1 Final Project

Risk Profiling of investors 02019103909
CERTIFICATE OF AUTHENTICITY
This is to certify that the Summer Training Project Report titled “Risk profiling of Investors” is
an original work submitted by Kumar Gaurav, Enrollment No. 02019103909, MBA III
semester, student of Gitarattan International Business School (giBS) for the partial fulfillment of
Master of Business Administration (MBA) program of Guru Gobind Singh Indraprastha
University under the guidance of Ms. Swati Narula and the same has not been submitted to any
other University or Institute for award of any Degree or Diploma.
Ms. Swati Narula Dr. S.S. Narula
Assistant Professor Director
Project Guide Gitarattan International Business School
Gitarattan International Business School

DECLARATION
I, Mr. Kumar Gaurav, Enrollment No. 02019103909, MBA III Semester hereby declare that,
the Summer Training Project Report titled “Risk profiling of Investors” is an original work
done by me under the guidance of Ms. Swati Narula and has not been submitted to any other
university or institute for the award of any degree or diploma or fellowship.
Mr. Kumar Gaurav
Enrollment No. 02019103909

ACKNOWLEGEMENT
Expressing gratitude is not just an exercise or formality, rather doing so evokes the memories of
the association with these people. Although it would be difficult to thank all those who
contributed towards completion of my project, yet I would specifically thank a few people.
Project preparation is a venture that requires co operation of many people. I feel pleasure in
taking this opportunity to express my sincere regards to my supervisor. Ms. Swati Narula,
Assistant Professor (Finance), Gitarattan International Business School, N. Delhi. Without her
guidance, valuable suggestions, constructive criticisms and encouragement through out the
course of the project, the present shape of the work would not have been possible.
I wish to place on record my gratitude to Dr. S.S. Narula, Director and Mr. Rajesh.S.Pyngavil,
Program Coordinator, MBA, Gitarattan International Business School, N. Delhi for their
continuous encouragement and advice which were of immense help to me. I am also thankful to
all teachers, non teaching staff and all my friends of the institute for their kind help.
I express my gratitude towards Mr Anubhav Talwar, Regional Manager, Niveshak Mpowered to

facilitate me to work on this project.

INDEX
TOPIC PAGE NO.
1. Executive Summary-------------------------------------------------------------------------
2. Chapter 1- Introduction --------------------------------------------------------------------
3. Chapter 2- Review of Literature----------------------------------------------------------
4. Chapter 3- Research Methodology and Design-----------------------------------------
5. Chapter 4- Analysis and interpretation of Data-----------------------------------------
6. Chapter 5- Conclusion and Recommendations -----------------------------------------
7. References -----------------------------------------------------------------------------------
8. Appendix -------------------------------------------------------------------------------------
9. Annexure -------------------------------------------------------------------------------------

EXECUTIVE SUMMARY
The objective of this project report is to learn about the investment strategies and investment
pattern of an investor. For this a detailed study was carried out with the help of market research
in order to gauge the awareness levels and investment patterns related to investing amongst
different categories of investors.
The present study takes a step towards Risk profiles of the investors. The central objective of
the study was to make investor’s aware of their rights and to bring to the kind notice of investors
the benefits of investing in different financial assets and choose between them.
A primary research was conducted in the region of New Delhi and NCR regions. The survey was
carried out amongst people of different age groups, gender, income and occupation. The survey
results show that awareness levels related to investing is not as low as it was earlier although it is
not the most preferred amongst all the investment avenues available.
The project was taken to know about, the main aspects of different investment available and
what the preferences of customers are. Also to determine the reason for their preference.
A survey was conducted to collect information about the preferences of the customer. The
sample size of the survey was 60.A questionnaire was filled from the people of different age
groups and occupations.
The survey results show that awareness levels related to mutual fund investing is not as low as it
was earlier although it is not the most preferred amongst all the investment avenues available.

Chapter 1: Introduction

INTRODUCTION
Determining Risk And The Risk Pyramid
You might be familiar with the risk-reward concept, which states that the higher the risk of a
particular investment, the higher the possible return. But, many investors do not understand how
to determine the level of risk their individual portfolios should bear. This article provides a
general framework that any investor can use to assess his or her personal level of risk and how
this level relates to different investments.
Risk-Reward Concept
This is a general concept underlying anything by which a return can be expected. Anytime you
invest money into something there is a risk, whether large or small, that you might not get your
money back. In turn, you expect a return, which compensates you for bearing this risk. In theory
the higher the risk, the more you should receive for holding the investment, and the lower the
risk, the less you should receive.
For investment securities, we can create a chart with the different types of securities and their
associated risk/reward profile.
Although this chart is by no means scientific, it provides a guideline that investors can use when
picking different investments. Located on the upper portion of this chart are investments that
offer investors a higher potential for above-average returns, but this potential comes with a
higher risk of below-average returns. On the lower portion are much safer investments, but these
investments have a lower potential for high returns.
The Five Investment Risk Categories
Conservative: This investor isn’t willing to tolerate "noticeable downside market fluctuations,"
and is willing to forego most all significant upside potential, relative to the markets, to achieve
this goal. In English, they really really don't want to get their monthly statement and see less
money than they had before (unless it was due to withdrawals).
Most conservative investors want their portfolio to provide them with an inflation-adjusted
income stream to pay their living expenses. They're either currently dependent on their
investments to give them a retirement paycheck, or are expecting this to happen soon. Some are
on tight budgets and are barely making a living as it is, so they are very afraid of losing what
little money they have left. They do not have time to recoup any losses (because they can't go
back to work for a multitude of reasons). Some realize they don't need their portfolio to provide
income for more than five years, because of low life expectancy, so growth is not the objective.
The majority of their money should be held in cash and high-quality short- and intermediate-
maturity bonds. Very risky asset classes are typically avoided altogether.
Satisfying their needs is hard to achieve when inflation is high, or rising, because the market
value of fixed income securities typically are declining due to increasing interest rates. So
investing defensively is not without risk. There is no way to eliminate all risks when investing. In
this case, the potential for the large loss of nominal dollars (how many dollars one has relative to
how many they started with), are low but the loss of real dollars (the inflation-adjusted worth of
those dollars) is significant. This is due to the loss of purchasing power due to the prices of
everything in their family budget going up.
So the investments most desired by Conservative investors are the ones that lose the most value
from inflation. Investing defensively is not without risk, and there is no free lunch, nor a magic
investment to solve one's problems, for anyone in investing!

In this case, the potential for the large loss of nominal dollars (how many dollars one has relative
to how many they started with) is low, but the loss of real dollars (the inflation-adjusted worth of
those dollars) is significant. This is caused by the loss of purchasing power due to the prices of
everything in their family budget going up.
Cash (savings accounts, money market funds, and CDs) most always loses real value over time
because of the combined effect of taxes and inflation. There isn't much one can do if this
happens, except to have exposure beforehand to asset classes that benefit when inflation
increases (real estate and tangible/commodity-based mutual funds, like the precious metals and
energy sectors). The catch is most of these are the same asset classes that are minimized, because
they're "too risky" or don't provide an income yield.
Because Conservative investors are still "investing," they should have a higher return over most
rolling three-year periods than investing 100% in fixed annuities, CDs, and other bank
investments.
The typical range of annual returns in down financial markets are -3% to +2%, in flat markets
3% to 6%, and in up markets 7% to 9%.
Conservative portfolios produce the highest annual income yields - typically in the range of 4%
to 7%.
Conservative portfolios produce very little capital gains distributions.
If an investor is so risk adverse that they cannot tolerate ANY downside risk to the nominal
value of their money, then we recommend using annuitized fixed annuities, money market funds,
or just putting their money in the bank.
We don't use an investor risk tolerance category for these ultra-conservative investors because
we don't think these folks are investors in the first place. They have resigned to the fact that their
real returns will be negative after considering taxes and inflation, and just care about not seeing
the number of dollars they have decline. They should just hide it all in the safest vehicles

possible. But not "under the mattress" because of its purchasing power will be substantially
eroded from being 100% exposed to inflation.
Moderately Conservative: If a worried investor can tolerate a little more risk than the
Conservative investor, but still is adverse to large short-term downside fluctuations, and wants a
little more return with a little less income, then this is the category for them.
The typical investor in this category is either retired and getting their paycheck from portfolio
income, soon to be retired, or has been burned by poor investment management and lost a lot of
money in the past. These folks want to be protected somewhat from large downside market
fluctuations and are willing to not fully participate when the markets rally upwards to get it.
Informed investors realize that if their life expectancy is more than a decade, then having
exposure to investments that increase in value is needed to provide income in the later years.
These folks want to be protected somewhat from large downside market fluctuations and are
willing to not fully participate when the markets rally upwards to get it.
Their portfolio will still fall when the markets decline, but they want to be somewhat protected
from sudden double-digit percentage declines in their portfolios. They want to be in the game,
but they are definitely playing defense. They also want to see low double-digit percentage gains
when the financial markets are going up. This is achieved by having a significant exposure to
fixed income securities, several different types of stocks, real estate, and commodities that track
inflation. Core equity asset classes are used, but very risky asset classes are still held to a
minimum.
Moderately Conservative portfolios produce significant annual income yields - typically in the
range of 3% to 6%.
Moderately Conservative portfolios produce little capital gains distributions.
They're typically going to achieve returns a little more than taxes and inflation. When the major
markets are increasing, they could realize double-digit returns. The typical range of annual

returns in down financial markets are -5% to +1%, in flat markets 2% to 8%, and in up markets
9% to 12%.
Moderate: The majority of investors are in this middle-of-the-road category. The reasons for
people to be in this category are too many to list here. The most common is the desire to invest
long-term for retirement or college funding.
These folks want good returns, and know they're taking some risk to get them. They should
expect returns similar to a basket of similarly weighted market indices. Their portfolio should go
up less than the markets as a whole, but should also go down less when markets go down.
A Moderate portfolio will hold a balanced mix of most all-major viable asset classes (for
maximum diversification), which will include conservatively-managed bond funds as well as
high-risk stock funds. This category typically uses the largest number of asset classes to both
reduce risk and increase profits. Both safe and risky asset classes are utilized pragmatically.
Balance between profits and loss reduction is the goal.
They know they will lose money if the markets go down, but also expect to be along for the ride
if they go up.
Moderate portfolios produce modest annual income yields - typically in the range of 2% to 4%.
Moderate portfolios produce a moderate amount of capital gains distributions.
Moderate investment portfolios are usually compared to the S&P500 to see how well they're
doing. When the S&P500 is going up, it should be up a little more than a Moderate investment
portfolio (if it's very well managed). When the S&P500 is down, the Moderate portfolio should
be down less.
They're typically going to achieve returns greater than taxes and inflation. When the major
markets are increasing, they could easily realize double-digit returns. The typical range of annual
returns in down financial markets are -8% to +4%, in flat markets 5% to 9%, and in up markets
10% to 15%.

