuals0 I#& 'ysya (ank Private (ankin" aims to "ive the est advice on portfolio y "ivin" customi?ed solutions and e/clusive client mana"ement0 1he 6Csta"e process follo$ed y our $ealth mana"ers is, 1. /ealth Creation 2. /ealth Preser#ation 3. /ealth 7ransmission
a. Action %rogrammed +or 0ealth creation
Portfolio 2ana"ement on nonCdiscretionary asis Optimum asset allocation. $ithout e/cessive concentration or diversification Investments in e>uity market done throu"h +irect ->uity and 2utual Fund route Re"ular comprehensive reports and faceCto face portfolio status meetin"s Identification of the est investment opportunities ased on individual preferences -/clusive ankin" privile"es includin" access to lendin" resources from the ank for developin" usiness. e/ploitin" investment opportunities. or personal spendin" ? Optimi?ation of riskCre$ard opportunitiesA risk mana"ement throu"h sophisticated risk control mechanisms ? Asset structurin". financial advisory. le"al and ta/ plannin" ? ? ? ? ? ?
b. ,ange o+ ser#ices +or 0ealth %reser#ation
? ? ? ? -/clusive (ankin" Privile"es Investment Advice and Financial Plannin" Asset Structurin" Portfolio 2ana"ement
61 ? 1he portfolio most suita le to meet your specific "oals is adapted ? Portfolio diversified to spread risk. and desi"ned $ith an optimal lend of e>uity. fi/ed income. securities. insurance and pension schemes
c. Action %rogrammed +or 0ealth transmission
? Portfolio 2ana"ement Services ? -state Plannin" ? )e"al Advice ? Inheritance Plannin" ? %reatin" an appropriate frame$ork for a le"ally indin" $ealth transmission ? -/clusive (ankin" Privile"es ? Investment Advice
7he ban- %ro#ides the abo#e>mentioned ser#ices to its @2IAs through the selling o+ #arious %roducts. 7he %roducts o++ered by I23 4ysya ban- are1
1. 2. 3. 4. . $. Mutual +und ser#ices 8i+e Insurance Policy Ban- de%osits 3o#ernment bonds :emat Account Ad#isory ser#ices
9e $ill riefly discuss each product,
1. Mutual +und ser#ices %ro#ided by I23 4ysya ban-1
I#& 'ysya (ank sells various mutual fund schemes0 It sells its o$n mutual fund. $hich is I#& 'ysya 2utual fund alon" $ith all other mutual funds0 It is an intermediary et$een the customer and the mutual fund house0 From the e"innin" mutual fund house have relied e/tensively on intermediaries to market their schemes to investors0 It $ould e accurate to say that $ithout intermediaries. the mutual fund industry $ould not have achieved the depth and readth of covera"e amon"st investors that it enjoys today0 Intermediaries have played a pivotal and valua le role in populari?in" the concept of mutual funds across India0 1hey make the forms availa le to clients. e/plain the schemes and provide administrative and paper$ork support to investors. makin" it easy and convenient for the clients to invest0 Intermediaries play a pivotal role in promotin" sale of mutual fund schemes0
7o name a +e0 mutual +und schemes sold by I23 4ysya ban- are1
1. .ran-lin 7em%leton 2. SBI 3. :SP Merrill lynch
64 4. . $. (. ). C. ,eliance I23 4ysya 7A7A =7I @:.C *%timi"
2. 8i+e insurance Policy sold by I23 4ysya ban-1
I#& 'ysya ank sells the insurance policy of its o$n rand i0e0 I#& 'ysya )ife Insurance %ompany Private )imited Gthe %ompanyH0 It entered the private life insurance industry in India in Septem er 4881. and in a short span of ; years has esta lished itself as a distinctive life insurance rand $ith an innovative. attractive and customer friendly product portfolio and a professional advisor sales force At I#& 'ysya )ife. there is nothin" $e hold hi"her than life itself0 1hey therefore vie$ their plans not as ta/ savin" devices ut as a means to add protection to life0 1hey elieve in enhancin" the very >uality of life. in addition to safe"uardin" your security0 1heir products are desi"ned in a $ay that helps you ear heavy e/penses $hile uildin" your home or providin" for your childrenFs education and marria"e0 1hey make sure your post retirements years are carefree and secure. ensurin" your family and loved ones are protected a"ainst financial difficulties in the event of a premature death0 +ependin" on your personal needs. priorities and individual responsi ilities. you can "o for a Protection. Savin" or Investment plan0 If you $ere not sure of $hich plan $ould suit you est. you could use the 8i+e Ma-er. an application $e developed for that very purpose0
/hat are these %lansF 1.Protection
Protection plans safe"uard your income and your family:s financial future in case you are not around0 1hey shield you from heavy economic loss and reduce the impact of financial risk on you and those dependent on you0 ? Con;uering 8i+e
2.Sa#ing
Savin" plans act as a compulsory savin"s instrument for families $hen the premium is paid re"ularly0 1hey $ork as lon"Cterm savin"s. enhanced y ta/ enefits. $hich "ive you the financial stren"th to achieve your life "oals0 ? ,eassuring 8i+e 5Cash Bonus6 ? ,eassuring 8i+e 5,e#ersionary Bonus6 ? Creating 8i+e ? Ma"imi<ing 8i+e
66 ? Sa+al Gee#an ? Creating li+e Money Bac? Sa+al Gee#an Money Bac-
3.In#estment
Investment plans act as $ealth creation instruments helpin" to create i" estates for the family0 It is a lon"Cterm investment. free from the risk of market s$in"s0 At the end of the term. you or your family can enjoy added returns on investment0 ? ,e0arding 8i+e ? Po0ering 8i+e ? .ul+illing 8i+e ? .reedom Plan> =nit 8in-ed ? *ne 8i+e ? 2e0 .ul+illing 8i+e ? Platinum 8i+e ? I23 Positi#e 8i+e
4. Retirement
1hese plans ensure that your postCretirement years are spent in peace and comfort0 1hey make sure that you have re"ular income after you retire and also help you maintain your standard of livin"0 ? Best Hears ? .uture Per+ect
3. Ban- de%osit o+ I23 4ysya Ban-1
(y investin" in I#& 'ysya (ank Fi/ed +eposit. your money not only stays secure ut also accumulates "ood interest over the period of deposit0 Partial $ithdra$al from your Fi/ed +eposits efore maturity can ail you out in times of need0
.eatures and Bene+its1
? 1enor ased Rate of Interest – !i"her interests can e accrued for lon"er periods of deposits0 ? %ompounded Interest can e earned y reinvestin" the principal amount alon" $ith the interest earned durin" the period0 ? Premature $ithdra$al allo$ed at a nominal penalty0 ? Option to place deposits in multiples of Rs01888 as units under 'ysunits. ena lin" $ithdra$al as per need. in multiples of Rs018880 ? !i"her rate of interest on Fi/ed +eposits for Senior %iti?ens0
6; ? Option to dra$ interest y $ay of ++ @ PO @ %redit to o$n S( account $ith I#& 'ysya (ank. 2onthly Gat a discountH or Uuarterly. as per choice0 ? )oans upto 78O of the deposit $ould e availa le at 1O a ove the underlyin" interest rate on Fi/ed +eposit0 ? #omination facility is availa le0 ? Free transfer of deposit et$een ranches is availa le0 ? Automatic rene$als on maturity0 An Initial deposit of Rs018888 is re>uired to open a Fi/ed +eposit0
4. :emat account %ro#ided by I23 4ysya ban1he I23 4ysya Ban- :emat Account offers you a secure and convenient $ay to keep track of your shares and investments. ho$ much youFve ou"ht and sold over a period of time. $ithout the hassle of handlin" physical documents that "et mutilated or lost in transit0
.eature and bene+its1
? ? ? ? ? ? ? ? Settlement of securities traded on the e/chan"e as $ell as off market transactions0 Shorter settlements there y enhancin" li>uidity0 Pled"in" and !ypothecation of +emateriali?ed Securities0 -lectronic credit in pu lic issue0 Receipt of nonCcash enefits in electronic form0 #o stamp duties on transfer of securities held in demat form0 #o concept of 2arket )ots0 %han"e of name. address. dividend mandate. re"istration of po$er of attorney. transmission etc0 can e effected across companies held in demat form y a sin"le instruction to the +P0
. 3o#ernment securities
1he ank also sells "overnment securities on ehalf of the "overnment0 It remits the proceedin"s to the R(I0 1he interest rate on "overnment onds is =O p0a0
$. Ad#isory ser#ices1
Our startin" point in the portfolio mana"ement process is the analysis of your re>uirements and "oals0 9hat are your asic investment o jectivesS 9hat are your personal preferences $ith respect to risk takin" and yieldS 9hat proportion of your $ealth should e invested for the short term versus the lon" termS 1he ans$er to fundamental >uestions like these provides the main uildin" locks for professionally mana"in" your assets0 1he follo$in" decision factors $ill determine the investment strate"y that suits your needs the est,
6< ? In#estment obIecti#es1 An assessment of your need for income versus potential appreciation and ho$ this fits $ith your overall asset and lia ility position0 ? In#estment time hori<on1 1he lon"er your time hori?on the less concerned you should e $ith daily price fluctuations0 1he "reater your $illin"ness to adopt a lon"Cterm strate"y. the "reater the likelihood of hi"her portfolio returns0 ? ,is- tolerance1 It is crucial to find out $hat shortC and mediumCterm s$in"s in value you can tolerate in order to reach your investment "oals0 1he hi"her the risk you are a le to ear. the hi"her your return $ill normally e0 ? ,e+erence Currency1 (y reference currency $e mean the currency in $hich you normally conduct your daily usiness0 1his currency $ill determine ho$ you measure the success of your strate"y and your investment decisions0 1he ank:s relationships mana"ers provide advise to their clients on their investment portfolio y structurin" the e/posure in various investment instruments so as to ma/imi?e the return $ith minimum risk0
1.3. In#estment .acilities 2ot Pro#ided By I23 4ysya Ban? *nline trading +acility ? ,eal estate ad#isory ser#ices ? Bullion trading
63
2. Methodology
In depth analysis of all the investment opportunities GinstrumentsH that I#& 'ysya ank offers to its !#I clients0 Also a sample study has een conducted on 48 !#I:s of the ank to understand their individual risk appetite and investment preferences0 A comparison study of investment instruments offered y I#& 'ysya ank $ith that of other competitive anks has also een conducted0 (ased on these an in depth analysis $as carried out to su""est@help the ank:s investment advisors to cater to the needs of the !#I:s in a etter $ay there y increasin" the customers satisfaction and hi"h !#I ac>uisition0
3. Problem Statement
I#& 'ysya (ank. in its pursuit to esta lish itself as a leadin" retail ank in -astern India. is conscious of the fact that other competitive anks are very a""ressive and focused in offerin" structured portfolio mana"ement@ investment advisory services to their !#I clients I#& 'ysya ank. $hich also offers such investment advisory services to its !#I. throu"h its su sidiary called I#& 'ysya Financial Service GI'FS)H0 1he speciali?ed investment advisors under the payroll of I'FS) are accommodated and placed in all the ranches of I#& 'ysya ank to cater to the re>uirements of the ank:s !#I clients0 !o$ever since the conversion rate of !#I into investment advisory services is lo$0 1his project $as commissioned $ith the sole motive of analy?in" the products. services and risk analysis of each investment instrument $ith the aim to au"ment the Financial advisors $ith in depth analysis of all these factors $hich $ill help them in understandin" the needs@re>uirements of the !#I:s to oost the conversion rate0 1his $ill not only help the ank in retention of its !#I:s ut also lead to an increase in ac>uisition of !#I:s0
65
4.1 S/*7 analysis
4.1.1 !;uity shares Strengths1
• • • • • • )on" term "ro$th throu"h capital appreciation !i"h rate of return !as a""ressive "ro$th Provides o$nership in the company in $hich investment is made Share holders are entitled to profit made y the company Suita le for risk seekers
/ea-ness1
• • • • • • • 'ery risky 'olatile rate of return #o security of investment Security transaction ta/ has to e paid Suita le for risk seekers +ividends received on shares depend on profit made y the company0 If there is no profit there is no dividend Share prices are su ject to market
*%%ortunity1
• • It "ives the shareholder a ri"ht to vote in the company 1he market may e volatile due to many factors. ho$ever returns are "enerated y e>uity shares of earnin" potential i0e0 P@- ratio0 1herefore an investor investin" in e>uity in a systematic manner over a lon" period of time can easily e/pect dou le di"it return Returns "enerated y e>uity investment has outperformed all other investment avenues in the lon" run
•
7hreats1
• • Fi/ed income securities are preferred $hen markets are do$n Rate of return is more sta le and there is more security in other investment avenues
6=
4.1.2 Ban- :e%osits1
Strengths1
• • • • • • • • • Sta ility of Fi/ed income rate $ith assured rate of interest Provides $ith a hi"h level of security Fi/ed deposits also "ive a hi"her rate of interest than a savin"s ank account0 Anyone $ith a minimal appetite of risk can consider investin" in fi/ed deposits (ank deposits are fairly safe ecause anks are su ject to control of the Reserve (ank of India GR(IH $ith re"ard to several policy and operational parameters It is possi le to "et a loans up to5<C 78O of the deposit amount from anks a"ainst fi/ed deposit receipts 1he time of maturity and amount to e received on maturity are kno$n in advance Provides relatively lo$ risk profileA for investors $ith a lo$ risk appetite. fi/ed income instruments should form the mainstay of the portfolio 1he pickCaCdate feature lets you choose the date on $hich you $ould like you investment to mature
/ea-ness1
• • • • • • • Premature $ithdra$al is char"ed $ith a penalty0 As a result the interest promised is reduced at the time of payment +oes not provide re"ular income flo$ Fi/ed income instruments tend to e intrinsically illi>uid %onsider the rate of inflation efore depositin" money in fi/ed deposits ecause the inflation mi"ht eat up the savin"s 1a/ is deducted at source on the interest earned from fi/ed deposits Eou can:t add to your investment0 If you have more money to deposit then you need to open a another investment deposit account 1he interest rate is fi/ed for your full period of investment
*%%ortunities1
• • Some of the facilities offered y anks on the amount deposited in form of fi/ed deposits are overdraft GloanH facility. premature $ithdra$al efore maturity period G$hich involves a loss of interestH etc It can e pled"ed y usiness people for o tainin" ank "uarantee for openin" of )%:s0
7hreats1
• ShortCterm floatin" rate funds score over fi/ed deposits on the li>uidity frontA they $ill especially appeal to investors $ho $ish to $ait on the sidelines till etter investment opportunities emer"e
67 • • #S%@#SS can e preferred over ank:s fi/ed deposits $hich forces the anks either to keep their fi/ed deposit rates hi"h to protect their deposit0 1a/ enefit is also provided y #S%@#SS0 It provides hi"her level of security 9ith the oomin" capital market. e>uity mutual funds are posin" the i""est challen"e to F+:s as they offer hi"her rate of return
4.1.3 8i+e Insurance Policy1
Strengths1
? ? ? ? ? Provides hi"h level of securityC "uaranteed y the issuin" authority #ot affected y market volatility Sum assured at maturity is kno$n Investor can decide the maturity period and the sum of premium to e paid 1a/ enefit is availed t$iceC once $hen premium is paid and other on maturity enefits
/ea-ness1
? ? ? ? Fi/ed rate of return on premiums +oes not provide any li>uidity A lot of paper $ork has to e done $hen enterin" the insurance contract If a $ron" claim is made on the policy. penalty has to e paid
*%%ortunity1
? Only investment avenue $hich offers life risk cover ? It sustains the economic loss suffered y the family in the uneventful death of an income earnin" person of the family ? Dnit linked insurance plans also offer market linked returns ? !elps in developin" investment ha it amon" customers
7hreats1
? Dnit linked insurance plan are market linked and therefore prone to market volatility ? One may not e a le to maintain the risk cover commensurate $ith his@her human life value
;8
4.1.4 8and
Strengths1
? 1he )a$ of +iminishin" Returns never apply here ? 1here is a hi"h rate of return ? Relatively lo$ risk investment
/ea-ness1
? #ot a very li>uid investment ? 1here are many "overnment re"ulations involved $ith in investment into land ? 1here are possi ilities of liti"ations
*%%ortunities1
? !i"h rate of industriali?ation and ur ani?ation ? It has multiple usa"eC residential. a"ricultural and commercial ? It can e provided as a collateral security
7hreats1
? &overnment takeCover ? Private uilders ? #atural calamity
;1
4.1. Mutual +unds
Strengths1
? #o ta/es are char"ed on dividends received in the hands of the investors as $ell as the mutual fund house ? 1here is a sta le avera"e rate of return ? Functions of the mutual fund are re"ulated y S-(I. thus are $ell "overned ? !i"h li>uidity is there as invested money can e $ithdra$n at any point of time ? )on" term capital "ains are also ta/ free ? It is an easy $ay of investment as paper $ork is minimum ? #o char"es for early $ithdra$al ? Allo$s small investors to invest in capital market. $ith professional mana"ement ? Short term capital losses can e set off a"ainst short term capital "ains
/ea-ness1
? ? ? ? ? %annot e provided as a collateral security )on" term capital losses cannot e set off a"ainst capital "ains Suita le for no risk tolerance investors 2aturity amount not kno$n as rate of return fluctuates Payment of entry and e/it load and hi"h maintenance char"es
*%%ortunities1
? Investors can $rite che>ues out of their money market mutual fund account ? Suita le for investors and corporate to park their surplus funds for a short period of time ? Allo$s investors $ith small amount of money to invest in a num er of schemes
7hreats1
