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submitted to
university of mumbai
in the partial fulfuilment of the B.M.S degree
BY
shabaz khan
roll no 106
studying at
rizvi educaton societys
rizvi college of arts ,science , & commerce
rizvi edcation complex , bandra [west]
academis year
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CERTIFICATE
This is to certify that SHABAZ KHAN of T.Y.BMS CLASS, ROLL NO 106
of the year 2016-2017 studying at RIZVI COLLEGE OF ARTS SCIENE
AND COMMERCE ,has succesfully complete the project entitled ROLE
OF INVESTMENT IN INDIAN ECONOMY
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DECLARATION
Date
[Shabaz khan]
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INDEX
CHAPTER
NO PAGE NO
PARTICULAR
1 INTRODUCTION
2 INVESTMENT
3 CAPITAL MARKET
4 MUTUAL FUND
5 INVESTMENT IN INSURANCE
7 CONCLUSION
8 BIBLIOGRAPHY
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INTRODUCTION
Definition of Investment
The term "investment" can be used to refer to any mechanism used for the purpose of
generating future income. In the financial sense, this includes the purchase of bonds, stocks
or real estate property. Additionally, the constructed building or other facility used to produce
goods can be seen as an investment. The production of goods required to produce other goods
may also be seen as investing.
An investment is an asset or item that is purchased with the hope that it will generate income
or will appreciate in the future. In an economic sense, an investment is the purchase of goods
that are not consumed today but are used in the future to create wealth. In finance, an
investment is a monetary asset
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Investment in terms of Economics:
In an economic sense, an investment is the purchase of goods that are not consumed today
but are used in the future to create wealth. In finance, an investment is a monetary asset
purchased with the idea that the asset will provide income in the future or will be sold at a
higher price for a profit.
Investment is the value of machinery, plants, and buildings that are bought by firms for
production purposes.
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Investment in Terms of Business Management:
The term asset management is often used to refer to the investment management of collective
investments, while the more generic fund management may refer to all forms of institutional
investment as well as investment management for private investors. Investment managers
who specialize in advisory or discretionary management on behalf of (normally wealthy)
private investors may often refer to their services as money management or portfolio
management often within the context of so-called "private banking".
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costs), computer experts, and "back office" employees (to track and record transactions and
fund valuations for up to thousands of clients per institution).
In finance, investment refers to the purchasing of securities or other financial assets from the
capital market. It also means buying money market or real properties with high market
liquidity. Some examples are gold, silver, real properties, and precious items.
A financial investment is an asset that you put money into with the hope that it will grow or
appreciate into a larger sum of money. The idea is that you can later sell it at a higher price or
earn money on it while you own it. You may be looking to grow something over the next
year, such as saving up for a car, or over the next 30 years, such as saving for retirement.
How you invest these dollars can be very different. How much time you have on your side is
often a key thing to consider when making a financial investment. The more time you have,
the more risk you can usually take.
The more risk you take, the more potential for making more money! It is important to note
that there is also an economic definition of financial investments that deals with how
businesses invest in products, equipment, factories, employees, and inventories. This lesson
will focus on the finance definition of financial investment. Let's look at a few key terms
worth knowing when it comes to financial investments.
Appreciation is the amount an investment grows in value. For example, you buy a share of
stock for $10, and a year later it is worth $15; the stock has appreciated $5.
Dividends are usually cash payments that are paid out on financial investments based on the
success and earnings of a company. For example, you invest in Microsoft stock, and it may
pay you a dividend of $5 a share. If you owned 500 shares you would get paid 500 * $5
which is $2,500!
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Interest is the fee a bank, institution, or government pays you for loaning them money
through the purchase of a CD or bond. You can also earn small amounts of interest on a
checking or savings account. For example, you may have $10,000 in government savings
bonds that pays 5% interest annually; that adds up to $500 a year!
What Is Investment:
It's actually pretty simple: investing means putting your money to work for you. Essentially,
it's a different way to think about how to make money. Growing up, most of us were taught
that you can earn an income only by getting a job and working. And asset will provide
income in the future or will be sold at a higher price for a profit.that's exactly what most of us
do. There's one big problem with this: if you want more money, you have to work more
hours. However, there is a limit to how many hours a day we can work, not to mention the
fact that having a bunch of money is no fun if we don't have the leisure time to enjoy it
You can't create a duplicate of yourself to increase your working time, so instead, you need to
send an extension of yourself - your money - to work. That way, while you are putting in
hours for your employer, or even mowing your lawn, sleeping, reading the paper or
socializing with friends, you can also be earning money elsewhere. Quite simply, making
your money work for you maximizes your earning potential whether or not you receive a
raise, decide to work overtime or look for a higher-paying job.
There are many different ways you can go about making an investment. This includes putting
money into stocks, bonds, mutual funds, or real estate (among many other things), or starting
your own business. Sometimes people refer to these options as "investment vehicles," which
is just another way of saying "a way to invest." Each of these vehicles has positives and
negatives, which we'll discuss in a later section of this tutorial.
The point is that it doesn't matter which method you choose for investing your money, the
goal is always to put your money to work so it earns you an additional profit. Even though
this is a simple idea, it's the most important concept for you to understand.
