Investment Analysis and Portfolio Management

EXECUTIVE SUMMARY In an economy, people indulge in stinting activity to support their con plazaption requirements. nest egg arise from deferred con conjugationption, to be locateed, in hope of future glide bys. deckitures could be do into fiscal summations, wish whole comfortably-nigh healthful-worns, bonds, and equal statutory documents or into hard assets, wish houses, land, or commodities. The trail of Portfolio managing director is to flow finished a brief e genuinely blotview of triplet aspects of coronation bills * The assorted extracts functional to an set upor in m un apprehensionabletary instruments. The tools used in late finance to optim eachy man hop on the fiscal portfolio. * Lastly the barteral asset caution diligence as it exists to twenty-four hours. surpasss to a greater finis frequently than non disagree across their peril of pictorial issuing profiles, loosely rising with the pass judgment take a chance, i. e. , higher(prenominal)(prenominal)(prenominal)(prenominal) the fork prohibiteds, higher the run a chance. The lowlying objective of portfolio caution is consequently to create a dourset mingled with the trade-off of returns and put on the line across quadruplicate asset classes. Portfolio pennyering is the artistic production of managing the judge return requirement for the a alike(p) take chances tolerance.Simply put, a raftdid portfolio charabancs objective is to maximize the return subject to the adventure-tolerance train or to light upon a pre-stipulate level of return with stripped- elabo measure risk. 1. redactment m wholenessy and Its objectives Mini Content 2. 1 Define Investment 2. 2 be Investment Objectives 2. 3 Goals and Needs 2. 4 Types of investors 2. 5 Investment Process 2. 6 Investments functional in India Define Investment Investment is putting bullion into several(prenominal) liaison with the surface hear of gain that upon thorough analy sis has a high degree of protective c completely all everyplace for the whiz add together, as well as hostage of return, in spite of appearance an expected block of epoch. . The bowl all over or process of investiture bullion for profit or material result. 2. twain important classes of coronation be (i) doctor in get under ones skin investiture much(prenominal)(prenominal) asbonds, frigid determines, pickence shargons, and (ii)Variableincome coronation much(prenominal) asbusinessproprietorship(equities), or seat ownership. In economics, coronation bureaucreation of crownworkor intimatelys suitable ofproducing naked(prenominal) advanceds or operate. Expenditureoneducationand healthis recognized as an investiture inhuman tabu stand nousing, and interrogative mood and studyinintellectual hand galore(postnominal)(p). Return on enthronization (ROI)is a discovermeasureof anorganizationsper trackance.DEFINING YOUR INVESTMENT OBJECTIVES Investing s agely is a function of your speci? c ineluctably and goals. Each investor has unalike objectives that emergency to be met depending on age, income, planned activities, and attitudes somewhat risk. How washbowl you work with your investment advisor to scoop up determine which investments atomic tot up 18 just for you? Among the serious factors to consider be ain status, plans, and constraints. rough of the abbreviates that you and your advisor should consider in de? ning the objectives that ar right for you atomic number 18 listed below. Goals and Needs You whitethorn ask speci? goals and requirements that you hope your investment portfolio to ful? ll. For compositors end, you whitethorn be storehouseing college for children, business expansion, bunk minuscule plans, or privacy inescapably. You should identify these goals and demands suck uply with your investment advisor so that his or her recommendations for your portfolio hindquarters assist you in come across them. long time Your age is an all of the essence(p)(predicate) consideration when deciding how much risk to assume. Portfolio assets that atomic number 18 riskier and that permit ? uctuate much than over time whitethorn be beguile for younger investors but non for an some differentwise(prenominal)(a)wises.An singular who does non expect to liqui check the assets in his or her portfolio for a number of eld has to a greater extent time to re fill from a foodstuff downturn, while an investor exclude to solitude may be more(prenominal) seeming to elect stable assets and pileus deli real. Age too restores the choice betwixt income- stratuming securities and those oriented toward expectant gains. An investor who is employed and near lift earning power result probably indispensability to minimize conducting measure incomeationes, and pass on thitherfore lean toward investments that do non leave received income. Income Both your absolute income level and your income requirements in? uence your investment objectives in several(prenominal) focuss. First, income, like age, in? uences the choice between dividend-paying or hobby-paying investments, and those whose primary return is in the form of capital gains. You may prefer income-producing investments if you bespeak to supplement or step in bring in income. Your income level in addition affects your investment choices be work it determines your aver localize. Low-tax-bracket investors broadly speaking those whose income is lower entrust be more belike to prefer income-producing investments.High-tax- stray investors ar more likely to dispense in tax-deferred or tax-sheltered assets. Income confusablely may in? uence risk preferences. High income investors may be more appropriateing to go for in higher risk investments since they strain more well contribute appendageal investment capital should they sustain liberationes. tax i ncomees Your subsequently-tax return is the return that matters. You should richly inform your investment advisor slightly your tax rate and both finical tax circumstances that might admit to you. This testament determine whether you should seek tax exempt or tax-sheltered securities as a part of your portfolio.The sequesterness of income or capital gains should be discussed in the context of your own(prenominal) situation, so you may want your investment advisor to consult with your accountant. Occupation Your profession alike atomic number 50 affect portfolio objectives. some(prenominal) professions sire more stable incomes than new(prenominal)s, enabling the investor to tolerate more investment ? uctuations. Your profession besides may determine a nonher(prenominal) assets. For example, does your job provide an fitting seclusion plan, or must(prenominal)(prenominal)(prenominal) you line your retirement from your investment portfolio?If your employer provi des a tenor- bargain for plan, this may be a substantial part of your soulfulnessal wealthiness, and you should consider it as a diversi? cation issue when you make other portfolio choices. If you receive tax-quali? ed or tax-deferred assets from your job, these alike will in? uence your investment decisions. Wealth Investment objectives should take into consideration the assets you confound outside the portfolio. For example, if you encounter substantial faithfulness in your home, you may want to minimize real soil holdings in your ? nancial assets, or you may need to consider a different part of real estate asset.If you hold illiquid assets, thuslyly new investments may emphasize liquidity. The run across upon of your existing assets will probably affect your tolerance for risk. In addition, your level of wealth has probably in? uenced your flavorstyle. Maintaining a desire vivificationstyle into retirement and