Moderately Aggressive: If an investor wants to outperform a basket of similarly weighted

indices when the markets are up, and doesn’t mind too much being down a little more than the
markets when they are down, then this is the category for them.
They are taking on more downside risk than the markets, but expect to be substantially ahead of
the game when markets go up. Fixed income positions are minimized and risky asset classes are
fully utilized. Most of the bond and international stock mutual funds in this portfolio are
aggressively-managed.
These folks want to take the risks of winning the game by playing hard offense, but still don’t
want to lose too much in a short period of time. Most Moderately Aggressive investors want to
accumulate a significant amount of wealth in the future, and are willing to wait a significant
amount of time for the rewards (and to recoup short-term losses), and have a little income to
contribute to the portfolio over time.
They know they will lose a high percentage of their money if the markets go down (more than
the S&P500), but also expect to profit greatly if they go up. More emphasis is put on making
money than preventing the loss of money.
Moderately Aggressive portfolios produce the little annual income yields - typically in the range
of 0.5% to 2%.
Moderately Aggressive portfolios produce a high amount of capital gains distributions.
They're typically going to achieve long-term returns far greater than taxes and inflation. When
the major markets are increasing, they expect to realize double-digit returns. The typical range of
annual returns in down financial markets are -10% to 0%, in flat markets 1% to 10%, and in up
markets 11% to 20%.
Aggressive: Damn the torpedoes, full speed ahead! These investors want to substantially
outperform the markets and (should) know they are exposed to much more risk than the markets.
They could easily lose up to 40% of their portfolio value in a few months, and it may take years
to recoup these losses.
These investors typically hold mostly growth, small-cap, and sector mutual funds (or stocks).
Any fixed-income mutual funds in the portfolio are a small percentage of the portfolio, and also
are of the riskier type that are aggressively-managed.
The purpose of any cash held is to handle unexpected withdrawals, and to take advantage of
perceived buying opportunities.
Aggressive investors are typically younger (The Invincibles), and intend to contribute relatively
large amounts into the portfolio periodically over time.
Most aggressive investors either want to accumulate substantial wealth in the future, are in a
hurry, have enough income from other sources to fund their living expenses, and/or have time to
work and recoup losses. Some just may have not yet personally experienced significant losses in
the markets, so their bravery usually ends up being their own downfall.
They should know they would lose a very high percentage of their money if the markets go
down, but also expect to profit greatly if they go up. Most all emphasis is put on making money
and little, other than the diversification benefits of using mutual funds with asset allocation, is
used in preventing the loss of money.
Aggressive portfolios produce the little-to-no annual income yields - typically in the range of 0%
to 0.75%.
Aggressive portfolios produce a very high amount of capital gains distributions.
They're typically going to achieve long-term returns far greater than taxes and inflation. When
the major markets are increasing, they expect to realize large double-digit returns. The typical
range of annual returns in down financial markets are -15% to -5%, in flat markets -3% to 7%,
and in up markets 15% to 25%.

Investment Risk Pyramid

After deciding on how much risk is acceptable in your portfolio by acknowledging your time
horizon and bankroll, you can use the risk pyramid approach for balancing your assets.

This pyramid can be thought of as an asset allocation tool that investors can use to diversify their
portfolio investments according to the risk profile of each security. The pyramid, representing
the investor's portfolio, has three distinct tiers:
 Base of the Pyramid– The foundation of the pyramid represents the strongest
portion, which supports everything above it. This area should be comprised of
investments that are low in risk and have foreseeable returns. It is the largest
area and composes the bulk of your assets.
 Middle Portion– This area should be made up of medium-risk investments that
offer a stable return while still allowing for capital appreciation. Although more
risky than the assets creating the base, these investments should still be
relatively safe.
 Summit– Reserved specifically for high-risk investments, this is the smallest
area of the pyramid (portfolio) and should be made up of money you can lose
without any serious repercussions. Furthermore, money in the summit should
be fairly disposable so that you don't have to sell prematurely in instances
where there are capital losses.

Personalizing the Pyramid
Not all investors are created equally. While others prefer less risk, some investors prefer even
more risk than others who have a larger net worth. This diversity leads to the beauty of the
investment pyramid. Those who want more risk in their portfolios can increase the size of the
summit by decreasing the other two sections, and those wanting less risk can increase the size of
the base. The pyramid representing your portfolio should be customized to your risk preference.
It is important for investors to understand the idea of risk and how it applies to them. Making
informed investment decisions entails not only researching individual securities but also
understanding your own finances and risk profile. To get an estimate of the securities suitable for
certain levels of risk tolerance and to maximize returns, investors should have an idea of how
much time and money they have to invest and the returns they are looking for.
NEED FOR RISK PROIFILNG
Investors today have many options where to invest their hard earned money but each option
comes with a risk-reward tradeoff associated to it. One may choose to invest in instruments
that have the potential to deliver high returns but on the flipside these very instruments also
carry the risk of suffering huge losses during a rough patch, which may not be acceptable to
the investor.
The biggest mistake that investors tend to make is to make investments in one type of
instrument only. Its like putting all eggs in one basket devoid of any kind of diversification.
This is a dangerous way to invest where one is putting most of the capital at a risk of
permanent loss.
The answer to this predicament is to find out one's attitude towards investing or one's risk
profile and then arrive at a suitable asset allocation, where one could put money into different
investment options. By doing so, risk is spread out and quite mitigated. It means to diversify
the investment allocation in a manner which quite ensures that no one type of investment
would determine the entire success or failure of achieving one's financial goals or objectives.
Understanding one's risk profile or attitude towards investing is the first step towards
investing the right way.
WHAT IS ASSET ALLOCATION
Asset allocation is the tool which is used for building a diversified investment portfolio. It
determines the extent of one's portfolio that would be invested in different asset classes, such as
stocks, bonds, cash, etc.
One asset allocation strategy does not fit all, normally the younger one is the higher is the
appetite for risk and the older one grows risk appetite reduces. Hence at a younger age one is
more inclined towards wealth creation and so prefers to see the portfolio grow. As one moves
closer towards retirement the preference gradually shifts towards protecting the wealth created
and thus a preservation approach to investments is adopted.
Asset allocation used for building or redesigning the investment portfolio depends on the profile
of the investor amongst other things, which can range from being defensive to aggressive as he
moves from the accumulation to the spending phase of his lifecycle.

Studies have shown that asset allocation determines more than 90% of portfolio performance . *
* From the study on the importance of asset allocation by Brinson Hood and Beebower. Determinants of Portfolio
Performance, Financial Analysts Journal, 1991.
Who should consider Asset Allocation?
Well, ideally speaking it is recommended for every investor who wants to optimize risk adjusted
returns through portfolio diversification.
Purpose of Asset Allocation
Asset Allocation helps you with

Risk Mitigation Aids in reducing risk through portfolio diversification.
Helps investing in assets that provide for income to meet regular
Regular Income
expenses.
Growth of Facilitates allocation in high return yielding instruments to attain
Capital capital appreciation.
Needs / Liquidity Addresses the need for liquidity.
OBJECTIVE:
The study has the following objectives:

1. To identify critical factors that influence the buying behavior of individuals on the basis of the
following: -
i. Growth
ii. Safety
iii. Increase in Wealth
2. To compare the buying and involvement pattern of people across different age groups and
different occupations.
3. To find the importance of investment to a common man.
4. To find the preference of consumer regarding various investment options.
5. To know the customer preference for traditional investment plans, mutual funds and ULIP
products offered by different insurance companies.
SCOPE OF THE STUDY:

The Scope of the Research study would include the Geographic & Demographic region of Delhi
& NCR.
LIMITATION OF THE STUDY:
 It was not possible to understand thoroughly about the different investment options
available in market within 45 days.
 All the work was limited in some limited areas of Delhi so the findings should not be
generalized.
 The area of research was Delhi; it was too vast an area to cover within 45 days.
 Mindset of people may vary depending upon their age, gender, income etc
 People mind set about the survey was an obstacle in acquiring complete information &
positive interaction.
COMPANY PROFILE
Niveshak Mpowered

