A Live Project Report on Wealth Management: Product Offering Analysis

Submitted in partial fulfillment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION Session- 2011-13

Project Guide Mr. Neeraj Arora

Submitted ByRahul Singh Pankaj Vashist Milan Jain Prashant Mehra Rajesh Kumar Piyush Gupta

MAHARAJA AGRESEN INSTITUTE OF TECHNOLOGY

(ISO 9001:2008 Certified and AICTE NBA Accredited) PSP Area, Plot No. 1, Sector-22, Rohini,Delhi-10086Ph.: 011- 27582283 Website: http://www.mait.ac.in

CONTENTS
ACKNOWLEDGMENT CERTIFICATE EXECUTIVE SUMMARY OBJECTIVES RESEARCH METHODOLOGY CHAPTER 1. INTRODUCTION 1.1 WEALTH MANAGEMENT 1.2 MUTUAL FUNDS 1.3 DEBENTURE 1.4 FIXED DEPOSIT 1.5 STOCK 1.6 ULIP 1.7 EQUITY CHAPTER 2. ANALYSIS AND INTERPRETETION CHAPTER 3. CONCLUSION BIBLIOGRAPHY ANNEXURE

Acknowledgement

The present report is based on WEALTH MANAGEMENT PRODUCT OFFERING ANALYSIS. We owe great thanks to all the people who helped and supported us during the execution of this project. Our deep sense of gratitude to Mr. Neeraj Arora, AVP in ICICI Securities Ltd. for her support and guidance. We thank her for guiding and correcting various documents with great attention and care. She has taken pains to go through the project and provide her valuable suggestions at every step. We express our thanks to the Director General, Dr. N.K. Kakkar, MAHARAJA AGRASEN INSTITUTE OF TECHNOLOGY, Rohini for extending his support.

SUBMITTED BY:
Rahul Singh Pankaj Vashist Milan Jain Prashant Mehra Rajesh Kumar Piyush Gupta

EXECUTIVE SUMMARY
This project gives a deep insight about the various wealth products and the investors life cycle. This project also shows how and why a consumer should plan his/her wealth or finance. This study shows behaving pattern of existing clients towards the investment in different products. As you ascend newer highs in your life, your aspirations and needs grow proportionately. These ever-increasing needs are further compounded by inflation, which depreciates the purchasing power of your hard-earned money. To achieve your dreams and fulfill your future obligations, you need to carefully plan your finances. This can be done via sound financial planning that takes into account your current and future needs, your individual risk profile and your income to chart out a roadmap to meet these anticipated needs.

Understanding of why Financial Planning is required

Rising Inflation Protection against uncertainty Your Marriage Childs Education & Marriage Travelling the world Or perhaps dedicating time helping those less fortunate than you Dream Home Maintaining Standard of Living Planning for Retirement Or any other reason whatever matters you the most

OBJECTIVES

To study the brief about the Wealth products. To formulate a comprehensive SWOT analysis. To formulate a comprehensive SWOT analysis. To understand the investment preferences of the people that means where people want to invest their saving for desirable returns. To understand the factor related to changes in stock market which affect the customer preference i.e. what are the various factors due to which customer invest in such diversified direction.

RESEARCH METHODOLOGY
AREA DEFINED: The research is concentrated in Delhi and NCR region. Our clients are from different banks and are the part of the study.

SAMPLE PLAN: Non-Probability convenience sampling. The sample size are around 40-45.

DEVELOPMENT OF SURVEY QUESTIONAIRRE: Clear research objective which describes the kind of information needed, the hypothesis and scope of the research. Descriptive, experience based research, which provided an accurate snapshot of some aspect of market environment. Such as investment options offered by the market While framing the study few important things were kept in mind such as the language, which is simple and easy to comprehend. The questions were kept short enough to make them easy to understand. Ambiguity in response has been taken that we have a short and effective discussion, so that we get all the information that the study needs.

COLLECTING DATA: Primary data: Questionnaire, Personal Interview, Telephonic Interview Secondary data: Newspaper, Online Journals, Research Reports, Books

THE RESPONSE RATE: All the respondents sincerely answered to the questions. To facilitate better survey on an average of 10-15 minutes was every count head.

LIMITATIONS
Some of the bank managers were not so responsive. Possibility of error in data collection became many of the investors may have not given actual answers of our questionnaire. Size may not adequately represent the whole market.

CHAPTER 1. INTRODUCTION

1.1 WEALTH MANAGEMENT

Wealth management is an investment advisory discipline that incorporates financial planning, investment portfolio management and a number of aggregated financial services. High Net worth Individuals (HNWIs), small business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals and investment management. Wealth managers can be an independent Certified Financial Planner, MBAs, Chartered Strategic Wealth Professional, CFA Charter holders or any credentialed professional money manager who works to enhance the income, growth and tax favored treatment of long-term investors. Wealth management is often referred to as a high-level form of private banking for the especially affluent. One must already have accumulated a significant amount of wealth for wealth management strategies to be effective. Private wealth management (PWM) is the term generally used to describe highly customized and sophisticated investment management and financial planning services delivered to high net worth investors. Generally, this includes advice on the use of trusts and other estate planning, vehicles, business succession or stock option planning, and the use of hedging derivatives for large blocks of stock. Traditionally, the wealthiest retail clients of investment firms demanded a greater level of service, product offering and sales personnel than were received by the average clients. With an increase in the number of affluent investors in recent years, there has been an increasing demand for sophisticated financial solutions and expertise throughout the world.

1.2 MUTUAL FUNDS

A mutual fund is a type of professionally-managed type collective investment scheme that pools money from many investors. While there is no legal definition of mutual fund, the term is most commonly applied only to those collective investment schemes that are regulated, available to the general public and open-ended in nature. Hedge funds are not considered a type of mutual fund. A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.

1.2.1 STRUCTURE
Regulatory Authorities To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry. AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc. The fund manager, also known as the fund sponsor or fund management company, trades (buys and sells) the fund's

investments in accordance with the fund's investment objective. A fund manager must be a registered investment advisor. Funds that are managed by the same fund manager and that have the same brand name are known as a "fund family" or "fund complex".

Mutual funds are not taxed on their income as long as they comply with requirements established in the Internal Revenue Code. Specifically, they must diversify their investments, limit ownership of voting securities, distribute most of their income to their investors annually, and earn most of the income by investing in securities and currencies. Mutual funds pass taxable income on to their investors annually. The type of income they earn is unchanged as it passes through to the shareholders. For example, mutual fund distributions of dividend income are reported as dividend income by the investor. There is an exception: net losses incurred by a mutual fund are not distributed or passed through to fund investors. Mutual funds may invest in many kinds of securities. The types of securities that a particular fund may invest in are set forth in the fund's prospectus, which describes the fund's investment objective, investment approach and permitted investments. The investment objective describes the type of income that the fund seeks. For example, a "capital appreciation" fund generally looks to earn most of its returns from increases in the prices of the securities it holds, rather than from dividend or interest income. The investment approach describes the criteria that the fund manager uses to select investments for the fund. A mutual fund's investment portfolio is continually monitored by the fund's portfolio manager or managers, who are employed by the fund's manager or sponsor. Hedge funds are not considered a type of mutual fund. While they are another type of commingled investment scheme, they are not governed by the Investment Company Act of 1940 and are not required to register with the Securities and Exchange Commission (though many hedge fund managers now must register as investment advisors).