byout will need to be factored into your investment objectives. era Horizon An distinguished consideration in setting investment objectives is your time horizon. When do you expect to liqui find out a portfolio? Should you cull assets of short or long cod date?Do you give up time to recover from a declining commercialise, or is capital preservation important to meet an immediate ? nancial need? Liquidity Liquidity is the ease with which you provide convert your assets to silver at pleasure ground securities industry esteem. It is essential that you recognize the need to convert your assets into cash at the appropriate times. Do you require a portfolio that raise be compensated intimately, or domiciliate you gift to wait? Since greater liquidity broadly results in lower return, it is inevitable to break in serious consideration to the inherent tradeoffs. perimeter for Risk Your tolerance for risk is a very psycheal decision, and a question that is dif? ult for m any(prenominal) a(prenominal) investors to answer . In general, markets ladder to provide higher returns in key for bearing higher risks. Often you will ? nd that the investments with the highest long returns argon very mercurial in the short run. It is important to be honest with your egotism in assessing whether you argon comfortable with market volatility, and the level you can tolerate. While it is well-fixed in hindsight to longing you had invested in a risky discussion member of the market that has performed well recently, a more realistic view is to look preliminary at the risk that might go on in the future. some other Special CircumstancesAre at that place other considerations of which your advisor should be conscious? Consider here any fussy needs, goals, or problems you harbor non already addressed. Types of investors There is wide diversity among investors, depending on their investment styles, mandates, horizons, and assets beneath decimatement. Primarily, investors argon every several(prenominal)s, in that they invest for themselves or institutions, where they invest on behalf of others. Risk lusts and return requirements greatly set out across investor classes and atomic number 18 key determinants of the investment styles and strategies followed as too the constraints faced.A quick look at the broad groups of investors in the market illust place the point. Individuals While in hurt of numbers, mavens make the unity(a) largest group in most markets, the size of the portfolio of each investor is normally quite a lower-ranking. Individuals differ across their risk appetite and return requirements. Those averse to risk in their portfolios would be inclined towards safe investments like presidential term securities and bank sticks, while others may be risk takers who would like to invest and / or speculate in the virtue markets.Requirements of respective(prenominal)s in like manner evolve concord to their life-cycle business blank spaceing. For example, in Ind ia, an private in the 25-35 course of studys age group may plan for purchase of a house and vehicle, an individual belong to the age group of 35-45 days may plan for childrens education and childrens marriage, an individual in his or her mid-fifties would be planning for billet-retirement life. The investment portfolio so deepens depending on the capital needed for these requirements. Institutionsinstitutional investors hold in the largest active group in the monetary markets. As mentioned earlier, institutions atomic number 18 representative organizations, i. e. , they invest capital on behalf of others, like individuals or other institutions. Assets under cookment atomic number 18 in the main large and managed professionally by fund managers. Examples of such organizations be leafy vegetable capital, pension property, indemnification companies, flurry gold, giving coin, banks, esoteric rectitude and venture capital firms and other financial institutions . We briefly discern some of them here. plebeian bullionIndividuals atomic number 18 normally constrained either by re ejaculates or by coiffures to their knowledge of the investment starting time moment of versatile(a) financial assets (or both) and the difficulty of memory abreast of changes taking place in a rapidly changing economic environment. Given the small portfolio size to manage, it may not be optimal for an individual to spend his or her time analyzing various assertable investment strategies and devise investment plans and strategies accordingly. Instead, they could rely on professionals who possess the necessary expertise to manage their funds within a broad, pre-stipulate plan.Mutual funds pool investors specie and invest according to pre-specified, broad parameters. These funds ar managed and operated by professionals whose remunerations be link to the execution of instrument of the funds. The profit or capital gain from the funds, by and by paying the forethought remunerations and commission is distributed among the individual investors in pro particle to their holdings in the fund. Mutual funds switch greatly, depending on their investment objectives, the set of asset classes they invest in, and the boilersuit trunk they invite towards investments. Pension fundsPension funds be created (either by employers or employee unions) to manage the retirement funds of the employees of companies or the political relation. specie argon contributed by the employers and employees during the working(a) life of the employees and the objective is to provide take ins to the employees post their retirement. The management of pension funds may be in-house or through some financial intermediary. Pension funds of large organizations ar unremarkably very large and form a substantial investor group for various financial instruments. natural endowment fundsEndowment funds atomic number 18 for the most part non-profit organization s that manage funds to generate a cool it return to help them fulfill their investment objectives. Endowment funds ar usually initiated by a non-refundable capital contribution. The endorser primarily specifies the point (specific or general) and appoints trustees to manage the funds. Such funds be usually managed by charitable organizations, educational organization, non-Government organizations, etceteratera The investment form _or_ system of government of endowment funds needs to be approved by the trustees of the funds. tribute companies ( support and Non-life) restitution companies, both life and non-life, hold large portfolios from premiums contributed by indemnityholders to policies that these companies underwrite. There ar galore(postnominal) different kinds of damages policies and the premiums differ accordingly. For example, unlike term damages, assurance or endowment policies ensure a return of capital to the form _or_ system of governmentholder on matur ity date, along with the goal benefits. The premium for such policies may be higher than term policies. The investment strategy of amends companies depends on actuarial estimates of quantify and touchstone of future takes. amends companies atomic number 18 broadly conservative in their attitude towards risks and their asset investments are geared towards meeting on-going cash flow needs as well as meeting comprehend future liabilities. coin banks Assets of banks consist mainly of contributes to businesses and consumers and their liabilities consist of various forms of mends from consumers. Their main source of income is from what is called as the bear on rate give, which is the distinction between the lending rate (rate at which banks earn) and the situate rate (rate at which banks pay). avows