Niveshak is a Company incorporated under the Indian Companies Act 1956. Niveshak is created
solely with a view to provide a platform for the Investors to enable them to take informed
decision for investing their hard earned money, in seeking this goal, Niveshak also endeavors to
develop a qualified and well-informed cadre of Financial Advisors and Distributors by
empowering the practicing Financial Advisors/Distributors with better/relevant knowledge/skills
and by training the young college and B-School graduates with adequate knowledge/skills.
Niveshak is an initiative of SPA Capital Services Ltd. and Acsys Software (India) Pvt. Ltd.
BOARD MEMBERS
Mr. Kamal Somani, FCA,
He is a senior finance professional with over 30 years of experience in

investment banking, securities broking and corporate finance. His vast
experience and vision has enabled the Group to establish itself as a respected financial services
provider in the country. He looks after the overall group strategies and leads securities broking,
investment advisory and investment banking activities of the Group.
Mr. Sandeep Parwal, B.Com (Hons), FCA,
He has over 20 years of experience in various aspects of financial services. He handles

investment advisory, insurance broking and merchant banking activities of the Group. His
expertise in providing customized innovative solutions with unmatched speed provides a
distinctive edge to the Group's capability.
Mr. V. Shankar,

He is an alumnus of Indian Institute of Management Calcutta and Indian Institute of Technology

Madras, is the Managing Director of Computer Age Management Services (CAMS), the largest
RTA in India. Computer Age Management Services Pvt. Ltd. (CAMS), offers a comprehensive
package of Transaction Processing and Customer Care services to the Mutual Fund industry, and
has been constantly raising the bar in customer service since 1995. CAMS today has the most
appropriate and advanced technology employed, with the best network for service delivery
through its network of Service Centers in all major cities in India. Currently CAMS provides this
comprehensive package of services to 18 Indian Mutual Fund families as services provider. Of
every 100 Mutual Fund transactions processed in India, CAMS processes 50 or more. CAMS is
clearly the #1 choice for Mutual Funds in India.
Mr. Shanks is also a Director at Acsys Software., which is a leading Technology and Software
Solution Provider in the niche vertical of the Mutual Fund Industry both in India and abroad
GROUP COMPANIES
SPA Capital Service Ltd
SPA Group promoted in 1995, by a team of financial professionals, provides value added
financial services like corporate finance and wealth management services to Indian companies
and HNIs. SPA Group has established itself as one of India's leading financial advisory house,
offering various financial services like securities broking, insurance broking, corporate finance,
merchant banking, financial advisory, risk management and wealth management.
SPA Capital Services Ltd. is a flagship company of SPA Group, engaged in advisory and
distribution services of mutual funds & insurance and is ranked amongst the top 5 financial
intermediaries of the country. The company has a distribution network of over 200 sub-brokers
across India being serviced by its 58 branches. The company has mobilized over Rs. 5 lac crores

for various mutual funds during the last 10 years and is currently having AUM over Rs.20,000
crores with hundreds of satisfied customers.
Acsys Software (India) Pvt. Ltd
is a leading Technology and Software Solution Provider in the niche vertical of the Mutual Fund
Industry both in India and abroad. Its Software products and services covering many application
areas are termed "Best of Brand" services within the Indian Fund Industry. Acsys designs
software solutions and products to keep pace with today's changing market place. Its software
applications and products, support all participants in the fund industry, be it the Fund House, the
Distributor and/or Investor.
In addition, Acsys has a large pool of in-house expertise to continually develop appropriate and
advanced technology requirements to the financial services market in general and Fund Industry
in particular.
Profile
Acsys Software (India) Pvt. Ltd., incorporated in 1996, was originally the software division of
Computer Age Management Services (P) Ltd., (CAMS). It was hived off as a joint venture in
association with Alliance Capital LLP of the USA. Currently, Acsys Software is fully owned by
the original Indian promoters and is an affiliate Company to CAMS.
CAMS is India's largest Transfer Agency for Open Ended Funds dominating more than 60% of
the market. CAMS offer Outsourced Transaction Processing, Customer Care, Fund Accounting
and related Transfer Agency Services.
Acsys Software products for Asset Management Companies, Distributors and related entities
come with the following advantages:

 Substantial knowledge of business and domain of the Mutual Fund Industry. It understands
the needs easily and is able to harness the software solutions for new products and services
faster.
 Its Software Products and services are put through extreme process conditions through its
stake-holder's businesses.
 It operates in a dynamic environment dictated by enormous growth in the Indian Mutual

Fund Industry in a very short span.
 Demonstrated capabilities overseas, through offshore development, which resulted in an

entity migrating from a multiple database and legacy systems environment to a "state of the art"
open architecture software solution - See Case Study.
 Members of NICSA and ALFI, leading Fund Forums in US and Europe. Thereby continually
tracking trends in the overseas Investment Industry.
 Multi-currency functionality to include Euro compliancy.
Acsys has a library of core products, which meets the software requirements of Mutual Fund
Asset Management Companies, Fund Distributors and other intermediaries. All its products are
designed and customized using Client Server Architecture for Oracle Databases with Power
Builder and other Internet enabled front ends, using JAVA, XML and other revolutionary tools
for 24/7 web delivery. Acsys Software has production facilities at Chennai, India and provides
client service from Luxembourg for Europe.

CHAPTER:-2
REVIEW OF LITERATURE

What is Investment?
Investment refers to a commitment of funds to one or more assets that

will be held over some future time period. It is important to understand
the difference between savings and investments. Anything not
consumed today and saved for future use can be considered as savings.
Almost all of us save money. It is important to channel these savings
into productive investment avenues. For our purposes, investment will
mean a measurable asset retained in order to increase one's personal wealth. A financial asset is
one that generates income and contributes to accumulation and growth of wealth over a period of
time. The two elements in investments are generation of income on a periodic basis and/or
growth in value over a period of time.
Why Invest?
We all work for money. It is equally important to ensure that money works for us. We should
inculcate the habit of reliance on a secondary source of income. We invest to improve our future
welfare. Anticipated future consumption may be by other family members, such as education
funds for children or by ourselves, possibly on retirement when we are unable to work and
produce for our daily needs. Regardless of why we invest we should all seek to manage our
wealth effectively, obtaining the most from it. This includes protecting our assets from inflation,
taxes and other factors.
Investment Fundamentals - Some of the fundamental rules of investments are:
Start Early
Invest Regularly
Ensure Higher Returns On Your
Investments

How do we invest?
If we are making investment decisions today that will directly affect our future wealth, it would
make sense that we utilize a plan to help guide our decisions. First, let's define financial
planning.
Financial planning is the process of meeting one's life goals through the proper management of
one's finances. Life goals can include buying a home, saving for child's education, or planning
for retirement.
Financial planning provides direction and meaning to one's financial decisions. It allows one to
understand how each financial decision affects other areas of finances. By viewing each financial
decision as part of a whole, one can consider its short and long-term effects on life goals. One
can also adapt more easily to life changes and feel more secure that goals are on track.
Start early
The younger you start, the more time compounding (Compounding is the
concept of adding accumulated interest back to the principal, so that interest
is earned on interest from that moment on. In other words, compounding
refers to generating earnings from previous earnings.) has to work for you,
and the wealthier you can become. The next best thing to starting early is starting now.
Make regular investments

Don't be haphazard. Remain disciplined, and make saving a priority. Do whatever it takes to
maximize your contributions. Even small investments made regularly can surprise you some
years down the line.
Be patient
Do not touch your investments. Compounding only works if you allow your investment to grow.
The results will seem slow at first, but persevere. Most of the magic of compounding returns
comes at the very end.
Always remember that every day that your money stays invested is a day your money is working
hard for you, helping you ensure a financially secure future.
WHAT ARE AVAIKABLE INVESTMENT OPTIONS?
Following are the short-term and long-term financial investment options available for the
investors as per their risk profile.
Short-Term Investment
Savings Bank Account

Use only for short-term (less than 30 days) surpluses Often the first
banking product people use, savings accounts offer low interest (4%-5%
p.a.), making them only marginally better than safe deposit lockers.
Money Market Funds (also known as liquid funds)

Offer better returns than savings account without compromising liquidity Money market funds
are a specialized form of mutual funds that invest in extremely short-term fixed income
instruments. Unlike most mutual funds, money market funds are primarily oriented towards
protecting your capital and then, aim to maximize returns.
Money market funds usually yield better returns than savings accounts, but lower than bank
fixed deposits. With the flexibility to issue cheques from a money market fund account now
available, explore this option before putting your money in a savings account.
Money market funds or liquid funds invest in debt securities with less than one year to maturity
such as treasury bills, commercial papers and certificate of deposits.
Since liquid funds have very short-term maturity, the risk of NAV fluctuation is low. Liquid
funds provide safety of principal and liquidity.
Bank Fixed Deposit (Bank FDs)

For investors with low risk appetite, best for 6-12 months investment period
Also referred to as term deposits, this product would be offered by all banks. Minimum
investment period for bank FDs is 30 days.