1.2.2 HISTORY
The first mutual funds were established in Europe. One researcher credits a Dutch merchant with creating the first mutual fund in 1774. The first mutual fund outside the Netherlands was the Foreign & Colonial Government Trust, which was established in London in 1868. It is now the Foreign & Colonial Investment Trust and trades on the London stock exchange. Mutual funds were introduced into the United States in the 1890s. They became popular during the 1920s. These early funds were generally of the closed-end type with a fixed number of shares which often traded at prices above the value of the portfolio. The first open-end mutual fund with redeemable shares was established on March 21, 1924. This fund, the Massachusetts Investors Trust, is now part of the MFS family of funds. However, closed-end funds remained more popular than open-end funds throughout the 1920s. By 1929, open-end funds accounted for only 5% of the industry's $27 billion in total assets. After the stock market crash of 1929, Congress passed a series of acts regulating the securities markets in general and mutual funds in particular. The Securities Act of 1933 requires that all investments sold to the public, including mutual funds, be registered with the Securities and Exchange Commission and that they provide prospective investors with a prospectus that discloses essential facts about the investment. The Securities and Exchange Act of 1934 requires that issuers of securities, including mutual funds, report regularly to their investors; this act also created the Securities and Exchange Commission, which is the principal regulator of mutual funds. The Revenue Act of 1936established guidelines for the taxation of mutual funds, while the Investment Company Act of 1940 governs their structure. When confidence in the stock market returned in the 1950s, the mutual fund industry began to grow again. By 1970, there were approximately 360 funds with $48 billion in assets. The introduction of money market funds in the high interest rate environment of the late 1970s boosted industry growth dramatically. The first retail index fund, First Index Investment Trust, was formed in 1976 by The Vanguard Group, headed by John Bogle; it is now called the Vanguard 500 Index Fund and is one of the world's largest mutual funds, with more than $100 billion in assets as of January 31, 2011.

1.2.3 TYPES OF MUTUAL FUNDS SCHEMES IN INDIA

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a collection of many stocks, an investors can go for picking a mutual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below. BY STRUCTURE Open - Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. Close - Ended Schemes: These schemes have a pre-specified maturity period. One can invest directly in the scheme at the time of the initial issue. Depending on the structure of the scheme there are two exit options available to an investor after the initial offer period closes. Investors can transact (buy or sell) the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchanges could vary from the net asset value (NAV) of the scheme on account of demand and supply situation, expectations of unit holder and other market factors. Alternatively some close-ended schemes provide an additional option of selling the units directly to the Mutual Fund through periodic repurchase at the schemes NAV; however one cannot buy units and can only sell units during the liquidity window. SEBI Regulations ensure that at least one of the two exit routes is provided to the investor. Interval Schemes: Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices. BY NATURE Equity fund: These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund managers outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows: Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS)

Debt funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government. Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities. MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures. Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.

Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with predefined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. BY INVESTMENT OBJECTIVE: Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation. Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally

invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50). Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. OTHER SCHEMES Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate. Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index. Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.

1.2.4 TYPES OF RETURNS

There are three ways, where the total returns provided by mutual funds can be enjoyed by investors: Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

1.2.5 ADVANTAGES OF INVESTING MUTUAL FUNDS

1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments. 2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. 3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors. 4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want. 5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.

1.2.6 DISADVANTAGES OF INVESTING MUTUAL FUNDS

1. Professional Management- Some funds doesnt perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor himself, for picking up stocks. 2. Costs The biggest source of AMC income is generally from the entry & exit load which they charge from investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon. 3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. 4. Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

1.2.7 EXPENSES
Investors in a mutual fund pay the fund's expenses. These expenses fall into four categories: distribution charges (sales loads and 12b-1 fees), operating expenses (which include the management fee and other fund expenses), shareholder transaction fees and securities transaction fees. Some of these expenses reduce the value of an investor's account; others are paid by the fund and reduce net asset value. Operating expenses are included in a fund's operating expense ratio, or simply the "expense ratio". Distribution charges Distribution charges pay for marketing, distribution of the fund's shares as well as services to investors. These fees are commonly called 12b-1 fees, named after Rule 12b-1 of the Investment Company Act of 1940, which permits funds to adopt a Plan of Distribution, under which these fees exist. Front-end load or sales charge A front-end load or sales charge is a commission paid to a broker by a mutual fund when shares are purchased. It is expressed as a percentage of the total amount invested (including the frontend load), known as the "public offering price." The front-end load often declines as the amount invested increases, through breakpoints. Front-end loads are deducted from an investor's purchase by means of paying the net asset value per share (the share's value) plus the commission.

Back-end load

Some funds have a back-end load, which is paid by the investor when shares are redeemed depending on how long they are held. The back-end loads may decline the longer the investor holds shares. Back-end loads with this structure are called contingent deferred sales charges (or CDSCs). As front-end loads are streamed off purchases, back-end loads are withheld from redemption proceeds with the amount of the CDSD, if any, deducted from the redemption. No-load funds A no-load fund does not charge a front-end load under any circumstances does not charge a back-end load under any circumstances and does not charge a 12b-1 fee greater than 0.25% of fund assets. Operating Expenses, Expense Ratio, Expense Limitations or Caps Like any business, funds incur ordinary recurring costs of operating the fund. With most "actively managed" funds (the adviser actively makes investment decisions based on a strategy and other disciplines as opposed to simply following or benchmarking an index), the single largest operating expense of a the fund is the Management or Investment Advisory fee. Expense Ratio Annual operating expenses divided by average daily net assets for the same period of time are equal to the Operating Expense Ratio, or simply the expense ratio. The expense ratio highlights how much fund expenses come out of a shareholder's investment return and allows comparison from one fund to the next. Other fees and charges dilute returns but they are not included in the expense ratio. Expense Limitations or Caps, Yield Flooring Waivers Often, funds have an upper limit set on annual operating expenses to keep the expense ratio fair and competitive, which is negotiated between the fund board and the adviser (fund manager or sponsor) or other affiliates. Typically, the adviser or affiliate agrees to waive fees and/or reimburse the fund to the extent ordinary annual operating expenses exceed some set ratio. These waivers result in the fund having a lower "net" expense ratio that it would otherwise. Expense caps are either 'contractual' or 'voluntary'. Contractual caps exist under written agreement and usually must be in effect for one or more years. Voluntary caps are not under a contractual obligation and can be discontinued at any time. Yield Flooring or Support Waivers: Similar to an upper limit on expenses, in times of very low interest rates like at present in 2012, yield sensitive funds such as money market funds may also have waivers in effect by advisers in order to maintain some minimum yield such as 0.01% annualized. Such waivers are called yield "support" or "flooring" waivers and may be in concert with traditional expense caps. Management fee The management fee is paid to the fund manager or sponsor who organizes the fund, provides the portfolio management or investment advisory services and normally lends its brand name to the fund. The fund manager may also provide other administrative services. The management fee often has breakpoints, which means that it declines as assets (in either the specific fund or in the

fund family as a whole) increase. The management fee is paid by the fund and is included in the expense ratio. If the manager or adviser is waiving fees pursuant to an expense limitation, the 'net' fee is reduced by the amount waived or reimbursed for a fund. Other fund expenses A mutual fund may pay for other services including:

12b-1 Distribution &/or Service Fees: for marketing, distribution of fund shares and services to investors Board of directors or trustees fees and expenses Custody fee: paid to a custodian bank for holding the fund's portfolio in safekeeping and collecting income owed on the securities Fund administration fee: for overseeing all administrative affairs of the fund such as preparing financial statements and shareholder reports, preparing and filing a myriad of SEC filings required of registered investment companies, monitoring compliance with investment restrictions, computing total returns and other fund performance information, preparing/filing tax returns and all expenses of maintaining compliance with state "blue sky" laws Fund accounting fee: for performing investment or securities accounting services and computing the net asset value (usually each day the equity markets are open) Professional services fees: legal and auditing fees Registration fees: for 24F-2 fees owed to the SEC for net sales of registered fund shares and state blue sky fees owed for selling shares to residents of states in the US and jurisdictions such as Puerto Rico and Guam Shareholder communications expenses: printing and mailing required documents to shareholders such as shareholder reports and prospectuses Transfer agent service fees and expenses: for keeping shareholder records, providing statements and tax forms to investors and providing telephone, internet and or other investor support and servicing Other/miscellaneous fees

These expenses are typically included in the calculation of the expense ratio. Shareholder transaction fees Shareholders may be required to pay fees for certain transactions. For example, a fund may charge a flat fee for maintaining an individual retirement account for an investor. Some funds charge redemption fees when an investor sells fund shares shortly after buying them (usually defined as within 30, 60 or 90 days of purchase); redemption fees are computed as a percentage of the sale amount. Shareholder transaction fees are not part of the expense ratio. Securities transaction fees A mutual fund pays expenses and taxes related to buying or selling the securities in its portfolio. These expenses may include brokerage commissions. Securities transaction fees increase the cost basis of the investments. They do not flow through the income statement and are not included in the expense ratio. The amount of securities transaction fees paid by a fund is normally positively correlated with its trading volume or "turnover" which is generally defined as the lesser of

{purchases or proceeds from sales} divided by the average total market value of its long-term securities market value. PE Ratio

The PE ratio is the current price of the stock divided by the reported earnings per share of the stock. Price to Book Value Ratio

Price to book value ratio (PB) compares a stock's market value to its book value (book value is assets minus liabilities). A lower PB could either mean that the stock is undervalued or that there is something fundamentally wrong with the company.

1.2.8 SHARE CLASSES

A single mutual fund may give investors a choice of different combinations of front-end loads, back-end loads and 12b-1 fees, by offering several different types of shares, known as share classes. All of the shares classes invest in the same portfolio of securities, but each has different expenses and, therefore, a different net asset value and different performance results. Some of these share classes may be available only to certain types of investors. Typical share classes for funds sold through brokers or other intermediaries are:

Class A shares usually charge a front-end sales load together with a small 12b-1 fee. Class B shares don't have a front-end sales load. Instead they, have a high contingent deferred sales charge, or CDSC that declines gradually over several years, combined with a high 12b-1 fee. Class B shares usually convert automatically to Class A shares after they have been held for a certain period. Class C shares have a high 12b-1 fee and a modest contingent deferred sales charge that is discontinued after one or two years. Class C shares usually do not convert to another class. They are often called "level load" shares. Class I is subject to very high minimum investment requirements and are, therefore, known as "institutional" shares. They are no-load shares. Class R is for use in retirement plans such as 401(k) plans. They do not charge loads, but do charge a small 12b-1 fee.

No-load funds often have two classes of shares:

Class I shares do not charge a 12b-1 fee. Class N shares charge a 12b-1 fee of no more than 0.25% of fund assets.

Neither class of shares charges a front-end or back-end load.

1.2.9 BASIC TERMINOLOGY

Net asset value or NAV A fund's net asset value or NAV equals the current market value of a fund's holdings minus the fund's liabilities (sometimes referred to as "net assets"). It is usually expressed as a per-share amount, computed by dividing by the number of fund shares outstanding. Funds must compute their net asset value every day the New York Stock Exchange is open. Valuing the securities held in a fund's portfolio is often the most difficult part of calculating net asset value. The fund's board of directors (or board of trustees) oversees security valuation. Expense ratio The expense ratio allows investors to compare expenses across funds. The expense ratio equals the 12b-1 fee plus the management fee plus the other fund expenses divided by average net assets. The expense ratio is sometimes referred to as the "total expense ratio" or TER. Average annual total return The SEC requires that mutual funds report the average annual compounded rates of return for 1year, 5-year and 10-year periods using the following formula:[16] P (1+T)n = ERV Where: P = a hypothetical initial payment of $1,000. T = average annual total return. n = number of years. ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional portion). Turnover Turnover is a measure of the volume of a fund's securities trading. It is expressed as a percentage of net asset value and is normally annualized. Turnover equals the lesser of a fund's purchases or sales during a given period (of no more than a year) divided by average net assets. If the period is less than a year, the turnover figure is annualized.

1.3 DEBENTURES
A debenture is defined as a certificate of agreement of loans which is given under the company's stamp and carries an undertaking that the debenture holder will get a fixed return (fixed on the basis of interest rates) and the principal amount whenever the debenture matures. A debenture is an unsecured loan you offer to a company. The company does not give any collateral for the debenture, but pays a higher rate of interest to its creditors. In case of bankruptcy or financial difficulties, the debenture holders are paid later than bondholders. Debentures are different from stocks and bonds, although all three are types of investment. Below are descriptions of the different types of investment options for small investors and entrepreneurs. Debentures and Shares When you buy shares, you become one of the owners of the company. Your fortunes rise and fall with that of the company. If the stocks of the company soar in value, your investment pays off high dividends, but if the shares decrease in value, the investments are low paying. The higher the risk you take, the higher the rewards you get. Debentures are more secure than shares, in the sense that you are guaranteed payments with high interest rates. The company pays you interest on the money you lend it until the maturity period, after which, whatever you invested in the company is paid back to you. The interest is the profit you make from debentures. While shares are for those who like to take risks for the sake of high returns, debentures are for people who want a safe and secure income.

1.3.1 NIFTY LINKED DEBENTURES

The Standard & Poor'sCRISILIndex 50 or S&P CNX Nifty nicknamed Nifty 50 or simply Nifty (NSE: ^NSEI), is the leading index for large companies on the National Stock Exchange of India. The Nifty is a well diversified 50 stock index accounting for 23 sectors of the economy. Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venture between NSE and CRISIL (Credit Rating and Information Services of India Ltd.)

1.3.2 SENSEX & NIFTY INDEX CALCULATION

Stock Market performance is quantified by calculating an index using the benchmark scrips and we all know that SENSEX is associated with Bombay Stock Exchange and NIFTY is associated with National Stock Exchange, but what many do not know is how those indices are calculated along with EPS and PE values.

1.3.2.1 SENSEX
SENSEX has been calculated since 1986 and initially it was calculated based on the Total Market Capitalization methodology and the methodology was changed in 2003 to Free Float Market Capitalization. Hence, these days, the SENSEX is based on the Free Floating Market cap of 30 SENSEX Stocks traded on the BSE relative to the base value which is 100(1978-79) and it is calculated for every 15 seconds.