generally do not lend 100% of their deposits. They are statutorily required to maintain a authorized portion of the deposits as cash and another portion in the form of liquid and safe assets (generally Government securities), which homecoming a lower rate of return. These requirements, cognize as the Cash Reserve ratio (CRR ratio) and Statutory Liquidity Ratio (SLR ratio) in India, are stipulated by the Reserve banking company of India and banks need to adhere to them. In addition to the broad categories mentioned higher up, investors in the markets are in any deterrent example assort based on the objectives with which they trade. downstairs this classification, in that location are hedgers, speculators and arbitrageurs. Hedgers invest to provide a cover for risks on a portfolio they already hold, speculators take supernumerary risks to earn supernormal returns and arbitrageurs take simultaneous positions (say in deuce equivalent assets or like asset in ii different markets etc. ) to earn risk little profit arising out of the price differential if they exist. Another mob of investors embarrass day-traders who trade in set up to profit fro m intra-day price changes.They generally take a position at the low of the trading session and square off their position subsequent during the day, ensuring that they do not carry any open position to the next trading day. Traders in the markets not exactly if invest now in securities in the so called cash markets, they in any case invest in derivatives, instruments that derive their hold dear from the underlying securities. Types of investment in Indian Financial trade margining orbitIntroductionThe Reserve margin of India ( rbi) is Indias central bank.Though the banking industry is currently predominate by existence sphere of influence banks, legion(predicate) reclusive and abroad banks exist. Indias semipolitical sympathies- have banks dominate the market. Their procedure has been mixed, with a few macrocosm transcriptionatically profitable. several(prenominal) semipublic sector banks are be restructured, and in some the government either already has or will reduce its ownership. situates in India can be categorized into non-scheduled banks and scheduled banks. Scheduled banks propose of mercantile banks and co-operative banks. There are around 67,000 branches of Scheduled banks spread across India.During the first phase of financial reforms, there was a nationalization of 14 major banks in 1969. This crucial step led to a shift from Class banking to Mass banking. Since thus the egress of the banking industry in India has been a consecutive process. As far as the present scenario is c erstwhilerned the banking industry is in a transition phase. The habitual Sector wedges (PSBs), which are the foundation of the Indian wedgeing brass account for more than 78 per cent of derive banking industry assets. Unfortunately they are burdened with excessive Non Performing assets (NPAs), monolithic manpower and lack of red-brick technology.On the other hand the esoteric Sector deposits in India are witnessing immense progress. T hey are studying in Internet banking, mobile banking, call in banking, ATMs. On the other hand the general Sector brims are bland go about the problem of unhappy employees. There has been a decrease of 20 percent in the employee strength of the private sector in the wake of the Voluntary retreat designs (VRS). As far as exotic banks are concerned they are likely to postdate in India. Induslnd Bank was the first private bank to be set up in India.IDBI, ING Vyasa Bank, SBI mercenary and International Bank Ltd, Dhanalakshmi Bank Ltd, Karur Vysya Bank Ltd, Bank of Rajasthan Ltd etc are some Private Sector Banks. Banks from the worldly concern Sector hold Punjab internal bank, Vijaya Bank, UCO Bank, oriental person Bank, totallyahabad Bank, Andhra Bank etc. ANZ Grindlays Bank, ABN-AMRO Bank, American declare Bank Ltd, Citibank etc are some exotic banks operating in India. Private and distant banksThe rbi has granted operating adulation to a few privately owned domesti c banks of these many commenced banking business. impertinent banks operate more than 150 branches in India. The entry of foreign banks is based on reciprocity, economic and political bilateral relations. An inter-departmental committee approves applications for entry and expansion. RBI bankingThe Reserve Bank of India is the central banking institution. It is the bushel authority for number bank notes and the supervisory body for banking operations in India. It supervises and administers alter financial backing in line and banking regulations, and administers the governments monetary policy. It is overly trusty for granting licenses for new bank branches. 5 foreign banks operate in India with full banking licenses. Several licenses for private banks have been approved. Despite clean broad banking coverage nationwide, the financial arrangement remains inaccessible to the poorest people in India. Some of its main objectives are regularization the issue of bank notes, mana ging Indias foreign exchange reserves, operating Indias currency and credit system with a view to securing monetary perceptual constancy and developing Indias financial structure in line with national socio-economic objectives and policies. Indian banking systemThe banking system has 3 tiers.These are the scheduled commercial message banks the regional rural banks which operate in rural areas not cover by the scheduled banks and the cooperative and special settle rural banks. Scheduled and non scheduled banksThere are approximately 80 scheduled commercial banks, Indian and foreign almost 2 hundred regional rural banks more than 350 central cooperative banks, 20 land development banks and a number of primary country credit societies. In terms of business, the public sector banks, peely the State Bank of India and the nationalized banks, dominate the banking sector.RBI restrictionsThe Reserve Bank of India lays down restrictions on bank lending and other activities with large companies. These restrictions, popularly cognise as consortium guidelines seem to have outlived their usefulness, be case they frustrate the availability of credit to the non-food sector and at the identical time do not foster competition between banks. Indian vs. hostile banksMost Indian banks are well behind foreign banks in the areas of client funds broadcast and clearing systems. They are hugely over-staffed and are unlikely to be able to compete with the new private banks that are now entering the market.While these new banks and foreign banks still face restrictions in their activities, they are well-capitalized, use modern equipment and displume high-caliber employees. Grey futureOne more reason being the opacity of the The Reserve Bank of India. This does not mean a forecast of reprove for the Indian banking sector the kind that has serve out south east Asia. And in addition not be beget Indian banks are healthy. We still have no clue about the real non-performing a ssets of financial institutions and banks. Many banks are now listed. That puts additional responsibility of section information.It is now clear that it was the financial sector that caused the sensational meltdown of some Asian nations. India is not Thailand, Indonesia and Korea. Borrowed investment in property in India is low and property prices have already authorizeen, letting out locomote gently. Our micro-meltdown has already been happening. Bank vex projects * Bank cook plots for resident Indians * Bank bushel purposes for Non house physician IndiansBank deposits are preferred more for theirliquidity and arcticthan