The ideal investment time for bank FDs is 6 to 12 months as normally interest on bank less than
6 months bank FDs is likely to be lower than money market fund returns.
It is important to plan your investment time frame while investing in this instrument because
early withdrawals typically carry a penalty.
Long Term Investment
Post Office Savings Schemes (POSS)

Low risk and no TDS
POSS are popular because they typically yield a higher return than bank FDs. The monthly
income plan could suit you if you are a retired individual or have regular income needs.
Besides the low (Government) risk, the fact that there is no tax deducted at source (TDS) in a
POSS is amongst the key attractive features.
The Post Office offers various schemes that include National Savings Certificates (NSC),
National Savings Scheme(NSS), Kisan Vikas Patra, Monthly Income Scheme and Recurring
Deposit Scheme.
Public Provident Fund (PPF)
Best fixed-income investment for high tax payers

PPF is a very attractive fixed income investment option for small investors primarily because of -
An 11% post-tax return - effective

pre-tax rate of 15.7% assuming a
30% tax rate
A tax-rebate - deduction of 20% of
the amount invested from your tax
liability for the year, subject to a
maximum Rs60,000 for a tax rebate
Low risk - risk attached is
Government risk

So, what's the catch? Lack of liquidity is a big negative. You can withdraw your investment
made in Year 1 only in Year 7 (although there are some loan options that begin earlier).
If you are willing to live with poor liquidity, you should invest as much as you can in this
scheme before looking for other fixed income investment options.
Company Fixed Deposits (FDs)
Option to maximize returns within a fixed-income portfolio

FDs are instruments used by companies to borrow from small investors. Typically FDs are open
throughout the year. Invest in FDs only if you have surplus funds for more than 12 months.
Select your investment period carefully as most FDs are not encashable prior to their maturity.
Just as in any other instrument, risk is an embedded feature of FDs, more so because it is not
mandatory for non-finance companies to get a credit rating for this instrument.
Investors should consciously (either though a credit rating or through an expert) select the
companies they invest in. Quite a few small investors have lost their life's savings by investing in
FDs issued by companies that have run into financial problems.
Bonds and Debentures
Option for large investments or to avail of some capital gains tax rebates
Besides company FDs, bonds and debentures are the other fixed-income instruments issued by
companies. As a result of an illiquid secondary market and a lack-lustre primary market,
investment in these instruments is largely skewed towards issues from financial institutions.
While you might find some high-yielding options in the secondary market, if you do not want the
problems associated with bad deliveries and the transfer process or you want to invest a large
sum of money, the primary market is the better option.

Mutual Funds
Unless you rate high on our Investment IQ Test, use mutual funds as a vehicle to invest
have you ever made an investment in partnership with someone else? Well, mutual funds work
on more or less the same principles. Investors pool together their money to buy stocks, bonds, or
any other investments. Investing through mutual funds allows an investor to -
Avail the services of a professional

money manager (who manages the
mutual fund)
Access a diversified portfolio
despite making a limited investment
Our primer investing in Mutual Funds should educate you a lot more on the benefits of investing
in mutual funds and strategies you could employ.
Life Insurance Policies
Don't buy life insurance solely as an investment

Life insurance premiums, depending upon the policy selected, include the costs of -
Death-benefit coverage
Built-in investment returns (average
8.0% to 9.5% post-tax)
Significant overheads, including
commissions.
This implies that if you buy insurance solely as an investment, you are incurring costs that you
would not incur in alternate investment options.
It is, however, important to insure your life if your financial needs and profile so require. Use
our Are You Adequately Insured planning tool to find out if you need life insurance, and if yes,
how much.
Equity Shares

Maximum returns over the long-term, invest funds you do not need for at least five years
There are two ways in which you can invest in equities-
Through the secondary market (by

buying shares that are listed on the
stock exchanges)
Through the primary market (by
applying for shares that are offered
to the public)
Over the long term, equity shares have offered the maximum return to investors. As an
investment option, investing in equity shares is also perceived to carry a high level of risk.
INVESTMENT PROCESS
Nobody plans to fail but many fail to plan. It is important for the investor to realize that planning
is very important. He has to take the client through the systematic process of financial planning
outlined below. The financial planning process consists of six steps that help
the investor/client take a "big picture" look at where he is financially. Using
these six steps, the investor can work out where he is now, what he may
need in the future and what he must do to reach his goals. These six steps
are:
Establishing and defining the client-planner relationship.
The financial planner should clearly explain or document the services to be provided to you and
define both his and your responsibilities. The planner should explain fully how he will be paid
and by whom. You and the planner should agree on how long the professional relationship
should last and on how decisions will be made.
Gathering client data, including goals.

The financial planner should ask for information about your financial situation. You and the
planner should mutually define your personal and financial goals, understand your time frame for
results and discuss, if relevant, how you feel about risk. The financial planner should gather all
the necessary documents before giving you the advice you need.
Analyzing and evaluating your financial status.
The financial planner should analyze your information to assess your current situation and
determine what you must do to meet your goals. Depending on what services you have asked for,
this could include analyzing your assets, liabilities and cash flow, current insurance coverage,
investments or tax strategies.
Developing and presenting financial planning recommendations and/or alternatives.

The financial planner should offer financial planning recommendations that address your goals,
based on the information you provide. The planner should go over the recommendations with
you to help you understand them so that you can make informed decisions. The planner should
also listen to your concerns and revise the recommendations as appropriate.
Implementing the financial planning recommendations.
You and the planner should agree on how the recommendations will be carried out. The planner
may carry out the recommendations or serve as your "coach," coordinating the whole process
with you and other professionals such as attorneys or stockbrokers.
Monitoring the financial planning recommendations.
You and the planner should agree on who will monitor your progress towards your goals. If the
planner is in charge of the process, she should report to you periodically to review your situation
and adjust the recommendations, if needed, as your life changes.
INVESTMENT INSTRUMENTS
MUTUAL FUND
Introduction
Different investment avenues are available to investors. Mutual funds also offer good investment
opportunities to the investors. Like all investments, they also carry certain risks. The investors
should compare the risks and expected yields after adjustment of tax on various instruments
while taking investment decisions. The investors may seek advice from experts and consultants
including agents and distributors of mutual funds schemes while making investment decisions.
With an objective to make the investors aware of functioning of mutual funds, an attempt has
been made to provide information in question-answer format which may help the investors in
taking investment decisions.
What is a Mutual Fund?
Mutual fund is a mechanism for pooling the resources by issuing units to the investors and
investing funds in securities in accordance with objectives as disclosed in offer document.
Investments in securities are spread across a wide cross-section of industries and sectors and thus
the risk is reduced. Diversification reduces the risk because all stocks may not move in the same
direction in the same proportion at the same time. Mutual fund issues units to the investors in
accordance with quantum of money invested by them. Investors of mutual funds are known as
unit holders.
The profits or losses are shared by the investors in proportion to their investments. The mutual
funds normally come out with a number of schemes with different investment objectives which
are launched from time to time. A mutual fund is required to be registered with Securities and
Exchange Board of India (SEBI) which regulates securities markets before it can collect funds
from the public.
History of Mutual Funds in India and role of SEBI in mutual funds industry

Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s,
Government allowed public sector banks and institutions to set up mutual funds.
In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives
of SEBI are - to protect the interest of investors in securities and to promote the development of
and to regulate the securities market
As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to
protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993.
Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital
market. The regulations were fully revised in 1996 and have been amended thereafter from time
to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the
interests of investors.
All mutual funds whether promoted by public sector or private sector entities including those
promoted by foreign entities are governed by the same set of Regulations. There is no distinction
in regulatory requirements for these mutual funds and all are subject to monitoring and
inspections by SEBI. The risks associated with the schemes launched by the mutual funds
sponsored by these entities are of similar type.
How is a mutual fund set up?

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management
company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor
who is like promoter of a company. The trustees of the mutual fund hold its property for the
benefit of the unit holder. Asset Management Company (AMC) approved by SEBI manages the
funds by making investments in various types of securities. Custodian, who is registered with
SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested
with the general power of superintendence and direction over AMC. They monitor the
performance and compliance of SEBI Regulations by the mutual fund.
SEBI Regulations require that at least two thirds of the directors of trustee company or board of
trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of
the directors of AMC must be independent. All mutual funds are required to be registered with
SEBI before they launch any scheme.
What is Net Asset Value (NAV) of a scheme?
The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).
Mutual funds invest the money collected from the investors in securities markets. In simple
words, Net Asset Value is the market value of the securities held by the scheme. Since market
value of securities changes every day, NAV of a scheme also varies on day to day basis. The
NAV per unit is the market value of securities of a scheme divided by the total number of units
of the scheme on any particular date. For example, if the market value of securities of a mutual
fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the
investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the
mutual funds on a regular basis - daily or weekly - depending on the type of scheme.
What are the different types of mutual fund schemes?
Schemes according to Maturity Period
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme
depending on its maturity period.
Open-ended Fund/ Scheme
An open-ended fund or scheme is one that is available for subscription and repurchase on a
continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently
buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis.
The key feature of open-end schemes is liquidity.
Close-ended Fund/ Scheme

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open
for subscription only during a specified period at the time of launch of the scheme. Investors can
invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the
units of the scheme on the stock exchanges where the units are listed. In order to provide an exit
route to the investors, some close-ended funds give an option of selling back the units to the
mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that
at least one of the two exit routes is provided to the investor i.e. either repurchase facility or
through listing on stock exchanges. These mutual funds schemes disclose NAV generally on
weekly basis.
Schemes according to Investment Objective

A scheme can also be classified as growth scheme, income scheme, or balanced scheme
considering its investment objective. Such schemes may be open-ended or close-ended schemes
as described earlier. Such schemes may be classified mainly as follows:
Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such
schemes normally invest a major part of their corpus in equities. Such funds have comparatively
high risks. These schemes provide different options to the investors like dividend option, capital
appreciation, etc. and the investors may choose an option depending on their preferences. The
investors must indicate the option in the application form. The mutual funds also allow the
investors to change the options at a later date. Growth schemes are good for investors having a
long-term outlook seeking appreciation over a period of time.
Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes
generally invest in fixed income securities such as bonds, corporate debentures, Government
securities and money market instruments. Such funds are less risky compared to equity schemes.
These funds are not affected because of fluctuations in equity markets. However, opportunities
of capital appreciation are also limited in such funds. The NAVs of such funds are affected
because of change in interest rates in the country. If the interest rates fall, NAVs of such funds
are likely to increase in the short run and vice versa. However, long term investors may not
bother about these fluctuations.
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes invest
both in equities and fixed income securities in the proportion indicated in their offer documents.
These are appropriate for investors looking for moderate growth. They generally invest 40-60%
in equity and debt instruments. These funds are also affected because of fluctuations in share
prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared
to pure equity funds.
Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of
capital and moderate income. These schemes invest exclusively in safer short-term instruments
such as treasury bills, certificates of deposit, commercial paper and inter-bank call money,
government securities, etc. Returns on these schemes fluctuate much less compared to other
funds. These funds are appropriate for corporate and individual investors as a means to park their
surplus funds for short periods.
Gilt Fund
These funds invest exclusively in government securities. Government securities have no default
risk.NAVs of these schemes also fluctuate due to change in interest rates and other economic
factors as is the case with income or debt oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P
NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage
comprising of an index.NAVs of such schemes would rise or fall in accordance with the rise or
fall in the index, though not exactly by the same percentage due to some factors known as

"tracking error" in technical terms. Necessary disclosures in this regard are made in the offer
document of the mutual fund scheme.
There are also exchange traded index funds launched by the mutual funds which are traded on
the stock exchanges.
What are sector specific funds/schemes?

