INVESTMENT

The word originates in the Latin "vestis", meaning garment, and refers to the act of putting
things (money or other claims to resources) into others' pockets.[4]. The basic meaning of the
term being an asset held to have some recurring or capital gains.
Investment is the commitment of money or capital to purchase financial instruments or
other assets in order to gain profitable returns in the form of interest, income, or appreciation
of the value of the instrument. [1] It is related to saving or deferring consumption. Investment
is involved in many areas of the economy, such as business management and finance no
matter for households, firms, or governments.
In finance, investment is the commitment of funds by buying securities or other monetary or
paper (financial) assets in the money markets or capital markets, or in fairly liquid real
assets, such asgold or collectibles
An investment programme should consist of safety of principal, liquidity, income stability,
adequate income, purchasing power stability, appreciation, legality and transferability

Classification of investments

Different methods of classification of the investment avenues are available. Some of the
methods with examples are given hereunder:

A Physical investments They are tangible items like motorcars, aeroplanes, ships, buildings,
plant and equipment, machinery etc. Another sub-classification in this is of physical assets
which are useful for further production and creation of income, like machinery equipment
etc. mentioned above and those which are not useful for further production like gold and
silver ornaments.

b. Financial investments Financial assets are those which are used for consumption or for
production of goods and services or for further creation of assets.

c. Marketable and non marketable investments Examples of marketable investments are

shares, bonds and other instruments issued by government or companies which are listed in
the stock exchanges are easily marketable and can be converted into cash in a short time.
Non-marketable investments are bank deposits, provident and pension funds. Insurance
1
certificates, post office deposits, National savings certificates, company deposits, private
limited companies shares etc.

d. Transferable non-transferable investments Instruments like shares, bonds can be

transferred in the name of others or can be sold or exchanged for cash or kind whereas some
instruments like insurance certificates, post office deposits, and national savings certificates
cannot be transferred.

Driviing forces of investment

a.retirement plan

b. avoidance of taxation

c .tempting high rates of interest

d. high inflation and resultant expectation of increase in the monetary return

e. Hike in incomes

f. Availability of a large number of investment avenues

g. Legal safeguards

h. Existence of financial institutions to encourage savings etc.

INVESTMENT AVENUES

There are many investment avenues in which one can invest :

1 PROVIDENT FUND..

2. .COMMODITIES

3.BULLION

4 MUTUAL FUND.

5. SAVING A/C

6. NATIONAL SAVING CERTIFICATES

7. SHARES

8. REAL ESTATE

9. DERIVATIVES

10.GOVERNMENT SECURITIES

11 FIXED DEPOSITS

12.INSURANCE

13.ANTIQUE

14.ART AND PAINTING

 1.provident fund
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 covering them. The balances in PPF account cannot be attached by any
authority normally.

This is covered under the Employees Provident Fund and Miscellaneous Provisions Act of
1952.
Types of Provident Fund :

• Statutory provident fund

• Recognized provident fund
• Unrecognized provident fund
• Public provident fund

Applicability

All the establishments employing 20 or more persons (5 or more incase of Cinema Theatres)
have to provide for contributions to the above mentioned Provident Funds or one can opt for
it voluntarily also.

Provident fund –as an investment option

It is an investment option that can be very useful in the long run.
Benefits :

• Since the amount is automatically deducted from salary, it is a sort of forced saving
imposed on employees. The employees automatically save money which will come in
handy for them in times of need.

• It is a simple and sturdy investment. Many people use this money to set up a life after
retirement. The EPF scheme also takes care of housing, education of children,
financing of insurance policies and medical care.

• Decent return of 8 to 12% on investment is another advantage and also the risk
involved is quite minimum.

• EPF & PPF schemes offer the highest risk-adjusted returns among all fixed-income
instruments.

• It is gilt-edged, meaning it is backed by the government, hence the money invested is

safe.

Disadvantages

• The rate of return is not as high as what you would get from high-risk investments
such as shares and mutual funds

• Withdrawals in PPF are allowed only after the completion of four years of the account.
However, liquidity in this instrument is poor as it is difficult to get the withdrawals
done
 • The biggest drawback is that individuals get the option of withdrawing the whole
amount in EPF account on termination of or resignation from a job.

• In an era when highly-skilled employees like to hop, this can turn out to be a disaster.
Withdrawals at each job switch may not allow a corpus to be built and the power of
compounding to work.

Taxability

The withdrawals are exempt from tax if the concerned employee has rendered continuous
service of more than 5 years. Otherwise, it would be taxable at the applicable slab rates.

Tabs on Investment
Minimum deposit required in a PPF account is Rs. 500 in a financial year. Maximum deposit
limit is Rs. 70,000 in a financial year. Maximum number of deposits is twelve in a financial
year.

Maturity
The maturity period of the account is 15 years.
Rate of interest is 8% compounded annually.
One deposit with a minimum amount of Rs.500/- is mandatory in each financial year.
The amount of deposit can be varied to suit the convenience of the account holders.
The account holder can retain the account after maturity for any period without making any
further deposits. In this case the account will continue to earn interest at normal rate as
admissible till the account is closed.
The account holder also has an option to extend the PPF account for any period in a block of
5 years at each time, after the maturity period of 15 years.
Lapse in Deposits
If deposits are not made in a PPF account in any financial year, the account will be treated as
discontinued. The discontinued account can be activated by payment of the minimum deposit
of Rs.500/- with default fee of Rs.50/- for each defaulted year.

Premature Closure or Withdrawal

Premature closure of a PPF Account is not permissible except in case of death.
Nominee/legal heir of PPF Account holder cannot continue the account after the death.
Premature withdrawal is permissible in the 7th year of the account subject, to a limit of 50%
of the amount at credit preceding three year balance. Thereafter one withdrawal in every year
is permissible.

Account Transfer
The Account is transferable from one post Office / bank to another and from post Office to
bank or from a bank to a post office.

Tax Benefits
Deposits in PPF are eligible for rebate under section 80-C of Income Tax Act.
The interest on deposits is totally tax free. Deposits are exempt from wealth tax.
 2.COMMODITIES

A commodity is a normal physical product used by everyday people during the course of
their lives, or metals that are used in production or as a traditional store of wealth and a
hedge against inflation. For example, these commodities include grains such as wheat, corn
and rice or metals such as copper, gold and silver. The full list of commodity markets is
numerous and too detailed. The best way to trade the commodity markets is by buying and
selling futures contracts on local and international exchanges.
Trading futures is easy, and can be accessed by using the services of any full or on-line
futures brokerage service. Traditionally, there is an expectation when trading commodity
futures of achieving higher returns compared to shares or real estate, so successful investors
can expect much higher returns compared to more conventional investment products.
The process of trading commodities, as mentioned above, must be facilitated by the use of
trading liquid, exchangeable, and standardized futures contracts, as it is not practical to trade
the physical commodities.
Futures contracts give the investor ease of use and the ability to buy or sell without delay. A
futures contract is used to buy or sell a fixed quantity and quality of an underlying
commodity, at a fixed date and price in the future. Futures contracts can be broken by simply
offsetting the transaction. For example, if you buy one futures contract to open then you sell
one futures contract to close that market position. The execution method of trading futures
contracts is similar to trading physical shares, but futures
contracts have an expiry date and are deliverable.Futures contracts have an expiry date and
need to be occasionally rolled over from the current contract month to the following contract
month. The reason is because the biggest advantage to trading commodity futures, for the
private investor is the opportunity to legally short-sell these markets. Short-selling is the
ability to sell commodity futures creating an open position in the expectation to buy-back at a
later time to profit from a fall in the market. If you wish to trade the up-side of commodity
futures, then it will simply be a buy-to-open and sell-to close set of transactions similar to
share trading.
The commodity markets will always produce rising of falling trends, and with the abundance
of information and trading opportunities available there is no reason for any investor to
exclusively trade the share market when there is potential profits from trading commodity
futures.
The increased use of commodity trading vehicles in investment management has led
practitioners to create investable commodity indices and products that offer unique
performance opportunities for investors in physical commodities. As is true for stock and
bond performance, as well as investment in managed futures and hedge fund products,
commodity-based products have a variety of uses. Besides being a source of information on
cash commodity and futures commodity market trends, they are used as performance
benchmarks for evaluation of commodity trading advisors and provide a historical track
record useful in developing asset allocation strategies. However, the investor benefits of
commodity or commodity-based products lie primarily in their ability to offer risk and return
trade-offs that cannot be easily replicated through other investment alternatives. Previous
research that direct stock and bond investment offers little evidence of providing returns
consistent with direct commodity investment. commodity-based firms may not be exposed to
the risk of commodity price movement. Thus for investors, direct commodity investment
may be the principal means by which one can obtain exposure to commodity price
movements.
The commodities that are traded in the market.
 G old
Copper
Silver
Sugar
Wheat
Zeera
Guar
3.Bullion
Bullion refers to any precious metal in a form in which its primary value comes from the
worth of the metal, not from an artificial currency value. Bullion is most often traded in the
form of coins minted by national governments, or in bulk ingots.

While government issued coins have a nominal value assigned to them upon minting, this
value is virtually always overshadowed by the commodity value of the metal itself. As an
example, most government issued gold coins have a currency value of between US$10 and
US$100, but usually contain at least one troy ounce of gold. Given that the exchange rate of
gold consistently rises, and from the beginning of the twenty-first century on was worth at
least US$350 a troy ounce, one can see that the government-assigned currency value of a
bullion coin is essentially meaningless.

The value of bullion is affected by three factors: metal, weight and purity. The metal the
bullion consists of is obviously important in determining its overall value: gold is worth
more than silver, while platinum is worth more than gold. The weight of bullion is usually
measured in troy ounces, where one troy ounce is equal to approximately 31g. Purity also
varies widely in bullion, though many countries release coins with 99.99% purity, which is
as close as one can practically get to pure.

The average minting of a bullion coin is less than 10,000, one of the reasons they are so
popular with collectors. Extremely limited presses are also relatively frequent, with countries
sometimes releasing as few as 20 to 50 of a certain bullion coin. Silver coins, particularly,
are popular with collectors; because of the relatively low worth of their metal, they are
cheaper in general. For this reason, silver bullion coins, more than gold or platinum, are often
valued substantially above the market value of silver.