Free Float Market Capitalization is defined as the value of all the shares available for public trading excluding the promoter equity, holdings through FDI Route, Holdings by private corporate, and holdings by Employee Welfare Funds. Why Free Flow Market Cap? 1. It depicts the market more rationally 2. It removes undue influence of government or promoter shareholding, thereby giving the equal opportunity for companies to be in the SENSEX 3. Almost all the Indices world over are calculated by this methodology 4. It gives Fund managers more authentic information for benchmark comparisons. How the SENSEX 30 Stocks are selected? 1. Listing History 2. Trading Frequency 3.Rank based on the Market Cap (Should be among top 100)

4. Market Capitalization weight 5. Industry / sector they belong 6. Historical Record

How SENSEX is calculated? The formula for calculating the SENSEX = (Sum of free flow market cap of 30 benchmark stocks)*Index Factor Index Factor = 100/Market Cap Value in 1978-79. Where, 100 is the Index value during 1978-79. Example: Assume SENSEX has only 2 stocks namely SBI and RELIANCE. Total shares in SBI are 500 out of which 200 are held by Government and only 300 are available for public trading. RELIANCE has 1000 shares out of which 500 are held by promoters and 500 are available for trading. Assume price of SBI Stock is Rs.100 and Reliance is Rs.200. Then "free-Floating Market Cap" of these 2 companies = (300*100+500*200) = 30000+100000 = Rs. 130000 Assume Market Cap during the year 1978-79 was Rs.25000 Then SENSEX = 130000*100/25000 = 520. The methodology in the example is exactly followed to calculate the SENSEX, only difference being the inclusion of 30 stocks.

1.3.2.2 NIFTY
The National Stock Exchange (NSE) is associated with NIFTY and it is also calculated by the same methodology but with two key differences.

1. Base year is 1995 and base value is 1000. 2. NIFTY is calculated based on 50 stocks. The formula for calculating the NIFTY = (Sum of free flow market cap of 50 benchmark stocks)*Index Factor CAGR (Compounded Annual Growth Rate): This type of return calculates the annual performance of an asset class. It immunizes the time horizon and describes the rate at which an investment has grown over the yearly basis. The compounded annual growth rate is calculated by taking the nth root of the total percentage growth rate, where n is the number of years in the period being considered.

Note: This formula has taken into consideration the time period. We can see that 10% CAGR is annual performance that the product has generated over 10 Years. In simple words CAGR gives you an idea about the past performance of any investment product and helps you to determine the true objective of return that one can expect in the near future. Conclusion: One should consider the right return while evaluating the performance of any financial product like mutual funds.

1.3.3 TYPES OF DEBENTURES

From the Point of view of Security

Secured Debentures: Secured debentures refer to those debentures where a charge is created on the assets of the company for the purpose of payment in case of default. The charge may be fixed or floating. A fixed charge is created on a specific asset whereas a floating charge is on the general assets of the company. The fixed charge is created against those assets which are held by a company for use in operations not meant for sale whereas floating charge involves all assets excluding those assigned to the secured creditors. Unsecured Debentures: Unsecured debentures do not have a specific a charge on the assets of the company. However, a floating charge may be created on these debentures by default. Normally, these kinds of debentures are not issued.

From the Point of view of Tenure

Redeemable Debentures: Redeemable debentures are those which are payable on the expiry of the specific period either in lump sum or in Installments during the life time of the company. Debentures can be redeemed either at par or at premium. Irredeemable Debentures: Irredeemable debentures are also known as Perpetual Debentures because the company does not given any undertaking for the repayment of money borrowed by issuing such debentures. These debentures are repayable on the on winding-up of a company or on the expiry of a long period.

From the Point of view of Convertibility

Convertible Debentures: Debentures which are convertible into equity shares or in any other security either at the option of the company or the debenture holders are called convertible debentures. These debentures are either fully convertible or partly convertible. Non-Convertible Debentures : The debentures which cannot be converted into shares or in any other securities are called nonconvertible debentures. Most debentures issued by companies fell in this category.

From Coupon Rate Point of view

Specific Coupon Rate Debentures: These debentures are issued with a specified rate of interest, which is called the coupon rate. The specified rate may either be fixed or floating. The floating interest rate is usually tagged with the bank rate. Zero Coupon Rate Debentures: These debentures do not carry a specific rate of interest. In order to compensate the investors, such debentures are issued at substantial discount and the difference between the nominal value and the issue price is treated as the amount of interest related to the duration of the debentures.

From the view Point of Registration

Registered Debentures: Registered debentures are those debentures in respect of which all details including names, addresses and particulars of holding of the debenture holders are entered in a register kept by the company. Such debentures can be transferred only by executing a regular transfer deed. Bearer Debentures: Bearer debentures are the debentures which can be transferred by way of delivery and the company does not keep any record of the debenture holders. Interest on debentures is paid to a person who produces the interest coupon attached to such debentures.

1.3.3 FEATURES OF A DEBENTURE:

It is an instrument in writing. An oral promise in acknowledgement of a debt is not a debenture. It is an acknowledgement of the indebtedness of the company to its holder for the amount stated in it. It is usually under the seal of the company but it is not necessary. A certificate signed by two directors of a company and without bearing the companys seal is a valid debenture. It is one of a series of like debentures. But a single debenture may be issued to one man. It provides for the payment fixed sum with interest of a specified rate by a specified time. But this is not essential because a company may issue perpetual debentures. Section 120 of the companies act 1956 expressly provides for the issue of perpetual or irredeemable debentures w3hich are made payable only in the event of a winding up or some serious default with the company. It is generally secured by a charge, fixed or floating on any part of the companys property or undertaking. But this is, however, not an essential condition because section 2(12) provides that the debentures may or may not constitute a charge on the assets of the company.

1.4 FIXED DEPOSITS

A Fixed Deposit (also known as FD) is a financial instrument provided by Indian banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date. It may or may not require the creation of a separate account. It is known as a Term Deposit in the Canada, Australia, New Zealand and the US and as Bond in United Kingdom. They are considered to be very safe investments. Term Deposits in India is used to denote a larger class of investments with varying levels of liquidity. The defining criteria for a Fixed Deposit are that the money cannot be withdrawn for the FD as against Recurring Deposit or Demand deposit before maturity. Some banks may offer additional services to FD holders such as loans against FD certificates at competent interest rates. Its important to note that banks may offer lesser interest rates under uncertain economic conditions. The interest rate varies between 4 and 11 percent. The tenure of an FD can vary from 10, 15 or 45 days to 1.5 years and can be as high as 10 years. These investments are safer than Post Office Schemes as they are covered under Deposit Insurance & Credit Guarantee Scheme of India. They also offer Income tax and Wealth tax benefits. Fixed deposits are a high-interest-yielding Term deposit offered by banks in India. The most popular form of Term deposits are Fixed Deposits, while other forms of term Deposits are Recurring Deposit and Flexi Fixed Deposits (the latter is actually a combination of Demand deposit and Fixed deposit). To compensate for the low liquidity, FDs offer higher rates of interest than saving accounts. The longest permissible term for FDs is 10 years. Generally, the longer the term of deposit, higher is the rate of interest but a bank may offer lower rate of interest for a longer period if it expects interest rates, at which RBI lends to banks ("repo rates"), will dip in the future. Usually in India the interest on FDs is paid every three months from the date of the deposit. (E.g. if FD a/c was opened on 15th Feb., first interest installment would be paid on 15 May). The interest is credited to the customers' Savings bank account or sent to them by cheque. This is a Simple FD. The customer may choose to have the interest reinvested in the FD account. In this case, the deposit is called the Cumulative FD or compound interest FD. For such deposits, the interest is paid with the invested amount on maturity of the deposit at the end of the term. Although banks can refuse to repay FDs before the expiry of the deposit, they generally don't. This is known as a premature withdrawal. In such cases, interest is paid at the rate applicable at the time of withdraw. For example, a deposit is made for 5 years at 8 %, but is withdrawn after 2 years. If the rate applicable on the date of deposit for 2 years is 5 per cent, the interest will be paid at 5 per cent. Banks can charge a penalty for premature withdrawal. Banks issue a separate receipt for every FD because each deposit is treated as a distinct contract. This receipt is known as the Fixed Deposit Receipt (FDR), that has to be surrendered to the bank at the time of renewal or encashment.