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The term "investment" can be used to refer to any mechanism used for the purpose of
generating future income. In the financial sense, this includes the purchase of bonds, stocks
or real estate property. Additionally, the constructed building or other facility used to produce
goods can be seen as an investment. The production of goods required to produce other goods
may also be seen as investing.
An investment is an asset or item that is purchased with the hope that it will generate income
or will appreciate in the future. In an economic sense, an investment is the purchase of goods
that are not consumed today but are used in the future to create wealth. In finance, an
investment is a monetary asset purchased with the idea that the asset will provide income in
the future or will be sold at a higher price for a profit
Investment is a term frequently used in the fields of economics, business management and
finance.
Leads to
Investment Creates wealth
consumtion
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Need for Investment :
Financial Investment ensures all your dreams turn real and you enjoy life to the fullest
without actually worrying about the future.
Financial investment ensures you save for rainy days. Careful investment makes your future
secure.Financial investment controls an individuals spending pattern. It decides how and
what amount one should spend so that he has sufficient money for future.
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Types of Investment
INVESTMENT
Bonds Collectibles
Insurance
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SMALL SAVINGS SCHEMES & FIXED INCOME INSTRUMENTS
Saving Schemes
These are basically savings avenues, where an individual puts his/her savings. These can be
classified in two parts:
a) Small saving schemes: They are designed to provide safe and attractive investment
options to the public and at the same time to mobilize resources for development of economy.
b) Other saving scheme: These are all other schemes, which are not covered by small
saving schemes like bank fixed deposit, company fixed deposits, etc.
Traditionally schemes like public provident fund and national saving certificate have been
associated with attractive returns and tax benefits. Most importantly these schemes offer
assured returns thereby appealing to a large section of investor community. National Savings
Organization (NSO) is responsible for national level promotion of small saving schemes.
These schemes are primarily meant for small urban and rural investors. Institutions and NRIs
are not eligible to invest in small savings schemes.
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CAPITAL MARKET :
Definition: Capital market is a market where buyers and sellers engage in trade of financial
securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as
individuals and institutions.
Capital markets help channelise surplus funds from savers to institutions which then invest
them into productive use. Generally, this market trades mostly in long-term securities.
Capital market consists of primary markets and secondary markets. Primary markets deal
with trade of new issues of stocks and other securities, whereas secondary market deals with
the exchange of existing or previously-issued securities. Another important division in the
capital market is made on the basis of the nature of security traded, i.e. stock market and bond
market.
A capital market is a financial market in which long-term debt or equity-backed securities are
bought and sold. Capital markets are defined as markets in which money is provided for
periods longer than a year. Capital markets channel the wealth of savers to those who can put
it to long-term productive use, such as companies/ governments making long-term
investments. Financial regulators, such as the UK's Bank of England (BoE) or the U.S.
Securities and Exchange Commission (SEC), oversee the capital markets in their jurisdictions
to protect investors against fraud, among other duties.
Modern capital markets are almost invariably hosted on computer-based electronic trading
systems; most can be accessed only by entities within the financial sector or the treasury
departments of governments and corporations, but some can be accessed directly by the
public.[b] There are many thousands of such systems, most serving only small parts of the
overall capital markets. Entities hosting the systems include stock exchanges, investment
banks, and government departments. Physically the systems are hosted all over the world,
though they tend to be concentrated in financial centres like London, New York, and Hong
Kong.
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A capital market can be either a primary market or a secondary market. In primary markets,
new stock or bond issues are sold to investors, often via a mechanism known as underwriting.
The main entities seeking to raise long-term funds on the primary capital markets are
governments (which may be municipal, local or national) and business enterprises
(companies). Governments issue only bonds, whereas companies often issue either equity or
bonds. The main entities purchasing the bonds or stock include pension funds, hedge funds,
sovereign wealth funds, and less commonly wealthy individuals and investment banks trading
on their own behalf. In the secondary markets, existing securities are sold and bought among
investors or traders, usually on an exchange, over-the-counter, or elsewhere. The existence of
secondary markets increases the willingness of investors in primary markets, as they know
they are likely to be able to swiftly cash out their investments if the need arises.
Definition of a Stock
Stock is a share in the ownership of a company. Stock represents a claim on the company's
assets and earnings. As you acquire more stock, your ownership stake in the company
becomes greater. Whether you say shares, equity, or stock, it all means the same thing. Over
the last few decades, the average person's interest in the stock market has grown
exponentially. What was once a toy of the rich has now turned into the vehicle of choice for
growing wealth? This demand coupled with advances in trading technology has opened up
the markets so that nowadays nearly anybody can own stocks.
Being an owner
Holding a company's stock means that you are one of the many owners (shareholders) of a
company and, as such, you have a claim to everything the company owns. As an owner, you
are entitled to your share of the company's earnings as well as any voting rights attached to
the stock.
A stock is represented by a share certificate. This is a fancy piece of paper that is proof of
your ownership. In today's computer age, you won't actually get to see this document because
your broker or DP keeps these records electronically, which is also known as holding shares
"in streetname".
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The importance of being a shareholder is that you are entitled to a portion of the companys
profits and have a claim on assets. Profits are sometimes paid out in the form of dividends.