At this point, most major countries offer at least one type of bullion coin. Usually these coins
will have one main symbol they use each year, though some nations choose to keep the same
theme but alter the image yearly.

Examples of bullion coins include:

• U.S. Eagles: Minted in platinum (since 1997), gold and silver, these coins are
embossed with the image of a bald eagle. Gold Eagles are 91.67% pure.
• Canadian Maple Leafs: These coins are minted in platinum, gold and silver, with the
Canadian maple leaf embossed. Gold Maple Leafs were the first 99.99% pure gold
coins to be released. A very limited platinum coin is also released by Canada,
depicting wildlife.
• Chinese Pandas: These come in platinum, gold, silver, palladium, copper and brass.
The depict a panda bear, the image of which changes each year. China also had a
short-lived series of unicorn gold and silver coins, and a limited run of twenty bullion
coins in excess of 260 troy ounces (8kg).
• South African Krugerrands: These were the first bullion coins ever released by a
nation, and are made of gold.

A bullion coin is a coin struck from precious metal and kept as a store of value or an
investment, rather than used in day-to-day commerce. Investment coins are generally coins
that have been minted after 1800, have a purity of not less than 900 thousandths and is or has
been a legal tender in its country of origin.[1] Bullion coins are usually available in gold and
silver, with the exception of the Krugerrand and the Swiss Vreneli which are only available
in gold. The American Eagle series is available in gold, silver and platinum, and the
Canadian Maple Leaf series is available in gold, silver, platinum and also palladium.

Bullion coins are also typically available in various weights. These are usually multiples or
fractions of 1 troy ounce, but some bullion coins are produced in very limited quantities in
kilograms and even heavier.
Bullion coins sell for a premium over the market price of the metal on the commodities
exchanges. This is due to their comparative small size and the costs associated with
manufacture, storage and distribution. The margin that is paid varies depending on what type
of coin it is, the weight of the coin, and the precious metal. The premium also is affected by
prevailing demand. The ISO currency code of gold bullion is XAU. ISO 4217 includes codes
not only for currencies, but also for precious metals (gold, silver, palladium and platinum; by
definition expressed per one troy ounce, as compared to "1 USD") and certain other entities
used in international finance, e.g. Special Drawing Rights.

ADVANTAGES

Bullion is the basic commodity traded in the precious metals market. By adding precious
metals in general to a portfolio of stocks, bonds and mutual funds, an investor is introducing
a tangible asset to the mix. This increases the degree of diversification and protects the
portfolio against fluctuations in value of any one asset type.

ECONOMIC FORCES
The economic forces that affect the price of precious metals are different from, and often are
opposed to the forces which determine the price of most common financial assets. This
independent movement of precious metals to the other financial assets can reduce overall
portfolio volatility and contributes balance.

PRESERVATION OF PURCHASING POWER

Precious metals have traditionally performed well as a long-term store of wealth and
purchasing power. Over long periods of time precious metals have purchased a constant
basket of basic goods and services.

THE DECLINING DOLLAR

The purchasing power of the U.S. dollar has steadily declined over time and is expected to
continue to do so; precious metals can often provide a "hedge against inflation." For
example, between 1971 and 1981 the U.S. dollar lost more than half its value while Gold
prices rose nearly five times. Economies fluctuate between inflation, recession and
expansion, precious metal investments help diversify and lower overall risk.
ASSET ALLOCATION
Whether you are conservative or aggressive in your investment approach, precious metals
can represent an important part of your asset allocation. Some experts suggest that 10 to 15-

percent of portfolio assets should be precious metals. No matter what level of risk an investor
wishes to take, every portfolio needs a secure foundation.

EASE OF OWNERSHIP
For investors who wish to take possession or direct control of their assets, buying physical
bullion has appeal. Owning bullion is easy and convenient. Thousands of dealers nationwide
buy and sell bullion daily over the counter, by phone, by fax and at auctions. It is
internationally recognized for its value based on its current market price. Bullion is one of
the most liquid investments available anywhere.

FINANCIAL PRIVACY
Bullion is one of the best forms of legally private wealth. No one needs to know how much
bullion you own, or where it is stored. Some forms of bullion, such as coins, can easily and
quietly be passed on to your heirs as a gift. Most of our clients feel that they would like to
keep a certain portion of their wealth from the prying eyes of those who have access to all
assets listed under their social security number. Legally, we are not required to report the
purchase or sale of bullion. In fact, it is classified like fine art and crystal. Bullion has been
regarded as hard currency for over 5,000 years, and is not subject to reportability and
confiscation.

Disadvantages

• A gold standard leads to deflation whenever an economy using the gold standard
grows faster than the gold supply. When an economy grows faster than its money
supply, the same money must be used to execute a larger volume of transactions. The
only ways of achieving this are for the money to circulate faster or to lower the cost of
the transactions. If deflation drives costs down, the real value of each unit of money
goes up. This increases the value of cash, and decreases the monetary value of real
 assets, since the same asset can be purchased with less money. This in turn tends to
increase the ratio of debts to assets . For example, assuming interest rates remain
unchanged, the monthly cost of a fixed-rate home mortgage stays the same, but the
value of the house goes down, and the value of the money required to pay the
mortgage goes up. Thus deflation rewards cash savings.
• Deflation rewards savers and punishes debtors. Real debt burdens therefore rise,
causing borrowers to cut spending to service their debts or to default. Lenders become
wealthier, but may choose to save some of their additional wealth rather than spending
it all. The overall amount of expenditure is therefore likely to fall. Deflation also robs
a central bank of its ability to stimulate spending. Deflation is considered to be
difficult to control, and to be a serious economic risk. However in practice it has
always been possible for governments to control deflation by leaving the gold standard
or by artificial expenditure.
• The total amount of gold that has ever been mined has been estimated at around
142,000 metric tons. Assuming a gold price of US$1,000 per ounce, or $32,500 per
kilogram, the total value of all the gold ever mined would be around $4.5 trillion. This
is less than the value of circulating money in the U.S. alone, where more than $8.3
trillion is in circulation or in deposit (M2). Therefore, a return to the gold standard, if
also combined with a mandated end to fractional reserve banking, would result in a
significant increase in the current value of gold, which may limit its use in current
applications. For example, instead of using the ratio of $1,000 per ounce, the ratio can
be defined as $2,000 per ounce effectively raising the value of gold to $9 trillion.
However, this is specifically a disadvantage of return to the gold standard and not the
efficacy of the gold standard itself. Some gold standard advocates consider this to be
both acceptable and necessary whilst others who are not opposed to fractional reserve
banking argue that only base currency and not deposits would need to be replaced. The
amount of such base currency (M0) is only about one tenth as much as the figure (M2)
listed above.
• Many economists believe that economic recessions can be largely mitigated by
increasing money supply during economic downturns. Following a gold standard
would mean that the amount of money would be determined by the supply of gold, and
hence monetary policy could no longer be used to stabilize the economy in times of
 economic recession. Such reason is often employed to partially blame the gold
standard for the Great Depression, citing that the Federal Reserve couldn't expand
credit enough to offset the deflationary forces at work in the market. Opponents of this
viewpoint have argued that gold stocks were available to the Federal Reserve for credit
expansion in the early 1930s, but Fed operatives failed to utilize them.
• Monetary policy would essentially be determined by the rate of gold production.
Fluctuations in the amount of gold that is mined could cause inflation if there is an
increase, or deflation if there is a decrease. Some hold the view that this contributed to
the severity and length of the Great Depression as the gold standard forced the central
banks to keep monetary policy too tight, creating deflation. Milton Friedman however
argued that the main cause of the severity of the Great Depression in the United States
was the Federal Reserve, and not the gold standard, as they willfully kept monetary
policy tighter than was required by the gold standard. Additionally three increases by
the Federal Reserve in bank reserve requirements in 1936 and 1937, which doubled
bank reserve requirements lead to yet another contraction of the money supply.
• Although the gold standard gives long term price stability, it does in the short term
bring high price volatility. In the United States from 1879 to 1913 the coefficient of
variation of the annual change in price levels was 17.0, whereas from 1943 to 1990 it
was only 0.88. It has been argued by among others Anna Schwartz that this kind of
instability in short term price levels can lead to financial instability as lenders and
borrowers become uncertain about the value of debt.
• Some have contended that the gold standard may be susceptible to speculative attacks
when a government's financial position appears weak, although others contend that
this very threat discourages governments' engaging in risky policy (see Moral Hazard).
For example, some believe the United States was forced to raise its interest rates in the
middle of the Great Depression to defend the credibility of its currency after unusually
easy credit policies in the 1920s. This disadvantage however is shared by all fixed
exchange rate regimes and not just limited to gold money. All fixed currencies that
appear weak are subject to speculative attack.
• If a country wanted to devalue its currency it would generally produce sharper changes
than the smooth declines seen in fiat currencies, depending on the method of
devaluation.
4.MUTUAL FUND: What is a mutual fund?
“its an collective scheme which collect from small investors and on behalf of them invest in
different security to minimize risk and maximize profit. A mutual fund is a pool of money
that is managed on behalf of investors by a professional money manager. The manager
uses the money to buy stocks, bonds or other securities according to specific investment
objectives that have been established for the fund. In return for putting money into the
fund, you’ll receive either units or shares that represent your proportionate share of the pool
of fund assets. In return for administering the fund and managing its investment portfolio,
the fund manager charges fees based on the value of the fund’s assets.

CHARACTERSTIC
• Investors purchase mutual fund shares from the fund itself.
• The price that investors pay for mutual fund shares is the fund's per share net asset
value (NAV).
• Mutual fund shares are “redeemable”
• There is an opportunity to create and sell new shares to accommodate new investors.
• mutual funds typically are managed by separate entities known as "investment
advisers"

HOW A FUND DETERMINES ITS SHARE VALUE :

Market value of fund’s asset minus fund’s liability divided by no of outstanding shares is
equal to net asset value or fund share price.