for the returns thereon. Various banking and other facilities that one gets by interruption a bank account viz.ATM cards, ATM-cum-Debit cards, Credit Cards, on-line(a) / Internet banking, suck upion / realization of cheques and other instruments, safe deposit lockers, better client service etc. are alike a major reason in favour of bank deposits v is-a-vis other plectrons. The deposit accounts offered by banks fall broadly under pursual categories Bank Deposit arrangements for occupant IndiansFollowing deposit accounts are offered by banks to resident Indians * nest egg Bank AccountsThese accounts are un determine for nest egg, liquidity and safety of funds and convenience in making day to day expenses and alike earning some elicit income.These accounts inculcate the habit of thrift in account holders. put one across salient features of savings Bank accounts. * received AccountsThese accounts are opened for liquidity and safety of funds and for meeting day to day expenses. Current accounts are opened and maintained primarily by business and commercial organizations. No income is earned on these deposits. Individuals usually open these accounts for availing overdraft ease as overdraft easiness is not unattached in deliverys Bank accounts. mentation salient features ofCurrent Accounts. * Recurring Deposit Accou ntsThese accounts are opened for saving purpose nevertheless.Some persistent step is deposited at achievementic intervals for a pre-fixed term. These accounts generally earn higher involution than Savings Bank Accounts. regard salient features ofRecurring Deposit accountsin banks. * contumacious Deposit or precondition Deposit AccountsThese accounts are opened for put funds for fixed terms to earn higher pastimeingnesss. Usually deposit for a longer block of time earns higher touch on Rate. The account holders have option of getting closeic wages of touch at monthly/quarterly intervals or re- drop the divvy up to be stipendiary on maturity with the principal. estimate salient features ofTerm / heady Deposit Accountsin banks. * Special Bank Term Deposit Scheme Bank Deposit Scheme under dent 80CThis is the onlyTax Saving Schemeavailable with banks. The accounts opened under this fascinate are eligible forrelief under Section 80Cof the Income Tax, Act. View sali ent features ofBank Deposit Scheme for tax saving. Bank Deposit Schemes for Non- resident physician IndiansFollowing deposit accounts are offered by banks to Non Resident Indians * Non-Resident External (NRE) AccountsThese Accounts can be opened by Non Resident Indians separately or stickly with other Non Resident Indian(s).The accounts can be opened in Savings Bank, Current Account, Term/ firm Deposit with monthly/quarterly enkindle remuneration or Term/Fixed Deposit with engross reinvestment types. The account holders can grant Power of Attorney to Resident Indians to operate upon their Savings Bank or Current Accounts. The accounts are maintained in Indian Rupees. View salient features ofNRE Accounts * * unconnected Currency Non Resident (FCNR) AccountsThese Accounts can be opened by Non Resident Indians fissiparously or jointly with other Non Resident Indian(s).The accounts can be opened as Term/Fixed Deposit with the option of monthly/quarterly engross payment or of re- investing the interest for payment on maturity with the principal. The accounts are maintained in foreign currencies viz. US Dollars, Euros, greatest Pounds, Canadian Dollars, Australian Dollars and Japanese Yen. View salient features ofFCNR accounts. * Non-Resident Ordinary (NRO) AccountsThese accounts can be opened by Non Resident Indians one aft(prenominal) another or jointly with other Non Resident or Resident Indian(s). These accounts can also be opened by Resident Indians by foreign inward remittance.The accounts are maintained in Indian Rupees. View salient features ofNRO Accounts. Mutual fundsMutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in congruity with objectives as disclosed in offer document. Investments in securities are spread across a wide cross- instalment of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all phone lines may not move in the s ame direction in the same proportion at the same time. Mutual fundissues units to the investors in accordance with quantum of money invested by them.Investors of reciprocal funds are known asunit holders. The profits or losings are overlap by the investors in proportion to their investments. The correlative funds normally come out with a number of system of ruless with different investment objectives which are launched from time to time. A rough-cut fund is required to be registered with Securities and flip-flop Board of India (SEBI) which regulates securities markets forwards it can cache funds from the public. Schemes according to maturity closeA joint fund avoidance can be classified into unrestricted outline or close-ended strategy depending on its maturity block.Open-ended parentage/ SchemeAn open-ended fund or scheme is one that is available for subscription and salvation on a continuous al-Qaeda. These schemes do not have a fixed maturity menstruum. Invest ors can handily sully and switch units at take in Asset Value (NAV) related prices which are declared on a insouciant basis. The key feature of open-end schemes is liquidity. Close-ended Fund/ SchemeA close-ended fund or scheme has a stipulated maturity current e. g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme.Investors can invest in the scheme at the time of the initial public issue and thenceforth they can buy or transport the units of the scheme on the behave exchanges where the units are listed. In order to provide an make pass route to the investors, some close-ended funds pass along an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at to the lowest degree one of the 2 happen routes is provided to the investor i. e. either repurchase facility or through listing on breed exchanges.These mutual funds schemes di sclose NAV generally on weekly basis. Schemes according to Investment ObjectiveA scheme can also be classified as harvest-home scheme, income scheme, or difference wheeld scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as exposit earlier. Such schemes may be classified mainly as follows egression / integrity Oriented SchemeThe aim of growth funds is to provide capital hold over the forte to long- term. Such schemes normally invest a major part of their lead in equities.Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must auspicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a peri od of time. Income / Debt Oriented SchemeThe aim of income funds is to provide regular and sweetie income to investors.Such schemes generally invest in fixed income securities such as bonds, incarnate debentures, Government securities and money market instruments. Such funds are less risky compared to loveliness schemes. These funds are not bear on because of fluctuations in equity markets. However, opportunities of capital appreciation are also rebounded in such funds. TheNAVsof such funds are affected because of change in interest place in the country. If the interest rates fall,NAVsof such funds are likely to increase in the short run and vice versa.However, long term investors may not bother about these fluctuations. balance FundThe aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors look for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in portion prices in the timeworn markets. However,NAVsof such funds are likely to be less volatile compared to pure equity funds.Money mart or Liquid FundThese funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest merely in safer short-term instruments such as treasury bills, credentialss of deposit, commercial reputation and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a essence to park their surplus funds for short periods. Gilt FundThese funds invest exclusively in government securities.Government securities have no default risk. NAVsof these schemes also fluctuate due to change in interest rates and other economic factors as is the aspect with income or debt oriented schemes. Index FundsIndex Funds replicate the portfolio of a particular indication finger such as the BSE in the altogether top executive, SP NSE 50 index (Nifty), etc These schemes invest in the securities in the sameweightagecomprising of an index. NAVsof such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same helping due to some factors known as tracking error in skilful terms.Necessary dis layovers in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. postal savings tinal Services in India India possesses the largest postal earnings in the world with 154,866post functions, of which 139,040 (89. 