The more shares you own, the larger the portion of the profits you get. Your claim on assets
is only relevant if a company goes bankrupt. In case of liquidation, you'll receive what's left
after all the creditors have been paid.
Another extremely important feature of stock is its limited liability, which means that, as an
owner of a stock, you are not personally liable if the company is not able to pay its debts.
Owning stock means that, no matter what, the maximum value you can lose is the value of
your investment. Even if a company of which you are a shareholder goes bankrupt, you can
never lose your personal assets.
Returns on equity are affected by risks like Business Risk, Financial Risk, Industry Risk,
Management Risk, Political, Economic and Exchange Rate Risk, Market Risk, etc. 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.
Without dividends, an investor can make money on a stock only through its appreciationin
the open market. On the downside, any stock may go bankrupt, in which case your
investment is worth nothing.
Although risk might sound all negative, there is also a bright side. Taking 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. Over the long term, an
investment in stocks has historically had an average return of around 10-12% annually.
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Different types of stock
When people talk about stocks they are usually referring to this type. In fact, the majority of
stock is issued is in this form. Common shares represent ownership in a company and a claim
(dividends) on a portion of profits.
Investors get one vote per share to elect the board members, who oversee the major decisions
made by management. The holder of common stock has limited liability up to amount of
share capital contributed.
Over the long term, common stock, by means of capital growth, yields higher returns than
almost every other investment. This higher return comes at a cost since common stocks entail
the most risk. If a company goes bankrupt and liquidates, the common shareholders will not
receive money until the creditors, bondholders and preferred shareholders are paid.
Preferred stock represents some degree of ownership in a company but usually doesn't come
with the same voting rights. (This may vary depending on the company.) With preferred
shares, investors are usually guaranteed a fixed dividend forever.
This is different than common stock, which has variable dividends that are never guaranteed.
Another advantage is that in the event of liquidation, preferred shareholders are paid off
before the common shareholder (but still after debt holders).
Preferred stock may also be callable, meaning that the company has the option to purchase
the shares from shareholders at any time for any reason (usually for a premium).
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Types of Investors in Equity Market
Investment Styles
Different investor invests differently. Two most common ways of investment style in equity
are-
Value Investing :
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Value investing is wherein fund managers or investors tend to look for companies trading
below their intrinsic value, but whose true worth they believe will eventually be recognized.
These securities typically have low prices relative to earnings or book value and a higher
dividend yield.
Growth Investing
Growth investing is wherein fun managers or investors look for companies with above
average earnings growth and profits, which they believe will be even more valuable in the
future.
Derivatives Markets :
Derivatives markets can broadly be classified as commodity derivatives market and financial
derivatives markets. As the name suggest, commodity derivatives markets trade contracts are
those for which the underlying asset is a commodity. It can be an agricultural commodity like
wheat, soybeans, rapeseed, cotton, etc. or precious metals like gold, silver, etc. or energy
products like crude oil, natural gas, coal, electricity etc. Financial derivatives markets trade
contracts have a financial asset or variable as the underlying. The more popular financial
derivatives are those which have equity, interest rates and exchange rates as the underlying
Types of Derivative
Commodity Derivatives
A commodity derivative is defined as derivatives whose value derives from the price of an
underlying commodity. The underlying asset includes Precious metals (gold, silver, platinum
etc.), other metals (tin, copper, lead, steel, nickel, etc.), Argo products (coffee, wheat, rice
pepper, cotton, etc.) and Energy products (crude oil, heating oil, natural gas, etc.)
Equity derivatives
A derivative instrument with underlying assets based on equity securities. An equity
derivative's value will fluctuate with changes in its underlying asset's equity, which is usually
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measured by share price. Investors can use equity derivatives to hedge the risk associated
with taking a position in stock by setting limits to the losses incurred by either a short or long
position in a company's shares. If an investor purchases a stock, he or she can protect against
a loss in share value by purchasing a put option. On the other hand, if the investor has shorted
shares, he or she can hedge against a gain in share price by purchasing a call option.
Currency derivatives
Currency derivatives can be described as contracts between the sellers and the buyers whose
value are derived from the underlying exchange rate. They are mostly designed for hedging
purposes, although they are also used as instruments for speculation.
Four most common examples of derivative instruments are Forwards, Futures, Options and
Swaps. They are bilateral contracts and hence exposed to counter-party risk.
1. Forward Contracts
These are promises to deliver an asset at a pre- determined date in future at a predetermined
price. Forwards are highly popular on currencies and interest rates. The contracts are traded
over the counter (i.e. outside the stock exchanges, directly between the two parties) and are
customized according to the needs of the parties. Since these contracts do not fall under the
purview of rules and regulations of an exchange, they generally suffer from counterparty risk
i.e. the risk that one of the parties to the contract may not fulfill his or her obligation.
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2. Futures Contracts
A futures contract is an agreement between two parties to buy or sell an asset at a certain
time in future at a certain price. These are basically exchange traded, standardized contracts.
The exchange stands guarantee to all transactions and counterparty risk is largely eliminated.
The buyers of futures contracts are considered having a long position whereas the sellers are
considered to be having a short position. It should be noted that this is similar to any asset
market where anybody who buys is long and the one who sells in short.