? Fi/ed deposits are safer and more sta leC re"ulated y R(I ? Investors lookin" for hi"her return $ill prefer investin" in ->uity market ? Investors ready to make lon" term investments $ill look at land. "overnment security as other options as they are safer and can e provided as a collateral security
;4
4.1.$ 3old Strengths
? It is $orld $ide accepted ? !as multiple usa"e ? +oes not involve a tedious investment process
/ea-ness
? Offers lo$ rate of return
*%%ortunity
? %an e provided as a collateral security
7hreats
? )and. $hich provides a hi"her rate or return as of today ? Uuality of "old provided can e elo$ the standard ? (ank and financial institutions hesitate in investin" in "old ecause cost of
;6
4.1.( Pre+erence Shares
Strengths1
? +ividend to e received is assured ? Safer means of investment than e>uity shares ? If company is li>uidated payments to preference shareCholders $ill e ranked ahead of e>uity share holders
/ea-ness1
? Dsually issued y companies to institutes. so is not easily availa le to retail investors ? 1hey don:t provide li>uidity ? +oes not hold the ri"ht to vote in the issuin" company ? Relatively less attractive in risin" interest rate environment
*%%ortunities1
? 1hey have an option to e converted into e>uity shares ? 1hey can e redeemed y the issuin" company ? If dividend is not paid for one year there is an option of carryin" for$ard the dividend to the ne/t year0
7hreats1
? ->uity shares. $hich offer hi"her rate of return and provide more o$nership ri"hts in a company
4.1.) IP*As Strength
? Suita le for riskCseekers ? Suita le for shortCterm investors
;;
/ea-ness
? 'ery risky and speculative investment ? #o sta le rate of return
*%%ortunity
? IPO allo$s the investor to "ain ma/imum $ith the "ro$th of the company
7hreats
? 'olatile market conditions at the moment of IPO issues cause hi"h concerns amon" the investors
4.1.C 3o#ernment securities
Strengths1
? !i"hly securedC acked y the R(I ? Rate of return does not fluctuate ? %ash flo$ at maturity are kno$n
/ea-ness1
? ? ? ? ? ? ? )o$ rate of return #ot a li>uid investment avenue Only suita le $hen markets are not doin" $ell Investment on &C securities is a tedious transaction process 1here is no 1+S. ut interest income up to only Rs 6888 is e/empt from ta/ Suita le for risk averse investors #o early $ithdra$al is allo$ed
*%%ortunity1
? %an e provided as a collateral security ? )oan can e taken a"ainst investment in "overnment security
7hreats1
? Fi/ed deposits. $hich are more li>uid than "overnment securities ? R(I relief onds. $hich offer hi"her interest rates
;<
4.1.1D Cor%orate Bonds
Strengths1
? Provides security cover under ratin" a"encies ? #ot very volatile ? Simple Administration
/ea-ness1
? +oes not provide any li>uidity ? +oes not provide any ta/ enefit
*%%ortunity1
? It is a contract et$een the issuin" company and the clients
7hreats1
? &overnment Securities $hich offer more security
;3
;5
7abular ,e%resentation o+ #arious in#estment instruments 5including S/*7 analysis6
Parameter ,*, 7enure Security Ban:e%osit (et$een 7O !;uity ;C <C48O V 1C48 years #o security Pre+. Share <C48O V 1C48 years #o security M. 18C4<O 1C< years #o security 8IC ;C<O A ove 18 years (y issuin" or"ani?ation #o li>uidity #I) (enefit on premium amount and maturity amount )o$ risk seekers 2oney ack policy %um ersome paper $ork )ife cover Accepted Professionally 2ana"ed 3o#t Sec <O )ock in period of 3 years Secured y "overnment Provides no li>uidity #I) Interest income received $ill e ta/a le Risk averse 2aturity amount kno$n %um ersome paper $ork #on Accepted 2ana"ed &overnment y Cor%orate Bonds <C3O 6C< years %overed under ratin" a"encies #o li>uidity #I) #on 3old #o fi/ed return A ove years !i"hly secured !i"hly li>uid 2oderate #on 6 8and #o fi/ed Rate < and a ove Secured IP* +epends on +emand Q Supply 3 mths – 6 years #o security
8i;uidity Price #olatility 7a" Bene+it
)on" 1erm 18 years Secured y (ank re"ulated y R(I !i"hly li>uid #I) 1a/ deducted at source Risk averse Assured cash flo$ Some amount of paper $ork PickC aCdate feature !i"hly accepted Professionall y 2ana"ed
)i>uid 2a/imum )on" term capital "ains enefit Risk seekers #o assurity 'ery less Ri"ht to vote in the %O Only availa le on loans a"ainst shares Professionally 2ana"ed
)i>uid 2a/imum )on" term capital "ains enefit Risk seekers #o assurity 'ery less Ri"ht to vote in the %O Only availa le on loans a"ainst shares Professionally 2ana"ed
Provides li>uidity 2a/imum )on" term capital "ains enefit Risk seekers #o cash flo$ Paper $ork is there #on #ot accepted Professionally 2ana"ed
#ot li>uid 2oderate Only on a"ricultural land Risk averse #on %um ersome paper $ork 2ultiple usa"e 2ainly provided #ot mana"ed
)i>uid !i"h #il
,is- %ro+ile o+ an in#estor Cash .lo0 Administration Additional +eatures Collateral Pro+essional Management
2oderate risk #on Simple #on #on Professionally 2ana"ed
Risk averse #on #on 2ultiple usa"e Accepted #ot mana"ed
Risk averse #I) A lot paper $ork #on #o Professionally 2ana"ed
;=
Analysis o+ !ach In#estment A#enue
In the investin" $orld. the dictionary definition of risk is the chance that an investment:s actual return $ill e different than e/pected0 1echnically. this is measured in statistics y standard deviation0 Risk means you have the possi ility of losin" some. or even all. of our ori"inal investment0 &iven elo$ is the ta le. $hich states the kind of risk. return. tenure and other enefits of different investment avenues0 1his helps us further su""est the kind of investment an investor can make ased on the personal profile
7y%e o+ in#estments !;uity 3old Pre+erence Shares Cor%orate Bonds Mutual .unds 3o#ernment Securities 8and Ban- :e%osits IP*As Insurance Policy ,is!i"h )o$ !i"h )o$ !i"h )o$ )o$ )o$ !i"h )o$ ,eturns !i"h 2oderate !i"h )o$ !i"h )o$ !i"h 2oderate !i"h )o$ 7enure )on" )on" )on" 2oderate Short )on" )on" 2oderate Short )on" *ther bene+its )o$ !i"h )o$ )o$ )o$ !i"h !i"h !i"h )o$ !i"h
,is- & ,eturn 7rade & *++ Bet0een di++erent In#estment A#enues1
1he relation et$een risk and return that usually holds. in $hich one must e $illin" to accept "reater risk if one $ants to pursue "reater returns also called risk@ re$ard tradeC off0 A common misconception is that hi"her risk e>uals "reater return0 1he risk@ return tradeoff tells us that the hi"her risk "ives us the possi ility of hi"her returns0 1here are no "uarantees0 Nust as risk means hi"her potential returns. it also means hi"her potential losses0 )o$ levels of uncertainty Glo$ riskH are associated $ith lo$ potential returns0 !i"h levels of uncertainty Ghi"h riskH are associated $ith hi"h potential returns0
• • • • 1he hi"hest return investment is ->uity 1he hi"hest risk investment is ->uity 1he lo$est risk investment is &overnment Security 1he lo$est return investment is &overnment Security
On the lo$est end of the spectrum is "overnment spectrum $hich offers no or minimum risk0 It offers investment at the minimum risk –rate of return0 On the hi"hest end of the spectrum is e>uity. $hich offers ma/imum return $ith ma/imum rate of return0 &overnment securities set the rate for minimum rate of return and e>uity sets the rate for hi"hest risk0 All other investment opportunities lie in the middle0 1hey are the e/treme poles of the spectrum0 Risk as earlier discussed can e minimi?ed throu"h investin" in various avenues0 9hen an investor invests he set his limits either for risk of return0 !e tries to achieve hi"hest possi le return for a "iven level of risk or tries to "et minimum possi le risk for hi"hest level of return
;7
Analysis o+ In#estment @abits o+ I23 4ysyaAs @igh 2et /orth Clients1 A >uestionnaire containin" >uestions on the investment ha its $as prepared0 1his >uestionnaire $as taken to and filled y 18 !#I customers of the I#& 'ysya (ank0 1he findin"s throu"h the >uestionnaire are to e used $hile structurin" the financial plan Ginvestment portfolioH of a !#I0 1he most important aspect in the personal discussion that the Relationship 2ana"er $ith the !#I is to understand his@her risk appetite. investment hori?on and the source of income0 9e $ill analy?e the factors. $hich a !#I keeps in his@her mind $hile undertakin" an investment and the kind of investment advisory services re>uired y them0 1hese can e found out ased on the various >uestions asked to them in the >uestionnaire0 1hen on the asis of the analysis relevant su""estion to the Relationship 2ana"ers $ill e made to improve his@ her investment advisory services0 .indings +rom the same o+ 1D @2I clients are1 1. ,is- a%%etite o+ @2IAs1 a0 <8O of the sample doesn:t invest in F+:s, 1his sho$s that !#I:s are more concerned a out the returns rather than the safety aspect of the investment0 0 4<O of the respondents are invested in a mi/ed portfolio. there y si"nifyin" the importance of spreadin" the risk $hile lookin" for etter returns0 c0 1<O of the respondents are interested in investment in real estate. $hich si"nifies hi"h de"ree of security $ith returns0 2. In#estment %eriod o+ @2IAs1 a0 2ore than <8O of the respondents are in short term investment hori?on0 0 Only 1<O of the respondents are actually interested in lon"Cterm investments0 3.@2IAs In#estment @abits a0 <;O of the investments in the stock market are done directly 0 1he rest ;3 O of the respondents invest throu"h the mutual funds c0 55O of the respondents make e>uity type investments si"nifyin" hi"h de"ree of risk $ith hi"h de"ree of return0 d0 1he alance 46O prefers havin" a alanced investment0 4. @2IAs %erce%tion o+ the Stoc- Mar-et1 a0 <6O of the respondents vie$ the stock market as not a safe avenue of investment0 0 13O don:t have any vie$s a out the stock market0 1hese respondents remain the untapped se"ment of the !#I:s0
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. IP*As as In#estment A#enue1 a0 3<O of the respondents invest in IPO:s 0 A out 33O of the ones $ho invest. invests on their personal vie$s0 c0 Around 66O make investments ased on professional advice0 1his "oes to sho$ that a small se"ment of the !#I:s relyin" on professional advice for IPO investments0 $. Pro+ile o+ @2IAs in#estment ad#isory ser#ices1 a0 38O of the respondents are not makin" investments ased on advisory services offered y the ank0 0 2ore than <8O of the a ove mentioned respondents are prospect clients of the ank and are $aitin" to e "iven the ri"ht kind of advisory services0 (. Pro+le o+ @2Is Insurance Ser#ices a0 ;8O of the respondents are prospects customers for takin" insurance advice throu"h the ank0 0 Around <<O of the respondents are takin" insurance advices from the ank si"nifyin" that the ank offers "ood >uality investment advice0
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Based on the abo#e +acts1 It is recommended to the I4.S8 ,MAs to structure the In#estment Port+olio o+ the @2IAs 0ith the +ollo0ing com%ositions1 10 #ot to have a hi"h percenta"e of F+:s 40 1he R2:s should include investment instruments $hich are of shorter duration $ith hi"h "ro$th potential 60 Since more than half of the sample invests directly into the stock market they should e hi"hli"hted the importance and the enefits of 2F:s since direct e>uity is very tricky and hi"h risky0 ;0 R2:s should include small percenta"e of investment instruments in !#I:s $hich are of lon"Cterm opportunity to tradeCoff et$een risk and return0 <0 Also the study reveals that constant follo$Cup y the anks R2:s to the !#I:s $ill result in ropin" in more no of !#I:s to the advisory service. as 68O of the respondents have indicated the same0 30 If the (anks R2:s e/pose the enefits of professional mana"ed investment services another ;<O of the ank:s !#I can avail such facilities from the ank 50 <<O of the respondents don:t use IPO as a investment avenue. since they are !#I:s $ith lar"e chunks of money the R2:s have "ot hu"e opportunity to e/plain them the enefits associated $ith IPO:s and try to add it to the customers investment portfolio =0 13O of the respondents are not a$are of the movements in the stock market. this leaves a $hole lot of opportunities for the R2 to tap this se"ment of the !#I:s 1he classification of !#I:s can e divided as follo$s • • • • Only land, )on" 1erm – )o$ Risk – !i"h Return #o &old, Short 1erm – !i"h Risk – !i"h Return #o F+:s Short 1erm – !i"h Risk – !i"h Return 2i/ , Short 1erm – 2oderate Risk – !i"h Return
1he a ove classification of investor profile has een formed ased on their investment pattern0 .rom the sam%le %o%ulation 0e can also di#ide the @2IJs into +our categories based on their hori<on o+ in#estment1 • • • • )ess than 1 year – Speculative Investors 1 to 6 years, Short 1erm Investors 1 to < years , 2edium 1erm Investors 1 to 18 years , )on" 1erm Investors
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7hreats Posed to Pro+essional In#estment Ad#isors • +riven y the e/pectation of etter returns and miti"atin" risks. !#I:s are ecomin" more a$are of $ealth mana"ement opportunities and strate"ies a road0 In fact. 3< percent of !#I relationship mana"ers surveyed said their clients are increasin"ly a$are of ho$ $ealth is mana"ed internationally0 Investors do not $ant reams of paper $ork. ut do $ant easily accessi le and customi?ed information that allo$s them to immediately check on their investments0 1hey $ant access to a ne$ “family alance sheet* that sho$s them all their assets and lia ilities across all asset classes in a simple. easyCtoCvie$ format0 1hou"h this is a relatively strai"htfor$ard re>uest. it is not ein" met every$here today0 #o matter ho$ comple/ the investment options may ecome. the clientCfacin" solution must remain simple. transparent and understanda le to estCserve clients and advisors. this $ill re>uire investments in technolo"y to ena le an efficient "lo al or"ani?ational operatin" structure and. most importantly. ensure the advisor. the institution:s face to the client. has the tools to support the client $ithout increasin" the administrative urden0
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•
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!"ecuti#e Summary
1he project report covers portfolio mana"ement of a !#I0 1hese individuals have surplus money. $hich can e invested into various investment avenues0 For e/ample land. stock market. ank deposits. "overnment securities etc0. -ach Investment avenue open to !#I:s has een evaluated on the asis of risk and return0 #o individual $ants his@her savin"s to lie ideal and e eaten y inflation0 1hese individuals are constantly lookin" for opportunities to invest their surplus money and "et "ood returns0 Professional investor advisors provide this service0 1hey personally look into the risk appetite of the investor and desi"n the est suited portfolio from him0@her0 For this purpose a case study $as conducted on the I#& 'ysya:s 18 !#I:s to find out ho$ they perceive different investment avenues0 1he ank faces lo$ conversion rate of investment advisory services0 1herefore after the study and analysis recommendations have een made to the R2:s on ho$ to improve the service0 1his has een done in the follo$in" se>uence0 First the !#I:s and their investment avenues $ere analy?ed0 1hen the risk and return of each investment avenue $as conducted0 After $hich a sample of 18 !#I customers $ere visited0 Analysis of these !#I:s sho$ed some patterns in $hich these customers invest and ho$ they perceive each investment instrument0 On the asis of such data recommendations $ere made to the relationship mana"ers0
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Conclusion
1he project report analy?es the portfolio of I#&:s !#I customers0 A sample study of 18 !#I:s $as conducted and on the asis of $hich the recommendations $ere made0 1he risk and return of each investment instrument availa le to a !#I on the $hole and throu"h the I#& 'ysya (ank $as conducted0 7he %roducts and ser#ices o+ the banare com%ared to other ban-s also It has een noticed that !#I:s provide a hu"e opportunity to the R2:s of the ank for "ivin" professional investment advice0 #o$ a days the customers are $ell a$are of the surroundin" market and don:t really take any type of advice0 1hey are lookin" for investment advice. $hich are supported y stron" conviction0 1he market of professional advisors are "ro$in" at such a hu"e rate that if the client is not happy $ith the services of the R2 he@she can easily look for a etter advisors0 1herefore the R2:s alon" $ith personal advice have to also provide >uality advice0 An enthusiastic relationship mana"er should sho$ computation of the risk of !#I:s y usin" statistical computations like Standard +eviation. $hich sho$s ho$ much on an avera"e. the return has moved a$ay from an avera"e num er0 (asic tents one should understand efore takin" a risk ar"ument to a client0 Risk. popularly measured y Standard +eviation. tells us a out the ran"e of return that can pro a ly occur0 Its interpretation is appropriate for an asset class0 For e/ample if $e say that e>uity is more risky than PPF. $e $ill su stantiate that y sayin" that the pro a ility that the investor $ill "et a return different than = O is lo$ in a PPF0 !o$ever. in e>uity $hile he may look at a 48O covera"e0 It can s$in" et$een ;O and ;3O. indicatin" the presence of risk0 1he risk to the investor is al$ays distilled in terms of his "oals. investments and the tar"et rate that his investments must achieve to meet the "oal0 1herefore. the investor $ill not care for standard deviation in itself. ut a out the risk that his investment $ill fall short0 If one is plannin" for the child:s education or retirement. such shortfalls are too tou"h to make "ood. on a later date0 So. to the investor. risk is only a out do$n side deviation from a tar"et rate0 !o$ does one put the t$o to"etherS 1he choice of asset classes and percenta"e allocation $ill have to e driven y standard deviation and its understandin"0 (ut the su se>uent monitorin" and revie$ of the portfolio $ill have to e in terms of the investor:s "oals. and the possi ility that such allocation $ill fall short0 2ovement from one stock to another is unlikely to alter the risk profile of the portfolio in any si"nificant manner0 (ut adjustin" the proportion that is invested in e>uity is likely to impact oth the risk and return of the portfolio0 Relationship mana"ers need to train their eyes to $atch if the investor:s "oals are est served y the current allocation. or should a chan"e e made. "iven do$nside risks0 )earnin" investment concepts is all fine. ut to apply them to an investor:s situation. one has to vie$ the portfolio from the investor:s an"le rather