TYPES OF MUTUAL FUND

1)Open ended mutual fund :
Mutual funds are ‘open-ended’ investment funds, meaning that new investors can
contribute money to the fund at anytime and existing investors can return there units or
shares to the fund for redemption at any time when you redeem your units or shres of a
mutual fund you will receive a cheque based on the current market value of the fund’s
portfolio.

2) Close ended mutual fund:

These have a fixed number of units and a fixed tenure, after which their units are
redeemed or they are made open ended. These funds have various objective :
generating steady income by investing in debt instruments, capital appreciation by
investing in equities, or both by making an equal allocation of the corpus in debt and
equity instruments .such funds with there conservative investment approach are best
suited for income . these funds declare dividend annually or semi annually.
There is fixed lockin period for withdrawing and if you withdraw before that lockin
period you will be charged with exit load.

3) SYSTEMATIC INVESTMENT PLAN

A Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help you
save regularly. It is just like a recurring deposit with the post office or bank where you
put in a small amount everymonth. The difference here is that the amount is invested
in a mutual fund. The minimum amount to be invested can be as small as Rs 100 and
the frequency of investment is usually monthly or quarterly.

4) Money Market Funds:

 Invest in short-term (less than one year to maturity) corporate and government debt
securities such as treasury bills, bankers acceptances and corporate notes. Some money
market funds specialize in Canadian or US money market instruments or
invest only in treasury bills. These are generally very low-risk funds offering low
returns.

5) Fixed Income Funds:

Invest in debt securities like bonds, debentures and mortgages that pay regular interest,
or in corporate preferred shares that pay regular dividends. The goal, typically, is to
provide investors with a regular income stream with low risk. Fund values will go up
and down to some extent, particularly in response to changes in prevailing interest
rates.

6) Growth or Equity Funds:

Invest primarily in common shares (equities) of Canadian or foreign companies, but
may hold other assets as well. The goal is typically long-term growth because the
value of the assets held increases over time. Some growth funds focus on large ‘blue-
chip’ companies, while others invest in smaller or riskier companies. Performance will
be affected by the success or failure of specific investments and by the
performance of the stock markets generally.

7) Balanced Funds:
Invest in a ‘balanced’ portfolio of equities, debt securities and money market
instruments with the objective of providing reasonable returns with low to moderate
risk.

8) Global and Foreign Funds:

May be fixed income, growth or balanced funds that invest in foreign securities. These
funds can offer investors international diversification and exposure to foreign
companies, but are subject to risks associated with investing in foreign countries and
foreign currencies.

9) Specialty Funds:
May invest primarily in a specific geographical area (e.g., Asia) or a specific industry
(e.g., high technology companies).

10) Index Funds:

 Invest in a portfolio of securities selected to represent a specified target index or
benchmark such as the S&P/TSX Composite Index.

Several parties are involved in the organization and

operation of a mutual fund, including:
1.Mutual Fund Manager: Establishes one or more mutual funds, markets them and
oversees their general administration.
2.Portfolio Adviser: The professional money manager appointed by the Mutual Fund
Manager to direct the Mutual fund’s investments. The Mutual Fund Manager also often acts
as the Portfolio Adviser.
3.Principal Distributor: Coordinates the sale of the fund to investors, either directly or
through a network of registered dealers.
4.Custodian: The bank or trust company appointed by the Mutual Fund Manager to hold all
of the securities owned by the fund.
5.Transfer Agent and Registrar: The group responsible for maintaining a list of all
investors in the fund.
6.Auditor: The independent accountants retained by the Mutual Fund Manager to audit each
year, and report on the financial statements of the fund.
7.Trustee: The entity that has title to the securities owned by the fund (when the fund is
organized as a trust, instead of as a corporation) on behalf of the unitholders.

Returns to investors is in the form of :

1. Dividends/ coupon payments
2. Capital gains from sale of securities within the fund.
3. Mutual Fund share price appreciation.
TAX TREATMENT:

You should understand how you will be taxed on your mutual fund investment. Generally, a
mutual fund will distribute enough income and capital gains each year so that the
mutual fund itself will not have to pay any income tax. This means that you will have to pay
income tax on the distributions you receive, unless you hold your investment in a Registered
Retirement Savings Plan (RRSP) or other registered plan for which the fund is a qualifying
investment. If you hold your investment in a registered plan, you will generally not be
taxed on distributions of income or capital gains, as long as the distribution stays in the plan.
However, when you withdraw money or investments from the registered plan, it
is taxed as income at your going tax rate. When you redeem your mutual fund holdings you
must report any capital gains.
You may wish to ask your tax adviser about the tax implications of holding a mutual fund
investment and you should read carefully any tax information provided by the mutual fund.

Advantages :
There are many reasons why people invest in mutual funds:
•• Diversification: Investing in a number of different securities helps reduce the risk of
investing. When you buy a mutual fund, you are buying an interest in
a portfolio of dozens of different securities, giving you instant diversification, at least within
the type of securities held in the fund.
7
•• Affordability: With many mutual funds, you can begin buying units with a relatively
small amount of money (e.g., $500 for the initial purchase). Some mutual funds
also let you buy more units on a regular basis with even smaller installments (e.g., $50 per
month).
•• Professional Management: Mutual funds are managed by professionals who are
experienced in investing money and who have the skills and resources to
research many different investment opportunities.
•• Liquidity: Units or shares of mutual funds can be redeemed at any time.
•• Flexibility: Many mutual fund companies administer several different mutual funds (e.g.,
money market, fixed-income, growth, balanced and international funds) and allow you to
switch between funds within their ‘fund family’ at little or no charge. This can enable
you to change the balance of your portfolio as your personal needs or market conditions
change.
•• Performance Monitoring: The value of most mutual funds is reported daily in the
financial press and on many internet sites, allowing you to continually monitor the
performance of your investment.
What are some of the potential disadvantages?
When you invest in a mutual fund you place your money in the hands of a professional
manager. The return on your investment will depend heavily on that manager’s skill
and judgement. Even the best portfolio advisers are wrong sometimes, and studies have
shown that few portfolio advisers are able to consistently out-perform the market.
Check the fund manager’s track record over a period of time when choosing a fund.
As a mutual fund investor, you will also be paying, through management expenses and
commissions, for management services and for various administrative and sales costs.
Those fees and commissions reduce the return on your investment and are charged, in almost
all cases, whether the fund performs well or not. Sales commissions and
redemption fees can have a very significant impact on your return if you decide to redeem
your mutual fund investment in the short-term.
5.SAVING A/C
A savings account typically refers to an account in which one places money to earn a small
amount of interest. the savings account funds are usually easily accessible, though some
banks do charge for withdrawing money early. In most cases, people can withdraw money
from a savings account at any time, at least at any time the bank is open, or one has access to
the bank’s ATM. The term "bank" is used here loosely. In addition to earning interest on
your deposits, the savings account also provides a safe place to put your money, far better
than stowing it in the mattress or the cookie jar.

Savings accounts may be opened at a number of different financial institutions. These

include:

• Commercial banks
• Credit unions
• Mutual savings banks
• Savings and loan associations

Each of these institutions offers interest payments to the account holder based on the amount
of money held in the account.

If the bank declares bankruptcy, is the target of embezzlement or mismanagement of funds,

the Federal Deposit InsuranceCorporation (FDIC) insures your account, up to 100,000 US
dollars (USD). In fact, a requirement when shopping for a savings account is to look for one
that is FDIC insured. If your savings account isn’t FDIC insured, you might have difficulty if
the bank encounters financial problems. Most banks, credit unions and money markets funds
do offer this insurance
Benefit of Saving Accounts

-Free Passbook facility available at home branch for account holders.

-Free unlimited transactions: Cash withdrawal and balance enquiry, at all bank ATMs & on
any other Bank's ATM using your Debit Card.

-Free Debit Card for primary account holder for lifetime of the account.

-Free cheque book, without any usage charges.

-Free Demand Drafts on particular Bank locations upto Rs. 50000

-Self/Third Party Cash Deposit/Withdrawal at non-home branches

-Free National Electronic Funds Transfer facility, Net Banking, Phone Banking & Mobile
Banking.

Disadvantages of a Savings Account

1.Low Interest Rate

1. Savings accounts offer relatively low interest rates. For example, Bank of America's
regular savings account offers 0.10 percent APY, typically far below the yields on
CDs, IRAs, commodities, stocks and bonds.

Minimum Balance Requirement

2. Often there's a minimum balance that has to be kept with the bank. For example, if a
savings account balance falls below $100 at Iowa-Nebraska State Bank, a $5 charge is
levied.

FDIC Insured Limit

3. Up to $250,000 per bank is federally insured by the FDIC through 2013, so if you
wanted to deposit more than that, you would have to use two banks to get it all
insured.

Transaction Time Delay

 4. If transferring money, there may be a transaction time delay. Hasty banking moves can
incur a penalty because an account may be technically overdrawn for a brief time.
Transaction time delay is one to several business days, depending on the bank.

Numbers of Transfers Limit

5. To use Bank of America again, "You are limited to six withdrawals ... including bill
payments." If transfers in a billing cycle exceed the stated limit, a fee is levied even if
minimum balance is maintained.
6.

Post Office Savings Account

This scheme helps individuals, house-wives, minors and others in inculcating a habit of thrift
in themselves. The salient features of Post Offices Savings accounts are as under:

Who can open?

Any resident adult individual singly or jointly with one or two other adults. Minor's accounts
can be opened through guardians. A minor, who has attained 10 years age, can also open the
account.

Minimum amount
Rs. 50/- in case of account without cheque book facility.
Rs. 500/- in case of account with cheque book facility.

Maximum amount
Rs. 1,00,000/- in case of a single account. Rs. 2,00,000/- in case of joint accounts

Interest Rate
Current Interest Rate for the Post Office Savings Bank Account is 3.5 per cent.
The interest for a month is calculated on the lowest balance at credit of an account between
the close of the tenth day and end of the month. Such interest is calculated and credited in the
account at the end of each year.

Nomination facility
There is nomination facility available.