Futures contracts are available on variety of commodities, currencies, interest rates, stocks
and other tradable assets. They are highly popular on stock indices, interest rates and foreign
exchange.
3. Options Contracts
Options give the buyer (holder) a right but not an obligation to buy or sell an asset in future.
Options are of two types - calls and puts. Calls give the buyer the right but not the obligation
to buy a given quantity of the underlying asset, at a given price on or before a given future
date.
Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying
asset at a given price on or before a given date.
One can buy and sell each of the contracts. When one buys an option he is said to be having a
long position and when one sells he is said to be having a short position. It should be noted
that, in the first two types of derivative contracts (forwards and futures) both the parties
(buyer and seller) have an obligation; i.e. the buyer needs to pay for the asset to the seller and
the seller needs to deliver the asset to the buyer on the settlement date.
In case of options only the seller (also called option writer) is under an obligation and not the
buyer (also called option purchaser).
The buyer has a right to buy (call options) or sell (put options) the asset from / to the seller of
the option but he may or may not exercise this right. In case the buyer of the option does
exercise his right, the seller of the option must fulfill whatever is his obligation (for a call
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option the seller has to deliver the asset to the buyer of the option and for a put option the
seller has to receive the asset from the buyer of the option).An option can be exercised at the
expiry of the contract period (which is known as European option contract) or anytime up to
the expiry of the contract period (termed as American option contract).
Swaps :
Swaps are private agreements between two parties to exchange cash flows in the future
according to a prearranged formula. They can be regarded as portfolios of forward contracts.
The two commonly used swaps are
a. Interest rate swaps: These entail swapping only the interest related cash flows between the
parties in the same currency.
b. Currency swaps: These entail swapping both principal and interest between the parties, with
the cash flows in one direction being in a different currency than those in the opposite
direction.
1. Hedgers
These are investors with a present or anticipated exposure to the underlying asset which is
subject to price risks. Hedgers use the derivatives markets primarily for price risk
management of assets and portfolios.
2. Speculators
These are individuals who take a view on the future direction of the markets. They take a
view whether prices would rise or fall in future and accordingly buy or sell futures and
options to try and make a profit from the future price movements of the underlying asset.
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3. Arbitrageurs
They take positions in financial markets to earn riskless profits. The arbitrageurs take short
and long positions in the same or different contracts at the same time to create a position
which can generate a riskless profit.
Mutual Funds
As the name suggests, a 'mutual fund' is an investment vehicle that allows several investors to
pool their resources in order to purchase stocks, bonds and other securities. These collective
funds (referred to as Assets Under Management or AUM) are then invested by an expert fund
manager appointed by a mutual fund company (called Asset Management Company or
AMC).The combined underlying holding of the fund is known as the 'portfolio', and each
investor owns a portion of this portfolio in the form of units.
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thus supporting projects of these goods and services companies. Thus, overall economic
development is promoted.
The mutual fund industry itself, offers livelihood to a large number of employees of mutual
funds, distributors, registrars and various other service providers. Higher employment,
income and output in the economy boost the revenue collection of the government through
taxes and other means. When these are spent prudently, it promotes further economic
development and nation building. Mutual funds can also act as a market stabilizer, in
countering large inflows or outflows from foreign investors. Mutual funds are therefore
viewed as a key participant in the capital market of any economy.
1. MFs are managed by professional fund managers, responsible for making wise investments
according to market movements and trend analysis.
2. MFs allow you to invest your savings across a variety of securities and diversify your
assets according to your objectives, and risk tolerance.
3. MFs provide investors the freedom to earn on their personal savings. Investments can be as
less as Rs500.
4. MFs offer relatively high liquidity. Certain mutual fund investments are tax efficient. For
example, domestic equity mutual funds investors do not need to pay capital gains tax if
they remain invested for a period of above 1 year.
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Advantages of Mutual Funds for Investors
1. Professional Management
Mutual funds offer investors the opportunity to earn an income or build their wealth through
professional management of their investible funds. There are several aspects to such
professional management viz. investing in line with the investment objective, investing based
on adequate research, and ensuring that prudent investment processes are followed.
Units of a scheme give investors exposure to a range of securities held in the investment
portfolio of the scheme. Thus, even a small investment of Rs5000 in a mutual fund scheme
can give investors a diversified investment portfolio.
With diversification, an investor ensures that all the eggs are not in the same basket.
Consequently, the investor is less likely to lose money on all the investments at the same
time. Thus, diversification helps reduce the risk in investment. In order to achieve the same
diversification as a mutual fund scheme, investors will need to set apart several lakh of
rupees. Instead, they can achieve the diversification through an investment of a few thousand
rupees in a mutual fund scheme.
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3. Economies of Scale
The pooling of large sums of money from so many investors makes it possible for the mutual
fund to engage professional managers to manage the investment. Individual investors with
small amounts to invest, cannot, by themselves afford to engage such professional
management.
Large investment corpus leads to various other economies of scale. For instance, costs related
to investment research and office space get spread across investors. Further, the higher
transaction volume makes it possible to negotiate better terms with brokers, bankers and other
service providers.