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2y project does not "o into the details of calculatin" the risk and returns of each investment avenue. as it $ould have een very technical and cum ersome0 1he sample study of 18 does not really sho$ the true findin"s. as there could e other clients $ith different opinions a out the investment instruments than the ones stated0
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'uestionnaire
Personal :etails • #ame A"e • Profession • Spouse Occupation • #o0 of %hildren G+au"hter WWWW. Son WWWWH • %hildren:s A"e 8i+e Style • Sin"le@ Noint Family. • +o you live in your o$n house or rented houseS • +o you o$n a car. if yes ho$ many and $hich one S • +o you plan to send your children a road for hi"her studies. if yes then ho$ do you $ish to finance it • +o you travel a road. if yes ho$ fre>uentlyS • 9hich income sla do you fall inS aH 5 – 18 lakhs WWWWWWWWWWWWWWWW H 18 C48 lakhs WWWWWWWWWWWWWWWWW cH 48 lakhs and a ove WWWWWWWWWWWWWW Ban-ing :etails • Accordin" to you $hich is safest investment • 9here do you invest your savin"sS • Stock 2arket@ )and Q Property@ &old Q Silver@ Fi/ed +eposits • +o you follo$ stock marketS • +o you think stock market is a safe $ay of investment • If so – you $ill invest directly or throu"h intermediary • 1ime !ori?on – efore investin" aH X 1yr H 1 – 6 years cH 1 – < years dH 1 – 18 years • +o you invest in de t. e>uity or a alance scheme@ portfolio • +o you su scri e to an IPO – Su scription throu"h aH of your o$n vie$s H on friends or relatives recommendations cH on professional advise • Any adverse impact on you savin"s $hen the stock market fell do$n In#estment Pre+erences1 • Are you satisfied $ith our financial advisors investment advice • !o$ often do you "et an update on the ne$ insurance schemes that our ank offers • !ave you insured the life of your family mem ers. your usiness or property • Are you ready to undertake ne$ $ays of investment and the risk associated $ith itS
<5 • !o$ do you avail of ta/ enefitsS 9hile investin". does ta/ enefit features influence your decision of investment
Bibilogra%hy
1. $$$0in"vysya ank0com 2. $$$0iloveindia0com@finance@ ank@private C anks 3. 2utual Funds y Akhilesh 4. Portfolio 2ana"ement y 2r0S00Yevin . Insurance trainin" ooklet – I#& 'ysya )ife Insurance $. $$$0in"vysyalife0com (. (anks internal (ooks ). $$$0investopedia0com C. (usiness 2a"a?ines 1D. (ank Nournal
doc_996353053.doc
Final Project Report–
“ A Study of the Risk and Return of alternative Investment Opportunities availa le to !i"h #et $orth Individuals – A %ase Study of I#& 'ysya (ank )imited*
+ear Sir Re", Application for -valuation of Project Report I am pleased to su mit here$ith my project report entitled “a study of the Risk and Return of alternative Investment Opportunities availa le to !i"h #et $orth Individuals in India – A case study of I#& 'ysya (ank )imited*. $hich provides detailed information for my project e/ecuted at I#& 'ysya (ank )imited0 1his project report has een prepared y me in part fulfillment of the Post &raduate %ertification in (usiness 2ana"ement0 1he same has een su mitted for your kind evaluation and appraisal0
Contents
Abstract 1. Introduction 1010 Area of mana"ement 3
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1040 %ompany profile 5 1060 )iterature orro$ed 7 106010 Risk. Return and +iversification 18 106040 !i"h #et 9orth Individuals 14 106060 Investment options of !#I:s 1; a0 2utual funds 13 0 (ank deposits 46 c0 &overnment Securities 4; d0 %orporate (onds 4< e0 )ife Insurance Policy 45 f0 &old 4= "0 )and 68 h0 ->uity 68 i0 IPO:s 61 j0 Preference Shares 61 1060; Instruments of investment provided y I#& 'ysya (ank 64 1060< Instruments of investment not provided y I#& 'ysya (ank 65 2. Methodology 6= 3. Problem Statement 6= 4. Body/Analysis ;010 S9O1 Analysis ;0101 ->uity Shares 67 ;0104 (ank +eposits ;8 ;0106 )ife Insurance Policy ;1 ;010; )and ;4 ;010< 2utual Funds ;6 ;0103 &old ;; ;0105 Preference Shares ;< ;010= IPO:s ;< ;0107 &overnment Securities ;3 ;01018%orporate (onds ;5 ;04 1a ular representation of various investment instruments ;= ;06 Analysis of each Investment Avenue ;0; Analysis of investment ha its of I#& 'ysya:s !#I:s ;0< 1hreats posed to Professional Investment Advisors . !"ecuti#e summary ;7 <8 <6 <;
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$. Conclusion A%%endi" & 'uestionnaire
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Bibliogra%hy
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Abstract
Portfolio 2ana"ement has een an inte"ral part for any investor0 -ach Investor. $hether small or i" is tryin" to ma/imi?e his@ her returns y makin" a diversified investment0 1o diversify the investment the risk and return trade off of each investment avenue has to e
; studied0 1herefore the study of portfolio mana"ement and risk and return is very important of an investor0 #o$ days there are professional investment advisors $ho study the risk and return portfolio of each investor and desi"n the most $ell suited portfolio from him@ her0 (anks also provide professional investment advice0 1his has opened up a hu"e market for the advisors and has ecome very competitive0 I#& 'ysya (ank also provides professional advise to its clients0 A common pro lem faced y the ank:s advisors is that they have a lo$ conversion rate on the advice "iven y them0 1herefore a study and analysis has een conducted on a sample of 18 !#I:s of the ank to analy?e their investment portfolio and risk appetite0 An analysis of the ank:s products is also conducted to understand them in detail0 1hen the re>uired su""estions are made to the investment advisors to improve the conversion rate and retain !#I:s0
1.1 Area *+ Management
1he area of study. $hich my project report covers. is financial mana"ement0 In financial mana"ement my project report covers t$o su jects,
< ? Port+olio management of I#& 'ysya ank:s !#I clients andA ? ,is- and return analysis of each investment avenue open to a !#I client0
.inancial Management
Finance is an area of study $hich is namely concerned $ith t$o distinct areas i0e0 financin" and investin"0 9e $ill e dealin" $ith financial mana"ement relatin" to investment activities0 1his area of finance deals $ith findin" out the est com ination or portfolio of financial assets and thus focuses attention on the allocation of funds once they are ac>uired0 1his area focuses attention $hether an investor should put all his money in one financial asset or in a com ination of different financial assets0 It studies and addresses the $ays in $hich individuals raise. allocate and use monetary resources over time. takin" into account the risks entailed in their projects0 It is the application of a set of techni>ues that individuals use to mana"e their financial affairs. particularly the differences et$een income and e/penditure and the risks of their investments0 An entity $hose income e/ceeds its e/penditure can lend or invest the e/cess income0 On the other hand. an entity $hose income is less than its e/penditure can raise capital y orro$in" or sellin" e>uity claims. decreasin" its e/penses. or increasin" its income0 /e 0ill be +ocusing on those entities 0ho ha#e sur%lus income and are loo-ing +or a#enues o+ in#estment0 1herefore $e $ill further "o into portfolio mana"ement of individuals and risk and return analysis of each investment avenue0
,is- And ,eturn Analysis
1he most important motive for an investor to invest is to earn a return on their investment0 !o$ever. selectin" investments on the asis of ma/imi?ation of return is not enou"h0 1he investor also considers the risk associated $ith the investment0 ,eturn means the enefit. $hich arises out of any investment or undertakin"0 In financial mana"ement $e are primarily concerned $ith the return paid to an individual investor0 Return can e paid in one "o or at re"ular intervals0 Return is the foremost important reason for an investor to make an investment0 1he investor is al$ays ready to undertake ne$ investment opportunities if the return paid are hi"h0 ,is- means the varia ility of an investment or security returns0 It means that the future returns of the investor are unpredicta le0 It can e stated as the possi ility that the actual outcome of the a financial decision may not e the same as estimated0 It refers to possi ility of receivin" or not receivin" the estimated return $hich can e >uantified and measured0 /e 0ill be discussing the ris- and return o+ each in#estment a#enue.
Port+olio Management1
3 A portfolio is a mi/ture of investment avenues0 An investor usually maintains a portfolio0 1he aim of mana"in" a portfolio is to diversify and reduce risk and ma/imi?e return. $hich is also other$ise kno$n as Bnot puttin" all your e""s in a sin"le asket:0 Port+olio Management is the processes. practices and specific activities to perform continuous and consistent evaluation. prioriti?ation. ud"etin". and finally selection of investments that provide the "reatest value and contri ution to the strate"ic interest of the investor0 1hrou"h portfolio mana"ement. the investor can e/plicitly assess the tradeoffs amon" competin" investment opportunities in terms of their enefit. costs. and risks0 1he portfolio of each I#&:s !#I has een analy?ed and on the asis of that various investment options open for these customers throu"h the ank have een su""ested0 -ach customer has the limit of risk he@she can undertake0 1his has also een looked into and under the limitations. $hich are the est options availa le have een advised0
1.2 Com%any Pro+ile I#& 'ysya (ank )td0is a joint venture et$een 'ysya (ank )td. a premier ank in the Indian Private Sector and I#&. a "lo al financial po$erhouse of +utch ori"in0 I#& 'ysya (ank $as incorporated in Octo er 4884. after o tainin" necessary clearance from the Reserve (ank of India0
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'ysya (ank $as founded in 1768 to e/tend a helpin" hand to those $ho $ere deprived of ankin" services0 Since then the (ank has made rapid strides and has carved a distinct identity of ein" India:s Premier Private Sector (ank0 In 17=<. the (ank ecame the num er one private sector ank in India0 I#& &roup is a "lo al financial services company of +utch ori"in $ith 1<8 years of e/perience. providin" a $ide array of ankin". insurance and asset mana"ement services in over 3< countries0 I#&:s over 11;.888 employees $ork daily to satisfy a road customer ase, individuals. families. small usiness. lar"e corporations. institutions and "overnments0 (ased on market capitali?ation. I#& is one of the 48 lar"est financial institutions $orld$ide and ranked in the topC18 in -urope0 I#& is the num er one financial services company in the (enelu/ home market0 I#& services its retail clients in these markets $ith a $ide ran"e of retailC ankin". insurance and asset mana"ement services0 I#&:s $holesale ankin" activities operate $orld$ide ut $ith a primary focus on the (enelu/ countries0 In the Dnited States. I#& is a topC< provider of retirement services and life insurance0 In %anada. they are the top property and casualty insurer0 I#& +irect is a leadin" direct ank $ith over 1< million customers in nine lar"e countries0 In the "ro$th markets of Asia. %entral -urope and South America $e. for e/ample. provide life insurance0 9e are also a lar"e asset mana"er $ith assets under mana"ement of around -DRO <88 illion0 I23 4ysya 5as a grou%6 has 3 businesses in India1 • I#& )ife Insurance • I#& 'ysya (ank • I#& 2utual Fund I#& 'ysya (ank is a premier private sector ank $ith a 58Cyear herita"e and 10< million satisfied customers0 I#& 'ysya 2utual Fund is a mid si?ed asset mana"ement company $ith a retail investor focus0
7he Immediate Bene+it to I23 4ysya Ban- 8td1 • • Pride of havin" ecome a mem er of "lo al financial services "iant. $ith an asset ase of Rs0;=;7 thousand crores Presence of the "roup in over 3< countries. servin" over 38 million customers across the "lo e0
= • Pride of this "lo al identity. the ack up a financial po$er house and the status of ein" the first Indian International (ank. $ould also "reatly enhance productivity. profita ility resultin" in improved performance for the ank to translate into hi"her returns. to all stake holders
I#& 'ysya "roup a customer –oriented company $ith a clear or"ani?ation and strate"y that is founded on value ased mana"ement0 1hey have a stron" position in mature markets $here $e $ant to "enerate further "ro$th throu"h proper e/ecution of our usiness fundamentals and $e focus on "ro$th in retirement services. direct ankin" and life insurance in developin" markets0 1hat $ay $e try to offer our share holders a hi"her return than the avera"e of our peers0
1.3.1 7heory on ,is-9 ,eturn and :i#ersi+ication
1here are many types of risk involved in financial decisions, ? Ca%ital ,is-1 the risk of incurrin" a capital loss due to do$n$ard chan"es in the market price of a security is defined as the capital risk of a security0 Investment in most of the e>uity shares has this type of risk runnin" $ith them0 ? Income ris-, this is the risk of variation in return availa le from the security0 1his risk is almost nil in onds. de entures and preference shares ? :e+ault ris-1 the risk involved in default in payment of interest or repayment of principal amount y the company is called default risk0 1his risk is nil in "overnment onds0 From the point of vie$ of nature and attitude investors can e classified as, ? ,is- a#erse1 those investors $ho avoid takin" risk and prefer only those investments. $hich have nil or relatively lo$er risk0 ? ,is- see-ers1 those investors $ho are ready to take risk if the return is sufficient enou"h0 If "iven the choice et$een t$o risky investments. a risk seeker investor $ould prefer the riskier one0 ? 2eutrals1 those investors $ho do not care much a out the risk0 1heir investment decisions are ased on other factors other than risk and return0
Se#eral +actors are to be considered 0hile deciding the %ort+olio as sho0s1 10 8i;uidity and Mar-etability o+ the Port+olio , 1he portfolio must e such as to provide li>uidity $henever re>uired0 All funds should never e locked in lon"Cterm de t securities even if they are less risky0
7 40 7a" Planning, Portfolio selections are made in vie$ of ta/ provisions in relation to revenue incomes as $ell as capital "ains0 1he investor should plan the portfolio in a $ay as to minimi?e ta/ lia ility0 60 Ca%ital 3ains1 %ertain securities may provide lo$er returns in the short run. ut have a "reat potentiality of capital "ains in the lon" run and also provide a hed"e a"ainst inflation0 ;0 Minimi<ation o+ the 7otal ,is- Position1 9hile selectin" a portfolio. an investor should consider the total risk of the portfolio rather than the risk of any particular investment only0 1he investor should minimi?e his total risk0 <0 Industry :i#ersi+ication1 An efficient portfolio should consist of an investment made in different industries of diverse nature0 B#ever put all the e""s in the same asket: is the principle0 7he total ris- o+ a %ort+olio can be bi+urcated into t0o %arts as +ollo0s1 10 Systematic or Mar-et ,is-1 It is that part of total risk $hich cannot e eliminated y diversification0 1he part of the risk that arises ecause every security has a uilt in tendency to move in line $ith the fluctuations of the market0 1he systematic risk refers to the fluctuations in return due to "eneral factors in the market0 1he systematic risk refers to fluctuation in return due to "eneral factors in the market such as money supply. inflations. economic recession. industrial policy. interest rate policy of the &overnment. credit policies. ta/ policies etc0 40 =nsystematic ,is-1 1he unsystematic risk is one. $hich can e eliminated y di#ersi+ication0 1he risk represents the fluctuations in returns of a security due to factors specific to the particular firm only and not the market as a $hole0
Diversification: is a riskCmana"ement techni>ue that mi/es a $ide variety of
investments $ithin a portfolio in order to minimi?e the impact that any one security $ill have on the overall performance of the portfolio0 +iversification lo$ers the risk of portfolio0 Academics have comple/ formulas to demonstrate ho$ this $orks. then comes up the concept of portfolio mana"ement0
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There are three main practices that can help you ensure the best diversification:
10 Spread your portfolio amon" multiple investment vehicles such as cash. stocks. onds. and mutual funds and perhaps even some real estate0 40 'ary the risk in your securities0 EouFre not restricted to choosin" only lue chip stocks0 In fact. it $ould e $ise to pick investments $ith varied risk levelsA this $ill ensure that other areas offset lar"e losses0 60 'ary your securities y industry0 1his $ill minimi?e the impact of industryC specific risks
/e 0ill no0 discuss 0hat ris->return trade>o++ means.