Transferability
Transferablity is possible.
Interest Taxability
The interest earned is exempt under section 10(15)(i).
Other Features :
Only one single and one joint account can be opened at one post office.

No interest is payable for the balance less than Rs.50 in any particular month and for the
balance more than Rs.1,00,000/- in a single account and Rs.200,000 in a joint account in a
year.

Post Office Recurring Deposit Scheme

Post Office Recurring Deposit Scheme provides the facility of saving small sums of money
every month to meet future financial goals and earn relatively higher risk free returns.

The salient features of the scheme are :

Who can open?

Any resident adult individual singly or jointly with one or two other adults. Minor's accounts
can be opened through guardians. A minor, who has attained 10 years age, can also open the
account.

Minimum amount
Monthly Rs. 10/-

Maximum amount

Any amount in multiples of Rs. 5/-

Interest Rate:
The interest paid varies as declared by the Directorate, Small Savings from time to time.

Interest Taxability
The interest received is taxable.

Other Features :

The amount of deposit made at the time of opening of the account cannot be varied.

The Recurring Deposit Account matures on the date on which it is opened after the end of
the term. In case the date of maturity falls on Sunday or postal holiday, the payment becomes
due on the business day immediately preceding the date of maturity.
The holder of an account may prematurely close the account after 3 years of date of opening
of the account. Interest at the rate applicable from time to time to Post Office Savings
Account shall be payable on such premature closure of account.

Post Office Senior Citizens Savings Scheme

Post Office Senior Citizens Savings Scheme has been notified with effect from August 2,
2004. The Scheme is for the benefit of senior citizens. The salient features of the scheme are
as under:

Who can open?

Any citizen, whose age is 60 years or above. A depositor may open the account in his
individual capacity or jointly with spouse.Citizens who have retired under a voluntary or a
special voluntary retirement scheme and have attained the age of 55 years are also eligible,
subject to specified conditions.Non-residents and HUFs are ineligible to open the account
under the scheme.

Minimum amount
Rs. 1,000/-
Maximum amount
Rs. 15,00,000/- (Rs. fifteen lacs)

Interest Rate:
9% per annum.
Interest is payable quarterly on 31st March, 30th June, 30th September and 31st December
If the interest payable every quarter is not claimed by a depositor, such interest do not earn
additional interest.

Premature withdrawal
In case the account is closed after expiry of one year but before expiry of two years from the
date of opening of the account, an amount equal to 1.5% of the deposit shall be deducted and
the balance paid to the depositor.

In case the account is closed on or after the expiry of two years from the date of opening of
the account, an amount equal to 1% of the deposit shall be deducted and the balance paid to
the depositor.

No deduction shall be made in case of premature closure of an account at any time due to
death of a depositor.
Deduction u/s 80C
Available w.e.f. Financial Year 2007-08 i.e. Assessment Year 2008-09

Post Office Time Deposit Scheme

Post Office Time Deposit Scheme offers the facility of investing surplus funds at relatively
higher rates of interest. The deposits made under this scheme for a period of 5 years are also
eligible for tax bebefits under section 80C of Income Tax Act.

The salient features of the scheme are as under:

Who can open?

Any individual singly or jointly with another adult. An adult individual on behalf of a minor.
Maximum amount
In multiples of Rs. 50/-. No upper limit.
Minimum amount
Rs. 200/-
Interest Rate:
One Year 6.25%
Two years 6.5%
Three years 7.25%
Five Years 7.5%

The interest on deposits is calculated on quarterly compounding basis and is payable

annually.
Premature withdrawal
No interest is paid for the deposit withdrawn prematurely after six months but before the
expiry of one year.

In case of deposits for two, three or five years withdrawn prematurely after the expiry of one
year from the date of deposit, interest is payable for the completed years and months at 2%
lower rate than specified for the completed period.
Post Office Monthly Income Scheme

Post Office Monthly Income Scheme (MIS) is meant for investors who want to invest a sum
amount initially and earn interest on a monthly basis for their livelihood. The scheme is,
therefore, more beneficial for retired persons. The salient features of the scheme are as under:

Who can open?

Any individual singly or jointly with other one or two adults. A guardian on behalf of minor
or a person of unsound mind.A minor who has attained the age of 10 years.

Interest Rate: 8 per cent per annum payable monthly. Additionally bonus of 10 per cent of
the deposit amount on maturity after six years.

Premature withdrawal
An amount equal to 5 per cent of the initial investment amount is deducted from the
payment, if the account is closed before three years from the date of the opening of the
account.
No amount is deducted for the withdrawal after three years. However, no bonus is applicable
to any premature closure of the Account

Other features
Deposits are exempt from Wealth Tax. Non-Resident Indians and HUFs are ineligible to
open the account.Facility of automatic credit of monthly interest to saving account if
accounts are at the same post office.Interest not withdrawn do not earn any interest.

Minors have a separate limit of investment of Rs. 3 lakhs and the same is not clubbed with
the limit of guardian.

6.National Savings Certificate (NSC) (VIII Issue)

National Savings Certificate, popularly known as NSC, is a time-tested tax saving instrument
that combines adequate returns with high safety. NSCs are an instrument for facilitating
long-term savings. A large chunk of middle class families use NSCs for saving on their tax,
getting double benefits. They not only save tax on their hard-earned income but also make an
investment which are sure to give good and safe returns.

Denominations and Limit

National Savings Certificates are available in the denominations of Rs. 100 Rs 500, Rs.
1000, Rs. 5000, & Rs. 10,000. There is no maximum limit on the purchase of the certificates.
So it is for you to decide how much you want to put in the NSCs. This is of course a huge
benefit for you can decide as much as your budget allows.

Maturity
Period of maturity of a certificate is six years. Presently interest paid is 8 % per annum half
yearly compounded. Maturity value of a certificate of any other denomination is at
proportionate rate. Premature encashment of the certificate is not permissible except at a
discount in the case of death of the holder(s), forfeiture by a pledge and when ordered by a
court of law.

Tax Benefits
Interest accrued on the certificates every year is liable to income tax but deemed to have
been reinvested. Income Tax rebate is available on the amount invested and interest accruing
under Section 88 of Income Tax Act, as amended from time to time.
Income tax relief is also available on the interest earned as per limits fixed vide section 80L
of Income Tax, as amended from time to time.
 SHARES

shares are best investment avenue available from a long period of time. share is a unit of
account for various financial instruments including stocks, mutual funds, limited
partnerships, and REIT's. In British English, the usage of the word share alone to refer solely
to stocks is so common that it almost replaces the word stock itself.

In simple Words, a share or stock is a document issued by a company, which entitles its
holder to be one of the owners of the company. A share is issued by a company or can be
purchased from the stock market.

RETURN YOU GET ON SHARES:

By owning a share you can earn a portion and selling shares you get capital gain. So, your
return is the dividend plus the capital gain. However, you also run a risk of making a capital
loss if you have sold the share at a price below your buying price.

Characterstic :

• Owning a stock or a share means you are a partial owner of the company, and you get
voting rights in certain company issues
• Over the long run, stocks have historically averaged about 10% annual returns
However, stocks offer no guarantee of any returns and can lose value, even in the long
run
• Investments in stocks can generate returns through dividends,
How does one trade in shares ?

Every transaction in the stock exchange is carried out through licensed members called
brokers.

To trade in shares, you have to approach a broker However, since most stock exchange
brokers deal in very high volumes, they generally do not entertain small investors.
These brokers have a network of sub-brokers who provide them with orders.

The general investors should identify a sub-broker for regular trading in shares and palce
his order for purchase and sale through the sub-broker. The sub/broker will
transmit the order to his broker who will then execute it .

There are two type of shares:

There are two main types of stocks: common stock and preferred stock. Common Stock
Common stock is, well, common Types:
– EQUITY OR COMMON STOCK
– PREFERRED STOCK OR PREFERENCE SHARES

Equity Capital:
. When people talk about stocks they are usually referring to this type. In fact, the majority of
stock is issued is in this form. We basically went over features of common stock in the last
section. 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. Over the long term, common stock, by means of
capital growth, yields higher
• Risk: Since the investor has ownership rights; the risk faced by the investors is
obviously high.
• No preferential rights: At the time of winding up of the company, the equity share
holders are not given preferential rights for repayment of funds.
• Voting rights : They have voting rights. All major company decisions cannot be taken
without the consent of the equity share holders.
 • Tax treatment:
– Dividends are tax free in the hands of shareholders
– After October 1, 2004 equity share sold through a recognized stock exchange
would be entitled for an exemption from the Long Term Capital Gains provided
STT (Securities Transaction Tax)has been paid

OPTIONS RELATED TO EQUITY SHARES

1. LIMITED PARTNERSHIP
– A limited partnership (LP) consists of two or more persons, with at least one
general partner and one limited partner.
– It is a separate entity and files taxes as a separate entity.
– Created by statute (Revised Uniform Limited Partnership Act)
– General Partners pay the Limited Partners a return on their investment.

– Tax treatment:
• LPs and general partnerships have been accorded the same tax treatment.
• Taxation is in the hands of the entity, profit accruing is exempt from tax
• Remuneration of partners, taxed under ‘income from business and
profession’
• Conversion from general to LLP- no tax obligation provided the rights &
obligations remain same.