4. Liquidity
At times, investors in financial markets are stuck with a security for which they cant find a
buyer worse; at times they cant find the company they invested in! Such investments,
whose value the investor cannot easily realize in the market, are technically called illiquid
investments and may result in losses for the investors. Investors in a mutual fund scheme can
recover the value of the moneys invested, from the mutual fund itself.
Depending on the structure of the mutual fund scheme, this would be possible, either at any
time, or during specific intervals, or only on closure of the scheme. Schemes where the
money can be recovered from the mutual fund only on closure of the scheme are listed in a
stock exchange. In such schemes, the investor can sell the units in the stock exchange to
recover the prevailing value of the investment.
5. Tax Deferral
Mutual funds are not liable to pay tax on the income they earn. If the same income were to be
earned by the investor directly, then tax may have to be paid for the same financial year.
Mutual funds offer options, whereby the investor can let the moneys grow in the scheme for
several years.
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By selecting such options, it is possible for the investor to defer the tax liability. This helps
investors to legally build their wealth faster than would have been the case, if they were to
pay tax on the income each year.
6. Tax benefits
Specific schemes of mutual funds (Equity Linked Savings Schemes) gives investors the
benefit of deduction of the amountinvested, from their income that is liable to tax. This
reduces theirtaxable income, and therefore the tax liability.Further, the dividend that the
investor receives from the scheme istax-free in their hands.
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INSURANCE
Introduction
It is the wish of most individuals to have enough assets, so that one can meet lifes necessities
and luxuries. Individual save to provide for these necessities and luxuries. The earning power
of an individual is reduced in retirement or by unforeseen disability or for any unexpected
happening. Many individuals also love to leave enough assets to assure continuation of these
necessities and luxuries to their dependents. Insurance takes care of these risks. Insurance
allows a person to join a large group of people to share losses. The group guarantees to pay a
sum of money to the person, to his family or to other beneficiaries as intended by the insured
upon the happening of an uncertain specified event like death, fire, etc. In return, the person
pays an agreed risk premium, also called premium to the insurance company. Japanese ranks
first in life insurance ownership in the world, while USA and Canada are second and third.
What is Insurance?
Insurance is risk transfer mechanism wherein insured transfers the risk of unexpected
financial loss to insurers by paying premium.
Types of Insurance
Insurance can be broadly classified into two categories:
Types on
Insurance
General
Life Insurance
Insurance
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Life Insurance
Life insurance is a contract between an insurance policy holder and an Insurer where the
insurer promises to pay a designated beneficiary sum of money upon the death of the insured
person. Life insurance deals with two risks that an individual faces
a) Dying prematurely, leaving a dependent family and
b) Living long without adequate means of support.
It enables the head or earning member of the family to discharge the sense of responsibility
that he feels for those dependent on him.
Life insurance includes Term insurance, Whole life insurance, Endowment plan, Money back
plan, Annuities and pension and Unit linked insurance plans.
Advantages
1. Mental peace
The most important benefit of life insurance is that it assures mental peace. When a person
goes for life insurance, he and his family are relieved from worries of future. Thus, it ensures
mental peace.
2. Financial Security
The policy of life insurance provides economical security to the family of the policy holder in
case of death of the breadwinner. On occurrence of this unfortunate event, the family is
forced with a cash crunch. But by availing a life insurance policy, this problem of cash
crunch is solved by a lump sum amount paid by the insurer.
3. Loan in case of need
There are circumstances in life when the individual needs funds but is unable to get from
various sources. The life insurance policy also provides a solution to this problem as loan can
be taken against the policy and need not be repaid as the loan amount is deducted from the
police value on maturity.
4. Cover for whole life
The life insurance policy provides coverage for the whole life of the policyholder. It also
provides protection in cases of serious illness.
5. Tax-free source of savings
In addition it is a source of savings which is completely tax-free
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Disadvantages :
1. Expensive
The life insurance can prove to be a costly affair, particularly when suffering from illness and
regarded by insurers as High Risk due to some reasons like old age etc.
2. Irrelevant in case of no-family person
The life insurance policy is irrelevant for an individual who is not having any family or
dependents
3. Increasing premiums
The premium payable increases with the increase in age. But the income gradually decreases
which makes it difficult to strike a balance. No benefit in case of long life
Some policies do not provide any cash benefit on the policy holder surviving the policy term.
In that case, amount paid for premiums is wasted
General Insurance
Any insurance other than Life Insurance falls under the classification of General Insurance.
It comprises of:-
Insurance of property against fire, theft, burglary, terrorism, natural disasters etc.
Personal insurance such as Accident Policy, Health Insurance and liability insurance which
Covers legal liabilities.
Errors and Omissions Insurance for professionals, credit insurance etc.
Policy covers such as coverage of machinery against breakdown or loss or damage during
the transit
Policies that provide marine insurance covering goods in transit by sea, air, railways,
waterways and road and cover the hull of ships.
Insurance of motor vehicles against damages or accidents and theft
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Types of life insurance
Depending on their objectives, there are at least three types of life insurance policy
classifications.
A life insurance policy could offer pure protection (insurance), another variant could offer
protection as well as investment while some others could offer only investment. In India, life
insurance has been used more for investment purposes than for protection in ones overall
financial planning.