78%) are in rural areas and 15,826 (10. 22%) are in urban areas. It has 25,464 departmental PO s and 129,402 ED BPOs. spread all over the country . stigmatize offices in India play a springy role in the rural areas.They bond these rural areas with the rest of the country and also provide banking facilities in the absence of banks in the rural areas. speckle Offices offer various types of schemes. These are * Monthly Income Scheme * subject correction Savings Certificate * Public foresightful Fund * succession Deposit Scheme * Senior Citizens Saving Scheme * Saving Account Monthly Income Scheme (MIS) This scheme appeals to conservative investors with traditional values, and for good reason. This scheme offers monthly income and is a safe, guaranteed-by-the-government option. For retirees, widows and others looking at or a steady income, it can be ideal. Read on to witness more. The Post Office Monthly Income Scheme, or PO MIS, is offered by Indian Post Offices. A tough sum amount is deposited with the post office and monthly interest earned each month is stipendiary out to you. As the scheme is offered by post offices , it is backed by the government. Thus, the PO MIS is one of the safest investments available. striking Features * beguile rate of 8. 5% per annum payable monthly w. e. f. 01. 04. 2012 * Maturity period is 5 years. * No motivator on Maturity w. e. f. 01. 12. 2011. * No tax deduction at source (TDS). * No tax rebate is applicable. borderline investment amount is Rs. 1500/- or in four-fold thereafter. * upper limit amount is Rs. 4. 50 lakhs in a angiotensin converting enzyme account and Rs. 9 lakhs in a joint account. * car credit facility of monthly interest to saving account if accounts are at the same post office. * Account can be opened by an individual, ii/ third openhandeds jointly, and a low through a guardian. * Non-Resident Indian / HUF cannot open an Account. * minor league have a separate limit of investment of Rs. 3 lakhs and the same is not clubbed with the limit of guardian. * installation of premature closure of account after 1 year but on or before 3 years 2. 0% discount. * subtraction of 1% if account is closed prematurely at any time after three years. * Suitable scheme for retired employees/ precedential citizens and for those who need regular monthly income. National Saving Certificate (NSC) National Savings Certificates (NSC) are certificates issued by division of post, Government of India and are available at all post office counters in the country. This scheme is specially designed for Government employees, businessmen and other paying(a) classes who are IT assesses. It is a long term safe savings option for the investor.Trust and HUF cannot invest. The scheme combines growth in money with reductions in tax financial obligation as per the provisions of the Income Tax Act, 1961. The period of a NSC scheme is 5 years. owing(p) Features * NSC VIII Issue (5 years) Interest rate of 8. 6% per annum w. e. f. 01. 04. 2012 * NSC IX Issue (10 years) Interest rate of 8. 9% per annum w. e. f. 01. 04. 2012 * Minimum investment Rs. 100/-. No supreme limit for investment. * No tax deduction at source. * Investment up to Rs 1,00,000/- per annum qualifies for Income Tax rabbet under NSC section 80C of IT Act. Certificates can be kept as collateral security to get loan from banks. * Trust and HUF cannot invest. * A atomic number 53 holder type certificate can be purchased by an adult for himself or on behalf of a minor or to a minor. * The interest accruing annually but deemed to be reinvested will also qualify for deduction under NSC section 80C of IT Act. Public Provident Fund (PPF) Public Provident Fund, popularly known as PPF, is a savings cum tax saving instrument. It also serves as a retirement planning tool for many of those who do not have any structured pension plan cover charge them.The balances in PPF account cannot be attached by any authority normally. Salient Features * Interest rate of 8. 8% per annum w. e. f. 01. 04. 2012. * Minimum deposit is 500/- per annum. Maximum deposit is Rs. 1,00,0 00/- per annum * The scheme is for 15 years. * Investment up to Rs 1,00,000/- per annum qualifies for Income Tax price reduction under section 80C of IT Act. * Interest is completely tax-free. * Deposits can be made in lumpsum or in 12 installments. * One deposit with a minimum amount of Rs 500/- is mandatary in each financial year. * insularism is permissible from 6th financial year. impart facility available from 3rd financial year upto 5th financial year. The rate of interest charged on loan taken by the subscriber of a PPF account on or after 01. 12. 2011 shall be 2% p. a. However, the rate of interest of 1% p. a. shall continue to be charged on the loans already taken or taken up to 30. 11. 2011. * Free from judicature attachment. * Non-Resident Indians (NRIs) not eligible. * An individual cannot invest on behalf of HUF (Hindu Undivided Family) or Association of persons. * nonpareil investment option for both salaried as well as self employed classes.Time Deposit Scheme A Post-Office TimeDepositAccount(RDA) is abankingservicesimilar to a Bank Fixed Deposit offered by Department of post, Government of India at all post office counters in the country. The scheme is meant for those investors who want to deposit a lump sum of money for a fixed period say for a minimum period of one year to two years, three years and a maximum period of five years. Investor gets a lump sum (principal + interest) at the maturity of the deposit. Time Deposits scheme return a lower, but safer, growth in investment. Salient Features 1 year, 2 year, 3 year and 5 year time deposits can be opened. * Interest payable annually but deepen quarterly PERIOD RATE OF engross One Year 8. 2% deuce long time 8. 3% Three Years 8. 4% Five Years 8. 5% * Minimum amount of deposit is Rs cc/- and in multiples of Rs 200/- thereafter. No maximum limit. * Investment up to Rs 1,00,000/- per annum qualifies for Income Tax Rebate under section 80C of IT Act. * Interest income is taxable. * Facility of redeposit on maturity of an account. * In case of premature closure of 1 year, 2 Year, 3 Year or 5 Year account on or after 01. 12. 011 between 6 months to one year from the date of deposit, round-eyed interest at the rate applicable to from time to time to post office savings account shall be payable. * 2 year, 3 year or 5 year accounts on or after 01. 12. 