2. PRIVATE PLACEMENT

– Issue of shares or of convertible securities by a company to a select group of

persons under Section 81 of the Companies Act, 1956
– Types:
• Preferential allotment
• Qualified institutional placement

3. DIVIDEND REINVESTMENT PLAN (DRIP)

– Equity investment option offered directly from the underlying company.
– Returns from dividends immediately invested for the purpose of price
appreciation
– No brokerage fees

– Tax treatment :
• No tax deductions or rebates given.
ADR, GDR and IDR :

• Negotiable certificates or financial instruments that provide investors ownership rights

to stocks or bonds in a foreign country
• Foreign Venture Capital Investors (FVCIs) and Venture Capital funds (VCFs) would
not be eligible to invest in IDRs.
• No tax exemption or rebate available for these instruments

PREFERRED STOCK
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 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 anytime for any reason (usually for a premium). Some people
consider preferred stock to be more like debt than equity. A good way to think of these kinds
of shares is to see them as being in between bonds and common shares

• They have a prior claim on the assets of the company in the event of liquidation
• Less risky

• Types:
– Cumulative or non- cumulative : The dividend if not paid in case of a
cumulative preference shares accumulates and is paid at a later date.
– Redeemable or non- redeemable : irredeemable preference shares are no longer
in existence.
– Participating or non-participating : this implies having voting right and not
having them
– Convertible & Non convertible : into equity shares

• Tax treatment:
– Classified as ‘franked investment income’
– No standard rate tax to be paid on the income
HYBRID SECURITIES

• Combines the elements of the two broader groups of securities DEBT and EQUITY
• Predictable return until certain date
• Options available at maturity

• Examples:
– Preference shares
– Convertible/ exchangeable bond
– Warrants
– Options
• Tax treatment:
– Based on the different hybrid securities used
8.Real Estate Investments
The most basic definition real estate is "an interest in land". Broadening that definition
somewhat, the word "interest" can mean either an ownership interest (also known as a fee-
simple interest) or a leasehold interest. In an ownership interest, the investor is entitled to the
full rights of ownership of the land (for example, to legally use and transfer the title of the
land/property), and must also assume the risks and responsibilities of a landowner (for
example, any losses as a result of natural disasters and the obligation to pay property taxes).
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.

Real estate investments fall into one of the four following categories: private equity, public
equity, private debt and public debt. Your choice of which one to invest in depends on the
type of exposure you are seeking for your portfolio.
The first type of market you could participate in is the private market. In the private market,
you would be purchasing a direct interest in one or more real estate properties. You would
own and operate the piece of real estate yourself (or through a property manager), and you
would receive the rent payments and value changes from that investment.
Alternatively, you could choose to invest in the public real estate market. You would be
participating in the public market if you purchased a share or unit in a publicly traded real
estate company, such as a real estate investment trust (REIT).
When you invest in debt, you are lending funds to an owner or purchaser of real estate. You
receive periodic interest payments from the owner and a security charge against the property
in the form of a mortgage. At the end of the mortgage term, you get back the balance of your
mortgage principal. This type of real estate investing is quite like that of bonds.
An equity investment, on the other hand, represents a residual interest in the property. When
you are an equity investor, you are essentially the owner of the property. You stand to gain a
lot when the property value increases or if you are able to get more rent for your building.
Income-Producing and Non-Income-Producing Investments There are four broad types
of income-producing real estate: offices, retail, industrial and leased residential. There are
many other less common types as well, such as hotels, mini-storage, parking lots and seniors
care housing. The key criteria in these investments that we are focusing on is that they are
income producing. Non-income-producing investments, such as houses, vacation properties
or vacant commercial buildings, are as sound as income-producing investments. Just keep in
mind that if you invest equity in a non-income producing property you will not receive any
rent, so all of your return must be through capital appreciation. If you invest in debt secured
by non-income-producing real estate, remember that the borrower's personal income must be
sufficient to cover the mortgage payments, because there is no tenant income to secure the
payments
Characterstic of real state investment:
1. Capital appreciation
Real estate appreciates in capital - particularly land and property.A key aspect of the capital
appreciation is that, it can be realised only when it is sold. This has to be factored in before
making an investment decision. The capital appreciation of the house can favorably be used
in the form of a mortgage loan for business purpose or in the form of a reverse mortgage post
retirement.

2. Risk
The risk with real estate is that it can go down sharply too. The current worldwide economic
turmoil is because of real estate prices dropping more than the expectation. The other risk is
related to its liquidity itself. Real estate prices in India do not have a formal/scientific basis
for quoting. Brokers are the key pins holding the structure together.
3. Liquidity
Real estate is probably the most illiquid of all common investment avenues. If there is an
urgency to sell a property the value could drop drastically. Selling at 'Market Price' is
counted in number of months not days.

4.No fixed maturity

Unlike a bond which has a fixed maturity date, an equity real estate investment does not
normally mature . An exception to this characteristic is an investment in fixed-term debt; by
definition a mortgage would have a fixed maturity.

5.Tangible

Real estate is, well, real! You can visit your investment, speak with your tenants, and show
it off to your family and friends. You can see it and touch it.

6.Requires Management

Because real estate is tangible, it needs to be managed in a hands-on manner. Tenant

complaints must be addressed. Landscaping must be handled. And, when the building starts
to age, it needs to be renovated.

7.Inefficient Markets

An inefficient market is not necessarily a bad thing. It just means that information
asymmetry exists among participants in the market, allowing greater profits to be made by
those with special information, expertise or resources. In contrast, public stock markets are
much more efficient - information is efficiently disseminated among market participants, and
those with material non-public information are not permitted to trade upon the information.
In the real estate markets, information is king, and can allow an investor to see profit
opportunities that might otherwise not have presented themselves.

8. High Transaction Costs

Private market real estate has high purchase costs and sale costs. On purchases, there are
real-estate-agent-related commissions, lawyers' fees, engineers' fees and many other costs
that can raise the effective purchase price well beyond the price the seller will actually
receive. On sales, a substantial brokerage fee is usually required for the property to be
properly exposed to the market. Because of the high costs of “trading” real estate, longer
holding periods are common and speculative trading is rarer than for stocks.

9. Lower Liquidity With the exception of real estate securities, no public exchange exists for
the trading of real estate. This makes real estate more difficult to sell because deals must be
privately brokered. There can be a substantial lag between the time you decide to sell a
property and when it actually is sold - usually a couple months at least.

10. Underlying Tenant Quality When assessing an income-producing property, an important

consideration is the quality of the underlying tenancy. This is important because when you
purchase the property, you're buying two things: the physical real estate, and the income
stream from the tenants. If the tenants are likely to default on their monthly obligation, the
risk of the investment is greater.

11. Variability among Regions While it sounds cliché, location is one of the important
aspects of real estate investments; a piece of real estate can perform very differently among
countries, regions, cities and even within the same city. These regional differences need to be
considered when making an investment, because your selection of which market to invest in
has as large an impact on your eventual returns as your choice of property within the market.

IV. Tax treatment

Real estate attracts capital gains tax. The advantage is that we can use indexation benefits to
our advantage. The indexation index is announced every year by the income tax department.
This is a number, which links the inflation to property values. By using indexation, we can
estimate the true appreciation of the real estate after adjusting for inflation.
The tax on the sale of the only house or agricultural property can be brought down to zero by
reinvesting the sale proceeds in a new house or agricultural property. The capital gains can
also be invested in low interest yielding Capital Gains Bonds.

Benefits Some of the benefits of having real estate in your portfolio are as follows:

1. 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.

2.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.

3. 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.
 4. Ability to Influence Performance Examples of such activities include: replacing a
leaky roof, improving the exterior and re-tenanting the building with higher quality
tenants. An investor has a greater degree of control over the performance of a real
estate investment than other types of investments.

Disadvantages:

Costly to Buy, Sell and Operate - For transactions in the private real estate market,
transaction costs are significant when compared to other investment classes

Real estate is also costly to operate because it is tangible and requires ongoing maintenance.

Requires Management - With some exceptions, real estate requires ongoing management at
two levels. First, you require property management to deal with the day-to-day operation of
the property. Second, you need strategic management of the property to consider the longer
term market position of the investment.

Difficult to Acquire - It can be a challenge to build a meaningful, diversified real estate

portfolio. Purchases need to be made in a variety of geographical locations and across asset
classes, which can be out of reach for many investors.

Performance Measurement :
Risk and return are easy to determine in the stock market but measuring real estate
performance is much more challenging.
9.DERIVATIVES

Derivative is a product whose value is derived from the value of one or more
basic variables, called bases (underlying asset, index, or reference rate), in a
contractual manner. The underlying asset can be equity, forex, commodity or
any other asset. For example, wheat farmers may wish to sell their harvest at
a future date to eliminate the risk of a change in prices by that date. Such a
transaction is an example of a derivative. The price of this derivative is driven
by the spot price of wheat which is the "underlying".

In the Indian context the Securities Contracts (Regulation) Act, 1956

(SC(R)A) defines "derivative" to include-
1. A security derived from a debt instrument, share, loan whether secured or
unsecured, risk instrument or contract for differences or any other form
of security.

2. A contract which derives its value from the prices, or index of prices, of
underlying securities.

DERIVATIVE PRODUCTS

Derivative contracts have several variants. The most common variants are
forwards, futures, options and swaps.

Forwards: A forward contract is a customized contract between two entities, where

settlement takes place on a specific date in the future at today's pre-agreed
price.

Futures: A futures contract is an agreement between two parties to buy or sell an

asset at a certain time in the future at a certain price. Futures contracts are special
types of forward contracts in the sense that the former are standardized
exchange-traded contracts.
.

Options: 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.

Warrants: Options generally have lives of upto one year, the majority of
options traded on options exchanges having a maximum maturity of nine
months. Longer-dated options are called warrants and are generally traded
over-the-counter.

LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities.

These are options having a maturity of upto three years.

Baskets: Basket options are options on portfolios of underlying assets. The

underlying asset is usually a moving average of a basket of assets. Equity
index options are a form of basket options.

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:

 Interest rate swaps: These entail swapping only the interest related cash
flows between the parties in the same currency.

 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.

Swaptions: Swaptions are options to buy or sell a swap that will become
operative at the expiry of the options. Thus a swaption is an option on a forward
swap. Rather than have calls and puts, the swaptions market has receiver
swaptions and payer swaptions. A receiver swaption is an option to receive fixed and
pay floating. A payer swaption is an option to pay fixed and receive floating.

PARTICIPANTS IN THE DERIVATIVES MARKETS

The following three broad categories of participants - hedgers, speculators,

and arbitrageurs trade in the derivatives market.

1. Hedgers face risk associated

with the price of an asset. They use futures or options markets to reduce or
eliminate this risk.