Many banks offer the facility of automatic renewal of FDs where the customers do give new instructions for the matured deposit. On the date of maturity, such deposits are renewed for a similar term as that of the original deposit at the rate prevailing on the date of renewal. Income tax regulations require that FD maturity precedes exceeding Rs 20,000 not to be paid in cash. Repayment of such and larger deposits has to be either by "A/c payee " crossed cheque in the name of the customer or by credit to the saving bank a/c or current a/c of the customer.

1.4.1 FEATURES
One of the great benefits of the term deposits is that the bank / provider is paying you for access to your money, so there are usually no establishment fees or ongoing account fees. However, there is always a catch with any financial product and the catch is that if you break the term and leave early, there will be a penalty. If you need to get your money out early, you will be charged either a penalty fee or awarded only a reduced interest rate for the period instead of the interest rate agreed to at the initiation of the term deposit. This will differ between institutions, so check the terms and conditions carefully. The key to a successful term deposit is to be comfortable with the term that you are committing to. USE OF MULTIPLE INSTITUTIONS To access term deposit accounts, many providers don't require you to have an account with that institution as you can nominate an existing account to have your interest and balance paid into at maturity. AUTOMATIC ROLLOVER At the conclusion of your term deposit, your term deposit provider can automatically roll over your matured deposit to a new term deposit of the same period as your original, at the new interest rate offered for that new term. COMPOUND INTEREST ON SOME ACCOUNTS Some term deposit accounts offer monthly payments into the same account with the benefit of compound interest on that amount and the balance, rather than a fixed interest amount. This is only available to accounts over at least one year in length as monthly interest payments are not available on terms shorter than one year. INTEREST RATES AND PAYMENTSTerm deposits typically feature a fixed interest rate, as opposed to the variable rates of interest offered on high interest savings accounts which move up and down in response to official interest rate rises. A fixed interest rate means that you get a fixed return on your investment, regardless of whatever happens with interest rates and the economy. This means that there is more certainty and security in a term deposit compared to a savings account, and less volatility than other investments in assets like property, commercial property or the stock market. For terms shorter than one year, your interest will be paid at maturity of the term deposit. This means that for a 6 month term deposit, you will be paid your interest payment at a date 6 months

after your deposit, as well having access to the original deposit amount at this date. This short term deposit is not advantageous if you rely on a regular monthly income stream. For term deposit terms longer than one year, you will have an option of when you would like to receive interest, from monthly options for interest payments to semiannually. The following options apply for payments of term deposits:

Less than one year: Maturity - your interest is paid at the end of the term deposit period. Longer than one year: Maturity - your interest is paid at the end of the term deposit period. Longer than one year: annually, semi-annually, quarterly interest payment options are also available.

The payment frequency differs between term deposit providers so be sure to pick an interest payment time frame that suits your requirement for income. Both the banks and depositors view term deposit lengths in the same way:

Short-term term deposits: one month deposit through to six month deposits. Long-term: term deposits over 12 months in length and up to 5 years, and in some instances up to 7 years.

1.4.3 SOME BENEFITS OF FD

Customers can avail loans against FDs up to 80 to 90 per cent of the value of deposits. The rate of interest on the loan could be 1 to 2 per cent over the rate offered on the deposit. Tax free income of up to INR 6000 per person (to both spouses individually). Nonresident Indian's and Person of Indian Origin can also open these accounts.

TAXABILITY Tax is deducted by the banks on FDs if interest paid to a customer at any branch exceeds Rs 10,000 in a financial year. This is applicable to both interests payable or reinvested per customer or per branch. This is called Tax deducted at Source and is presently fixed at 10 % of the interest. Banks issue Form 16 (A) every quarter to the customer, as a receipt for Tax Deducted at Source. If one feels that the total income for the year will not fall within overall taxable limits, then he can submit Form 15 G, in case he is below 65 years of age, or Form 15 H, in case he is above 65 years of age. How bank FD rates of interest vary with RBI policy In certain macroeconomic conditions (particularly during periods of high inflation) RBI adopts a tight monetary policy, that is, it hikes the interest rates at which it lends to banks ("repo rates").

Under such conditions, banks also hike both their lending (i.e. loan) as well as deposit (FD) rates. Under such conditions of high FD rates, FDs become an attractive investment avenue as they offer good returns and are almost completely secure with no risk.

1.4.4 TYPES OF FDS

There are mainly two kinds of FDs, but generally when an individual mentions about FDs we consider it to be a fixed deposit issued by a bank. The other kind of fixed deposit is provided by the corporates.

Bank FDs are offered by banks or non-banking finance companies. Both these institutions are regulated by the RBI, and the deposits up to INR 1 lakh per account are guaranteed by RBI. Corporate FDs are offered by corporates who are looking to raise money from the open market.

Corporate FDs pay a higher rate of interest because they carry a higher risk than bank FDs, since they are not guaranteed.

1.4.5 ADVANTAGES
The major advantage of investing in Fixed Deposit is its guaranteed return. The only reason why our parents and many in our generation also have this single concept of investment is because of its safety features. Also it is easy to raise a loan against your FD. One can borrow up to 90 per cent of the FDs amount. The next advantage is the flexible maturity date, it is for this feature that you can invest for a time frame that is as less as 6 months to as long as 10 years or even more.

1.4.6 DISADVANTAGES
Not surprisingly, FD as an investment is less risky than this aspect is the reason why its returns are lower compared to other investment options. Then there is an issue of liquidity, while your money is locked up with the bank, it is not easy to withdraw at a moment's notice. In fact if you withdraw before the agreed duration, you will be penalized. Also, there is no tax benefit in this investment, unlike the infrastructure bonds or the National Savings Certificate (NSC). So, even from a taxation point this is not the best of investment options.

1.5 STOCKS
The capital stock (or just stock) of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is different from the property and the assets of a business which may fluctuate in quantity and value. The stock of a business is divided into multiple shares, the total of which must be stated at the time of business formation. Given the total amount of money invested in the business, a share has a certain declared face value, commonly known as the par value of a share The par value is the minimum amount of money that a business may issue and sell shares for in many jurisdictions and it is the value represented as capital in the accounting of the business. In other jurisdictions, however, shares may not have an associated par value at all. Such stock is often called non-par stock. Shares represent a fraction of ownership in a business. A business may declare different types (classes) of shares, each having distinctive ownership rules, privileges, or share values. Ownership of shares is documented by issuance of a stock cerificate. A stock certificate is a legal document that specifies the amount of shares owned by the shareholder, and other specifics of the shares, such as the par value, if any, or the class of the shares.

1.5.1 TYPES OF STOCK

Stock typically takes the form of shares of either common stock or preferred stock. As a unit of ownership, common stock typically carries voting rights that can be exercised in corporate decisions. Preferred stock differs from common stock in that it typically does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders. Convertible preferred stock is preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually any time after a predetermined date. Shares of such stock are called "convertible preferred shares" (or "convertible preference shares" in the UK). New equity issues may have specific legal clauses attached that differentiate them from previous issues of the issuer. Some shares of common stock may be issued without the typical voting rights, for instance, or some shares may have special rights unique to them and issued only to certain parties. Often, new issues that have not been registered with a securities governing body may be restricted from resale for certain periods of time. Preferred stock may be hybrid by having the qualities of bonds of fixed returns and common stock voting rights. They also have preference in the payment of dividends over common stock and also have been given preference at the time of liquidation over common stock. They have other features of accumulation in dividend.