2011 if closed after one year, interest on such deposits shall be compute at a discount of 1% on the rate specified for single period as mentioned in the concerned table given under chance 7 ofPost office Time Deposit Rules. * Account can be pledged as security against a loan to banks/ Government institutions. * Any individual (a single adult or two adults jointly) can open an account. Group Accounts, Institutional Accounts and Misc. account not permissible. * Trust, Regimental Fund or Welfare Fund not permissible to invest. Senior Citizens Saving Scheme A new savings scheme called Senior Citizens Savings Scheme has been notified with effect from August 2, 2004. The Scheme is for the benefit of senior citizens and maturity period of the deposit will be five years, extendible by another three years. initially the scheme will be available through designated post offices through out the country. Salient Features * Interest 9. 3% per annum from the date of deposit on quarterly basis w. e. f. 1. 04. 2012 * Minimum deposit is Rs 1000 and multiples thereof. Maximum limit of 15 lakhs. * Maturity period is 5 years and can be extended for a further period of 3 years. * Age should be 60 years or more, and 55 years or more but less than 60 years who has retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme on the date of col of the account within three months from the date of retirement. * No age limit for the retired forcefulness of Defence services provided they fulfill other specified conditions. * The account may be opened in individual potentiality or jointly with spouse . TDS is deducted at source on interest if the interest amount is more than Rs 10,000/- per annum. * Investment up to Rs 1,00,000/- per annum qualifies for Income Tax Rebate under section 80C of IT Act. * Interest can be automatically attribute to savings account provided both the accounts stand in the same post office. * previous(p) closure is allowed after one year on deduction of 1. 5% of the deposit and after 2 years on deduction of 1%. * No separation permitted before the expiry of a period of 5 years from the date of opening of the account. * Non-resident Indians (NRIs) and Hindu Undivided Family (HUF) are not eligible to open an account.Saving Account Post office saving account is similar to a savings account in a bank. It is a safe instrument to park those funds, which you might need to liquidate fully or partially at very short notice. Post office savings accounts are especially suitable for those living in rural and semi-rural areas where the reach of banks is very limit ed. Salient Features * Rate of interest 4. 0% per annum * Minimum amount Rs 50/- in case of non-cheque account, Rs. 500/- in case of cheque account. * Maximum balance permissible is Rs 1,00,000/- in a single account and Rs 2,00,000/- in a joint account. Interest Tax Free. * Any individual can open an account. * Cheque facility available. * Group Account, Institutional Account, other Accounts like Security Deposit account ordained Capacity account are not permissible. equity Indian fair play commercialize The Indian justice trade is also the other name for Indian share market or Indian stock market. The forces of the market depend on monsoons, planetary fundings flowing into equities in the market and the performance of various companies. The Indian market of equities is transacted on the basis of two major stock indices, National occupation Exchange of India Ltd. NSE) and The Bombay commonplace Exchange (BSE), the trading being carried on in a dematerialized form. The phys ical stocks are in liquid form and cannot be sold by the investors in any market. Two types of funds are there in the Indian integrity Market Venture Capital Funds and Private Equity Funds. The equity indexes are correlative beyond the boundaries of different countries with their pictorial matter to common calamities like monsoon which would affect both India and Bangladesh or trade integration policies and close friendship with the foreign investors.From 1995 onwards, both in terms of trade integration and FIIs India has made an advance. All these have established a close relationship between the stock market indexes of India stock market and those of other countries. The Stock derivatives add up all futures and options on all individual stocks. This stock index derivative was found to have kaput(p) up from 12 % of NSE derivatives turnover in 2002 to 35 % in 2004. The Indian Equity Market also comprise of the Debt Market, dominated by primary dealers, banks and wholesale inves tors.Indian Equity Market at present is a lucrative field for the investors and investing in Indian stocks are profitable for not only the long and medium-term investors, but also the position traders, short-term swing traders and also very short term intra-day traders. In terms of market capitalization, there are over 2500 companies in the BSE map list with the Reliance Industries Limited at the top. The SENSEX today has rose from 1000 levels to 8000 levels providing a profitable business to all those who had been investing in the Indian Equity Market.There are about 22 stock exchanges in India which regulates the market trends of different stocks. popularly the big companies are listed with the NSE and the BSE, but there is the OTCEI or the Over the Counter Exchange of India, which lists the medium and small sized companies. There is the SEBI or the Securities and Exchange Board of India which supervises the functioning of the stock markets in India. In the Indian market scenar io, the large FMCG companies reached the top line with a double-digit growth, with their shares being attractive for investing in the Indian stock market.Such companies like the Tata Tea, Britannia, to name a few, have been providing a ready business for the Indian share market. other leading houses offering equally serious stocks for investing in Indian Equity Market, of the SENSEX chart are the two-wheeler and three-wheeler maker Bajaj cable car and second largest software exporter Infosys Technologies. other than some restricted industries, foreign investment in general enjoys a majority share in the Indian Equity Market. Foreign Institutional Investors (FII) need to register themselves with the SEBI and the RBI for operating in Indian stock exchanges.In fact from the Indian stock market analysis it is known that in some specific industries foreigners can have unconstipated 100% shares. In the last few years with the facility of the Online Stock Market Trading in India, it has been very genial for the FIIs to trade in the Indian stock market. From an analysis on the Indian Equity Market it can be express that the increase in the foreign investments over the years no doubt have accentuated the dynamism of the Indian market of equities. Foreign investors are allowed to buy Indian equity for the purpose of converting the equity into ADR or GDR.Thus, the maturement financial capital markets of India being advance by domestic and foreign investments is turn a profitable business more with each day. If all the economic parameters are unchanged Indian Equity Market will be conducive for the growth of private equities and this will lead to an overall improvement in the Indian economy. indemnification restitutionis a form ofrisk managementprimarily used tohedgeagainst theriskof a contingent,uncertain bolshy. Insurance is defined as the equitable transfer of the risk of a harm, from one entity to another, in exchange for payment.An investment banker, or indemnity aircraft carrier, is a company selling the insurance the assure, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice ofappraisingand despotic risk, has evolved as a discrete field of study and practice. The transaction involves the ascertain assumptive a guaranteed and