,IS?/,!7=,2 7,A:!>*.. C 1he alance an investor must decide on et$een the desire for lo$ risk and hi"h returns. since lo$ levels of uncertainty Glo$ riskH are associated $ith lo$ potential returns and hi"h levels of uncertainty Ghi"h riskH are associated $ith hi"h potential returns0 -ach investor tries to reach a point of risk@return in his portfolio $here the risk is minimum and return is ma/imum0
1.3.2 @igh 2et 0orth Indi#iduals
A hi"h net $orth individual is a person $ith lar"e personal financial holdin"s0 1raditionally the term used $as millionaire. ut in recent years the term High Net Worth individual G!#IH has ecome the descriptor of choice0 A classification used y the financial services industry to denote an individual or a family $ith hi"h net $orth0 Althou"h there is no precise definition of ho$ rich some ody must e to fit into this cate"ory. hi"h net $orth is "enerally >uoted in terms of li>uid assets over a certain fi"ure0 1he e/act amount differs y financial institution and re"ion0 1he cate"ori?ation is relevant ecause hi"h net $orth individuals "enerally >ualify for separately mana"ed investment accounts instead of re"ular mutual funds0 !#9I:s are in hi"h demand y private $ealth mana"ers0 1hese individuals "enerally demand Gand can justifyH personali?ed services in investment mana"ement. estate plannin". ta/ plannin". and so on0 !#I:s Investi le assets refer to all fi/ed and current assets of the individual ut e/clude his primary d$ellin"0 1hey include a simple savin"s or fi/ed deposit account $ith a financial institution. a securities account $ith a rokera"e firm or an investmentClinked policy $ith an insurance company0 If the !#I has more than one account $ith the entity. the total net investi le assets $ould mean the a""re"ate net invest a le assets of the accounts0 India no$ is home to =6.888 millionaires and the country sa$ the $orldFs second fastest "ro$th. at 1706 per cent. in the num er of hi"h netC$orth individuals in 488<0
Ser#ices 0anted by @igh 2et /orth Indi#iduals1
11 !#I:s are lookin" for professional advise on $ealth mana"ement0 1his is termed as priority ankin"0 Priority ankin" provides t$o major services to !#I:s0 First is $ealth mana"ement and second is portfolio mana"ement0 Private (ankin" in a sense e/pands the definition of portfolio to $ealth mana"ement0 9ealth includes e/istin" as $ell as fresh funds and apart from the traditional e>uity G oth listed and private e>uityH. de t and mutual funds. comprises art. real estate. je$ellery etc0 1he advanta"e anks have in providin" this service is that there is a certain seamless ness in the entire operation. from makin" an investment decision to the proceeds. includin" char"es ein" credited or de ited to your account0 Further. the essence of this usiness is security and confidentiality. $hich is $hat "ood ankin" essentially. is all a out0
7he %ort+olio management %roduct itsel+ 0hich ban-As o++ers can ty%ically9 be bro-en into1
? Ad#isory ser#ices, Fle/i le. un iased investment advice customi?ed to meet client needs0 ? 7ransaction su%%ort, All transactions. oth in the primary and secondary markets facilitated throu"h a panel of rokers0 ? Custodial ser#ices, Important from the point of vie$ of removal of settlement hassles and efficient follo$Cup of all corporate actions0 1hese are a fe$ services demanded y !#I:s from their financial advisors, ? Wealth preservation and risk management ? Estate planning ? Tax planning ? Retirement planning
When it came to selecting a financial provider or advisor - the criteria for high-net-worth investors in order of priority are:
? ? ? ? !ervice "uality# $ersonal relationships with their financial advisors# %alued advice# and &nvestment performance'
1he I#& 'ysya:s team offers customi?ed portfolios for clients that take into account ta/ constraints and the overall risk tolerance of each individual or family office0 Risks $ithin each portfolio are carefully controlled via a disciplined investment process and sophisticated risk mana"ement tools0 I#& 'ysya provides priority ankin" to its !#I:s
14 Priority ankin" is meant for the customer $ho is not really Imass market:0 1he products and services offered remain the same. ut the customer "ets to deal $ith a dedicated Relationship 2ana"er GR2H instead of a faceless entity0 !e or she can "et his >ueries ans$ered on the phone. is visited at his home@office y his R2 and. of course. is invited to a host of events or"ani?ed y the ank. .or I23 4ysya ban- an indi#idual 0ith an in#estment o+ 1 la-hs and abo#e is categori<ed as @2I.
1.3.3 In#estment o%tions o+ @2IAs1
1here are many investment tools an !#I can add to his@her investment portfolio0 1he investment avenues suita le of each individual $ill e different0 1he investment type undertaken y a person can e e/plained $ith the help of the riskCreturn trade off0 ,is-> return trade of can e defined as “7he balance an in#estor must decide on bet0een the desire +or lo0 ris- and high returns9 since lo0 le#els o+ uncertainty 5lo0 ris-6 are associated 0ith lo0 %otential returns and high le#els o+ uncertainty 5high ris-6 are associated 0ith high %otential returnsB. 2ost investors take into consideration this tradeCoff efore makin" their investments0 An investor $ho seeks hi"her returns $ould "enerally venture into the stock markets. $hile one seekin" sta le and secure returns is likely to stick to fi/ed income securities0 1his depends upon the person:s social ack"round. a"e. se/. $ork desi"nation. family. runnin" income. future monetary re>uirements and various fi/ed commitments in life0 If you:re investin" to accumulate $ealth y uyin" individual securities. there are t$o >uestions you need to ans$er in order to limit your risk $hile seekin" a satisfactory return, 10 What investment should you buy( 40 When should you buy them(
The only sound way to make these choices is to research the possibilities until you know as much as you can about:
? ? ? *#erall mar-et 4arious sectors o+ the mar-et 7he com%any issuing the indi#idual stoc- or bond your considering
16 ? 7he su%%ly and demand o+ the securities your considering
For a thorou"h investi"ation. you need to do oth fundamental and technical analysis. either on your o$n or $orkin" $ith an adviser0 Some of the techni>ues may seem intimidatin". and the details over$helmin"0 (ut the information you need is readily availa le0
!#ery ban- and +inancial institute %ro#ides in#estors 0ith #arious instruments o+ in#estments. 7hey are enumerated belo01
1. Mutual +unds 2. Insurance %olicies 3. 3o#ernment securities 4. Cor%orate bonds . .i"ed de%osits $. 8and and %ro%erty (. 3old ). !;uity C. IP*As 1D. Pre+erence shares 9e $ill riefly discuss each product,
Mutual .unds1
1;
:e+inition, a 2utual Fund is a pool of money. collected from investors. and is invested
accordin" to certain investment o jectives0 A mutual fund is created $hen investors put their money to"ether0 It is therefore a pool of the investor:s funds0 1he most important characteristic of a mutual fund is that the contri utors and the eneficiaries of the fund are the same class of people. namely the investors0 1he term mutual means that investors contri ute to the pool. and also enefit from the pool0 1here are no other claimants to the funds0 1he pool of funds held mutually y investors is the mutual fund0 Mutual +unds reduce ris-s +or the in#estors by in#esting in a %ort+olio o+ securities. 1his means the funds are not invested in the same investment avenue0 1hey offer readyC made diversified portfolio. $hich ena les investors to hold diversified portfolios0 2utual funds invest in diversified securities. as the risk and return of different securities do not necessarily move in the same direction. $hich reduces the risk of the portfolio0
7he .und Structure And Its Constituents,
S%onsor
7he Asset Management Co. 5AMC6
7rustee
Clients
1he structure of the mutual fund in India is "overned y the S!BI 5Mutual .und6 ,egulations9 1CC$0 1hese re"ulations make it mandatory for the mutual funs to have a threeCtier structure of S%onsor>7rustee>Asset Management Com%any 5AMC60 1he sponsor is the promoter of the mutual fund and appoints the trustees0 1he trustees are responsi le to the investors in the mutual fund. and appoint the A2% for mana"in" the investment portfolio0 1he A2% Ginvestment mana"ersH is the usiness face of the mutual fund. as it mana"es all the affairs of the mutual fund0 1he mutual fund and the A2% have to e re"istered $ith S-(I0 1he S-(I re"ulations also provide $ho can e the 6 entities and the format of a"reement et$een them0
Mutual +unds can be structured in the +ollo0ing 0ays,
a0 Com%any +ormC in $hich investors hold shares of mutual fund0 In this structure mana"ement of the fund is in the hands of an elected oard. $hich in turn appoints investment mana"ers to mana"e the fund0
1< 0 7rust +ormC in $hich the funds of the investors are held y the trust. on ehalf of the investors0 1he trust appoints investment mana"ers and monitors their functionin". in the interest of the investors0 G;H
7he bene+its o+ in#esting in mutual +unds are1
• • • • • • Pro+essional management of your money $ho have the e/perience and resources to thorou"hly analy?e the economy and financial markets. and spot "ood opportunities0 :i#ersi+ication y $hich $ith smaller amounts of investment you can achieve a hi"h de"ree of diversification and reduce your risk0 8i;uidity and con#enience of "ettin" ack your money easily $henever you $ant and there is very less paper $ork to do0 -asy to track your investments0 7a" bene+its are also availa le for certain schemes0 G<H A++ordability Investors individually may lack sufficient funds to invest in hi"hC "rade stocks0 A mutual fund ecause of its lar"e corpus allo$s even a small investor to take the enefit of its investment strate"y0 /ell>,egulated All 2utual Funds are re"istered $ith S-(I and they function $ithin the provisions of strict re"ulations desi"ned to protect the interests of investors0 1he operations of 2utual Funds are re"ularly monitored y S-(I0 G5H
In#estment a#enues o+ mutual +unds
)utual *unds invests into
Stoc-s
Bonds
Money mar-et instruments
Stoc-s1 mutual funds invest into stocks. $hich represent o$nership or e>uity in a company. popularly kno$n as shares0 Bonds, these represent de t from companies. financial institutions or "overnment a"encies0 Money mar-et instruments, these include shortCterm de t instruments such as treasury ills. certificate of deposits and interC ank call money0
7here are di++erent ty%es o+ mutual +unds. 7he chart belo0 0ill sho0 them
13
M=7=A8 .=2:S
Open-Ended funds
Close-Ended Funds
Inter al funds
Inde" .unds Income/ bond +unds
@ybrid/ balanced +und
S%ecialty .unds Money Mar-et +unds ? Sector specific fund ? $egional funds ? Sociall" responsi!le fund ? %a& sa ing schemes 3lobal/ Internationa l .und
!;uity +unds
? ? ? ? ? ?
Growth fund Value fund Blend fund Large-cap fund Mid-cap fund Small-cap fund
? Gilt funds ? Income funds ? MI'(s ? Short-term ? Medium-term ? Long-term
? Glo!al funds ? Foreign funds ? Countr" specific funds ? Emerging mar#et funds
By structure1
?
*%en>ended .unds1 An openCend fund is one that is availa le for su scription all throu"h the year0 1hese do not have a fi/ed maturity0 Investors can conveniently uy and sell units at #et Asset 'alue GJ#A'JH related prices0 1he key feature of openCend schemes is li>uidity0 2ost of the funds in India are openCended funds0
15 Close>ended +und1 A closedCend fund has a stipulated maturity period $hich "enerally ran"in" from 6 to 1< years0 1he fund is open for su scription only durin" a specified period0 Investors can invest in the scheme at the time of the initial pu lic issue and thereafter they can uy or sell the units of the scheme on the stock e/chan"es $here they are listed0 In order to provide an e/it route to the investors. some closeCended funds "ive an option of sellin" ack the units to the 2utual Fund throu"h periodic repurchase at #A' related prices0 S-(I Re"ulations stipulate that at least one of the t$o e/it routes is provided to the investor0 G=H ? Inter#al +unds1 Interval funds com ine the features of openCended and closeC ended schemes0 1hey are open for sale or redemption durin" preCdetermined intervals at #A' related prices0
?
!;uity +unds1
Funds that invest in stocks represent the lar"est cate"ory of mutual funds0 &enerally. the investment o jective of this class of funds is lon"Cterm capital "ro$th $ith some income0 1here are. ho$ever. many different types of e>uity funds ecause there are many different types of e>uities0 1hese funds invest a major part of their corpus in e>uities0 1he composition of the fund may vary from scheme to scheme and the fund mana"er:s outlook on various scripts0
In#estment in e;uity +unds can be di#ided into t0o ty%es1 1. In#estment style1
? 3ro0th +und1 1he o jective of &ro$th Fund scheme is to provide capital appreciation over the medium to lon" term0 1his type of scheme is an ideal scheme for the investors seekin" capital appreciation for a lon" period0 G11H 1hese funds uy shares in companies that are "ro$in" rapidly ut are pro a ly not "oin" to "o out of usiness too >uickly0 &ro$th funds rarely provide dividend income and are considered risky investments ? 4alue +und1 1he term value refers to a style of investin" that looks for hi"h >uality companies that are out of favor $ith the market0 )o$ P@- and priceCtoC ook ratios characteri?e these companies and hi"h dividend yields0 (13) 1hese
funds invest in lar"e and midCsi?ed companies that appear to e overlooked or out of favor0 1hese undervalued stocks tend to pay dividends0
? Blend +und1 1hese funds are a J lendJ of oth "ro$th and value stocks0
2. Si<e o+ In#estment1
? 8arge ca% +unds1 1hese funds uy shares of i" companies0 1hink I(20 1he stock prices for these companies tend to e relatively sta le. and the companies may pay a decent dividend0 In companies $hose market value GK shares outstandin" L current market priceH is lar"e0 (y lar"e. I mean
1= "reater than M7 illion0 1hese J lueCchipJ funds tend to e $ellC esta lished corporations and tend to pay dividends0 ? Mid ca% +unds1 1hese funds uy shares of mediumCsi?e companies0 1he stock prices for these companies are less volatile than the small cap companies. ut more volatile Gand $ith "reater potential for "ro$thH than the lar"e cap companies0 1hese funds invest in midCsi?ed companies $hose market value is more in the ran"e of M1 illion to M7 illion0 ? Small ca% +unds1 1hese funds uy shares of small companies0 1hink ne$ IPOs0 1he stock prices for these companies tend to e hi"hly volatile. and the companies never GeverH pay a dividend0 Eou may also find funds called micro cap. $hich invest in the smallest of pu lically traded companies0
Inde" +unds1
A portfolio of investments that is $ei"hted the same as a stockCe/chan"e inde/ in order to mirror its performance0 1his process is also referred to as "indexing". An inde/ is simply a "roup of stocks chosen to represent a particular se"ment of the market0 Dsually this is accomplished y purchasin" small amounts of each stock in a market0 1he mana"er is not tryin" to find the hot stocks or "reat deals0 Instead. the mana"er is simply tryin" to match a chosen inde"0 1he results are funds that are very cost efficient. meanin" the operatin" costs are very lo$. and often eat most actively mana"ed funds0 G1<H For e/ample. a stock inde/ fund ased on the +o$ Nones Industrial Avera"e $ould uy shares in the 68 stocks that make up the +o$. only uyin" or sellin" shares as needed to invest ne$ money or to cash out investors0 1he advanta"e of an inde/ fund is the very lo$ e/penses0 After all. it doesnFt cost much to run one0
Bond/Income .unds1
An income fund invests in either corporate. "overnment. or municipal de t securities0 A de t security is an o li"ation. $hich pays interest on a re"ular asis0 !ence. this type of fund is desi"ned for investors $ho desire periodic income payments0 1here are. ho$ever. su stantial differences and varyin" de"rees of risk amon" income funds dependin" on the credit >uality of the de t issuer. the maturity of the de t instrument. and prevailin" interest rates0 ? 3ilt>+unds: Invest their corpus in securities issued y &overnment. popularly kno$n as &ilt de t papers0 1hese Funds carry ?ero +efault risk ut are associated
17 $ith Interest Rate risk0 1hese schemes are safer as they invest in papers acked y &overnment0 ? Income +unds1 Invest a major portion into various de t instruments such as onds. corporate de entures and &overnment securities0
?