2. Speculators wish to bet on future movements in the price

of an asset. Futures and options contracts can give them an extra leverage;
that is, they can increase both the potential gains and potential losses in a
speculative venture.
 3. Arbitrageurs are in business to take advantage of a
discrepancy between prices in two different markets. If, for example, they
see the futures price of an asset getting out of line with the cash price, they
will take offsetting positions in the two markets to lock in a profit.

Advantages:

Investors typically use derivatives for three reasons:

1.To hedge a position: Hedging a position is usually done to protect against or insure the risk
of an asset. For example if you own shares of a stock and you want to protect against the
chance that the stock's price will fall, then you may buy a put option. In this case, if the stock
price rises you gain because you own the shares and if the stock price falls, you gain because
you own the put option. The potential loss from holding the security is hedged with the
options position.

2.To increase leverage:Leverage can be greatly enhanced by using derivatives. Derivatives,

specifically options are most valuable in volatile markets. When the price of the underlying
asset moves significantly in a favorable direction, then the movement of the option is
magnified. Many investors watch the Chicago Board Options Exchange Volatility Index
(VIX) which measures the volatility of the S&P 500 Index options. High volatility increases
the value of both puts and calls.

3.To speculate on an asset's movement: Speculating is a technique when investors bet on the
future price of the asset. Because options offer investors the ability to leverage their
positions, large speculative plays can be executed at a low cost

Trading
Derivatives can be bought or sold in two ways. Some are traded over-the-counter (OTC)
while others are traded on an exchange. OTC derivatives are contracts that are made
privately between parties such as swap agreements. This market is the larger of the two
markets and is not regulated. Derivatives that trade on an exchange are standardized
contracts. The largest difference between the two markets is that with OTC contracts, there is
counterparty risk since the contracts are made privately between the parties and are
unregulated, while the exchange derivatives are not subject to this risk due to the clearing
house acting as the intermediary.
10.GOVERNMENT SECURITIES

Government securities(G-secs) are sovereign securities which are issued by the Reserve
Bank of India on behalf of Government of India,in lieu of the Central Government's market
borrowing programe.
The term Government Securities includes:
Central Government Securities.
Central Government Securities.
State Government Securities
Treasury bills
The Central Government borrows funds to finance its 'fiscal deficit'.The market borrowing of
the Central Government is raised through the issue of dated securities and 364 days treasury
bills either by auction or by floatation of loans.
In addition to the above, treasury bills of 91 days are issued for managing the temporary cash
mismatches of the Government. These do not form part of the borrowing programme of the
Central Government.

Types of Government Securities

Government Securities are of the following types: -

Dated Securities : They are generally fixed maturity and fixed coupon securities usually
carrying semiannual coupon. These are called dated securities because these are identified by
their date of maturity and the coupon, e.g., 11.03% GOI 2012 is a Central Government
security maturing in 2012, which carries a coupon of 11.03% payable half yearly. The key
features of these securities are:
They are issued at face value.
Coupon or interest rate is fixed at the time of issuance, and remains constant till
redemption of the security.
The tenor of the security is also fixed.
Interest /Coupon payment is made on a half yearly basis on its face value.
The security is redeemed at par (face value) on its maturity date.
Zero Coupon bonds: These are bonds issued at discount to face value and redeemed at par.
These were issued first on January 19, 1994 and were followed by two subsequent issues in
1994-95 and 1995-96 respectively. The key features of these securities are:
They are issued at a discount to the face value.
The tenor of the security is fixed.
The securities do not carry any coupon or interest rate. The difference between the
issue price (discounted price) and face value is the return on this security.
The security is redeemed at par (face value) on its maturity date.

Partly Paid Stock: This is stock where payment of principal amount is made in installments
over a given time frame. It meets the needs of investors with regular flow of funds and the
need of Government when it does not need funds immediately. The first issue of such stock
of eight year maturity was made on November 15, 1994 for Rs. 2000 crore. Such stocks have
been issued a few more times thereafter. The key features of these securities are:
They are issued at face value, but this amount is paid in installments over a specified
period.
Coupon or interest rate is fixed at the time of issuance, and remains constant till
redemption of the security.
The tenor of the security is also fixed.
Interest /Coupon payment is made on a half yearly basis on its face value.
The security is redeemed at par (face value) on its maturity date.

Floating Rate Bonds: These are bonds with variable interest rate with a fixed percentage
over a benchmark rate. There may be a cap and a floor rate attached thereby fixing a
maximum and minimum interest rate payable on it. Floating rate bonds of four year maturity
were first issued on September 29, 1995, followed by another issue on December 5, 1995.
Recently RBI issued a floating rate bond, the coupon of which is benchmarked against
average yield on 364 Days Treasury Bills for last six months. The coupon is reset every
six months. The key features of these securities are:
They are issued at face value.
Coupon or interest rate is fixed as a percentage over a predefined benchmark rate at the
time of issuance. The benchmark rate may be Treasury bill rate, bank rate etc.
Though the benchmark does not change, the rate of interest may vary according to the
change in the benchmark rate till redemption of the security. The tenor of the security is also
fixed.
Interest /Coupon payment is made on a half yearly basis on its face value.
The security is redeemed at par (face value) on its maturity date.

Bonds with Call/Put Option: First time in the history of Government Securities market RBI
issued a bond with call and put option this year. This bond is due for redemption in 2012 and
carries a coupon of 6.72%. However the bond has call and put option after five years i.e. in
year 2007. In other words it means that holder of bond can sell back (put option) bond to
Government in 2007 or Government can buy back (call option) bond from holder in 2007.
This bond has been priced in line with 5 year bonds.

Capital indexed Bonds: These are bonds where interest rate is a fixed percentage over the
wholesale price index. These provide investors with an effective hedge against inflation.
These bonds were floated on December 29, 1997 on tap basis. They were of five year
maturity with a coupon rate of 6 per cent over the wholesale price index. The principal
redemption is linked to the Wholesale Price Index. The key features of these securities are:
They are issued at face value.
Coupon or interest rate is fixed as a percentage over the wholesale price index at the time
of issuance. Therefore the actual amount of interest paid varies according to the change in
the Wholesale Price Index.
The tenor of the security is fixed.
Interest /Coupon payment is made on a half yearly basis on its face value.
The principal redemption is linked to the Wholesale Price Index.

Features of Government Securities

Nomenclature
The coupon rate and year of maturity identifies the government security.
Example: 12.25% GOI 2008 indicates the following:
12.25% is the coupon rate, GOI denotes Government of India, which is the borrower, 2008 is
the year of maturity.

Eligibility
All entities registered in India like banks, financial institutions, Primary Dealers, firms,
companies, corporate bodies, partnership firms, institutions, mutual funds, Foreign
Institutional Investors, State Governments, Provident Funds, trusts, research organizations,
Nepal Rashtra bank and even individuals are eligible to purchase Government Securities.

Availability
Government securities are highly liquid instruments available both in the primary and
secondary market. They can be purchased from Primary Dealers. PNB Gilts Ltd., is a leading
Primary Dealer in the government securities market, and is actively involved in the trading of
government securities.

Forms of Issuance of Government Securities

Banks, Primary Dealers and Financial Institutions have been allowed to hold these
securities with the Public Debt Office of Reserve Bank of India in dematerialized form in
accounts known as Subsidiary General Ledger (SGL) Accounts.
Entities having a Gilt Account with Banks or Primary Dealers can hold these securities
with them in dematerialized form.
In addition government securities can also be held in dematerialized form in demat
accounts maintained with the Depository Participants of NSDL.

Minimum Amount
In terms of RBI regulations, government dated securities can be purchased for a minimum
amount of Rs. 10,000/-only.Treasury bills can be purchased for a minimum amount of Rs
25000/- only and in multiples there of. State Government Securities can be purchased for a
minimum amount of Rs 1,000/- only.
Repayment
Government securities are repaid at par on the expiry of their tenor. The different repayment
methods are as follows :
For SGL account holders, the maturity proceeds would be credited to their current
accounts with the Reserve Bank of India.
For Gilt Account Holders, the Bank/Primary Dealers, would receive the maturity proceeds
and they would pay the Gilt Account Holders.
For entities having a demat account with NSDL,the maturity proceeds would be collected
by their DP's and they in turn would pay the demat Account Holders.

Day Count
For government dated securities and state government securities the day count is taken as
360 days for a year and 30 days for every completed month. However for Treasury bills it is
365 days for a year.

Benefits of Investing in Government Securities

No tax deducted at source

Additional Income Tax benefit u/s 80L of the Income Tax Act for Individuals
Qualifies for SLR purpose
Zero default risk being sovereign paper
Highly liquid.
Transparency in transactions and simplified settlement procedures through CSGL/NSDL
Methods of Issuance of Government Securities
Government securities are issued by various methods, which are as follows:

Auctions:
Auctions for government securities are either yield based or price based.
 In an yield based auction, the Reserve Bank of India announces the issue size(or notified
amount) and the tenor of the paper to be auctioned. The bidders submit bids in terms of the
yield at which they are ready to buy the security.
 In a price based auction, the Reserve Bank of India announces the issue size(or notified
amount), the tenor of the paper to be auctioned, as well as the coupon rate. The bidders
submit bids in terms of the price. This method of auction is normally used in case of reissue
of existing government securities.
The basic features of the auctions are given below:

Method of auction: There are two methods of auction which are followed-

Uniform
 price Based or Dutch Auction: procedure is used in auctions of dated
government securities. The bids are accepted at the same prices as decided in the cut off.

Multiple/variable Price Based or French Auction: procedure is used in auctions of

Government dated securities and treasury bills. Bids are accepted at different prices / yields
quoted in the individual bids.

 Bids:
 Bids are to be submitted in terms of yields to maturity/prices as announced at the
time of auction.

 Cut off yield: is the rate at which bids are accepted. Bids at yields higher than the cut-off
yield is rejected and those lower than the cut-off are accepted. The cut-off yield is set as the
coupon rate for the security. Bidders who have bid at lower than the cut-off yield pay a
premium on the security, since the auction is a multiple price auction.
 Cut off price: It is the minimum price accepted for the security. Bids at prices lower than
the cut-off are rejected and at higher than the cut-off are accepted. Coupon rate for the
security remains unchanged. Bidders who have bid at higher than the cut-off price pay a
premium on the security, thereby getting a lower yield. Price based auctions lead to finer
price discovery than yield based auctions.