Pure Insurance Products
Insurance-cum-Investment Products
Investment Products
ALTERNATIVE INVESTMENTS
ART
Most Expensive Paintings From India The epic work of artist Francis Newton Souza, the
Birth, was sold for $4.08 million at the Christies auction on 17 September 2015Francis
Newton Souzas (1924-2002) epic work Birth held the previous world auction record price
for a work by the artist - set at Christies in 2008 for $2.5 million. The latest record is an
increase of 63 per cent, establishing the new world auction record for the artist at $4.08
million, Christies said in a statement. The present owner of the Birth is Anil Ambanis
wife Tina Ambani-run Harmony Arts Foundation which had bought it for $2.5 million at a
2008 Christies auction. Even at that, it was the highest price fetched by the artists work at
an auction ever. Art and antiques are extremely vulnerable to fluctuations in public tastes and
other factors, so they are considered high-risk, speculative investments. Most investment
consultants feel that one should invest in art and antiques primarily because one likes them,
and only secondarily because they may return a profit. Also not more than 10-15 percent of
the value of the investment portfolio should not be kept into art and antiques.
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Advantages
1. It survives economic downturn. However, lower priced categories react quickly to worsening
economic environment. An economic slowdown causes drop in demand and an increase in
supply, leading to forced selling. This, however, does not apply at all or only rarely to
artworks in the top price category. Consequently, top-quality art tends to be more stable than
most financial investments in difficult times.
2. The long term trend for art prices would tend to be upward simply because art is a scarce
product and not reproducible at will. Rising incomes over the long-term ensure a steady rise
in demand for works of art against falling supply.
3. Art and antiques popularity as an investment option arises due to its low correlation with
other financial assets.
Limitations
1. Successful investment in art requires not only extensive know-how about the artistic quality
and authenticity but also the peculiar nuances of the art market. As each work of art is
different, the markets are everything but transparent. Evaluating quality and price requires
knowledge of the market inside out.
2. Investment horizons typically run for years or even decades, and the market is generally
illiquid, which significantly limits an investors' ability to convert a holding to cash
3. Transaction costs (auction fees, appraisal fees, insurance, handling costs etc.) are by far larger
than in other markets. Though there has been increase in availability of and access to data
from art-research firms, websites dedicated to prices of art, indices of the art market and art
auctions, it is far from adequate.
4. The main trouble with investing in art is that it is almost impossible to identify an intrinsic
value. When evaluating individual purchases, there are few risks that may not arise when
investing in securities.
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Investing In Gold
Gold was in use as a form of money, in one form or another, at least from 100% BC until the
end of the Bretton Woods system in 1971. It was used as a store of value both by individuals
and countries for much of that period. However in recent times it is still considered as a store
of value, a safe haven, anti-inflationary and as insurance in crisis situations
Considering its high density and high value per unit mass, storing and transporting gold is
very easy. Gold also does not corrode. Gold has the potential for appreciation (or
depreciation), but lacks the two other components of total return: interest and compound
interest. Besides physical gold now gold can be purchased through a gold exchange traded
fund or in the form of gold certificate.
As Of 2014
In 2014, the yellow metal lost its sheen for the second year in a row, turning cheaper by over
10 per cent as rising stock prices and a stabilizing economy favored other asset class over the
so called "defensive" asset.
Full year gold demand totaled 3,923.7 tons in 2014 (from 4,087.6t in 2013). The 4% year-on-
year drop was unsurprising as consumer demand was never likely to match the previous
years record surge.
Total annual supply was virtually unmoved at 4,278.2t. Growth in mine supply was balanced
by a decline in recycling volumes to a seven-year low.
2014 was always going to be a difficult year for jewelry demand, contending with
comparisons to phenomenal strength in 2013. After a steep drop in Q2, demand for gold
jewelry gradually recovered, culminating in the strongest Q4 since 2007. Full year statistics
show the sector down by 10% at 2,152.9t, comfortably above the 2,053.0t average from the
prior five-years.
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As Of 2015
Sept 11, 2015 JP Morgan
JP Morgan expects the gold price to average $1,050 in Q4/2015 and $1,040 in 2016.
Though the precious metal initially benefited from geopolitical tensions in the Middle East
and Ukraine, gains in dollar pulled back prices in the second half of the year. Analysts have
mixed outlook for 2015.
They believe a hike in interest rates by Federal Reserve could put the yellow metal under
some pressure, but after that gold may end the year on a firm footing.
Data shows that gold has also failed as a hedge against inflation, as bank FDs have emerged
as a good investment option. Even our Prime Minister Narendra Modi has said that the
challenge for banks is to convince people to channelize savings from gold to fixed deposits
(FDs).
Assuming that there will be no massive disruptions to the global or domestic economy, 2015
can turn out to be a good year if not great for gold prices.
As of 2016
Prices of the metal have risen about 16% in
India so far this year, outpacing the 12% upswing in international prices of the precious
metal. This is double the 8% return a bond fund would deliver over the same period and the
7.5% return from a bank fixed deposit. During this period, the benchmark S&P BSE Sensex
index, tarnished by a global meltdown, has fallen 11%. The higher appreciation in domestic
gold is also a result of a weakening rupee, which has made imports expensive, he added. The
local currency has fallen about 3.3% so far in 2016 against the U.S. dollar.