These are the funds/schemes which invest in the securities of only those sectors or industries as
specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods
(FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of
the respective sectors/industries. While these funds may give higher returns, they are more risky
compared to diversified funds. Investors need to keep a watch on the performance of those
sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.
What are Tax Saving Schemes?

These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act,
1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity
Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax
benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth
opportunities and risks associated are like any equity-oriented scheme.
What is a Fund of Funds (FoF) scheme?

A scheme that invests primarily in other schemes of the same mutual fund or other mutual funds
is known as a FoF scheme. An FoF scheme enables the investors to achieve greater
diversification through one scheme. It spreads risks across a greater universe.
What is a Load or no-load Fund?

A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one
buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund
for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well
as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and
those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The
investors should take the loads into consideration while making investment as these affect their
yields/returns. However, the investors should also consider the performance track record and
service standards of the mutual fund which are more important. Efficient funds may give higher
returns in spite of loads.
A no-load fund is one that does not charge for entry or exit. It means the investors can enter the
fund/scheme at NAV and no additional charges are payable on purchase or sale of units.
Can a mutual fund impose fresh load or increase the load beyond the level mentioned in
the offer documents?
Mutual funds cannot increase the load beyond the level mentioned in the offer document. Any
change in the load will be applicable only to prospective investments and not to the original
investments. In case of imposition of fresh loads or increase in existing loads, the mutual funds
are required to amend their offer documents so that the new investors are aware of loads at the
time of investments.
What is a sales or repurchase/redemption price?

The price or NAV a unit holder is charged while investing in an open-ended scheme is called
sales price. It may include sales load, if applicable.
Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases
or redeems its units from the unit holder. It may include exit load, if applicable.
What is an assured return scheme?

Assured return schemes are those schemes that assure a specific return to the unit holder
irrespective of performance of the scheme.
A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or
AMC and this is required to be disclosed in the offer document.
Investors should carefully read the offer document whether return is assured for the entire period
of the scheme or only for a certain period. Some schemes assure returns one year at a time and
they review and change it at the beginning of the next year.

Can a mutual fund change the asset allocation while deploying funds of investors?
Considering the market trends, any prudent fund managers can change the asset allocation i.e. he
can invest higher or lower percentage of the fund in equity or debt instruments compared to what
is disclosed in the offer document. It can be done on a short term basis on defensive
considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in
altering the asset allocation considering the interest of the investors. In case the mutual fund
wants to change the asset allocation on a permanent basis, they are required to inform the unit
holder and giving them option to exit the scheme at prevailing NAV without any load.
How to invest in a scheme of a mutual fund?

Mutual funds normally come out with an advertisement in newspapers publishing the date of
launch of the new schemes. Investors can also contact the agents and distributors of mutual funds
who are spread all over the country for necessary information and application forms. Forms can
be deposited with mutual funds through the agents and distributors who provide such services.
Now a days, the post offices and banks also distribute the units of mutual funds. However, the
investors may please note that the mutual funds schemes being marketed by banks and post
offices should not be taken as their own schemes and no assurance of returns is given by them.
The only role of banks and post offices is to help in distribution of mutual funds schemes to the
investors.
Investors should not be carried away by commission/gifts given by agents/distributors for
investing in a particular scheme. On the other hand they must consider the track record of the
mutual fund and should take objective decisions.
Can non-resident Indians (NRIs) invest in mutual funds?

Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are
given in the offer documents of the schemes.
How much should one invest in debt or equity oriented schemes?

An investor should take into account his risk taking capacity, age factor, financial position, etc.
As already mentioned, the schemes invest in different type of securities as disclosed in the offer
documents and offer different returns and risks. Investors may also consult financial experts
before taking decisions. Agents and distributors may also help in this regard.
How to fill up the application form of a mutual fund scheme?

An investor must mention clearly his name, address, number of units applied for and such other
information as required in the application form. He must give his bank account number so as to
avoid any fraudulent encashment of any cheque/draft issued by the mutual fund at a later date for
the purpose of dividend or repurchase. Any changes in the address, bank account number, etc at
a later date should be informed to the mutual fund immediately.
What should an investor look into an offer document?

An abridged offer document, which contains very useful information, is required to be given to
the prospective investor by the mutual fund. The application form for subscription to a scheme is
an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer
document. An investor, before investing in a scheme, should carefully read the offer document.
Due care must be given to portions relating to main features of the scheme, risk factors, initial
issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsor's
track record, educational qualification and work experience of key personnel including fund
managers, performance of other schemes launched by the mutual fund in the past, pending
litigations and penalties imposed, etc.
When will the investor get certificate or statement of account after investing in a mutual
fund?
Mutual funds are required to despatch certificates or statements of accounts within six weeks
from the date of closure of the initial subscription of the scheme. In case of close-ended schemes,
the investors would get either a demat account statement or unit certificates as these are traded in
the stock exchanges. In case of open-ended schemes, a statement of account is issued by the
mutual fund within 30 days from the date of closure of initial public offer of the scheme. The
procedure of repurchase is mentioned in the offer document.

How long will it take for transfer of units after purchase from stock markets in case of
close-ended schemes?
According to SEBI Regulations, transfer of units is required to be done within thirty days from
the date of lodgment of certificates with the mutual fund.
As a unit holder, how much time will it take to receive dividends/repurchase proceeds?
A mutual fund is required to despatch to the unit holder the dividend warrants within 30 days of
the declaration of the dividend and the redemption or repurchase proceeds within 10 working
days from the date of redemption or repurchase request made by the unit holder.
In case of failures to despatch the redemption/repurchase proceeds within the stipulated time
period, Asset Management Company is liable to pay interest as specified by SEBI from time to
time (15% at present).
Can a mutual fund change the nature of the scheme from the one specified in the offer
document?
Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes
of the scheme e.g.structure, investment pattern, etc. can be carried out unless a written
communication is sent to each unit holder and an advertisement is given in one English daily
having nationwide circulation and in a newspaper published in the language of the region where
the head office of the mutual fund is situated. The unit holder have the right to exit the scheme at
the prevailing NAV without any exit load if they do not want to continue with the scheme. The
mutual funds are also required to follow similar procedure while converting the scheme form
close-ended to open-ended scheme and in case of change in sponsor.
How will an investor come to know about the changes, if any, which may occur in the
mutual fund?
There may be changes from time to time in a mutual fund. The mutual funds are required to
inform any material changes to their unit holder. Apart from it, many mutual funds send
quarterly newsletters to their investors.

At present, offer documents are required to be revised and updated at least once in two years. In
the meantime, new investors are informed about the material changes by way of addendum to the
offer document till the time offer document is revised and reprinted.
How to know the performance of a mutual fund scheme?

The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on
daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes.
The NAVs of mutual funds are required to be published in newspapers. The NAVs are also
available on the web sites of mutual funds. All mutual funds are also required to put their NAVs
on the web site of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus
the investors can access NAVs of all mutual funds at one place
The mutual funds are also required to publish their performance in the form of half-yearly results
which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5
years and since inception of schemes. Investors can also look into other details like percentage of
expenses of total assets as these have an affect on the yield and other useful information in the
same half-yearly format.
The mutual funds are also required to send annual report or abridged annual report to the unit
holder at the end of the year.
Various studies on mutual fund schemes including yields of different schemes are being
published by the financial newspapers on a weekly basis. Apart from these, many research
agencies also publish research reports on performance of mutual funds including the ranking of
various schemes in terms of their performance. Investors should study these reports and keep
themselves informed about the performance of various schemes of different mutual funds.
Investors can compare the performance of their schemes with those of other mutual funds under
the same category. They can also compare the performance of equity oriented schemes with the
benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc.
On the basis of performance of the mutual funds, the investors should decide when to enter or
exit from a mutual fund scheme.

How to know where the mutual fund scheme has invested money mobilised from the
investors?
The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly
basis which are published in the newspapers. Some mutual funds send the portfolios to their unit
holders.
The scheme portfolio shows investment made in each security i.e. equity, debentures, money
market instruments, government securities, etc. and their quantity, market value and % to NAV.
These portfolio statements also required to disclose illiquid securities in the portfolio, investment
made in rated and unrated debt securities, non-performing assets (NPAs), etc.
Some of the mutual funds send newsletters to the unit holder on quarterly basis which also
contain portfolios of the schemes.
Is there any difference between investing in a mutual fund and in an initial public offering
(IPO) of a company?
Yes, there is a difference. IPOs of companies may open at lower or higher price than the issue
price depending on market sentiment and perception of investors. However, in the case of mutual
funds, the par value of the units may not rise or fall immediately after allotment. A mutual fund
scheme takes some time to make investment in securities. NAV of the scheme depends on the
value of securities in which the funds have been deployed.
If schemes in the same category of different mutual funds are available, should one choose
a scheme with lower NAV?
Some of the investors have the tendency to prefer a scheme that is available at lower NAV
compared to the one available at higher NAV. Sometimes, they prefer a new scheme which is
issuing units at Rs. 10 whereas the existing schemes in the same category are available at much
higher NAVs. Investors may please note that in case of mutual funds schemes, lower or higher
NAVs of similar type schemes of different mutual funds have no relevance. On the other hand,
investors should choose a scheme based on its merit considering performance track record of the
mutual fund, service standards, professional management, etc. This is explained in an example
given below.