1.5.2 KINDS OF STOCK MARKET

There are two kinds of stock market 1. PRIMARY MARKET Basically the primary market is the place where the shares are issued for the first time. The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Primary markets create long term instruments through which corporate entities borrow from capital market. Features of primary markets are:

This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM). In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business. The primary market performs the crucial function of facilitating capital formation in the economy. The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public." The financial assets sold can only be redeemed by the original holder.

2. SECONDARY MARKET On the other hand the secondary market is the stock market where existing stocks are bought and sold by the retail investors through the brokers. The secondary market, also called aftermarket, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and

sold. Another frequent usage of "secondary market" is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac. The term "secondary market" is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a "second" or "third" market has developed for use in ethanol production). With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market. The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange, NASDAQ and the American Stock Exchange provide a centralized, liquid secondary market for the investors who own stocks that trade on those exchanges. Most bonds and structured products trade over the counter, or by phoning the bond desk of ones broker-dealer. Loans sometimes trade online using a Loan Exchange.

1.5.3 TREND IN STOCK MARKET

A market trend is a putative tendency of a financial market to move in a particular direction over time. 1. BULL MARKET (Upward Market Trend) A financial market of a group of securities in which prices are rising or are expected to rise. The term "bull market" is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities. Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue. It's difficult to predict consistently when the trends in the market will change. Part of the difficulty is that psychological effects and speculation may sometimes play a large role in the markets. 2. BEAR MARKET (Downward Market Trend) A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20\% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.

A bear market should not be confused with a correction, which is a short-term trend that has duration of less than two months. While corrections are often a great place for a value investor to find an entry point, bear markets rarely provide great entry points, as timing the bottom is very difficult to do. Fighting back can be extremely dangerous because it is quite difficult for an investor to make stellar gains during a bear market unless he or she is a short seller.

1.5.4 PARAMETERS BEFORE INVESTING IN STOCK MARKET

Price/earnings (P/E) ratio, which compares share prices to annual after-tax earnings. In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects. Use Valuation metrics, like the dividend yield, which looks at the dividends you get for each rupee of investment Cyclically adjusted PE ratio, which compares share prices to earnings over the past 10 years It must be emphasized that there are no guarantees when it comes to individual stocks. Some companies pay out dividends, but many others do not. And there is no obligation to pay out dividends even for those firms that have traditionally given them Although risk might sound all negative, there is also a bright side. Taking on greater risk demands a greater return on your investment. This is the reason why stocks have historically outperformed other investments such as bonds or savings accounts

1.5.5 STOCK MARKET DIAGRAM

This diagram shows that how transactions take place in stock market. Here brokers play an important role in executing the transactions between buyers and sellers. Here first seller approaches the broker to sell his shares and provides the information about the shares and the quantity of shares he want to sell. Then broker confirms the price of the share and finds the optimum buyer for the shares and as soon as he finds the buyer transaction takes place. The amount of shares is transferred in the d-mat account of buyers and shares are registered in the name of the buyer.

Share Prices of Infosys at Different Interval of Time

MARKET CAP (RS CR) BOOK VALUE (RS) EPS PRICE/BOOK FACE VALUE (RS) P/E DIV (%) INDUSTRY P/E DIV YIELD.(%)

163,457.21 426.69 129.58 6.67 5.00 21.97 1200.00% 23.90 2.11%

1.6 UNIT LINKED INSURANCE PLAN

ULIP or unit linked insurance policy is life insurance plan which combines both insurance cover and investment. Simply put, ULIP provides financial protection along with investment opportunities. The premium in ULIP after the deductions is invested in equity or debt market. In ULIP the investment risk is generally borne by the investor.

1.6.1 WORKING
ULIP is combination of risk cover and investment. Generally in a term plan, if you pay premium the specified cover is provided and that is all. However ULIP works differently. A small deduction is made on the premium made by you on account of insurer charges. The major amount is invested into the fund chosen by you and converted into units. The mortality cover and fund management charges and similar expenses are deducted by cancellation of units. The fund is dependent upon equity and debt market for growth.

1.6.2 TYPES OF FUNDS IN ULIP

The premium after the deduction is invested into a fund. The fund is basically a debt fund or equity fund or combination of both. The returns in the fund are dependent upon the risk appetite of the policyholder. More returns means more risks. General Description Nature of Investments Equity Funds Income, Fixed Interest and Bond Funds Cash Funds Primarily invested in company stocks with the general aim of capital appreciation Risk Category Medium to High

Invested in corporate bonds, government Medium securities and other fixed income instruments Sometimes known as Money Market Funds Low invested in cash, bank deposits and money market instruments Combining equity investment with fixed interest instruments Medium

Balanced Funds

1.6.3 BENEFITS:
Death Benefit- In case of death of insured, the Sum Assured and fund value is released to the beneficiary. Maturity Benefit- On maturity of ULIP plan, the fund value along with bonuses if any, is provided to the policyholder. Tax Benefit- ULIP also offers tax benefits under Section 80C and 10(10D) of the Income Tax Act, 1961. The premium paid is deductible from taxable income for maximum amount of Rs 100,000. Conclusion: If you are considering long term investment, ULIP is excellent means to securely invest your savings. ULIP provides insurance cover, investment and tax benefits. ULIP is transparent by nature as you can daily track the net asset value of your fund. ULIP is also flexible as you can manage your systematically manage the invested amount in any type of fund. ULIP does not require your constant attention as your premium is managed by industry professionals.

1.6.4 ULIPS VS. TRADITIONAL LIFE INSURANCE PLANS

1. POTENTIAL FOR BETTER RETURNS: Under IRDA guidelines, traditional plans have to invest at least 85% in debt instruments which results in low returns. On the other hand, Ulips invest in market linked instruments with varying debt and equity proportions and if you wish you can even choose 100% equity option. 2. GREATER TRANSPARENCY: Unlike Ulips, in a traditional life insurance policy youre not aware of how your money is invested, where it is invested and what is the value of your investment. 3. FLEXIBILITY IN INVESTMENT: The top most advantage which Ulips offer over traditional plans is the flexibility offered to you to customize the product according to your needs: a. Flexibility to invest the money the way you want: Unlike traditional plans, Ulips allow you full discretion to choose the fund option most appropriate to your riskappetite. b. Flexibility to change the fund allocation: Ulips also give you the option to change the fund allocation at a later stage through fund switching facility. c. Flexibility to invest more via top-Ups: Unlike traditional plans where youve to invest a FIXED premium every year, Ulips allow you flexibility to invest more than the regular premium via top-ups which are additional investments over and above the regular premium. To understand the significance and mystery of top-ups, pleaseread5ULIPSecrets. For the purpose of tax deduction under section 80C, theres no difference between regular premium and top-ups.

d. Flexibility to skip premium: In case of traditional plans, youve to pay premium for the entire duration of the plan. And if by chance you skip even a single premium, your policy lapses. Whereas Ulips allow you the flexibility to stop paying premium usually after three policy years. Your life cover continues by deducting the mortality charges from the existing investment corpus. 4. FLEXIBILITY IN INSURANCE COVERAGE: a. Option to choose coverage: While in case of traditional insurance plans, the premium is calculated based on sum assured, for Ulips premium payment is the key component based on which you can decide about the insurance coverage. Put simply, on the basis of premium, Ulips allow you to opt for any amount of sum assured within the specified range of minimum and maximum life coverage. b. Option to increase risk cover: Unlike traditional plans where youve to buy a new policy each time you want to increase your risk cover, Ulips allow you to increase your insurance cover anytime. 5. HIGHER LIQUIDITY (BETTER EXIT OPTIONS): the possibility to withdraw your money before maturity (through surrender or partial withdrawals) is higher in case of Ulips as compared to traditional plans and also the exit costs are lower. For details, please read How to surrender Life Insurance. Ulips are different and of course better than traditional insurance products; however, while in traditional plans your role is a passive one restricted to just making premium payments, Ulips require your active involvement. Youve to make a lot of decisions such as deciding about sum assured and premium to be paid, choosing between type I or type II Ulip, making a choice among various fund options available and also deciding about fund switching from time to time based on your needs, risk appetite and market outlook.