This year you should invest in gold in order to protect your investments from any systematic
failure in global financial markets, said Kunal Shah, head of commodity research at Nirmal
Bang Commodities.
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Why own Gold?
Real Estate
The most basic definition real estate is "an interest in land". Broadening that definition
somewhat, the word "interest" can mean either an ownership interest leasehold interest. In an
ownership interest, the investor is entitled to the full rights of ownership of the land and must
also assume the risks and responsibilities of a landowner. On the other side of the
relationship, a leasehold interest only exists when a landowner agrees to pass some of his
rights on to a tenant in exchange for a payment of rent. If you rent an apartment, you have a
leasehold interest in real estate. If you own a home, you have an ownership interest in that
home.As a real estate investor, you will most likely be purchasing ownership interests and
then earning a return on that investment by issuing leasehold interests to tenants, who will in
turn pay rent.
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Real estate that generates income or is otherwise intended for investment purposes rather than
as a primary residence. It is common for investors to own multiple pieces of real estate, one
of which serves as a primary residence, while the others are used to generate rental income
And profits through price appreciation. The tax implications for investment real estate are
often different than those for residential real estate.
For the Indian real estate market, 2014 was an action-packed year. The overall economy
represented a tale of two halves. The first half witnessed an uneventful economy coupled
with political ambiguity resulted in poorer business confidence while the second half saw
overall sentiment rehabilitated explicitly with the formation of new stable Government. The
first budget presented by the new Government was having a slew of measures for real estate.
This was the first time in last couple of years when real estate was given so much importance
in Union Budget. Perceptibly, the industry reacted positively and started imagining a
recurrence of 2009 where formation of new Government followed by a turnaround in market.
Taking cues from the overall economic sentiments, the institutional investors both domestic
and overseas exhibit increased appetite and enthusiasm to re-engage with the Indian realty
business and commercial sector shown positive absorption however, the residential sector has
not picked up the way market players expected.
The Indian market is vigilantly enthusiastic with the new government proactive approach and
business confidence has already started picking up. Various agencies such as Moody, IMF,
World Bank predicted handsome GDP at 6.3 to 6.4% and forecasted Indian outlook as
steadily growing at lower risk. Although, it is difficult to forecast the real estate market which
is highly sentiment driven in India. In 2015, overall property markets are expected to
continue edge further into recovery.
One of the beneficial features of real estate is that it produces relatively consistent total
returns that are a hybrid of income and capital growth. In that sense, real estate has a coupon-
paying bond-like component in that it pays a regular, steady income stream, and it has a
stock-like component in that its value has a propensity to fluctuate.
The income return from real estate is directly linked to the rent payments received from
tenants, minus the costs of operating the property and outgoing mortgage/financing
payments.Your ability to keep the building full depends on the strength of the leasing market
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- that is, the supply and demand for space similar to the space you are trying to lease. In
weaker markets with oversupply of vacancies or poor demand, you would have to charge less
rent to keep your building full than in a strong leasing market. And unfortunately, if your
rents are lower, your income returns are lower.
Capital appreciation of a property is determined by having the property appraised.If the
appraiser thinks your property would sell for more than you bought it for, then you've
achieved a positive capital return. Because the appraiser uses past transactions in judging
values, capital returns are directly linked to the performance of the investment sales market
Page | 37
Benefits of Investing in Real Estate
a) Diversification Value
The positive aspects of diversifying your portfolio in terms of asset allocation are well
documented. Real estate returns have relatively low correlations with other asset classes
(traditional investment vehicles such as stocks and bonds), which adds to the diversification
of your portfolio.
b) Yield Enhancement
As part of a portfolio, real estate allows you to achieve higher returns for a given level of
portfolio risk. Similarly, by adding real estate to a portfolio you could maintain your portfolio
returns while decreasing risk.
c) Inflation Hedge
Real estate returns are directly linked to the rents that are received from tenants. Some leases
contain provisions for rent increases to be indexed to inflation. In other cases, rental rates are
increased whenever a lease term expires and the tenant is renewed. Either way, real estate
income tends to increase faster in inflationary environments, allowing an investor to maintain
its real returns.
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RESEARCH METHODOLOGY
Sampling technique initially, a rough draft will be prepared keeping in mind the objective of
the research. The final questionnaire will be arrived at only after certain important changes
are incorporated. Convenience sampling technique will be used for collecting the data from
different investors. The investors are selected by the convenience sampling method. The
selection of units from the population based on their easy availability and accessibility to the
researcher is known as convenience sampling. Convenience sampling is at its best in surveys
dealing with an exploratory purpose for generating ideas and hypothesis.
Sampling unit: The respondents who will be asked to fill out the questionnaires are the
sampling units. These comprise of employees of MNCs, government employees, housewives,
self-employed, professionals and other investors.
Sampling size: The sample size will be restricted to only 100, which comprised of mainly
people from different regions of Mumbai.
Sampling area: The area of the research is Mumbai
Sources of information
Primary Data
Information is collected by conducting a survey by distributing a questionnaire to 100
investors in Mumbai. These 100 investors are of different age group, different occupation,
different income levels, and different qualifications. (A copy of the questionnaire is given in
the last as QUESTIONNAIRE.