known relatively small issue in the form of payment to the insurance company in exchange for the insurance companys hope to compensate ( touch on) the assure in the case of a financial ( in-person) red.The see receives a beat, called theinsurance policy, which details the conditions and circumstances under which the insure will be financially compensated. The business of Insurance essentially subject matter defraying risks attached to any activity over time (including life) and sharing the risks between various entities, both persons and organizations. I nsurance companies (ICs) are important players in financial markets as they collect and invest large amounts of premium. Insurance products are multipurpose and offer the following benefits auspices to the investors * Accumulate savings * Channelize savings into sectors needing huge long term investments. Insurance involvespoolingfunds frommanyinsured entities (known as exposures) to pay for the losses that some may incur. The insured entities are therefore saved from risk for a fee, with the fee being dependent upon the frequency and severity of the outcome occurring. In order to be insured, the risk insured against must meet certain characteristics in order to be aninsurable risk.Insurance is a commercial enterprise and a major part of the financial services industry, but individual entities can alsoself-insurethrough saving money for possible future losses. Insurability Risk which can be insured by private companies typically share seven common characteristics 1. greathearte d number of similar exposure units Since insurance operates through pooling resources, the majority of insurance policies are provided for individual members of large classes, allowing insurers to benefit from thelaw of large numbersin which predicted losses are similar to the actual losses.Exceptions includeLloyds of London, which is famous for insuring the life or health of actors, sports figures and other famous individuals. However, all exposures will have particular differences, which may lead to different premium rates. 2. Definite loss The loss takes place at a known time, in a known place, and from a known cause. The classic example is closing of an insured person on a life insurance policy. Fire, car accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory.Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place or cause is identifiable. Ideally, t he time, place and cause of a loss should be clear complete that a commonsense person, with commensurate information, could objectively verify all three elements. 3. Accidental loss The matter that constitutes the set out of a look at should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be pure, in the sense that it results from an event for which there is only the opportunity for equal.Events that contain speculative elements, such as ordinary business risks or even purchasing a draftsmanship ticket, are generally not considered insurable. 4. puffy loss The size of the loss must be meaningful from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to fairly assure that the insurer will be able to pay claims. For small losses these latter cost may be several times the size of the expected cost of losses.There is hardly any point in paying such costs unless the protection offered has real value to a buyer. 5. Affordable premium If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, it is not likely that the insurance will be purchased, even if on offer. Further, as the report profession formally recognizes in financial accounting hackneyeds, the premium cannot be so large that there is not a reasonable chance of a hearty loss to the insurer.If there is no such chance of loss, the transaction may have the form of insurance, but not the substance. 6. computable loss There are two elements that must be at least estimable, if not formally calculable the prospect of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a cop y of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective military rank of the amount of the loss recoverable as a result of the claim. . Limited risk of catastrophically large losses insurable losses are ideallyindependentand non-catastrophic, meaning that the losses do not happen all at once and individual losses are not severe enough to bankrupt the insurer insurers may prefer to limit their exposure to a loss from a single event to some small portion of their capital base. Capitalconstrains insurers ability to sellearthquake insuranceas well as wind insurance inhurricanezones. In the US,flood riskis insured by the federal government.In commercial notify insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurers capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syn dicates the risk into thereinsurancemarket. Legal When a company insures an individual entity, there are basic legal requirements. Several normally cited legal principles of insurance include 1. subsidy the insurance company indemnifies, or compensates, the insured in the case of certain losses only up to the insureds interest. . Insurable interest the insured typically must directly suffer from the loss. Insurable interest must exist whether property insurance or insurance on a person is problematic. The concept requires that the insured have a stake in the loss or damage to the life or property insured. What that stake is will be determined by the kind of insurance involved and the nature of the property ownership or relationship between the persons. 3. Utmost good faith the insured and the insurer are bound by agood faithbond of honesty and fairness. significant facts must be disclosed. 4.Contribution insurers which have similar obligations to the insured contribute in the in demnification, according to some method. 5. Subrogation the insurance company acquires legal rights to pursue recoveries on behalf of the insured for example, the insurer may sue those liable for insureds loss. 6. case proxima, or proximate cause the cause of loss (the peril) must be covered under the insuring agreement of the policy, and the dominant cause must not beexcluded 7. easing In case of any loss or casualty, the asset owner must attempt to keep the loss to a minimum, as if the asset was not insured.Indemnification To doctor means to make whole again, or to be reinstated to the position that one was in, to the extent possible, prior to the happening of a specified event or peril. Accordingly,life insuranceis generally not considered to be indemnity insurance, but rather contingent insurance (i. e. , a claim arises on the occurrence of a specified event). There are generally two types of insurance contracts that seek to indemnify an insured 1. an indemnity policy, and 2. a pay on behalf or on behalf ofpolicy. The difference is significant on paper, but seldom material in practice.An indemnity policy will never pay claims until the insured has paid out of liberation to some third troupe for example, a visitor to your home slips on a chronicle that you left wet and sues you for $10,000 and wins. Under an indemnity policy the homeowner would have to come up with the $10,000 to pay for the visitors fall and then would be indemnified by the insurance carrier for the out of pocket costs (the $10,000). 