1.6.5 ULIP IN INDIA

ULIP in India are on the top in the popularity chart because it offers more benefits than traditional life insurance plans. There are many benefits are available such as higher returns on investment, partial withdrawal, flexibility to choose life cover, wider fund options, top up facility, free switches, tax benefits, etc. If you are looking for long term investment and better returns, ULIP is a right option to achieve your goal. But, you may find difficulties while purchasing the ULIP, because there are single and regular premium option. You have to choose the right option for you.

In single premium ULIP, you need to pay a single payment and you will enjoy the benefits throughout the policy term. In case of regular premium, you need to pay premium on regular basis, it can be paid by annual, half annual, quarterly and monthly mode. In terms of investment, both products offer similar options like equity, debt and liquid. Under regular premium option you may ask for commitment to pay more. But, under single premium product nobody will ask you to pay more as a matter of commitment. In the initial years of ULIP, single premium product offer better returns than regular premium product. But, its balance power shifts down latter. But this is not in effect the product is sold very aggressively due to IRDA norms. Regular premium ULIP products are also good in various factors such as affordability, tax benefit and large return. There are also ULIP charges to consider than single and regular premium. It is also important to take an overview of different charges are under ULIP plans. It includes premium allocation charge, risk cover charges, policy administration charges, fund management charges, service tax charge, miscellaneous charge, etc. At the end, ULIP is a good mixture of life cover and investment. But dont buy it for investment purpose only; there are other good options available for the investment. Unit linked insurance plan (ULIP) is a life insurance solution that provides the client with the benefits of protection and flexibility in investment. It is a solution which provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. The investment is denoted as unit and is represented by the value that it has attained called as Net Asset Value (NAV). ULIP came into play in 1960s and became very popular in Western Europe and America. The reason that is attributed to the wide spread popularity of ULIP is because of the transparency and the flexibility which it offers to the clients. As time progressed the plans were also successfully mapped along with life insurance needs to retirement planning. In todays times ULIP provides solution for all the needs of a client like insurance planning, financial needs, financial planning for childrens future and retirement planning.

1.6.6 CHARGES UNDER ULIP

Contribution Related Charges: These are the charges that are represented as a percentage of the regular or single contribution paid. In case of a regular contribution plan, it is usually high in the first year to pay for the distribution cost. This charge pays for the issuance and for distribution commissions. This charge is running for the policy. Administrative Charges: These are charges that are levied for the administration of the policy and the related cost of administration of the insurance company, itself. They are more related to the cost like IT, operational, etc. cost of continuing the policy. Fund Management Charges: These are the charges for buying and selling debt and equity. These are the charges are adjusted in NAV itself. Mortality Charges: This covers the cost of providing life protection for the insured and may be paid once at the start of the policy for a recurrent manner for example this charges levied to provide the insurance cover under the plan. Normally these charges are one year charges as per the age of the holder. Rider charges: Rider charges are similar in nature to the mortality charges as they are levied to pay for the other protection benefits that the policy holder has chosen for- like the critical illness benefit or the accident benefit, etc. Surrender Charges: When the policy holder decides to surrender the policy or partially withdraw some of the units for cash, a surrender charge may be apply. Surrender charges are used to cover initial expenses that have been incurred by the company but not yet recovered from the policyholder yet. Bid offer Charges: In ULIP specifically certain insurers might create a difference in the price at which they sell the unit and the price at which they buy the units. Investors contribution is used to buy units in the investment fund at the offer price and is sold when benefits are required at the bid price. The difference between the offer and bid prices is known as the bid-offer spread, this is used to cover expenses when setting up the policy. Transactional specific Charges: These charges are levied when the client does some specific transaction like changing funds, topping up the investment component or withdrawals.

1.7 PRIVATE EQUITY FUND

Private equity is defined as equity invested in a private or listed companies through a negotiated process. Also defined as providing medium to long-term finance to potentially high growth companies (quoted and/or unquoted) in exchange for an equity stake in the company. Private Equity is an illiquid asset class and requires a long term commitment Private equity can be used to develop new products and technologies, to expand working capital, to make acquisitions, or to strengthen a companys balance sheet. A private equity fund is a collective investment scheme used for making investments in various equity (and to a lesser extent debt) securities according to one of the investment strategies associated with private equity Private equity funds are typically limited partnerships with a fixed term of 10 years (often with annual extensions). At inception, institutional investors make an unfunded commitment to the limited partnership, which is then drawn over the term of the fund. Equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity. Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet.

The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time. Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an IPO or sale to a public company. The size of the private equity market has grown steadily since the 1970s. Private equity firms will sometimes pool funds together to take very large public companies private. Many private equity firms conduct what are known as leveraged buyouts (LBOs), where large amounts of debt are issued to fund a large purchase. Private equity firms will then try to improve the financial results and prospects of the company in the hope of reselling the company to another firm or cashing out via an IPO.

1.7.1 SIZE OF INDUSTRY

Nearly $135 billion of private equity was invested globally in 2005, up a fifth on the previous year due to a rise in buyouts as market confidence and trading conditions improved. Buyouts have generated a growing portion of private equity investments by value, and increased their share of investments from a fifth to more than two-thirds between 2000 and 2005. Private equity fund-raising reached new record levels in 2006, with data from Private Equity Intelligence showing that a total of 684 funds worldwide achieved a final close over the course of 2006, raising an aggregate $432 billion in commitments (Source: International Financial Services, London).

1.7.2 LIFECYCLE OF FUNDING

Venture Capital

1.7.3 NEED FOR PRIVATE EQUITY FUNDING

There is no fixed capital repayment schedule There is generally no need to provide any collateral Company b/s may already have excess debt The company is not ready for an IPO The promoters do not wish to dilute their stake to the public Private Equity investor adds value in the company: Financial advice Corporate strategy Sourcing talent Access to extensive relationships and network Acts as strategic long-term partner

1.7.3.1 Why invest in Private Equity?

Performance

Private equity managers often have a high degree of control and influence over investments Private equity managers often have legitimate access to non-public information prior to making an investment in private companies Strong alignment of interests between investors and management

Longterm

Diversification

Access to unique opportunities in a vast and growing marketplace of privately held companies Low correlations with certain asset classes including public equity Adding, say, 5% exposure to private equity in certain portfolios may increase the expected returns and reduce risk.

Value creation

1.7.4 WORKING
Private equity funds are the pools of capital invested by private equity firms. Although other structures exist, private equity funds are generally organized as either a limited partnership or limited listed company which is controlled by the private equity firm that acts as the general partner. The limited partnership is often called the Fund, and the general partners are sometimes designated as the Management Company. The fund obtains capital commitments from individuals or institutions referred to as qualified investors, such as pension funds, financial institutions and wealthy individual investors. Each of these commit a minimum level of capital to the fund. This commitment of capital is usually binding, even if not all of it is needed for immediate investment.