MIPAs1 Invests around =8O of their total corpus in de t instruments $hile the
rest of the portion is invested in e>uities0 It "ets enefit of oth e>uity and de t market0 1hese scheme ranks sli"htly hi"h on the riskCreturn matri/ $hen compared $ith other de t schemes0 ? Short>term Bond .unds1 usually means the holdin"s have up to t$o years left to maturity0 1his includes ills. %+s. and commercial paper0 ? Intermediate>term Bond .unds1 usually means the holdin"s have et$een t$o years to ten years until maturity0 1his includes notes. ? 8ong>term Bond .unds1 usually means the holdin"s have over ten years left to maturity0
@ybrid/balanced +und1
!y rid mutual funds have een around since the late 1748s0 1hey are funds that are invested in common stock. preferred stock. onds. and may have an international or a cash component as $ell0 @ybrid mutual +unds may be suited +or1 10 Investors $ho are just startin" out and $ant diversification $ithin a sin"le fund. and 40 1hose $ho $ant a simplified portfolio of only one or t$o funds0 60 One type of a hy rid mutual fund is called a J alanced fundJ0 1hese funds "enerally have lo$ volatility and are popular $ith investors seekin" current income and "ro$th potential0 1he fund:s o jectives and the fund mana"er determine the ratio of stocks to onds0 Funds $ith B alanced: or Bincome: in the name normally have a fi/ed ratio from $hich they can:t deviate0 On the avera"e. their ratio of stocks to other investments is appro/imately 38,;80 2ana"ers of alanced funds can. ho$ever. shift this ratio one $ay or the other to take advanta"e of hi"h interest rates or stock market "ro$th0 1hese funds may e e>uityC oriented and ske$ed to$ard stocks. or incomeCoriented and ske$ed to$ard onds0
Money Mar-et +unds1
A money market fund is a type of mutual fund that is re>uired y la$ to invest in lo$C risk securities0 1hese funds have relatively lo$ risks compared to other mutual funds and pay dividends that "enerally reflect shortCterm interest rates0 Dnlike a Jmoney market deposit accountJ at a ank. money market funds are not federally insured0 2oney market funds typically invest in "overnment securities. certificates of deposits. commercial paper of companies. and other hi"hly li>uid and lo$Crisk securities0 1hey
48 attempt to keep their net asset value G#A'H at a constant M1088 per sharePonly the dividend yield "oes up and do$n0 (ut a money market:s per share #A' may fall elo$ M1088 if the investments perform poorly0 9hile investor losses in money market funds have een rare. they are possi le0 Althou"h money market mutual funds are amon" the safest types of mutual funds. it still is possi le for money market mutual funds to fail. ut it is unlikely0 In fact. the i""est risk involved in investin" in money market funds is the risk that inflation $ill outpace the fundsF returns. there y erodin" the purchasin" po$er of the investorFs money0
7y%es o+ money mar-et mutual +unds are,
? Prime +unds ? 3o#ernment +unds ? 7a">e"em%t +unds
S%ecialty mutual +unds1
1his classification of mutual funds is more of an allCencompassin" cate"ory that consists of funds that have proved to e popular ut donFt necessarily elon" to the cate"ories $eFve descri ed so far0 1his type of mutual fund for"oes road diversification to concentrate on a certain se"ment of the economy0 ? Sector +unds are tar"eted at specific sectors of the economy such as financial. technolo"y. health. etc0 Sector funds are e/tremely volatile0 1here is a "reater possi ility of i" "ains. ut you have to accept that your sector may tank0 ? ,egional +unds make it easier to focus on a specific area of the $orld0 1his may mean focusin" on a re"ion Gsay )atin AmericaH or an individual country Gfor e/ample. only (ra?ilH0 An advanta"e of these funds is that they make it easier to uy stock in forei"n countries. $hich is other$ise difficult and e/pensive0 Nust like for sector funds. you have to accept the hi"h risk of loss. $hich occurs if the re"ion "oes into a ad recession0 ? Socially res%onsible funds Gor ethical fundsH invest only in companies that meet the criteria of certain "uidelines or eliefs0 2ost socially responsi le funds donFt invest in industries such as to acco. alcoholic evera"es. $eapons or nuclear po$er0 1he idea is to "et a competitive performance $hile still maintainin" a healthy conscience0 ? 7a" sa#ing schemes1 1he o jective of 1a/ Savin" schemes is to offer ta/ re ates to the investors under specific provisions of the Indian Income 1a/ )a$s0 Investments made under some schemes are allo$ed as deduction u@s == of the Income 1a/ Act0
3lobal mutual +und1
1his type of mutual fund makes its investment in international markets0 1hey invest eyond the national oundaries in forei"n lands0 1hey invest in forei"n companies0
Ban- de%osits1
41
Meaning1 9hen you deposit a certain sum in a ank $ith a fi/ed rate of interest and a
specified time period. it is called a ank Fi/ed +eposit GF+H0 At maturity. you are entitled to receive the principal amount as $ell as the interest earned at the preCspecified rate durin" that period0 1he rate of interest for (ank Fi/ed +eposits varies et$een ; and 11 per cent. dependin" on the maturity period of the F+ and the amount invested0 1he interest can e calculated monthly. >uarterly. halfCyearly. or annually. and varies from ank to ank0 1hey are one the most common savin"s avenue. and account for a su stantial portion of an avera"e investorFs savin"s0 1he facilities vary from ank to ank0 Some services offered are $ithdra$al throu"h che>ues on maturityA reak deposit throu"h premature $ithdra$al. and overdraft facility etc0 Interest income from (ank F+ >ualifies for e/emption under section =8). $hich means the interest income is e/empt up to limit of Rs 78880
7here are t0o basic ty%es o+ +i"ed de%osit accounts1
10 7ime de%osit C $here you a"ree to deposit money for a fi/ed period0 1he lon"er the period and the "reater the amount. the hi"her the interest rate0 Fi/ed periods ran"e from one month to one year0 7he interest rate is higher than call de%osit 40 Call de%osit C $here you a"ree to $ithdra$ money only after "ivin" a period of notice to us0 1here is a minimum deposit for settin" up fi/ed deposit accounts0 It helps you to save money y forcin" you to keep your money intact for a certain period0 !o$ever. if in any case you need to $ithdra$ money efore the maturity date. you can al$ays come to us and special arran"ements could e made0 Interest loss and an early $ithdra$al char"e $ill result from such chan"es0
.eatures
(ank deposits are fairly safe ecause anks are su ject to control of the Reserve (ank of India GR(IH $ith re"ard to several policy and operational parameters0 1he anks are free to offer varyin" interests in fi/ed deposits of different maturities0 Interest is compounded once a >uarter. leadin" to a some$hat hi"her effective rate0 1he minimum deposit amount varies $ith each ank0 It can ran"e from as lo$ as Rs0 188 to an unlimited amount $ith some anks0
Ad#antages
(ank deposits are the safest investment after Post office savin"s ecause all ank deposits are insured under the +eposit Insurance Q %redit &uarantee Scheme of India0 It is possi le to "et a loan up to5<C 78O of the deposit amount from anks a"ainst fi/ed deposit receipts0 1he interest char"ed $ill e 4O more than the rate of interest earned y the deposit0 One can "et a ank F+ at any ank. e it nationali?ed. private. or forei"n0 Eou have to open a F+ account $ith the ank. and make the deposit0 G
7he de%osit %eriod can #ary +rom 1 9 3D or 4 days to 39 $ months9 1 year9 1. years to 1D years0 G elo$ one croreH
44 :uration 5 C 1< days 13 C ;8 days ;1 –;; days ;<C38 days 31C78 days 71 – 117 days 148 days 141 – 63; days 63<C633 days 635 days to 18 years Interest rate 5E6 %er annum 40<8O 60<8O ;088 O <0<8O 5088O 50<8O 505<O 50<8O =04<O 504<O
3o#ernment Securities1
:e+inition1 &overnment
onds are securities issued y the %entral and State "overnments0 As anker to the "overnment. the Reserve (ank of India re"ularly services the payment of interest and the principal on these securities0 Since these are soverei"n paper. the onds are re"arded as the safest0 1he other advanta"es of the "overnment securities are that they are trada le and can e used as collateral for loans0 1here is no deduction at source G1+SH on interest payments on "overnment securities0 (ut for individuals. interest income up to Rs 6.888 per annum is only e/empt from income ta/0
7he bene+its o+ in#esting in a go#ernment security are1
10 Sa+ety1 1he Rero +efault Risk is the "reatest attraction for investments in &overnment Securities0 It enjoys the "reatest amount of security possi le. as the &overnment of India issues it0 !ence they are also kno$n as &iltC-d"ed Securities orF&iltsF0 40 .i"ed Income1 +urin" the term of the security there is likely to e fluctuations in the &overnment Security prices and thus there e/ists a price risk associated $ith investment in &overnment Security0 !o$ever. the return on the holdin" of investment is fi/ed if the security is held till maturity and the effective yield at the time of purchase is kno$n and certain0 In other $ords the investment ecomes a fi/ed income investment if the uyer holds the security till maturity0 60 Con#enience1 &overnment Securities do not attract deduction of ta/ at source G1+SH and hence the investor havin" a nonCta/a le "ross income need not file a return only to o tain a 1+S refund0 ;0 Sim%licity1 1o uy and sell &overnment Securities all an individual has to do is call his @ her ->uity (roker and place an order0 If an individual does not trade in the ->uity markets. he @ she has to open a demat account and then can commence
46 tradin" throu"h any ->uity roker0 <0 8i;uidity1 &overnment Security $hen actively traded on e/chan"es $ill e hi"hly li>uid. since a national tradin" platform is availa le to the investors0 30 :i#ersi+ication1 &overnment Securities are availa le $ith a tenor of a fe$ months up to 68 years0 An investor then has a $ide time hori?on. thus providin" "reater diversification opportunities0
7he +actors9 0hich a++ect the %rice o+ go#ernment securities1
1he price of a &overnment Security in the markets is determined y the forces of demand and supply. as is the case in any market0 1he price of a &overnment Security in the marketplace also depends on a num er of other factors and $ill fluctuate accordin" to chan"es in, ? -conomic conditions0 ? &eneral money market conditions includin" the position of money supply. in the economy0 ? Interest rates prevalent in the market and the rates of ne$ issues0 ? %redit >uality of the issuer
Cor%orate Bonds1
(onds issued y a corporation are called corporate onds0 9hen a company needs to raise funds for some type of investment or e/penditure. they often turn to the pu lic markets for fundin"0 One $ay to do this is to issue additional stock in the company. ut this has implications on the value of the shares and dilutes o$nership0 1he other major option is to sell onds to the pu lic and take on de t0 Sellin" onds is often more attractive to companies than "ettin" a loan from a ank0 %orporate onds are de ts issued y industrial. financial and service companies to finance capital investment and operatin" cash flo$0 Investors in corporate onds have a $ide ran"e of choices $hen it comes to ond structures. coupon rates. maturity dates. credit >uality and industry e/posure0 Investors in corporate onds have a $ide ran"e of choices $hen it comes to ond structures. coupon rates. maturity dates. credit >uality and industry e/posure0 9hen you uy a ond. you are lendin" money to the corporation that issued it0 1he corporation promises to return your money. or principal. on a specified maturity date0 Dntil that time. it also pays you a stated rate of interest. usually semiannually0 1he interest payments you receive from corporate onds are ta/a le0 Dnlike stocks. onds do not "ive you an o$nership interest in the issuin" corporation0
4; 1he onds are fully ta/a le. and they are issued in maturities ran"in" from less than one year to a out 68 years Galthou"h there are a fe$ corporate onds that mature in more than 68 yearsH0
7y%es o+ Issuers
1here are five main classifications of issuers representin" various sectors that issue corporate onds, G43H
10 40 60 ;0 <0 Pu lic utilities 1ransportation companies Industrial corporations Financial services companies %on"lomerates
Bene+its o+ In#esting in Cor%orate Bonds
Investors uy corporate for a variety of reasons, ? Attracti#e yields %orporate usually offer hi"her yields than compara leCmaturity "overnment onds or %+s0 1his hi"hCyield potential is "enerally accompanied y hi"her risks0 ? :e%endable income People $ho $ant steady income from their investments. $hile preservin" their principal. include corporate in their portfolios0 ? Sa+ety %orporate onds are evaluated and assi"ned a ratin" ased on credit history and a ility to repay o li"ations0 1he hi"her the ratin". the safer the investment0 ? :i#ersity %orporate onds provide the opportunity to choose from a variety of sectors. structures and creditC>uality characteristics to meet your investment o jectives0 ? Mar-etability If you must sell a ond efore maturity. in most instances you can do so easily and >uickly ecause of the si?e and li>uidity of the market0
8i+e Insurance Policy
Meaning1 )ife insurance is a form of insurance that pays monetary proceeds upon the
death of the insured covered in the policy0 -ssentially. a life insurance policy is a contract et$een the named insured and the insurance company $herein the insurance company a"rees to pay an a"reed upon sum of money to the insuredFs named eneficiary so lon" as the insuredFs premiums are current0 1he cost of life insurance varies dependin" on such factors as the insuredFs a"e. health. and occupation0 For e/ample. the premium for a 4<CyearCold. male. nonCsmoker in e/cellent health $ill e far less e/pensive than a similar policy for a 3<CyearCold male
4< smoker0 Similarly. a sky dive instructor $ould have to pay much hi"her premiums for life insurance than $ould a li rarian0 )ife insurance is availa le in a num er of different forms to fit the tastes of the proposed insured0 Some of the typical forms of life insurance policies include, $hole life. varia le life. and term life0 7erm li+e insurance %olicies e"in $ith lo$ premiums durin" the initial sta"es of the policy and these premiums increase steadily as the insured "ro$s older0 1here is no cash uildCup in a term policy and. accordin"ly. the death enefit $ill not increase0 9ith $hole life and varia le life insurance. a portion of each premium pays for the insurance and the remainder serves as a ta/Cfree investment0 A 0hole li+e %olicy sets a premium at the e"innin" of the policy and that premium does not chan"e over the life of the policy0 1his form of insurance allo$s for a cash uildCup durin" the insuredFs life0 1his cash uildCup can e used durin" the course of the policy or it $ill simply serve to increase the death enefit in the end0 In a #ariable li+e %roduct. the premium remains the same over the life of the policy. and there should e a cash uildCup as lon" as the various mutual funds selected y the insured perform $ell0
2eed +or a li+e insurance %olicy1
? Protection> Eou need life insurance to e there and protect the people you love. makin" sure that your family has a means to look after itself after you are "one0 It is a thou"htful usiness concept desi"ned to protect the economic value of a human life for the enefit of those financially dependent on him0 1hat:s a "ood reason0 Supposin" you suffer an injury that keeps you from earnin"S 9ould you like to e a financial urden on your family. already losin" out on your salaryS 9ith a life insurance policy. you are protected0 Eour family is protected0 ? ,etirement> )ife insurance makes sure that you have re"ular income after you retire and also helps you maintain your standard of livin"0 It can ensure that your postCretirement years are spent in peace and comfort0 ? Sa#ings and In#estments> Insurance is a means to Save and Invest0 Eour periodic premiums are like Savin"s and you are assured of a lump sum amount on maturity0 A policy can come in really handy at the time of your child:s education or marria"eT (esides. it can e used as supplemental retirement incomeT ? 7a" Bene+its> )ife insurance is one of the est ta/ savin" options today0 Eour ta/ can e saved t$ice on a life insurance policyConce $hen you pay your premiums and once $hen you receive maturity enefits0 2oney saved is money earned0
Contract and Policy
An insurance contract cannot cover all conceiva le risks0 An insurance contract that violates a statute is contrary to pu lic policy. or plays a part in some prohi ited activity $ill e held unenforcea le in court0 A contract that protects a"ainst the loss of ur"lary tools. for e/ample. is contrary to pu lic policy and unenforcea le0
43
Insurable Interest
1o >ualify for an insurance policy. the insured must have an insura le interest. meanin" that the insured must derive some enefit from the continued preservation of the article insured. or stand to suffer some loss as a result of that articleFs loss or destruction0 )ife insurance re>uires some familial and pecuniary relationship et$een the insured and the eneficiary0 Property insurance re>uires that the insured must simply have a la$ful interest in the safety or preservation of the property0
Claims
1he most common issue in insurance disputes is $hether the insurer is o li"ated to pay a claim0 1he determination of the insurerFs o li"ation depends on many factors. such as the circumstances surroundin" the loss and the precise covera"e of the insurance policy0 If a dispute arises over the lan"ua"e of the policy. the "eneral rule is that a court should choose the interpretation most favora le to the insured0 An insurance company may deny or cancel covera"e if the insured party concealed or misrepresented a material fact in the policy application0 If an applicant presents an unaccepta ly hi"h risk of loss for an insurance company. the company may deny the application or offer prohi itively hi"h premiums0 A company may cancel a policy if the insured fails to make payments0 A company may refuse to pay a claim if the insured intentionally caused the loss or dama"e0
G61H
3old1
&old is the standard y $hich the value of anythin" is assessedA it is universally accepted0 India has een a traditional "oldChoarder0 Indians love "old0 Investment in "old can e done directly throu"h o$nership. or indirectly throu"h certificates. accounts. shares. futures etc0 2ost investors $ould not recommend storin" "old oneself Ge0"0 in oneFs home or uried in the "ardenH ut to use a ank or dealer0 &old prices have seen an up$ard trend in the past 6 years0 1hou"h the earlier decades sa$ a relatively poor performance y the precious metal. "old prices are likely to rise steadily over the lon"er term0 1his investment opportunity is sho$in" an ups$in" a"ain0 9ith uncertainty in the stock market and decline in the DS dollar. investors are takin" a fresh look at "old as an investment option0 &old $orks as a perfect hed"e a"ainst investment in other assets0 In fact. $hen other investments take a eatin". "old investment tends to sta ili?e0 As a lon" term investor. holdin" on to "old investment is a "ood tip0
.actors a++ecting the %rices o+ gold1
? Gold DemandCObviously the higher the demand for Gold, the higher its price. Certain nations hold the metal in high regard and often use it for major purchases or investments (by purchasing jewelry etc). China and India are very important consumers where there seems to be a emerging business
45 population loo ing to invest in some physical cash assets. Gold, !latinum and "iamonds are also heavily used in industry. ?