 Notified amount: The amount of security to be issued is ‘notified’ prior to the auction
date, for information of the public. The Reserve Bank of India (RBI) may participate as a
non-competitor in the auctions. The unsubscribed portion devolves on RBI or on the Primary
Dealers if the auction has been underwritten by PDs. The devolvement is at the cut-off
price/yield.

Underwriting in Auction.
 Underwriting fee is paid at the rates bid by PDs , for the underwriting which has been
accepted.
 In case of the auction being fully subscribed, the underwriters do not have to subscribe to
the issue necessarily unless they have bid for it.
If there is a devolvement, the successful bids put in by the Primary Dealers are set-off against
the amount amount underwritten by them while deciding the amount of devolvement.

On-tap issue
This is a reissue of existing Government securities having pre-determined yields/prices by
Reserve Bank of India. After the initial primary auction of a security, the issue remains open
to further subscription by the investors as and when considered appropriate by RBI. The
period for which the issue is kept open may be time specific or volume specific. The coupon
rate, the interest dates and the date of maturity remain the same as determined in the initial
primary auction. Reserve Bank of India may sell government
securities through on tap issue at lower or higher prices than the prevailing market prices.
Such an action on the part of the Reserve Bank of India leads to a realignment of the market
prices of government securities. Tap stock provides an opportunity to unsuccessful bidders in
auctions to acquire the security at the market determined rate.

Fixed coupon issue

Government Securities may also be issued for a notified amount at a fixed coupon. Most
State Development Loans or State Government Securities are issued on this basis.

Private Placement
The Central Government may also privately place government securities with Reserve Bank
of India. This is usually done when the Ways and Means Advance (WMA) is near the
sanctioned limit and the market conditions are not conducive to an issue. The issue is priced
at market related yields. Reserve Bank of India may later offload these securities to the
market through Open Market Operations (OMO). After having auctioned a loan whereby the
coupon rate has been arrived at and if still the government feels the need for funds for similar
tenure, it may privately place an amount with the Reserve Bank of India. RBI in turn may
decide upon further selling of the security so purchased under the Open Market Operations
window albeit at a different yield.

Open Market Operations (OMO)

Government securities that are privately placed with the Reserve Bank of India are sold in
the market through open market operations of the Reserve Bank of India. The yield at which
these securities are sold may differ from the yield at which they were privately placed with
Reserve Bank of India. Open market operations are used by the Reserve Bank of India to
infuse or suck liquidity from the system. Whenever the Reserve Bank of India wishes to
infuse the liquidity in the system, it purchases government securities
from the market, and whenever it wishes to suck out the liquidity from the system, it sells
government securities in the market.
11.What are fixed deposit?
Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit Account, a certain
sum of money is deposited in the bank for a specified time period with a fixed rate of
interest. The rate of interest for Bank Fixed Deposits depends on the maturity period. It is
higher in case of longer maturity period. There is great flexibility in maturity period and it
ranges from 15days to 5 years. The interest can be compounded quaterly, half-yearly or
annually and varies from bank to bank. Minimum deposit amount is Rs 1000/- and there is
no upper limit. Loan / overdraft facility is available against bank fixed deposits. Premature
withdrawal is permissible but it involves loss of interest.

Advantages of Fixed Deposit

• Fixed deposits with the banks are nearly 100% safe as all the banks operating in the
country, irrespective of whether they are nationalised, private, or foreign, are governed by
the RBI's rules and regulations, and give due weightage to the interest of the investor. Till
recently, all bank deposits were insured under the Deposit Insurance & Credit Guarantee
Scheme of India, which has now been made optional. Nonetheless, bank deposits are among
the safest modes of investment.
• One can get loans up to 75- 90% of the deposit amount from banks against fixed
deposit receipts. Though the interest charged will be slightly more than the interest earned by
the deposit.

DISADVANTAGE:
the money cannot be withdrawn until the duration is complete, the funds cannot be used even
in emergency situations.
. Changes in the goinginterest rate may also rise to a point above and beyond the interest rate
applied to existing deposits. This means account holders are actually earning less interest
with fixed deposits than with other types of loans and accounts.

Tax Implications

1. The amount invested in fixed deposits with a maturity period of 5 years in a Scheduled
bank is eligible for tax deduction under section 80C. However, the interest earned on the
deposit is taxable.
2. Tax will be deducted at the source, if the interest income on a fixed deposit per annum
exceeds Rs.10000.

How to open a bank fixed deposit a/c?

You can open a FD account with any bank, be it nationalized, private or foreign and make
the deposit. However, some banks insist that you open a savings account with them to
operate a FD.

Before opening a fixed deposit account, check the financial position of the bank. Also, try to
check the rates of interest for different banks for different periods. Instead of putting a big
amount in one fixed deposit, keep the amount in five or ten small deposits.
12. INSURANCE

In law and economics, insurance is a form of risk management primarily used to hedge
against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer
of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a
company selling the insurance; an insured or policyholder is the person or entity buying the
insurance policy. The insurance rate is a factor used to determine the amount to be charged
for a certain amount of insurance coverage, called the premium. Risk management, the
practice of appraising and controlling risk, has evolved as a discrete field of study and
practice.

The transaction involves the insured assuming a guaranteed and known relatively small loss
in the form of payment to the insurer in exchange for the insurer's promise to compensate
(indemnify) the insured in the case of a large, possibly devastating loss. The insured receives
a contract called the insurance policy which details the conditions and circumstances under
which the insured will be compensated.

Insurance involves pooling funds from many insured entities (known as exposures) in order
to pay for relatively uncommon but severely devastating losses which can occur to these
entities. The insured entities are therefore protected from risk for a fee, with the fee being
dependent upon the frequency and severity of the event occurring. In order to be insurable,
the risk insured against must meet certain characteristics in order to be an insurable risk.
Insurance is a commercial enterprise and a major part of the financial services industry, but
individual entities can also self-insure through saving money for possible future losses.

Types of insurance

Term insurance plans

Term insurance is the cheapest form of life insurance available. Since a term insurance
contract only pays in the event of eventuality the life cover comes at low premium
 rates . Term insurance is a useful tool to purchase against risk of early death and
protection of an asset.

Endowment plans

Endowment plans are savings and protection plans that provide a dual benefit of protection
as well as savings. Endowment plans pay a death benefit in the event of an eventuality
should the customer survive the benefit period a maturity benefit is paid to the life insured.

Whole of life plans

A whole of life plan provides life insurance cover to an individual upto a specified age . A
whole of life plan is suitable for an individual who is looking for an extended life insurance
cover and /or wants to pay premium over as long as tenure as possible to reduce the amount
of upfront premium payment.

Pension plans

Pension plans allow an individual to save in a tax deferred manner. An individual can either
contribute through regular premiums or make a single premium investments. Savings
accumulate over the deferment period. Once the contract reaches the vesting age , the
individual has the option of choosing an annuity plan from a life insurance company. An
annuity is paid till the life the lifetime of the insured or a predetermined
period depending upon the annuity option chosen by the life insured.

Unit Linked Insurance Plans

Unit linked insurance plan (ULIP) is life insurance solution that provides for the benefits of
risk protection and flexibility in investment. The investment is denoted as units and is
represented by the value that it has attained called as Net Asset Value (NAV). The policy
value at any time varies according to the value of the underlying assets at the time.
In a ULIP, the invested amount of the premiums after deducting for all the charges and
premium for risk cover under all policies in a particular fund as chosen by the policy holders
are pooled together to form a Unit fund. A Unit is the component of the Fund in a Unit
Linked Insurance Policy. The returns in a ULIP depend upon the performance of the fund in
the capital market. ULIP investors have the option of investing across various schemes, i.e.,
diversified equity funds, balanced funds, debt funds etc. It is important to remember that in a
ULIP, the investment risk is generally borne by the investor.
In a ULIP, investors have the choice of investing in a lump sum (single premium) or making
premium payments on an annual, half-yearly, quarterly or monthly basis. Investors also have
the flexibility to alter the premium amounts during the policy's tenure. For example, if an
individual has surplus funds, he can enhance the contribution in ULIP. Conversely an
individual faced with a liquidity crunch has the option of paying a lower amount (the
difference being adjusted in the accumulated value of his ULIP). ULIP
investors can shift their investments across various plans/asset classes (diversified equity
funds, balanced.

Risks which can be insured by private companies typically share seven common
characteristics:

1. Large number of similar exposure units. Since insurance operates through pooling

resources, the majority of insurance policies for individual members of large classes,
allowing insurers to benefit from the law of large numbers in which predicted losses
are similar to the actual losses. Exceptions include Lloyd's of London, which is
famous for insuring the life or health of actors, actresses and sports figures. However,
all exposures will have particular differences, which may lead to different 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 death of an insured person on a life insurance
policy. Fire, automobile accidents, and worker injuries may all easily meet this
criterion. Other types of losses may only be definite in theory. Occupational disease,
 for instance, may involve prolonged exposure to injurious conditions where no
specific time, place or cause is identifiable. Ideally, the time, place and cause of a loss
should be clear enough that a reasonable person, with sufficient information, could
objectively verify all three elements.
3. Accidental Loss. The event that constitutes the trigger of a claim should be fortuitous,

or at least outside the control of the beneficiary of the insurance. The loss should be
‘pure,’ in the sense that it results from an event for which there is only the opportunity
for cost. Events that contain speculative elements, such as ordinary business risks, are
generally not considered insurable.
4. Large Loss. The size of the loss must be meaningful from the perspective of the

insured. Insurance premiums need to cover both the expected cost of losses, plus the
cost of issuing and administering the policy, adjusting losses, and supplying the capital
needed to reasonably assure that the insurer will be able to pay claims. For small
losses these latter costs may be several times the size of the expected cost of losses.
There is little point in paying such costs unless the protection offered has real value to
a buyer.
5. Affordable Premium. If the likelihood of an insured event is so high, or the cost of

the event so large, that the resulting premium is large relative to the amount of
protection offered, it is not likely that anyone will buy insurance, even if on offer.
Further, as the accounting profession formally recognizes in financial accounting
standards, the premium cannot be so large that there is not a reasonable chance of a
significant loss to the insurer. If there is no such chance of loss, the transaction may
have the form of insurance, but not the substance.
6. Calculable Loss. There are two elements that must be at least estimable, if not

formally calculable: the probability of loss, and the attendant cost. Probability of loss
is generally an empirical exercise, while cost has more to do with the ability of a
reasonable person in possession of a copy of the insurance policy and a proof of loss
associated with a claim presented under that policy to make a reasonably definite and
objective evaluation of the amount of the loss recoverable as a result of the claim.
7. Limited risk of catastrophically large losses. Insurable losses are ideally

independent and non-catastrophic, meaning that the one 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, on the order of 5 percent. Capital constrains insurers' ability to sell
earthquake insurance as well as wind insurance in hurricane zones. In the U.S., flood
risk is insured by the federal government. In commercial fire insurance it is possible to
find single properties whose total exposed value is well in excess of any individual
insurer’s capital constraint. Such properties are generally shared among several
insurers, or are insured by a single insurer who syndicates the risk into the reinsurance
market.