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DATA ANALYSIS AND INTERPRETATION
Analysis of the report: An analysis is made on the responses received from 100 sample
investors. The objective of the report is to find out the investors behavior on various
investment avenues, to find out the needs of the current and future investors.
The questionnaire contains various questions on the investors financial experience, based on
these experiences an analysis is made to find out a pattern in their investments.
Based on these investment experiences of the 100 sample investors an analysis is made and
interpretations are drawn. Interpretations are made on a rational basis, these interpretations
may be correct or may not be correct but care is taken to draw a valid and approvable
interpretation.
Analysis is made only from the information collected through questionnaires no other data or
information is taken in to consideration for purpose of the analysis.
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Independent Variables and Dependent Variables
1. Age group 2.Annual income
INVEST AGE GROUP ( IN YEARS)
MENT LESS 25-35 35-45 45-60 GREATER
AVENU THAN 25 THAN 60
ES Resp % Resp % Resp % Resp % Resp %
onde onde onde onde onde
nts nts nts nts nts
Equity 8 32 6 27 5 25 4 22 2 13
Debentur 3 12 2 09 2 10 3 17 5 33
es/ Bonds
Bank 6 24 4 18 4 20 3 17 3 20
Deposits
Insurance 5 20 5 23 3 15 4 22 2 13
Mutual 3 12 3 14 3 15 2 11 1 7
Fund
Gold & 0 0 2 09 3 15 2 11 2 13
Real
Estate
Total 25 100 22 100 20 100 18 100 15 100
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35
30
25 Equity
Debentures/ bonds
20
Bank Deposits
15 Insurance
Mutual Fund
10
Gold & Real Estate
5
0
Less than 25 25-35 35-45 45-60 Above 60
Interpretation
From above table we can conclude that, all the age groups are giving more
preference on investing in equity, except those who are more than sixty years.
The age group, which is more than sixty years, gives more preference to
Debentures/ Bonds and Bank Deposits.
We conclude that as the age of individual increases, the risk tolerance decreases.
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INVESTM ANNUAL INCOME (IN LAKHS)
ENT LESS THAN 200001-500000 500001-800000 GREATER
AVENUE 200000 THAN 800000
S Respon % Respon % Respon % Respon %
dents dents dents dents
Equity 5 16 6 21 7 29 5 31
Debentures 3 9 3 11 2 8 1 6
/ Bonds
Bank 12 37 8 29 4 17 2 13
Deposits
Insurance 6 19 5 18 5 21 4 25
Mutual 5 16 4 14 4 17 3 19
Fund
Gold & 1 3 2 7 2 8 1 6
Real Estate
Total 32 100 28 100 24 100 16 100
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40
35
30 Equity
25 Debentures/ Bonds
20 Bank Deposits
15 Insurance
10 Mutual Fund
0
Less than 200000 200001-500000 500001-800000 Above 800001
Interpretation
The above table reveals that higher income group gives more preference to
investment in equity whereas lower income group gives more preference to
investment in bank deposit. It implies that the higher income levels can take
more risk in investment rather than lower income levels because the saving ratio
of the higher income individuals is very high so that they can afford to take
higher risk by investing in equity and vice versa.
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CONCLUSION
As we now know various investment options are available in India i.e. small savings
schemes, insurance, mutual funds, equity, real estate, precious metals etc., but its selection
depends upon various factors.
The analysis and interpretations very clearly shows that the investors have different views
like investment pattern by market movement, factors influencing their decision, frequency of
investment, alternatives available and investment preferences truly influence their perception
towards different products and services of the company.
Thus, the study says that the Indian investment community has shown much interest in
investing in different financial products available in the market, better performance by the
companies, liberal rules and regulations by the authority like SEBI to protect the investors
interest and this process will grow much more quicker in the future. There might be a chance
that the perceptions of the investors of different nature are varied due to diversity in social
life, living pattern, income level etc. that needs to be studied further
The facts with regard to the several factors such as relationship between age and risk
tolerance level of individual investors etc. It has important implications for investment
managers as it came out with certain interesting facets of an individual investor. The
individual investor still prefers to invest in financial products which give risk free returns.
Hence it concludes that Indian investors even if they are of high income, well educated,
salaried, independent are conservative investors & prefer to play safe.
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QUESTIONNAIRE
1. Name:-
2. Age:-
3. Occupation:-
o Self Employed
o Employed
o Other
4. Gender:-
o Male
o Female
5. Marital status:-
7. Education qualification:-
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o 21-30%
o More than 30%
9. on whom do you get your investment advice?
o Self-Analysis
o Financial/ Broker/ CA Advice
o Family/ Friends/ Relatives
10.When it comes to understanding your investment, how would you rate your
knowledge?
o Very limited
o Basic knowledge
o Considerable knowledge
o Extensive knowledge
Page | 47
BIBLIOGRAPHY
www.investopedia.com
www.moneycontrol.com
www.irdaindia.org
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low-or-zero-debt-are-good/story/187467.html
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in-2015-16571.html
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physical-gold-etf-in-2015/story/217703.html
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http://www.caclubindia.com/articles/derivatives-basics-types-and-uses-270.asp
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