Suppose scheme A is available at a NAV of Rs.15 and another scheme B at Rs.90. Both schemes
are diversified equity oriented schemes. Investor has put Rs. 9,000 in each of the two schemes.
He would get 600 units (9000/15) in scheme A and 100 units (9000/90) in scheme B. Assuming
that the markets go up by 10 per cent and both the schemes perform equally good and it is
reflected in their NAVs. NAV of scheme A would go up to Rs. 16.50 and that of scheme B to Rs.
99. Thus, the market value of investments would be Rs. 9,900 (600* 16.50) in scheme A and it
would be the same amount of Rs. 9900 in scheme B (100*99). The investor would get the same
return of 10% on his investment in each of the schemes. Thus, lower or higher NAV of the
schemes and allotment of higher or lower number of units within the amount an investor is
willing to invest, should not be the factors for making investment decision. Likewise, if a new
equity oriented scheme is being offered at Rs.10 and an existing scheme is available for Rs. 90,
should not be a factor for decision making by the investor. Similar is the case with income or
debt-oriented schemes.
On the other hand, it is likely that the better managed scheme with higher NAV may give higher
returns compared to a scheme which is available at lower NAV but is not managed efficiently.
Similar is the case of fall in NAVs. Efficiently managed scheme at higher NAV may not fall as
much as inefficiently managed scheme with lower NAV. Therefore, the investor should give
more weightage to the professional management of a scheme instead of lower NAV of any
scheme. He may get much higher number of units at lower NAV, but the scheme may not give
higher returns if it is not managed efficiently.
How to choose a scheme for investment from a number of schemes available?

As already mentioned, the investors must read the offer document of the mutual fund scheme
very carefully. They may also look into the past track record of performance of the scheme or
other schemes of the same mutual fund. They may also compare the performance with other
schemes having similar investment objectives. Though past performance of a scheme is not an
indicator of its future performance and good performance in the past may or may not be
sustained in the future, this is one of the important factors for making investment decision. In
case of debt oriented schemes, apart from looking into past returns, the investors should also see
the quality of debt instruments which is reflected in their rating. A scheme with lower rate of
return but having investments in better rated instruments may be safer. Similarly, in equities
schemes also, investors may look for quality of portfolio. They may also seek advice of experts.
Are the companies having names like mutual benefit the same as mutual funds schemes?
Investors should not assume some companies having the name "mutual benefit" as mutual funds.
These companies do not come under the purview of SEBI. On the other hand, mutual funds can
mobilise funds from the investors by launching schemes only after getting registered with SEBI
as mutual funds.
Is the higher net worth of the sponsor a guarantee for better returns?
In the offer document of any mutual fund scheme, financial performance including the net worth
of the sponsor for a period of three years is required to be given. The only purpose is that the
investors should know the track record of the company which has sponsored the mutual fund.
However, higher net worth of the sponsor does not mean that the scheme would give better
returns or the sponsor would compensate in case the NAV falls.
Where can an investor look out for information on mutual funds?

Almost all the mutual funds have their own web sites. Investors can also access the NAVs, half-
yearly results and portfolios of all mutual funds at the web site of Association of mutual funds in
India (AMFI)www.amfiindia.com. AMFI has also published useful literature for the investors.
Investors can log on to the web site of SEBI www.sebi.gov.in and go to "Mutual Funds" section
for information on SEBI regulations and guidelines, data on mutual funds, draft offer documents
filed by mutual funds, addresses of mutual funds, etc. Also, in the annual reports of SEBI
available on the web site, a lot of information on mutual funds is given.
There are a number of other web sites which give a lot of information of various schemes of
mutual funds including yields over a period of time. Many newspapers also publish useful
information on mutual funds on daily and weekly basis. Investors may approach their agents and
distributors to guide them in this regard.
Can an investor appoint a nominee for his investment in units of a mutual fund?
Yes. The nomination can be made by individuals applying for / holding units on their own behalf
singly or jointly. Non-individuals including society, trust, body corporate, partnership firm, Karta
of Hindu Undivided Family, holder of Power of Attorney cannot nominate.
If mutual fund scheme is wound up, what happens to money invested?

In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after
adjustment of expenses. Unit holders are entitled to receive a report on winding up from the
mutual funds which gives all necessary details.
How can the investors redress their complaints?

Investors would find the name of contact person in the offer document of the mutual fund
scheme whom they may approach in case of any query, complaints or grievances. Trustees of a
mutual fund monitor the activities of the mutual fund. The names of the directors of asset
management company and trustees are also given in the offer documents. Investors should
approach the concerned Mutual Fund / Investor Service Centre of the Mutual Fund with their
complaints,
If the complaints remain unresolved, the investors may approach SEBI for facilitating redressal
of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned
mutual fund and follows up with it regularly. Investors may send their complaints to:
Securities and Exchange Board of India
Office of Investor Assistance and Education (OIAE)
Exchange Plaza, "G" Block, 4th Floor,
Bandra-Kurla Complex,
Bandra (E), Mumbai - 400 051.
Phone: 26598510-13

WHAT IS NAV?
What Is Net Asset Value (NAV) Of A Scheme?
The performance of a particular scheme of a mutual fund is denoted by Net

Asset Value (NAV).
Mutual funds invest the money collected from the investors in securities
markets. In simple words, Net Asset Value is the market value of the
securities held by the scheme. Since market value of securities changes every day, NAV of a
scheme also varies on day to day basis. The NAV per unit is the market value of securities of a
scheme divided by the total number of units of the scheme on any particular date. For example, if
the market value of securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has
issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20.
NAV is required to be disclosed by the mutual funds on a regular basis - daily or weekly -
depending on the type of scheme.
CHOOSE A MUTUAL FUND
How to Select a Mutual Fund - A 10-Part Guide to Picking Winning Mutual Funds
A small pooling of money some 8 decades ago by 3 fund managers to set up the first
mutual fund at Boston has grown into one of the industries managing trillions of
dollars in assets. This has also emerged as the most successful and attractive means
for small investors earn the prosperity of the stock market. Innovative concepts like
Systematic Investment Plans have further enabled common man to accumulate a
large corpus of funds through small savings.
While mutual funds have contributed in common man acquiring the prosperity of the stock
market, yet it makes sense to due a small amount of research before selecting a mutual fund.
Some such steps are given below:
Identify your goals

Are you looking for a short term investment or long term? Generally you should consider a
mutual fund for your long term needs. For short term only liquid or debt funds could be good. In
long term equity funds are the best option. For example if you want to accumulate for your
daughter's higher education or son's marriage or your old-age, equity funds are best!
Your time horizon

Knowing the time horizon of your investment is always good. It helps you maintain discipline.
Once you have decided you time horizon, you need not look at the daily NAVs, a periodic
monitoring (once in a year) would be more than sufficient. In the short term a fund may appear
doing bad, but in the long term the same fund may produce splendid returns.
Past performance may not be good always

The fund's past performance is a good indicator to look at but that is not the only criteria. May be
the reasons for a very good performance may not exist in the economy so the same fund may not
produce good results in future. Therefore, consider other important points as well.
Check the objective of the Fund

It is important for you to find a mutual fund or family of mutual funds that shares the same
investment philosophy as you do. As a growth investor you would like to invest in companies
that grow fast, whatever may be the price of the share at the time of purchase. Or as a value
investor you may consider the intrinsic value of a stock and faith in the business or philosophy of
the company. Just check that the way you look at stocks as an avenue of investment, fund also
does the same.
Look for an experienced fund manager with a good track record

Every year many join the fund management industry as fund managers. Some of them just want
to show some splendid performance and in the process may loose investors' money. Or some are
just reckless or without any discipline or focus. It pays to see the length of the experience,
qualification and the past performance of a fund manager. Do not go by just one or two years'
track record of the fund manager, consider a longer period.

Diversification
Invest in a fund that has a good amount of diversification. A number of funds with the similar
objective and philosophy will not give you diversification. The diversification means your assets
(even if invested in different funds of different companies) should have a portfolio that should
give you a flavor of different sectors and companies of different sizes within same or different
sectors.
Consider Expense Ratio

The cost of owning the fund! When you entrust your money to a mutual fund they have to incur
some cost to manage your money. This cost is charged to the fund. This is the expense or when it
is denoted as a percentage to the fund it is known as expense ratio. You should consider this.
Higher this ratio lower would be your returns since before the income of the fund is appropriated
to your funds this cost would be deducted from the income/profit of the fund.
Avoid Mutual Funds with High turnover Ratio

It's important to focus on the turnover rate - the percentage of the portfolio that is bought and
sold each year. Because higher the turnover ratio, lower would be your returns since higher
turnover would lead to higher cost of brokerages or custodial charges.
Consider Index Funds

For a common investor with a investment period of about 5-10 years and with an objective of
compounding money, index funds can be a great choice. They combine almost unfathomably
low turnover rates with rock bottom expense ratios and widespread diversification; in other
words, you really can have your cake and eat it, too.
By beginning a dollar cost averaging plan into low-cost index funds, you can be absolutely
certain you will out perform a majority of managed mutual funds on a long-term basis."
Consider the Fund Benchmark Index

It is essential to monitor if your fund manager is doing his job properly. Every fund has a
benchmark index. The idea is that the fund manager should deliver returns which are equal to or

more than the returns of that index. If the fund manager fails to deliver the same or higher returns
than the one generated by the index, that means his performance is poor.
Be open to Systematic Investment Plans

What is a recurring deposit account with a bank is the systematic investment plan in the case of a
mutual fund. You invest regularly a small sum over a period time to accumulate a larger corpus.
In the process you acquire shares at an average price which is lower than the peaks. It also
imbibes discipline and in the process allow you to create a sizeable fund.
BENEFITS OF INVESTING IN MUTUAL FUNDS
Portfolio Diversification
Portfolio Diversification from securities spread over various companies, industries, issuers
and maturities. The portfolio will not be affected by the bad performance of one or few of
the securities.
Low Transaction Cost

Low Transaction Cost from economies of scale. Since the fund invests large sum of money,
the transaction cost comes down. Small amounts of investors get benefits of the large pool.
Professional Managers
Professional Managers who are employed by mutual funds offer their expertise in managing
the investors' funds, given their knowledge of markets and securities, according to the
investment objective of the scheme.
Reduction In Risk
Portfolio diversification and the professional management of funds offer Reduction In Risk
for the investor. The investment is always a managed portfolio and not a single stock or
sector.