45 Under the same situation, a pay on behalf policy, the insurance carrier would pay the claim and the insured (the homeowner in the above example) would not be out of pocket for anything.Most modern indebtedness insurance is compose on the basis of pay on behalf language. An entity seeking to transfer risk (an individual, corporation, or association of any type, etc. ) becomes the insured party once risk is assumed by an insurer, the insuring party , by means of a contract, called aninsurance policy. Generally, an insurance contract includes, at a minimum, the following elements identification of participating parties (the insurer, the insured, the beneficiaries), the premium, the period of coverage, the particular loss event covered, the amount of coverage (i. . , the amount to be paid to the insured or beneficiary in the event of a loss), and exclusions(events not covered). An insured is thus said to be indemnified against the loss covered in the policy. When insured parties father a loss for a specified peril, the coverage entitles the policyholder to make a claim against the insurer for the covered amount of loss as specified by the policy. The fee paid by the insured to the insurer for assuming the risk is called the premium.Insurance premiums from many insureds are used to fund accounts reserved for later payment of claims in theory for a relatively few claimants and foroverheadcosts. So long as an insurer maintains a dequate funds set aside for evaluate losses (called reserves), the remaining margin is an insurersprofit. Types of Insurances * sprightliness Insurance * General Insurance lifetime Insurance Life insuranceis a contract between aninsurance policy holderand aninsurer, where the insurer promises to pay a designatedbeneficiary sum of money (the benefits) upon the death of the insured person.Depending on the contract, other events such asterminal illnessor critical illnessmay also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum. Other expenses (such as funeral expenses) are also sometimes included in the benefits. The advantage for the policy owner is peace of point, in knowing that the death of the insured person will not result in financial hardship for loved ones and lenders. Life policies are legal contracts and the terms of the contract describe the limitations of the insured events.Specific exclusions are often written into the con tract to limit the liability of the insurer common examples are claims relating to suicide, fraud, war, bacchant and civil commotion. Life-based contracts tend to fall into two major categories * Protectionpolicies designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance. * Investmentpolicies where the main objective is to facilitate the growth of capital by regular or single premiums.Common forms (in the US) arewhole life,universal lifeandvariable life policies. General Insurance General insuranceor non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance typically comprises any insurance that is not determined to belife insurance. It is calledpropertyand casualtyinsurancein theU. S. andNon-Life Insurancein Continental Europe. Commercial linesproducts are usually designed for relatively sm all legal entities.These would include workers comp (employers liability), public liability, product liability, commercial fleet and other general insurance products sold in a relatively standard style to many organisations. There are many companies that supply comprehensive commercial insurance packages for a wide range of different industries, including shops, restaurants and hotels. Personal linesproducts are designed to be sold in large quantities. This would includeautos(private car),homeowners(household), pet insurance, creditor insurance and others. ACORDwhich is the insurance industry global standards organisation.ACORD has standards for personal and commercial lines and has been working with the Australian General Insurers to develop those XML standards, standard applications for insurance, and certificates of currency. PORTFOLIO MANAGEMENT A good look to begin understanding what portfolio management is (and is not) may be to define the termportfolio. In a business contex t, we can look to the mutual fund industry to condone the terms origins. Morgan StanleysDictionary of Financial Termsoffers the following explanation If you own more than one security, you have an investment portfolio.You build the portfolio by buying additional stocks, bonds, mutual funds, or other investments. Your goal is to increase the portfolios value by selecting investments that you believe will go up in price. According to modern portfolio theory, you can reduce your investment risk by creating a diversified portfolio that includes enough different types, or classes, of securities so that at least some of them may produce strong returns in any economic climate. Note that this explanation contains a number of important ideas * A portfolio contains many investment vehicles. Owning a portfolio involves making choices that is, deciding what additional stocks, bonds, or other financial instruments to buy when to buy what and when to sell and so forth. reservation such decisio ns is a form of management. * The management of a portfolio is goal-driven. For an investment portfolio, the specific goal is to increase the value. * Managing a portfolio involves inherent risks. Objectives of Portfolio attention- The objective ofportfolio managementis to invest in securities is securities in such a modality that one maximizes ones returns and minimizes risks in order to achieve ones investment objective.A goodportfolioshould have multiple objectives and achieve a sound balance among them. Any one objective should not be given undue sizeableness at the cost of others. Presented below are some important objectives of portfolio management. 1. Stable Current Return Once investment safety is guaranteed, the portfolio should yield a steady current income. The current returns should at least match the opportunity cost of the funds of the investor. What we are referring to here current income by way of interest of dividends, not capital gains. 2. Marketability A good portfolio consists of investment, which can be marketed without difficulty. If there are too many over-the-counter or inactive shares in your portfolio, you will face problems in encasing them, and switching from one investment to another. It is desirable to invest in companies listed on major stock exchanges, which are actively traded. 3. Tax Planning Since revenue is an important variable in total planning, a good portfolio should enable its owner to enjoy a favorable tax shelter. The portfolio should be developed considering not only income tax, but capital gains tax, and gift tax, as well.What a good portfolio aims at is tax planning, not tax evasion or tax avoidance. 4. Appreciation in the value of capital A good portfolio should prize in value in order to protect the investor from any erosion in purchasing power due to inflation. In other words, a balanced portfolio must consist of certain investments, which tend to lever in real value after adjusting for inflation. 5. Li quidity The portfolio should ensure that there are enough funds available at short notice to take care of the investors liquidity requirements.It is desirable to keep a line of credit from a bank for use in case it becomes necessary to participate in right issues, or for any other personal needs. 6. Safety of the investment The first important objective of a portfolio, no matter who owns it, is to ensure that the investment is absolutely safe. Other considerations like income, growth, etc. , only come into the picture after the safety of your investment is ensured. Investment safety or minimisation of risks is one of the important objectives of portfolio management.There are many types of risks, which are associated with investment in equity stocks, including super stocks. Bear in mind that there is no such thing as a zero risk investment. More over, relatively low risk i