llar Price> &old is typically >uoted in +ollars. and if the dollar e"ins to sink then the value of &old tends to increase and viceCversa0? Mar-et .ear> 9henever the stock markets or political situations look ad then people tends to fly to$ards &old0 Stock market crashes. terrorist attacks. or $ars $ill all tend to push the value of &old up0 ? Mar-et 3reedC As $ith all investments their performance can e self perpetuatin". i0e0 they start doin" $ell and so more people "et interested. the &old funds start appear on the front pa"e of the 2oney section in the tele"raph. and the "eneral pu lic are advised to uy. uy. uy0 1his o viously has the effect of pushin" "old prices. and "old mine share prices up. as everyone $ants to "et in on the act0 G66H
7y%es o+ 3old in#estments1
? ? ? ? ? Bullion coins 3old Bars 3old Certi+icates 3old Accounts 3old Mining Shares
7a" Im%lications
Since there is no income as such from holdin" "old. there is no lia ility for income ta/0 (ut ullion and je$ellery are su ject to capital "ains ta/ and $ealth ta/. $ithout any e/emptions $hatsoever0
,easons +or in#estment in gold1
An investment portfolio $ith an allocation in "old improves the consistency of portfolio performance durin" oth sta le and unsta le periods &old is also a currency hed"e ecause it has an inverse relationship $ith dollar0 &old is also an inflation hed"e as proved y a ;88Cyear study of the purchasin" po$er of "old0 One ounce of "old $ould consistently purchase the same amount of "oods and services. as it $ould have done ;88 years
8and
Real estate investment in India is the sin"le most lucrative option in the modern times0 If you are lookin" to uy a piece of real estate in the county ri"ht no$. many $ould aver that the decision mi"ht $ell e $orth it0 1here are a fe$ factors that "o into such a conclusion – "ood returns and lon"Cterm investment option ein" a fe$0 Since India is emer"in" as a fast "ro$in" economy. real estate is ecomin" a yC$ord for affluence0
4= Investments in commercial land. a"ricultural land. land for schools. factories. industries. hospitals or resorts. land for houses. shoppin" arcades makes ample usiness sense0 G6;H 1he simplicity and transparency of land investment has "ained many follo$ers0 1here are no complicated concepts that investors need to understand. just that there is an everC increasin" demand for uildin" land0 Dnlike stocks and shares. the land investor $ill al$ays have a tan"i le investment they can touch and use0 Furthermore. due to its limited supply and demand. one can also rest assured that land values $ill al$ays e on the rise. havin" already increased ei"ht fold in value over the last t$enty years0
!;uity
->uity shares represent proportionate o$nership in a company0 Investors $ho o$n e>uity shares of a company are entitled to o$nership ri"hts. like votin" for selection of directors on the (oard. share in profits of the company. etc0 Investors $ho o$n e>uity shares in a company are called shareholders0 Shareholders are entitled to share profit of the company in the form of JdividendJ or J onus sharesJ. if (oard of +irectors and majority of the shareholders a"ree0 1he e>uity shareholders are paid an annual dividend dependin" on the profita ility of the firm. $hich is proposed y the (oard and passed in the Annual &eneral 2eetin" of the company0
!;uity in#estment "enerally refers to the uyin" and holdin" of shares of stock on a
stock market y individuals and funds in anticipation of income from dividends and capital "ain as the value of the stock rises0 It also sometimes refers to the ac>uisition of e>uity Go$nershipH participation in a private GunlistedH company or a startup Ga company ein" created or ne$ly createdH0 9hen the investment is in infant companies. it is referred to as venture capital investin" and is "enerally understood to e hi"her risk than investment in listed "oin"Cconcern situations0
Bene+its o+ in#esting in !;uity shares
(enefits accorded to the e>uity shareholders in the form of dividend. ri"hts and onus are termed collectively as corporate enefits0 1hese are normally "iven to those investors $hose names appear in the Re"ister of 2em ers of the company efore the commencement of the (ook %losure period or efore the record date0 +ividend is the share of the profit paid out to the o$ners of the company0
IP*As
IPO stands for initial pu lic offerin"0 An initial %ublic o++ering 5IP*6 is the first sale of a corporationFs common shares to pu lic investors0 1he main purpose of an IPO is to raise capital for the corporation0 9hile IPOs are effective at raisin" capital. they also impose heavy le"al compliance and reportin" re>uirements0 1he term only refers to the first pu lic issuance of a companyFs sharesA any later pu lic issuance of shares is referred to as
47 a Secondary 2arket Offerin"0 IPO:s are often smaller. youn"er companies seekin" capital to e/pand their usiness0 In an IPO. the issuer o tains the assistance of an under$ritin" firm. $hich helps it determine $hat type of security to issue Gcommon or preferredH. est offerin" price and time to rin" it to market0 IPO:s can e a ris-y in#estment0 For the individual investor. it is tou"h to predict $hat the stock $ill do on its initial day of tradin" and in the near future since there is often little historical data $ith $hich to analy?e the company0 Also. most IPO:s are of companies "oin" throu"h a transitory "ro$th period. and they are therefore su ject to additional uncertainty re"ardin" their future value0
7he bene+it o+ %ic-ing u% shares +rom IP* rather than buying +rom stoc- mar-et,
Often companies issue their shares at par or at economic rate to attract pu lic and $hen the shares "et listed in the stock e/chan"e "enerally the prices "o up0 ShortCterm traders immediately sell those shares and make profits0 )on"Cterm investors $ait for their e""s to hatch properly efore sellin"0
7he %rocedure o+ a%%lying shares through IP*
IPO are "enerally heavily advertised in the media and ne$spaper ecause companies $ant to ensure the success of their issue0 1hrou"h this advertisement %ompanies also "et a "ood pu licity for their product0 One must "o throu"h the prospectus very carefully as every detail a out the su scription is clearly mentioned in it0 1he information is also availa le on companyFs site or S-(I $e site0 Fill up the application form carefully0 Application form are availa le at any rokerFs office or on some street kiosks in the financial area of a city0 Fill it up and deposit alon" $ith application money in the form of che>ue or ank demand draft0 If you "et su scription pay the su se>uent call money on time in order to "et relief from penalty or forfeiture0
Pre+erence shares1
%apital stock. $hich provides a specific dividend that. is paid efore any dividends are paid to common stock holders. and $hich takes precedence over common stock in the event of a li>uidation0 )ike common stock. preference shares represent partial o$nership in a company. althou"h preferred stock shareholders do not enjoy any of the votin" ri"hts of common stockholders0 Also unlike common stock. preference shares pay a fi/ed dividend that does not fluctuate. althou"h the company does not have to pay this dividend if it lacks the financial a ility to do so0
7he main bene+its to o0ning %re+erence shares are1
10 1hat the investor has a "reater claim on the company:s assets than common stockholders0 40 Preferred shareholders al$ays receive their dividends first and. 60 In the event the company "oes ankrupt. preferred shareholders are paid off efore common stockholders0
68 In general9 there are +our di++erent ty%es o+ %re+erred stoc-1 ? Cumulati#e %re+erred> this means that if this yearFs dividend $asnFt paid. then it $ill e carried for$ard to ne/t year ? 2on>cumulati#e> this means that if a year:s dividend $asn:t paid. then it $ill not e carried for$ard to the ne/t year ? Partici%ating Pre+erence share> the o$ner of such a share has the ri"ht to participate in. or receive. additional dividends over and a ove the fi/ed percenta"e dividend0 ? Con#ertible > %re+erred stoc-C then the shareholders have the option at some sta"e of convertin" them into ordinary shares0
1.3.4 Instruments o+ in#estment %ro#ided by I23 4ysya Ban- 8td
I#& 'ysya in India is active in life insurance. asset mana"ement and ankin"0 I#& 'ysya (ank intends to rin" to its customers in India a ran"e of inte"rated financial solutions tailored to meet customer needs in ankin"0 I#& 'ysya provides a $ide ran"e of investment opportunity to its hi"h net $orth individuals0 I#& 'ysya (ank Private (ankin" aims to "ive the est advice on portfolio y "ivin" customi?ed solutions and e/clusive client mana"ement0 1he 6Csta"e process follo$ed y our $ealth mana"ers is, 1. /ealth Creation 2. /ealth Preser#ation 3. /ealth 7ransmission
a. Action %rogrammed +or 0ealth creation
Portfolio 2ana"ement on nonCdiscretionary asis Optimum asset allocation. $ithout e/cessive concentration or diversification Investments in e>uity market done throu"h +irect ->uity and 2utual Fund route Re"ular comprehensive reports and faceCto face portfolio status meetin"s Identification of the est investment opportunities ased on individual preferences -/clusive ankin" privile"es includin" access to lendin" resources from the ank for developin" usiness. e/ploitin" investment opportunities. or personal spendin" ? Optimi?ation of riskCre$ard opportunitiesA risk mana"ement throu"h sophisticated risk control mechanisms ? Asset structurin". financial advisory. le"al and ta/ plannin" ? ? ? ? ? ?