Flexible And Easy

Investors can choose their investment to suit their particular needs and preferences.
Minimum investment is low for most funds. Investors can choose systematic investment
plans to invest regularly. Mutual fund transactions are Flexible And Easy to conduct.
Liquidity
Mutual funds structure the portfolio is such a way that they are able to provide Liquidity to
the investor. Investor can take their money outhwen they need it.

INSURANCE
WHAT IS INSURANCE?
What Is Insurance?
Insurance is a basic form of risk management which provides protection against possible loss to
life or physical assets. A person who seeks protection against such loss is termed as insured, and
the company that promises to honour the claim, in case such loss is actually incurred by the
insured, is termed as Insurer. In order to get the insurance, the insured is required to pay to the
insurance company (i.e. the insurer) a certain amount, termed as premium, on a periodical basis
(say monthly, quarterly, annually, or even one-time).
Life Insurance
Insurance against risk of loss to one's life is covered under Life Insurance. Life insurance is also
known as long term insurance or life assurance. It includes Whole Life Assurance, Endowment
Assurance, Assurances for Children, Term Assurance, Money Back Policy etc.
General Insurance
Insurance against risk of loss to assets like car, house, accident etc. is covered under General or
Non-life Insurance. General insurance includes fire insurance, marine insurance, motor
insurance, theft insurance, health insurance, personal accident insurance etc.
Basic Difference between Life Insurance and General Insurance
Life insurance includes plans which are directly related with the person's life. On the other hand,
general insurance deals with plans which are not related to the life of the person. General
insurance plans seek to provide protection against loss to a person's assets or health and not to
his/her life.

Types Of Insurance Policies

Insurance provides compensation to a person for an anticipated loss to his life, business or an
asset. Insurance is broadly classified into two parts covering different types of risks:
Insurance Basics
Long-term (Life Insurance)
General Insurance (Non-life
Insurance)
Long-term Insurance
Long term insurance is so called because it is meant for a long-term period which may stretch to
several years or whole life-time of the insured. Long-term insurance covers all life insurance
policies. Insurance against risk to one's life is covered under ordinary life assurance. Ordinary
life assurance can be further clasified into following types:
Types of Ordinary Life Assurance :
1. Whole Life Assurance
Meaning : In whole life assurance, insurance company collects premium from the insured for
whole life or till the time of his retirement and pays claim to the family of the insured only after
his death.
2. Endowment Assurance
Meaning : In case of endowment assurance, the term of policy is defined for a specified period
say 15, 20, 25 or 30 years. The insurance company pays the claim to the family of assured in an
event of his death within the policy's term or in an event of the assured surviving the policy's
term.

3. Assurances for Children
Meaning : Child's Deferred Assurance: Under this policy, claim by insurance company is paid
on the option date which is calculated to coincide with the child's eighteenth or twenty first
birthday. In case the parent survives till option date, policy may either be continued or payment
may be claimed on the same date. However, if the parent dies before the option date, the policy
remains continued until the option date without any need for payment of premiums. If the child
dies before the option date, the parent receives back all premiums paid to the insurance company.
School fee policy: School fee policy can be availed by effecting an endowment policy, on the life
of the parent with the sum assured, payable in installments over the schooling period.
4. Term Assurance
Meaning : The basic feature of term assurance plans is that they provide death risk-cover. Term
assurance policies are only for a limited time, claim for which is paid to the family of the assured
only when he dies. In case the assured survives the term of policy, no claim is paid to the
assured.
5. Annuities
Meaning : Annuities are just opposite to life insurance. A person entering into an annuity
contract agrees to pay a specified sum of capital (lump sum or by installments) to the insurer.
The insurer in return promises to pay the insured a series of payments until insured's death.
Generally, life annuity is opted by a person having surplus wealth and wants to use this money
after his retirement.
There are two types of annuities, namely: Immediate Annuity: In an immediate annuity, the
insured pays a lump sum amount (known as purchase price) and in return the insurer promises to
pay him in installments a specified sum on a monthly/quarterly/half-yearly/yearly basis. Deferred
Annuity: A deferred annuity can be purchased by paying a single premium or by way of

installments. The insured starts receiving annuity payment after a lapse of a selected period (also
known as Deferment period).
6. Money Back Policy
Meaning : Money back policy is a policy opted by people who want periodical payments. A
money back policy is generally issued for a particular period, and the sum assured is paid
through periodical payments to the insured, spread over this time period. In case of death of the
insured within the term of the policy, full sum assured along with bonus accruing on it is payable
by the insurance company to the nominee of the deceased.
General Insurance
Also known as non-life insurance, general insurance is normally meant for a short-term period of
twelve months or less. Recently, longer-term insurance agreements have made an entry into the
business of general insurance but their term does not exceed five years. General insurance can be
classified as follows:
Fire Insurance
Fire insurance provides protection against damage to property caused by accidents due to fire,
lightening or explosion, whereby the explosion is caused by boilers not being used for industrial
purposes. Fire insurance also includes damage caused due to other perils like strom tempest or
flood; burst pipes; earthquake; aircraft; riot, civil commotion; malicious damage; explosion;
impact.
Marine Insurance
Marine insurance basically covers three risk areas, namely, hull, cargo and freight. The risks
which these areas are exposed to are collectively known as "Perils of the Sea". These perils
include theft, fire, collision etc.

Marine Cargo: Marine cargo policy provides protection to the goods loaded on a ship against all
perils between the departure and arrival warehouse. Therefore, marine cargo covers carriage of
goods by sea as well as transportation of goods by land.
Marine Hull: Marine hull policy provides protection against damage to ship caused due to the
perils of the sea. Marine hull policy covers three-fourth of the liability of the hull owner
(shipowner) against loss due to collisions at sea. The remaining 1/4th of the liability is looked
after by associations formed by shipowners for the purpose (P and I clubs).
Miscellaneous
As per the Insurance Act, all types of general insurance other than fire and marine insurance are
covered under miscellaneous insurance. Some of the examples of general insurance are motor
insurance, theft insurance, health insurance, personal accident insurance, money insurance,
engineering insurance etc.
What is a ULIP?
ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance policy
which provides a combination of risk cover and investment. The dynamics of the capital market
have a direct bearing on the performance of the ULIPs. REMEMBER THAT IN A UNIT
LINKED POLICY, THE INVESTMENT RISK IS GENERALLY BORNE BY THE
INVESTOR.
What is a Unit Fund?
The allocated (invested) portions 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.

What is a Unit?
It is a component of the Fund in a Unit Linked Policy.
What Types of Funds do ULIP Offer?
Most insurers offer a wide range of funds to suit one's investment objectives, risk profile and
time horizons. Different funds have different risk profiles. The potential for returns also varies
from fund to fund. The following are some of the common types of funds available along with an
indication of their risk characteristics.
General
Nature of Investments Risk Category
Description
Equity Funds Primarily invested in company stocks Medium to High
with the general aim of capital
appreciation
Income, Fixed Invested in corporate bonds, government Medium
Interest and Bond securities and other fixed income
Funds instruments
Cash Funds Sometimes known as Money Market Low
Funds - invested in cash, bank deposits
and money market instruments
Balanced Funds Combining equity investment with fixed Medium
interest instruments
What is Net Asset Value (NAV)?

NAV is the value of each unit of the fund on a given day. The NAV of each fund is displayed on
the website of the respective insurers.
What is the benefit payable in the event of risk occurring during the term of the policy?
The Sum Assured and/or value of the fund units is normally payable to the beneficiaries in the
event of risk to the life assured during the term as per the policy conditions.
What is the benefit payable on the maturity of the policy?

The value of the fund units with bonuses, if any is payable on maturity of the policy.
Can a partial encashment/withdrawal be made?

Yes, Products may have the "Partial Withdrawal" option which facilitates withdrawal of a
portion of the investment in the policy. This is done through cancellation of a part of units.
What happens if payment of premiums is discontinued?

Discontinuance within three years of commencement If all the premiums have not been paid
for at least three consecutive years from inception, the insurance cover shall cease immediately.
Insurers may give an opportunity for revival within the period allowed; if the policy is not
revived within that period, surrender value shall be paid at the end of third policy anniversary or
at the end of the period allowed for revival, whichever is later.
Discontinuance after three years of commencement At the end of the period allowed for
revival, the contract shall be terminated by paying the surrender value. The insurer may offer to
continue the insurance cover, if so opted for by the policy holder, levying appropriate charges
until the fund value is not less than one full year's premium. When the fund value reaches an
amount equivalent to one full year's premium, the contract shall be terminated by paying the fund
value.
BANKING PRODUCTS

Bank Deposits In India
Saving Bank Account.