When a company insures an individual entity, there are basic legal requirements. Several
commonly cited legal principles of insurance include:

1. Indemnity – the insurance company indemnifies, or compensates the insured in the

case of certain losses only up to the insured's interest

2. Insurable interest – the insured typically must directly suffer from the loss. Insurable

interest must exist whether property insurance or insurance on a person is involved.

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 a good faith bond of

honesty and fairness

4. Contribution – insurers which have similar obligations to the insured contribute in the

indemnification, 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 insured's loss

Tax Benefits on Insurance and Pension

Life insurance and retirement plans are effective ways to save taxes when doing your year
end tax planning. To assist you in tax planning, the tax breaks that are available under our
various insurance and pension policies are described below:

1. Our life insurance plans are eligible for tax deduction under Sec. 80C.
2. Our Pension plans are eligible for a tax deduction under Sec. 80CCC.
3. Our health insurance plans/riders are eligible for tax deduction under Sec. 80D.
4. The proceeds or withdrawals of our life insurance policies are exempt under Sec
10(10D), subject to norms prescribed in that section.
Life insurance, especially tailored to meet your financial needs:

Need for Life Insurance

Today, there is no shortage of investment options for a person to choose from. Modern
day investments include gold, property, fixed income instruments, mutual funds and of
course, life insurance. Given the plethora of choices, it becomes imperative to make the
right choice when investing your hard-earned money. Life insurance is a unique
investment that helps you to meet your dual needs - saving for life's important goals,
and protecting your assets.

Let us look at these unique benefits of life insurance in detail.

Asset Protection

From an investor's point of view, an investment can play two roles - asset appreciation
or asset protection. While most financial instruments have the underlying benefit of
asset appreciation, life insurance is unique in that it gives the customer the reassurance
of asset protection, along with a strong element of asset appreciation.

The core benefit of life insurance is that the financial interests of one’s family remain
protected from circumstances such as loss of income due to critical illness or death of
the policyholder. Simultaneously, insurance products also have a strong inbuilt wealth
creation proposition. The customer therefore benefits on two counts and life insurance
occupies a unique space in the landscape of investment options available to a customer.

Goal based savings

Each of us has some goals in life for which we need to save. For a young, newly married
couple, it could be buying a house. Once, they decide to start a family, the goal changes
to planning for the education or marriage of their children. As one grows older, planning
for one's retirement will begin to take precedence.

Clearly, as your life stage and therefore your financial goals change, the instrument in
which you invest should offer corresponding benefits pertinent to the new life stage.

Life insurance is the only investment option that offers specific products tailormade for
13.Antiques :

The market seeks the rare and one of a kind. Antiques offer a unique opportunity for
investors because they can perform double duty as an investment and a home decoration. But
when keeping investment grade antiques in the home, investors need to take some
precautions. Special care and cleaning is likely to be required, and there are many books on
these subjects that can be used for reference. Possibly the most important thing is insurance.
Valuable antiques must be specifically insured, rather than simply included as part of a
general home insurance policy, if investors want to receive the item’s full value should the
worst occur. Typically insurance companies will require appraisals of the items in question
to confirm the value. A certified appraiser can provide the necessary legal documents.

Antiques have the potential to provide impressive returns for those who truly love them and
are willing to put in the time and effort required to learn the ins and outs of the market.
Ultimately, antiques are a lifestyle investment. Authorities agree that art and antiques are
vulnerable to fluctuations in public tastes and other factors. They can be high-risk
speculative investments, if buyers expect too much return.
How an Investment in Rare Collectible Coins Offers Both Diversity and Profits

It’s a clear fact that the coin market moves in cycles. Both internal and external forces cause
this cyclical behavior. Internal forces are constantly working within the rare coin investing
market.

Like all markets stocks, markets, commodities, currencies, commercial real estate and so on
the coin investing market reacts to the price-driven, internal forces of the supply/demand
equation. People buy coins until prices get way too high, and then they sell coins until prices
get way too cheap. The market builds momentum going each way. The cycle repeats itself
again and again.

There are four major external forces that can apply pressure to the prices of rare collectible
coins. In order of importance, they are:

1. Government coinage policies and promotions

The government’s coinage policies and promotions have a tremendous impact on people’s
desire and ability to collect coins.

2. What Inflation Means for Your Coin Investment

Rare coins are an excellent inflation hedge. In the past, the rare collectible coin market has
always done very well in periods of increasing inflation.

3. Gold and silver prices

The fluctuations in gold and silver prices have had a clear impact on the rare collectible coin
market. Investing in coins can also bode well even without huge moves in gold and silver.

Five Important Advantages of Rare Collectible Coin Investments

1. Liquidity
Rare coins are the most liquid of all collectibles. When the time comes to sell your coins, you
can expect and receive immediate payment

2. Diminishing Supply
This is a subtle yet very important coin investment advantage. The supply of rare coins is
diminishing daily. This is a sharp contrast to other investments First, any increase in demand
makes price increases inevitable. The supply of coins cannot be increased to meet the new
demand. The only way new demand can be satisfied is with higher prices. Second, a limited
supply reduces the downside risk. As prices come down, production gluts (as in the oil
market) do not depress prices further and hinder a price recovery. In fact, in the rare coin
investment market, low prices tend to drive coins off the market.

3. Affordability
A painting can cost lakhs of rupees or more. But rare collectible coins seldom cost more than
a few lakhs.

4. Favorable Tax Treatment

This is a seldom talked about (but significant) advantage of coin investing, offered by the
rare collectible coin market. You do not have to pay taxes on your rare coin profits until you
actually sell the coins

GOLD:

Of all the precious metals, gold is the most popular as an investment. Investors generally buy
gold as a hedge or safe haven against any economic, political, social or currency-based
crises. These crises include investment market declines, burgeoning national debt, currency
failure, inflation, war and social unrest. Investors also buy gold early in a bull market and sell
it before a bear market begins, in an attempt to gain financially.
Commodities like gold are a hedge against inflation. This is mainly because the factors that
affect the prices of gold are different from those that impact the prices of other assets like
equities for instance. Gold is a storehouse of value. When uncertainty afflicts global markets,
investors prefer to take refuge in gold because in times of inflation (i.e. fall in purchasing
power), gold prevents erosion in the value of the purchasing power.

Forms of Gold investments

1. Biscuits and Bars
2. Exchange-traded funds
3. Certificates
A certificate of ownership can be held by gold investors, instead of storing the actual gold
bullion.
4. Accounts
Most Swiss banks offer gold accounts where gold can be instantly bought or sold just like
any foreign currency.
5. Derivatives
Derivatives, such as gold forwards, futures and options, currently trade on various exchanges
around the world and over-the-counter (OTC) directly in the private market.

6. Jewellery: The most traditional and the dominant form of buying gold in India

Polished and rough diamonds lack some of the desirable attributes of investment vehicles,
including liquidity, homogeneity and fungibility. Grading and certification by recognised
laboratories goes some way to redressing this.

However diamonds can never be commoditized sufficiently to allow efficient and

sufficiently liquid markets. This does not mean, however, that diamonds can never be used or
considered as investments. The very lack of liquidity itself could be used by a speculator
who was prepared to make a market in diamonds. Any such investor would need to ensure
that he maintained sufficient personal liquidity to avoid distress selling, except by others.
Such an investor would need to expend effort to market his stock, and to advertise his
readiness to buy and would effectively become a trader rather than investor.

5. Arts & Paintings :

There is a long history of individuals and retailers actively trading old master paintings,
classical sculptures, ceramics, coins, drawings, antique furniture and other upmarket
collectibles. Traditionally, however, there has been little interest in operation of a
commercial fund that invested in art works rather than in shares, bonds or real estate and that
provided superior financial rewards for investors by trading those works.

MY PORTFOLIO

INVESTMENT
1).LAND-Rs. 648000 land size 30by 60 foot at BARMER in KUSHAL VIHAR, residential plot planning to
sale it out after 1 year @ Rs. 1000000
REASON for sale rate-Establishment of refinery in Barmer

2). MUTUAL FUND-Rs.30000 per year in ICICI PRUDENTIAL

Policy name- Life stage RP
Term -10 years
Sum assured-300000

3).SHARE MARKET-
Share purchased on 16/11/2010
COMPANY No. of share Amt per share(Rs.) Total (Rs.)
ICICI 34 1202 40868
Asian Paints 11 2650 29150
Bharti Airtel 96 313 30048
Ajanta Pharma 110 231.8 25498
125564

All are Long Term Investment

4). Bullion
SILVER-Purchased 3kg of silver @39500 per kg
Expecting the inc. in share upto Rs. 45000per kg till June

5).FIXED DEPOSIT
Rs. 200000 in YES BANK @ yearly interest of 8.75%

6).P.P.F –Rs. 20000 per year

Term _ 15 year
Rate of Interst-8%
The main reason in investing PPF is that at the time some one get bank corrupt no one can take the amount
deposited in PPF