b. ,ange o+ ser#ices +or 0ealth %reser#ation
? ? ? ? -/clusive (ankin" Privile"es Investment Advice and Financial Plannin" Asset Structurin" Portfolio 2ana"ement
61 ? 1he portfolio most suita le to meet your specific "oals is adapted ? Portfolio diversified to spread risk. and desi"ned $ith an optimal lend of e>uity. fi/ed income. securities. insurance and pension schemes
c. Action %rogrammed +or 0ealth transmission
? Portfolio 2ana"ement Services ? -state Plannin" ? )e"al Advice ? Inheritance Plannin" ? %reatin" an appropriate frame$ork for a le"ally indin" $ealth transmission ? -/clusive (ankin" Privile"es ? Investment Advice
7he ban- %ro#ides the abo#e>mentioned ser#ices to its @2IAs through the selling o+ #arious %roducts. 7he %roducts o++ered by I23 4ysya ban- are1
1. 2. 3. 4. . $. Mutual +und ser#ices 8i+e Insurance Policy Ban- de%osits 3o#ernment bonds :emat Account Ad#isory ser#ices
9e $ill riefly discuss each product,
1. Mutual +und ser#ices %ro#ided by I23 4ysya ban-1
I#& 'ysya (ank sells various mutual fund schemes0 It sells its o$n mutual fund. $hich is I#& 'ysya 2utual fund alon" $ith all other mutual funds0 It is an intermediary et$een the customer and the mutual fund house0 From the e"innin" mutual fund house have relied e/tensively on intermediaries to market their schemes to investors0 It $ould e accurate to say that $ithout intermediaries. the mutual fund industry $ould not have achieved the depth and readth of covera"e amon"st investors that it enjoys today0 Intermediaries have played a pivotal and valua le role in populari?in" the concept of mutual funds across India0 1hey make the forms availa le to clients. e/plain the schemes and provide administrative and paper$ork support to investors. makin" it easy and convenient for the clients to invest0 Intermediaries play a pivotal role in promotin" sale of mutual fund schemes0
7o name a +e0 mutual +und schemes sold by I23 4ysya ban- are1
1. .ran-lin 7em%leton 2. SBI 3. :SP Merrill lynch
64 4. . $. (. ). C. ,eliance I23 4ysya 7A7A =7I @:.C *%timi"
2. 8i+e insurance Policy sold by I23 4ysya ban-1
I#& 'ysya ank sells the insurance policy of its o$n rand i0e0 I#& 'ysya )ife Insurance %ompany Private )imited Gthe %ompanyH0 It entered the private life insurance industry in India in Septem er 4881. and in a short span of ; years has esta lished itself as a distinctive life insurance rand $ith an innovative. attractive and customer friendly product portfolio and a professional advisor sales force At I#& 'ysya )ife. there is nothin" $e hold hi"her than life itself0 1hey therefore vie$ their plans not as ta/ savin" devices ut as a means to add protection to life0 1hey elieve in enhancin" the very >uality of life. in addition to safe"uardin" your security0 1heir products are desi"ned in a $ay that helps you ear heavy e/penses $hile uildin" your home or providin" for your childrenFs education and marria"e0 1hey make sure your post retirements years are carefree and secure. ensurin" your family and loved ones are protected a"ainst financial difficulties in the event of a premature death0 +ependin" on your personal needs. priorities and individual responsi ilities. you can "o for a Protection. Savin" or Investment plan0 If you $ere not sure of $hich plan $ould suit you est. you could use the 8i+e Ma-er. an application $e developed for that very purpose0
/hat are these %lansF 1.Protection
Protection plans safe"uard your income and your family:s financial future in case you are not around0 1hey shield you from heavy economic loss and reduce the impact of financial risk on you and those dependent on you0 ? Con;uering 8i+e
2.Sa#ing
Savin" plans act as a compulsory savin"s instrument for families $hen the premium is paid re"ularly0 1hey $ork as lon"Cterm savin"s. enhanced y ta/ enefits. $hich "ive you the financial stren"th to achieve your life "oals0 ? ,eassuring 8i+e 5Cash Bonus6 ? ,eassuring 8i+e 5,e#ersionary Bonus6 ? Creating 8i+e ? Ma"imi<ing 8i+e
66 ? Sa+al Gee#an ? Creating li+e Money Bac? Sa+al Gee#an Money Bac-
3.In#estment
Investment plans act as $ealth creation instruments helpin" to create i" estates for the family0 It is a lon"Cterm investment. free from the risk of market s$in"s0 At the end of the term. you or your family can enjoy added returns on investment0 ? ,e0arding 8i+e ? Po0ering 8i+e ? .ul+illing 8i+e ? .reedom Plan> =nit 8in-ed ? *ne 8i+e ? 2e0 .ul+illing 8i+e ? Platinum 8i+e ? I23 Positi#e 8i+e
4. Retirement
1hese plans ensure that your postCretirement years are spent in peace and comfort0 1hey make sure that you have re"ular income after you retire and also help you maintain your standard of livin"0 ? Best Hears ? .uture Per+ect
3. Ban- de%osit o+ I23 4ysya Ban-1
(y investin" in I#& 'ysya (ank Fi/ed +eposit. your money not only stays secure ut also accumulates "ood interest over the period of deposit0 Partial $ithdra$al from your Fi/ed +eposits efore maturity can ail you out in times of need0
.eatures and Bene+its1
? 1enor ased Rate of Interest – !i"her interests can e accrued for lon"er periods of deposits0 ? %ompounded Interest can e earned y reinvestin" the principal amount alon" $ith the interest earned durin" the period0 ? Premature $ithdra$al allo$ed at a nominal penalty0 ? Option to place deposits in multiples of Rs01888 as units under 'ysunits. ena lin" $ithdra$al as per need. in multiples of Rs018880 ? !i"her rate of interest on Fi/ed +eposits for Senior %iti?ens0
6; ? Option to dra$ interest y $ay of ++ @ PO @ %redit to o$n S( account $ith I#& 'ysya (ank. 2onthly Gat a discountH or Uuarterly. as per choice0 ? )oans upto 78O of the deposit $ould e availa le at 1O a ove the underlyin" interest rate on Fi/ed +eposit0 ? #omination facility is availa le0 ? Free transfer of deposit et$een ranches is availa le0 ? Automatic rene$als on maturity0 An Initial deposit of Rs018888 is re>uired to open a Fi/ed +eposit0
4. :emat account %ro#ided by I23 4ysya ban1he I23 4ysya Ban- :emat Account offers you a secure and convenient $ay to keep track of your shares and investments. ho$ much youFve ou"ht and sold over a period of time. $ithout the hassle of handlin" physical documents that "et mutilated or lost in transit0
.eature and bene+its1
? ? ? ? ? ? ? ? Settlement of securities traded on the e/chan"e as $ell as off market transactions0 Shorter settlements there y enhancin" li>uidity0 Pled"in" and !ypothecation of +emateriali?ed Securities0 -lectronic credit in pu lic issue0 Receipt of nonCcash enefits in electronic form0 #o stamp duties on transfer of securities held in demat form0 #o concept of 2arket )ots0 %han"e of name. address. dividend mandate. re"istration of po$er of attorney. transmission etc0 can e effected across companies held in demat form y a sin"le instruction to the +P0
. 3o#ernment securities
1he ank also sells "overnment securities on ehalf of the "overnment0 It remits the proceedin"s to the R(I0 1he interest rate on "overnment onds is =O p0a0
$. Ad#isory ser#ices1
Our startin" point in the portfolio mana"ement process is the analysis of your re>uirements and "oals0 9hat are your asic investment o jectivesS 9hat are your personal preferences $ith respect to risk takin" and yieldS 9hat proportion of your $ealth should e invested for the short term versus the lon" termS 1he ans$er to fundamental >uestions like these provides the main uildin" locks for professionally mana"in" your assets0 1he follo$in" decision factors $ill determine the investment strate"y that suits your needs the est,
6< ? In#estment obIecti#es1 An assessment of your need for income versus potential appreciation and ho$ this fits $ith your overall asset and lia ility position0 ? In#estment time hori<on1 1he lon"er your time hori?on the less concerned you should e $ith daily price fluctuations0 1he "reater your $illin"ness to adopt a lon"Cterm strate"y. the "reater the likelihood of hi"her portfolio returns0 ? ,is- tolerance1 It is crucial to find out $hat shortC and mediumCterm s$in"s in value you can tolerate in order to reach your investment "oals0 1he hi"her the risk you are a le to ear. the hi"her your return $ill normally e0 ? ,e+erence Currency1 (y reference currency $e mean the currency in $hich you normally conduct your daily usiness0 1his currency $ill determine ho$ you measure the success of your strate"y and your investment decisions0 1he ank:s relationships mana"ers provide advise to their clients on their investment portfolio y structurin" the e/posure in various investment instruments so as to ma/imi?e the return $ith minimum risk0
1.3. In#estment .acilities 2ot Pro#ided By I23 4ysya Ban? *nline trading +acility ? ,eal estate ad#isory ser#ices ? Bullion trading
63
2. Methodology
In depth analysis of all the investment opportunities GinstrumentsH that I#& 'ysya ank offers to its !#I clients0 Also a sample study has een conducted on 48 !#I:s of the ank to understand their individual risk appetite and investment preferences0 A comparison study of investment instruments offered y I#& 'ysya ank $ith that of other competitive anks has also een conducted0 (ased on these an in depth analysis $as carried out to su""est@help the ank:s investment advisors to cater to the needs of the !#I:s in a etter $ay there y increasin" the customers satisfaction and hi"h !#I ac>uisition0
3. Problem Statement
I#& 'ysya (ank. in its pursuit to esta lish itself as a leadin" retail ank in -astern India. is conscious of the fact that other competitive anks are very a""ressive and focused in offerin" structured portfolio mana"ement@ investment advisory services to their !#I clients I#& 'ysya ank. $hich also offers such investment advisory services to its !#I. throu"h its su sidiary called I#& 'ysya Financial Service GI'FS)H0 1he speciali?ed investment advisors under the payroll of I'FS) are accommodated and placed in all the ranches of I#& 'ysya ank to cater to the re>uirements of the ank:s !#I clients0 !o$ever since the conversion rate of !#I into investment advisory services is lo$0 1his project $as commissioned $ith the sole motive of analy?in" the products. services and risk analysis of each investment instrument $ith the aim to au"ment the Financial advisors $ith in depth analysis of all these factors $hich $ill help them in understandin" the needs@re>uirements of the !#I:s to oost the conversion rate0 1his $ill not only help the ank in retention of its !#I:s ut also lead to an increase in ac>uisition of !#I:s0
65
4.1 S/*7 analysis
4.1.1 !;uity shares Strengths1
• • • • • • )on" term "ro$th throu"h capital appreciation !i"h rate of return !as a""ressive "ro$th Provides o$nership in the company in $hich investment is made Share holders are entitled to profit made y the company Suita le for risk seekers
/ea-ness1
• • • • • • • 'ery risky 'olatile rate of return #o security of investment Security transaction ta/ has to e paid Suita le for risk seekers +ividends received on shares depend on profit made y the company0 If there is no profit there is no dividend Share prices are su ject to market
*%%ortunity1
• • It "ives the shareholder a ri"ht to vote in the company 1he market may e volatile due to many factors. ho$ever returns are "enerated y e>uity shares of earnin" potential i0e0 P@- ratio0 1herefore an investor investin" in e>uity in a systematic manner over a lon" period of time can easily e/pect dou le di"it return Returns "enerated y e>uity investment has outperformed all other investment avenues in the lon" run
•
7hreats1
• • Fi/ed income securities are preferred $hen markets are do$n Rate of return is more sta le and there is more security in other investment avenues
6=
4.1.2 Ban- :e%osits1
Strengths1
• • • • • • • • • Sta ility of Fi/ed income rate $ith assured rate of interest Provides $ith a hi"h level of security Fi/ed deposits also "ive a hi"her rate of interest than a savin"s ank account0 Anyone $ith a minimal appetite of risk can consider investin" in fi/ed deposits (ank deposits are fairly safe ecause anks are su ject to control of the Reserve (ank of India GR(IH $ith re"ard to several policy and operational parameters It is possi le to "et a loans up to5<C 78O of the deposit amount from anks a"ainst fi/ed deposit receipts 1he time of maturity and amount to e received on maturity are kno$n in advance Provides relatively lo$ risk profileA for investors $ith a lo$ risk appetite. fi/ed income instruments should form the mainstay of the portfolio 1he pickCaCdate feature lets you choose the date on $hich you $ould like you investment to mature
/ea-ness1
• • • • • • • Premature $ithdra$al is char"ed $ith a penalty0 As a result the interest promised is reduced at the time of payment +oes not provide re"ular income flo$ Fi/ed income instruments tend to e intrinsically illi>uid %onsider the rate of inflation efore depositin" money in fi/ed deposits ecause the inflation mi"ht eat up the savin"s 1a/ is deducted at source on the interest earned from fi/ed deposits Eou can:t add to your investment0 If you have more money to deposit then you need to open a another investment deposit account 1he interest rate is fi/ed for your full period of investment
*%%ortunities1
• • Some of the facilities offered y anks on the amount deposited in form of fi/ed deposits are overdraft GloanH facility. premature $ithdra$al efore maturity period G$hich involves a loss of interestH etc It can e pled"ed y usiness people for o tainin" ank "uarantee for openin" of )%:s0
7hreats1
• ShortCterm floatin" rate funds score over fi/ed deposits on the li>uidity frontA they $ill especially appeal to investors $ho $ish to $ait on the sidelines till etter investment opportunities emer"e
67 • • #S%@#SS can e preferred over ank:s fi/ed deposits $hich forces the anks either to keep their fi/ed deposit rates hi"h to protect their deposit0 1a/ enefit is also provided y #S%@#SS0 It provides hi"her level of security 9ith the oomin" capital market. e>uity mutual funds are posin" the i""est challen"e to F+:s as they offer hi"her rate of return
4.1.3 8i+e Insurance Policy1
Strengths1
? ? ? ? ? Provides hi"h level of securityC "uaranteed y the issuin" authority #ot affected y market volatility Sum assured at maturity is kno$n Investor can decide the maturity period and the sum of premium to e paid 1a/ enefit is availed t$iceC once $hen premium is paid and other on maturity enefits
/ea-ness1
? ? ? ? Fi/ed rate of return on premiums +oes not provide any li>uidity A lot of paper $ork has to e done $hen enterin" the insurance contract If a $ron" claim is made on the policy. penalty has to e paid
*%%ortunity1
? Only investment avenue $hich offers life risk cover ? It sustains the economic loss suffered y the family in the uneventful death of an income earnin" person of the family ? Dnit linked insurance plans also offer market linked returns ? !elps in developin" investment ha it amon" customers
7hreats1
? Dnit linked insurance plan are market linked and therefore prone to market volatility ? One may not e a le to maintain the risk cover commensurate $ith his@her human life value
;8
4.1.4 8and
Strengths1
? 1he )a$ of +iminishin" Returns never apply here ? 1here is a hi"h rate of return ? Relatively lo$ risk investment
/ea-ness1
? #ot a very li>uid investment ? 1here are many "overnment re"ulations involved $ith in investment into land ? 1here are possi ilities of liti"ations
*%%ortunities1
? !i"h rate of industriali?ation and ur ani?ation ? It has multiple usa"eC residential. a"ricultural and commercial ? It can e provided as a collateral security
7hreats1
? &overnment takeCover ? Private uilders ? #atural calamity
;1
4.1. Mutual +unds
Strengths1
? #o ta/es are char"ed on dividends received in the hands of the investors as $ell as the mutual fund house ? 1here is a sta le avera"e rate of return ? Functions of the mutual fund are re"ulated y S-(I. thus are $ell "overned ? !i"h li>uidity is there as invested money can e $ithdra$n at any point of time ? )on" term capital "ains are also ta/ free ? It is an easy $ay of investment as paper $ork is minimum ? #o char"es for early $ithdra$al ? Allo$s small investors to invest in capital market. $ith professional mana"ement ? Short term capital losses can e set off a"ainst short term capital "ains
/ea-ness1
? ? ? ? ? %annot e provided as a collateral security )on" term capital losses cannot e set off a"ainst capital "ains Suita le for no risk tolerance investors 2aturity amount not kno$n as rate of return fluctuates Payment of entry and e/it load and hi"h maintenance char"es
*%%ortunities1
? Investors can $rite che>ues out of their money market mutual fund account ? Suita le for investors and corporate to park their surplus funds for a short period of time ? Allo$s investors $ith small amount of money to invest in a num er of schemes
7hreats1
? Fi/ed deposits are safer and more sta leC re"ulated y R(I ? Investors lookin" for hi"her return $ill prefer investin" in ->uity market ? Investors ready to make lon" term investments $ill look at land. "overnment security as other options as they are safer and can e provided as a collateral security
;4
4.1.$ 3old Strengths
? It is $orld $ide accepted ? !as multiple usa"e ? +oes not involve a tedious investment process
/ea-ness
? Offers lo$ rate of return
*%%ortunity
? %an e provided as a collateral security
7hreats
? )and. $hich provides a hi"her rate or return as of today ? Uuality of "old provided can e elo$ the standard ? (ank and financial institutions hesitate in investin" in "old ecause cost of
;6
4.1.( Pre+erence Shares
Strengths1
? +ividend to e received is assured ? Safer means of investment than e>uity shares ? If company is li>uidated payments to preference shareCholders $ill e ranked ahead of e>uity share holders
/ea-ness1
? Dsually issued y companies to institutes. so is not easily availa le to retail investors ? 1hey don:t provide li>uidity ? +oes not hold the ri"ht to vote in the issuin" company ? Relatively less attractive in risin" interest rate environment
*%%ortunities1
? 1hey have an option to e converted into e>uity shares ? 1hey can e redeemed y the issuin" company ? If dividend is not paid for one year there is an option of carryin" for$ard the dividend to the ne/t year0
7hreats1
? ->uity shares. $hich offer hi"her rate of return and provide more o$nership ri"hts in a company
4.1.) IP*As Strength
? Suita le for riskCseekers ? Suita le for shortCterm investors
;;
/ea-ness
? 'ery risky and speculative investment ? #o sta le rate of return
*%%ortunity
? IPO allo$s the investor to "ain ma/imum $ith the "ro$th of the company
7hreats
? 'olatile market conditions at the moment of IPO issues cause hi"h concerns amon" the investors
4.1.C 3o#ernment securities
Strengths1