These investors become passive limited partners in the fund partnership and at such time as the general partner identifies an appropriate investment opportunity, it is entitled to call the required equity capital at which time each limited partner funds a pro rata portion of its commitment. All investment decisions are made by the General Partner which also manages the funds investments (commonly referred to as the portfolio). Private equity funds typically control management of the companies in which they invest, and often bring in new management teams that focus on making the company more valuable. 1.7.4.1 Private Equity Funds Structure

1.7.4.2 Cash flow for investors

1
Investee Companies
Typical Client Questions

Investors
5 3 4 6
Drawdowns

T=0

I t i s t o o l o n g a n

Extensions

i This Chart shows the total cash flow in the market including different parties such as the n investors, private equity firms and the ultimate market. v e s Firstly the High Net worth Individual invests in the private equity firm, followed by the different t perspective of investment available in the market and after having a detailed analysis of the m market the equity firm invests in different Industries to make a healthy portfolio for their e n Investors. t

The Firm mostly invests in the sick industries that have the potential to grow in future. h Generally, the return generated from the Industry is delivered to the investors in the form of o r capital appreciation.
i z o n I h a v e n o l i

Investment Period

CHAPTER 2. ANALYSIS AND INTERPRETATION

ANALYSIS

Factors Clients prefer most

Liquidity Low risk High return Company Reputation

5%

15%

20%

60%

Analysis When asked to the clients about which factor they prefer most while investing in securities, it came to light that around 60% prefer high return as the most important factor. For the investors it was crucial that the security in which they are investing gives them maximum return.

Investment Behaviour
8% 4% 23% FD Insurance 27% Mutual Fund 27% 11% Private Equity Fund Nifty Linked Debentures Stock

Analysis When enquired about the investment behaviour of the investors, it was observed that around 27% would like to invest in Fixed Deposits and another 27% go for Mutual Funds. It is due to the safety that these securities provide. Very small number of investors invest in Nifty linked debentures, simply because they are not aware, what debentures are.

Client's Income
Client's Income 53

30

17

Below 10 Lacs

10-50 Lacs

Above 50 Lacs

Analysis Most of the investors belong to the income group of 10-50 lakhs (p. a.). The investors from this income group have enough savings and risk taking capabilities.

Client affected By Inflation

Not Important Moderately Vital 0% 11% 26% 26% Somewhat Important Important

37%

Analysis When asked, whether the clients are affected by inflation, it was observed that 37% are moderately affected by inflation. Only 11% clients gives importance to the inflation factor while investing.

Preferable sector in Mutual Funds

Oil/Gas and Petroleum Diversified equity Fund Gold Fund Sectrol(Power/Banking etc.)

11%

5% 37%

47%

Analysis Around 47% clients who invest in mutual fund, likes to invest in diversified equity funds. This is due to the high returns that equity funds offer. 37 % invest in gold funds, 11% in power/banking sector, and only 5% invest in oil/gas or petroleum

Important factor before choosing an investment

Quick increase in Wealth Monthly Income Steady Growth Safety of Principal

16% 26%

26% 32%

Analysis The clients who invest in mutual funds give maximum consideration to steady growth and moderate incomes. 26% of the clients give importance to quick rise in wealth with high returns, another 26% to monthly regular incomes, rest 16% to the safety of the principal amount.

Stable source of Income(Stock)

Unpredictable Somewhat predictable Reasonably predictable Sufficient Very predictable

Analysis When asked the clients whether they consider stocks as the stable source of income, it came to light that, 37% of clients consider it unpredictable, 16% thought that it is somewhat predictable, 16% consider it is very predictable.

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

Understanding andComfort level with investing in Stock Market

Analysis

Policies that Client opt

Term Plans 32%

Traditional 26%

ULIPS 42%

Analysis

Reason for Investment in ULIP

10 9 8 7 6 5 4 3 2 1 0 Child Pension Marriage Income Growth Tax Rebate Reason for Investment in ULIP

Analysis

BIBLIOGRAPHY

BIBLIOGRAPHY
Books Wealth Management: The Financial Advisor's Guide to Investing and Managing Client Assets, Harold Evensky Global Private Banking and Wealth Management: The New Realities (The Wiley Finance Series), David Maude Links http://www.mutualfundsindia.com http://www.amfiindia.com/ http://en.wikipedia.org/wiki/Wealth_management http://www.moneycontrol.com/stocksmarketsindia/

Journals The Prudent Fact Sheet (December 2011), ICICI The Prudent Fact Sheet (January 2012), ICICI

ANNEXTURE

ANNEXTURE
QUESTIONNAIRE
1. What kind of investments your clients prefer most? Pl tick (). All applicable a. Stock [] b. Fixed deposits [] c. Insurance/ULIP [] d. Mutual Fund [] e. Private Equity Fund [] f. Nifty Linked Debentures [] 2. What percentage of your clients fall in the different income group? Below 10 Lacs [ ] 10 Lakhs-50 Lacs [ ] 3. What is the most preferred time horizon for your clients? a) Small -Term Investment [] b) Medium -Term Investment [] c) Long Term Investment []

above 50 Lacs [

4. Inflation risk can result in the loss of purchasing power. Is your client affected by inflation? a) Not important [] b) Somewhat important [] c) Moderately important [] d) Important, [] e) Vital [] 5. Generally, the longer an investor's time horizon, the higher the risk tolerance and vice-versa. With this in mind, what is your age category? 1. Age 80 and over [] 2. Age 70 to 79 [] 3. Age 60 to 69 [] 4. Age 40 to 59 [] 5. Under age 40 [] 6. While investing your clients money, which factor they prefer most? Liquidity [ ] Low Risk [ ] High Return [ ] Company reputation [ ] 7. When you invest in Mutual Funds which mode of investment will you prefer? a. One Time Investment [ ] b. Systematic Investment Plan (SIP) [ ] 8. Which sector would you like to invest in mutual fund sector?

a) b) c) d) e) f) g) h)

General 1st Oil and petroleum Gold fund Diversified equity fund Power sector Debt fund Banking fund Real estate fund

[] [] [] [] [] [] [] []

9. What factors would the client consider most important before choosing an investment? a. How quickly it will be able to increase their wealth. b. The opportunity for steady growth. c. The amount of monthly income the investment will generate. d. The safety of their investment principal.

10. Generally, how your clients like to receive the returns every year? a. Dividend payout [ ] b. Dividend re-investment [ ] c. Growth in NAV [ ]

11. Which policies the client opts for? Traditional [ ]

ULIPS [ ]

12. What percent of clients are aware of ULIP schemes? less than 10% [ ] 10% --- 30% [ ] 30%---- 60% [ ] Above 60% [ ] 13. What is the reason for investment in ULIP? a) Child Marriage b) Pension c) Income Growth d) Tax Rebate
14. In a cyclical bull market, lasting on-average 36 months or more, stock prices have risen 35% or more. How much do you want to gain? a) Not applicable, as unwilling to accept potential for loss b) Would accept from 1/4 to 1/2 of bull market gain, while maintaining major focus on riskreduction c) Willing to accept higher amount of risk to earn from 1/2 to 3/4 of cyclical gain d) From 75% to 100% of the bull market advance, accepting higher volatility and risk along the way. e) Would seek excess gains beyond the stock market, understanding the accompanying higher risk.