? !i"hly securedC acked y the R(I ? Rate of return does not fluctuate ? %ash flo$ at maturity are kno$n
/ea-ness1
? ? ? ? ? ? ? )o$ rate of return #ot a li>uid investment avenue Only suita le $hen markets are not doin" $ell Investment on &C securities is a tedious transaction process 1here is no 1+S. ut interest income up to only Rs 6888 is e/empt from ta/ Suita le for risk averse investors #o early $ithdra$al is allo$ed
*%%ortunity1
? %an e provided as a collateral security ? )oan can e taken a"ainst investment in "overnment security
7hreats1
? Fi/ed deposits. $hich are more li>uid than "overnment securities ? R(I relief onds. $hich offer hi"her interest rates
;<
4.1.1D Cor%orate Bonds
Strengths1
? Provides security cover under ratin" a"encies ? #ot very volatile ? Simple Administration
/ea-ness1
? +oes not provide any li>uidity ? +oes not provide any ta/ enefit
*%%ortunity1
? It is a contract et$een the issuin" company and the clients
7hreats1
? &overnment Securities $hich offer more security
;3
;5
7abular ,e%resentation o+ #arious in#estment instruments 5including S/*7 analysis6
Parameter ,*, 7enure Security Ban:e%osit (et$een 7O !;uity ;C <C48O V 1C48 years #o security Pre+. Share <C48O V 1C48 years #o security M. 18C4<O 1C< years #o security 8IC ;C<O A ove 18 years (y issuin" or"ani?ation #o li>uidity #I) (enefit on premium amount and maturity amount )o$ risk seekers 2oney ack policy %um ersome paper $ork )ife cover Accepted Professionally 2ana"ed 3o#t Sec <O )ock in period of 3 years Secured y "overnment Provides no li>uidity #I) Interest income received $ill e ta/a le Risk averse 2aturity amount kno$n %um ersome paper $ork #on Accepted 2ana"ed &overnment y Cor%orate Bonds <C3O 6C< years %overed under ratin" a"encies #o li>uidity #I) #on 3old #o fi/ed return A ove years !i"hly secured !i"hly li>uid 2oderate #on 6 8and #o fi/ed Rate < and a ove Secured IP* +epends on +emand Q Supply 3 mths – 6 years #o security
8i;uidity Price #olatility 7a" Bene+it
)on" 1erm 18 years Secured y (ank re"ulated y R(I !i"hly li>uid #I) 1a/ deducted at source Risk averse Assured cash flo$ Some amount of paper $ork PickC aCdate feature !i"hly accepted Professionall y 2ana"ed
)i>uid 2a/imum )on" term capital "ains enefit Risk seekers #o assurity 'ery less Ri"ht to vote in the %O Only availa le on loans a"ainst shares Professionally 2ana"ed
)i>uid 2a/imum )on" term capital "ains enefit Risk seekers #o assurity 'ery less Ri"ht to vote in the %O Only availa le on loans a"ainst shares Professionally 2ana"ed
Provides li>uidity 2a/imum )on" term capital "ains enefit Risk seekers #o cash flo$ Paper $ork is there #on #ot accepted Professionally 2ana"ed
#ot li>uid 2oderate Only on a"ricultural land Risk averse #on %um ersome paper $ork 2ultiple usa"e 2ainly provided #ot mana"ed
)i>uid !i"h #il
,is- %ro+ile o+ an in#estor Cash .lo0 Administration Additional +eatures Collateral Pro+essional Management
2oderate risk #on Simple #on #on Professionally 2ana"ed
Risk averse #on #on 2ultiple usa"e Accepted #ot mana"ed
Risk averse #I) A lot paper $ork #on #o Professionally 2ana"ed
;=
Analysis o+ !ach In#estment A#enue
In the investin" $orld. the dictionary definition of risk is the chance that an investment:s actual return $ill e different than e/pected0 1echnically. this is measured in statistics y standard deviation0 Risk means you have the possi ility of losin" some. or even all. of our ori"inal investment0 &iven elo$ is the ta le. $hich states the kind of risk. return. tenure and other enefits of different investment avenues0 1his helps us further su""est the kind of investment an investor can make ased on the personal profile
7y%e o+ in#estments !;uity 3old Pre+erence Shares Cor%orate Bonds Mutual .unds 3o#ernment Securities 8and Ban- :e%osits IP*As Insurance Policy ,is!i"h )o$ !i"h )o$ !i"h )o$ )o$ )o$ !i"h )o$ ,eturns !i"h 2oderate !i"h )o$ !i"h )o$ !i"h 2oderate !i"h )o$ 7enure )on" )on" )on" 2oderate Short )on" )on" 2oderate Short )on" *ther bene+its )o$ !i"h )o$ )o$ )o$ !i"h !i"h !i"h )o$ !i"h
,is- & ,eturn 7rade & *++ Bet0een di++erent In#estment A#enues1
1he relation et$een risk and return that usually holds. in $hich one must e $illin" to accept "reater risk if one $ants to pursue "reater returns also called risk@ re$ard tradeC off0 A common misconception is that hi"her risk e>uals "reater return0 1he risk@ return tradeoff tells us that the hi"her risk "ives us the possi ility of hi"her returns0 1here are no "uarantees0 Nust as risk means hi"her potential returns. it also means hi"her potential losses0 )o$ levels of uncertainty Glo$ riskH are associated $ith lo$ potential returns0 !i"h levels of uncertainty Ghi"h riskH are associated $ith hi"h potential returns0
• • • • 1he hi"hest return investment is ->uity 1he hi"hest risk investment is ->uity 1he lo$est risk investment is &overnment Security 1he lo$est return investment is &overnment Security
On the lo$est end of the spectrum is "overnment spectrum $hich offers no or minimum risk0 It offers investment at the minimum risk –rate of return0 On the hi"hest end of the spectrum is e>uity. $hich offers ma/imum return $ith ma/imum rate of return0 &overnment securities set the rate for minimum rate of return and e>uity sets the rate for hi"hest risk0 All other investment opportunities lie in the middle0 1hey are the e/treme poles of the spectrum0 Risk as earlier discussed can e minimi?ed throu"h investin" in various avenues0 9hen an investor invests he set his limits either for risk of return0 !e tries to achieve hi"hest possi le return for a "iven level of risk or tries to "et minimum possi le risk for hi"hest level of return
;7
Analysis o+ In#estment @abits o+ I23 4ysyaAs @igh 2et /orth Clients1 A >uestionnaire containin" >uestions on the investment ha its $as prepared0 1his >uestionnaire $as taken to and filled y 18 !#I customers of the I#& 'ysya (ank0 1he findin"s throu"h the >uestionnaire are to e used $hile structurin" the financial plan Ginvestment portfolioH of a !#I0 1he most important aspect in the personal discussion that the Relationship 2ana"er $ith the !#I is to understand his@her risk appetite. investment hori?on and the source of income0 9e $ill analy?e the factors. $hich a !#I keeps in his@her mind $hile undertakin" an investment and the kind of investment advisory services re>uired y them0 1hese can e found out ased on the various >uestions asked to them in the >uestionnaire0 1hen on the asis of the analysis relevant su""estion to the Relationship 2ana"ers $ill e made to improve his@ her investment advisory services0 .indings +rom the same o+ 1D @2I clients are1 1. ,is- a%%etite o+ @2IAs1 a0 <8O of the sample doesn:t invest in F+:s, 1his sho$s that !#I:s are more concerned a out the returns rather than the safety aspect of the investment0 0 4<O of the respondents are invested in a mi/ed portfolio. there y si"nifyin" the importance of spreadin" the risk $hile lookin" for etter returns0 c0 1<O of the respondents are interested in investment in real estate. $hich si"nifies hi"h de"ree of security $ith returns0 2. In#estment %eriod o+ @2IAs1 a0 2ore than <8O of the respondents are in short term investment hori?on0 0 Only 1<O of the respondents are actually interested in lon"Cterm investments0 3.@2IAs In#estment @abits a0 <;O of the investments in the stock market are done directly 0 1he rest ;3 O of the respondents invest throu"h the mutual funds c0 55O of the respondents make e>uity type investments si"nifyin" hi"h de"ree of risk $ith hi"h de"ree of return0 d0 1he alance 46O prefers havin" a alanced investment0 4. @2IAs %erce%tion o+ the Stoc- Mar-et1 a0 <6O of the respondents vie$ the stock market as not a safe avenue of investment0 0 13O don:t have any vie$s a out the stock market0 1hese respondents remain the untapped se"ment of the !#I:s0
<8
. IP*As as In#estment A#enue1 a0 3<O of the respondents invest in IPO:s 0 A out 33O of the ones $ho invest. invests on their personal vie$s0 c0 Around 66O make investments ased on professional advice0 1his "oes to sho$ that a small se"ment of the !#I:s relyin" on professional advice for IPO investments0 $. Pro+ile o+ @2IAs in#estment ad#isory ser#ices1 a0 38O of the respondents are not makin" investments ased on advisory services offered y the ank0 0 2ore than <8O of the a ove mentioned respondents are prospect clients of the ank and are $aitin" to e "iven the ri"ht kind of advisory services0 (. Pro+le o+ @2Is Insurance Ser#ices a0 ;8O of the respondents are prospects customers for takin" insurance advice throu"h the ank0 0 Around <<O of the respondents are takin" insurance advices from the ank si"nifyin" that the ank offers "ood >uality investment advice0
<1
Based on the abo#e +acts1 It is recommended to the I4.S8 ,MAs to structure the In#estment Port+olio o+ the @2IAs 0ith the +ollo0ing com%ositions1 10 #ot to have a hi"h percenta"e of F+:s 40 1he R2:s should include investment instruments $hich are of shorter duration $ith hi"h "ro$th potential 60 Since more than half of the sample invests directly into the stock market they should e hi"hli"hted the importance and the enefits of 2F:s since direct e>uity is very tricky and hi"h risky0 ;0 R2:s should include small percenta"e of investment instruments in !#I:s $hich are of lon"Cterm opportunity to tradeCoff et$een risk and return0 <0 Also the study reveals that constant follo$Cup y the anks R2:s to the !#I:s $ill result in ropin" in more no of !#I:s to the advisory service. as 68O of the respondents have indicated the same0 30 If the (anks R2:s e/pose the enefits of professional mana"ed investment services another ;<O of the ank:s !#I can avail such facilities from the ank 50 <<O of the respondents don:t use IPO as a investment avenue. since they are !#I:s $ith lar"e chunks of money the R2:s have "ot hu"e opportunity to e/plain them the enefits associated $ith IPO:s and try to add it to the customers investment portfolio =0 13O of the respondents are not a$are of the movements in the stock market. this leaves a $hole lot of opportunities for the R2 to tap this se"ment of the !#I:s 1he classification of !#I:s can e divided as follo$s • • • • Only land, )on" 1erm – )o$ Risk – !i"h Return #o &old, Short 1erm – !i"h Risk – !i"h Return #o F+:s Short 1erm – !i"h Risk – !i"h Return 2i/ , Short 1erm – 2oderate Risk – !i"h Return
1he a ove classification of investor profile has een formed ased on their investment pattern0 .rom the sam%le %o%ulation 0e can also di#ide the @2IJs into +our categories based on their hori<on o+ in#estment1 • • • • )ess than 1 year – Speculative Investors 1 to 6 years, Short 1erm Investors 1 to < years , 2edium 1erm Investors 1 to 18 years , )on" 1erm Investors
<4
7hreats Posed to Pro+essional In#estment Ad#isors • +riven y the e/pectation of etter returns and miti"atin" risks. !#I:s are ecomin" more a$are of $ealth mana"ement opportunities and strate"ies a road0 In fact. 3< percent of !#I relationship mana"ers surveyed said their clients are increasin"ly a$are of ho$ $ealth is mana"ed internationally0 Investors do not $ant reams of paper $ork. ut do $ant easily accessi le and customi?ed information that allo$s them to immediately check on their investments0 1hey $ant access to a ne$ “family alance sheet* that sho$s them all their assets and lia ilities across all asset classes in a simple. easyCtoCvie$ format0 1hou"h this is a relatively strai"htfor$ard re>uest. it is not ein" met every$here today0 #o matter ho$ comple/ the investment options may ecome. the clientCfacin" solution must remain simple. transparent and understanda le to estCserve clients and advisors. this $ill re>uire investments in technolo"y to ena le an efficient "lo al or"ani?ational operatin" structure and. most importantly. ensure the advisor. the institution:s face to the client. has the tools to support the client $ithout increasin" the administrative urden0
•
•
<6
!"ecuti#e Summary
1he project report covers portfolio mana"ement of a !#I0 1hese individuals have surplus money. $hich can e invested into various investment avenues0 For e/ample land. stock market. ank deposits. "overnment securities etc0. -ach Investment avenue open to !#I:s has een evaluated on the asis of risk and return0 #o individual $ants his@her savin"s to lie ideal and e eaten y inflation0 1hese individuals are constantly lookin" for opportunities to invest their surplus money and "et "ood returns0 Professional investor advisors provide this service0 1hey personally look into the risk appetite of the investor and desi"n the est suited portfolio from him0@her0 For this purpose a case study $as conducted on the I#& 'ysya:s 18 !#I:s to find out ho$ they perceive different investment avenues0 1he ank faces lo$ conversion rate of investment advisory services0 1herefore after the study and analysis recommendations have een made to the R2:s on ho$ to improve the service0 1his has een done in the follo$in" se>uence0 First the !#I:s and their investment avenues $ere analy?ed0 1hen the risk and return of each investment avenue $as conducted0 After $hich a sample of 18 !#I customers $ere visited0 Analysis of these !#I:s sho$ed some patterns in $hich these customers invest and ho$ they perceive each investment instrument0 On the asis of such data recommendations $ere made to the relationship mana"ers0
<;
Conclusion
1he project report analy?es the portfolio of I#&:s !#I customers0 A sample study of 18 !#I:s $as conducted and on the asis of $hich the recommendations $ere made0 1he risk and return of each investment instrument availa le to a !#I on the $hole and throu"h the I#& 'ysya (ank $as conducted0 7he %roducts and ser#ices o+ the banare com%ared to other ban-s also It has een noticed that !#I:s provide a hu"e opportunity to the R2:s of the ank for "ivin" professional investment advice0 #o$ a days the customers are $ell a$are of the surroundin" market and don:t really take any type of advice0 1hey are lookin" for investment advice. $hich are supported y stron" conviction0 1he market of professional advisors are "ro$in" at such a hu"e rate that if the client is not happy $ith the services of the R2 he@she can easily look for a etter advisors0 1herefore the R2:s alon" $ith personal advice have to also provide >uality advice0 An enthusiastic relationship mana"er should sho$ computation of the risk of !#I:s y usin" statistical computations like Standard +eviation. $hich sho$s ho$ much on an avera"e. the return has moved a$ay from an avera"e num er0 (asic tents one should understand efore takin" a risk ar"ument to a client0 Risk. popularly measured y Standard +eviation. tells us a out the ran"e of return that can pro a ly occur0 Its interpretation is appropriate for an asset class0 For e/ample if $e say that e>uity is more risky than PPF. $e $ill su stantiate that y sayin" that the pro a ility that the investor $ill "et a return different than = O is lo$ in a PPF0 !o$ever. in e>uity $hile he may look at a 48O covera"e0 It can s$in" et$een ;O and ;3O. indicatin" the presence of risk0 1he risk to the investor is al$ays distilled in terms of his "oals. investments and the tar"et rate that his investments must achieve to meet the "oal0 1herefore. the investor $ill not care for standard deviation in itself. ut a out the risk that his investment $ill fall short0 If one is plannin" for the child:s education or retirement. such shortfalls are too tou"h to make "ood. on a later date0 So. to the investor. risk is only a out do$n side deviation from a tar"et rate0 !o$ does one put the t$o to"etherS 1he choice of asset classes and percenta"e allocation $ill have to e driven y standard deviation and its understandin"0 (ut the su se>uent monitorin" and revie$ of the portfolio $ill have to e in terms of the investor:s "oals. and the possi ility that such allocation $ill fall short0 2ovement from one stock to another is unlikely to alter the risk profile of the portfolio in any si"nificant manner0 (ut adjustin" the proportion that is invested in e>uity is likely to impact oth the risk and return of the portfolio0 Relationship mana"ers need to train their eyes to $atch if the investor:s "oals are est served y the current allocation. or should a chan"e e made. "iven do$nside risks0 )earnin" investment concepts is all fine. ut to apply them to an investor:s situation. one has to vie$ the portfolio from the investor:s an"le rather
<<
2y project does not "o into the details of calculatin" the risk and returns of each investment avenue. as it $ould have een very technical and cum ersome0 1he sample study of 18 does not really sho$ the true findin"s. as there could e other clients $ith different opinions a out the investment instruments than the ones stated0
<3
'uestionnaire
Personal :etails • #ame A"e • Profession • Spouse Occupation • #o0 of %hildren G+au"hter WWWW. Son WWWWH • %hildren:s A"e 8i+e Style • Sin"le@ Noint Family. • +o you live in your o$n house or rented houseS • +o you o$n a car. if yes ho$ many and $hich one S • +o you plan to send your children a road for hi"her studies. if yes then ho$ do you $ish to finance it • +o you travel a road. if yes ho$ fre>uentlyS • 9hich income sla do you fall inS aH 5 – 18 lakhs WWWWWWWWWWWWWWWW H 18 C48 lakhs WWWWWWWWWWWWWWWWW cH 48 lakhs and a ove WWWWWWWWWWWWWW Ban-ing :etails • Accordin" to you $hich is safest investment • 9here do you invest your savin"sS • Stock 2arket@ )and Q Property@ &old Q Silver@ Fi/ed +eposits • +o you follo$ stock marketS • +o you think stock market is a safe $ay of investment • If so – you $ill invest directly or throu"h intermediary • 1ime !ori?on – efore investin" aH X 1yr H 1 – 6 years cH 1 – < years dH 1 – 18 years • +o you invest in de t. e>uity or a alance scheme@ portfolio • +o you su scri e to an IPO – Su scription throu"h aH of your o$n vie$s H on friends or relatives recommendations cH on professional advise • Any adverse impact on you savin"s $hen the stock market fell do$n In#estment Pre+erences1 • Are you satisfied $ith our financial advisors investment advice • !o$ often do you "et an update on the ne$ insurance schemes that our ank offers • !ave you insured the life of your family mem ers. your usiness or property • Are you ready to undertake ne$ $ays of investment and the risk associated $ith itS
<5 • !o$ do you avail of ta/ enefitsS 9hile investin". does ta/ enefit features influence your decision of investment
Bibilogra%hy
1. $$$0in"vysya ank0com 2. $$$0iloveindia0com@finance@ ank@private C anks 3. 2utual Funds y Akhilesh 4. Portfolio 2ana"ement y 2r0S00Yevin . Insurance trainin" ooklet – I#& 'ysya )ife Insurance $. $$$0in"vysyalife0com (. (anks internal (ooks ). $$$0investopedia0com C. (usiness 2a"a?ines 1D. (ank Nournal
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