Bank Recurring Deposit.
Bank Fixed Deposits.
Savings Bank Account
A Saving Bank account (SB account) is meant to promote the habit of saving among the people.
It also facilitates safekeeping of money. In this scheme fund is allowed to be withdrawn
whenever required, without any condition. Hence a savings account is a safe, convenient and
affordable way to save your money. Bank deposits are fairly safe because banks are subject to
control of the Reserve Bank of India with regard to several policy and operational parameters.
Bank also pays you a minimal interest for keeping your money with them.
Features
The minimum amount to open an account in a nationalized bank is Rs 100. If cheque books are
also issued, the minimum balance of Rs 500 has to be maintained. However in some private or
foreign bank the minimum balance is Rs 500 or more and can be up Rs. 10,000. One cheque
book is issued to a customer at a time.
A Savings account can be opened either individually or jointly with another individual. In a joint
account only the sign of one account holder is needed to write a cheque. But at the time of
closing an account, the sign of the both the account holders are needed.
Return
The interest rate of savings bank account in India varies between 2.5% and 4%. In Savings Bank
account, bank follows the simple interest method. The rate of interest may change from time to
time according to the rules of Reserve Bank of India. One can withdraw his/her money by

submitting a cheque in the bank and details of the account, i.e the Money deposited, withdrawn
along with the dates and the balance, is recorded in a passbook.
Advantages
It's much safer to keep your money at a bank than to keep a large amount of cash in your home.
Bank deposits are fairly safe because banks are subject to control of the Reserve Bank of India
with regard to several policy and operational parameters. The federal Government insures your
money. Saving Bank account does not have any fixed period for deposit. The depositor can take
money from his account by writing a cheque to somebody else or submitting a cheque directly.
Now most of the banks offer various facilities such as ATM card, credit card etc. Through
debit/ATM card one can take money from any of the ATM centres of the particular bank which
will be open 24 hours a day. Through credit card one can avail shopping facilities from any shop
which accept the credit card. And many of the banks also give internet banking facility through
with one do the transactions like withdrawals, deposits, statement of account etc.
How to open
Savings Bank Account can be opened in the name of an individual or in joint names of the
depositors by filling up the appropriate forms. A minor who have completed ten years of age can
also open and operate the account. At the time of opening an account one must submit the
documents like photocopy of passport or Electoral card, Postal identification cards as address
proof and two passport size photos.
Most banks also require an introduction for opening an SB account. The introduction may be
obtained either from an existing account holder or from a respectable citizen, well known to the
bank, who should normally call on the bank and sign in the column specially provided for the
purpose of introduction in the account opening form.
Bank Recurring Deposit

The Recurring deposit in Bank is meant for someone who want to invest a specific sum of
money on a monthly basis for a fixed rate of return. At the end, you will get the principal sum as
well as the interest earned during that period. The scheme, a systematic way for long term
savings, is one of the best investment option for the low income groups.
Features
The minimum investment of Recurring Deposit varies from bank to bank but usually it begins
from Rs 100/-. There is no upper limit in investing. The rate of interest varies between 7 and 11
percent depending on the maturity period and amount invested. The interest is calculated
quarterly or as specified by the bank. The period of maturity ranging from 6 months to 10 years.
The deposit shall be paid as monthly installments and each subsequent monthly installment shall
be made before the end of the calendar month and shall be equal to the first deposit. In case of
default in payment, a default fee is chargeable for delayed deposit at the rate of Rs. 1.50/- for
every Rs. 100/- per month for deposits up to 5 years and Rs. 2/- per Rs. 100/- in case of longer
maturities.
Since a recurring deposit offers a fixed rate of return, it cannot guard against inflation if it is
more than the rate of return offered by the bank. Worse, lower the gap between the interest rate
on a recurring deposit and inflation, lower your real rate of return. Premature withdrawal is also
possible but it demands a loss of interest.
Returns
The rate of interest varies between 7 and 11 percent depending on the maturity period and
amount invested. The interest is calculated quarterly or as specified by the bank.

Maturity amount
Amount invested
in 2 years
per month
(5%interest)
Rs 100 Rs 2626
Rs 500 Rs 13,132
Rs 750 Rs 19,698
Rs 3,000 Rs 78,792
Advantages
Some Nationalised banks are giving more facilities to their customer, State Bank of India give
Free Roaming Recurring Deposit facility to their customers. They can transfer their account to
any branch of SBI free. Tax benefit on the interest earned on Recurring Deposit up to Rs 12000
Tax Deductible at source if the interest paid on deposit exceeds Rs 5000/-per customer, per year,
per branch.
How to open an Account
A Recurring Bank Deposit account can be opened at any branch of a bank that offers this facility.
However, some banks insist that you maintain a savings bank account with them to operate a
Recurring Bank Deposit account. The terms and conditions vary from bank to bank. When a
depositor opens a Recurring Bank Deposit account with a bank, a pass-book or an account
statement is issued to him.
Bank Fixed Deposits
A fixed deposit is meant for those investors who want to deposit a lump sum of money for a
fixed period; say for a minimum period of 15 days to five years and above, thereby earning a
higher rate of interest in return. Investor gets a lump sum (principal + interest) at the maturity of
the deposit.
Bank fixed deposits are one of the most common savings scheme open to an average investor.
Fixed deposits also give a higher rate of interest than a savings bank account. The facilities vary
from bank to bank. Some of the facilities offered by banks are overdraft (loan) facility on the
amount deposited, premature withdrawal before maturity period (which involves a loss of
interest) etc. Bank deposits are fairly safer because banks are subject to control of the Reserve
Bank of India.
Features
Bank deposits are fairly safe because banks are subject to control of the Reserve Bank of India
(RBI) with regard to several policy and operational parameters. The banks are free to offer
varying interests in fixed deposits of different maturities. Interest is compounded once a quarter,
leading to a somewhat higher effective rate.
The minimum deposit amount varies with each bank. It can range from as low as Rs. 100 to an
unlimited amount with some banks. Deposits can be made in multiples of Rs. 100/-.
Before opening a FD account, try to check the rates of interest for different banks for different
periods. It is advisable to keep the amount in five or ten small deposits instead of making one big
deposit. In case of any premature withdrawal of partial amount, then only one or two deposit
need be prematurely encashed. The loss sustained in interest will, thus, be less than if one big
deposit were to be encashed. Check deposit receipts carefully to see that all particulars have been
properly and accurately filled in. The thing to consider before investing in an FD is the rate of
interest and the inflation rate. A high inflation rate can simply chip away your real returns.
Returns
The rate of interest for Bank Fixed Deposits varies between 4 and 11 per cent, depending on the
maturity period (duration) of the FD and the amount invested. Interest rate also varies between
each bank. A Bank FD does not provide regular interest income, but a lump-sum amount on its
maturity. Some banks have facility to pay interest every quarter or every month, but the interest
paid may be at a discounted rate in case of monthly interest. The Interest payable on Fixed
Deposit can also be transferred to Savings Bank or Current Account of the customer. The deposit
period can vary from 15, 30 or 45 days to 3, 6 months, 1 year, 1.5 years to 10 years.
Duration Interest rate (%)

per annum
15-30 days 4 -7 %
30-45 days 5-8 %
46-90 days 6-8 %
91-180 days 6.5-9.5 %
181-365 days 7-9.5 %
1-1.5 years 8.5-10.25 %
1.5-2 years 8.5-10.5 %
2-3 years 9-10.5 %
3-5 years 9.5-10.5 %
5 years 9.5-11 %
Advantages
Bank deposits are the safest investment after Post office savings because all bank deposits are
insured under the Deposit Insurance & Credit Guarantee Scheme of India. It is possible to get a
loans up to75- 90% of the deposit amount from banks against fixed deposit receipts. The interest
charged will be 2% more than the rate of interest earned by the deposit. With effect from A.Y.
1998-99, investment on bank deposits, along with other specified incomes, is exempt from
income tax up to a limit of Rs.12, 000/- under Section 80L. Also, from A.Y. 1993-94, bank
deposits are totally exempt from wealth tax. The 1995 Finance Bill Proposals introduced tax
deduction at source (TDS) on fixed deposits on interest incomes of Rs.5000/- and above per
annum.
How to apply
One can get a bank FD at any bank, be it nationalised, private, or foreign. You have to open a FD
account with the bank, and make the deposit. However, some banks insist that you maintain a
savings account with them to operate a FD. When a depositor opens an FD account with a bank,
a deposit receipt or an account statement is issued to him, which can be updated from time to

time, depending on the duration of the FD and the frequency of the interest calculation. Check
deposit receipts carefully to see that all particulars have been properly and accurately filled in.
POSTOFFICE SAVING SHCEME
Post Office Savings Schemes In India

Trapping rural savings has been a pressing need since time immemorial. The authorites have
taken undue advantage of the existence of post office even in remote nooks and corners of the
country. They are forced to undertake normal banking activities liken SB, TD, RD, MIS.
The systems and procedures handling these schemes are clumy, laborious and outdated. The
leathargy of bureaucraft in taking remedical action results in frittering away of scarce and
vluable resourcs. The rate of interest were reduced considerably and contineously from 1.1.99 to
1.3.2003. However these schemes offer bettr return most other avenues.
The silent features of the current schemes are given below
National Savings Certificates
(NSC)
National Savings Schemes (NSS)
Post Office Time Deposite
Post Office Recurring Deposit
Account (RDA)
Post Office Monthly Income
Scheme
Senior Citizen Scheme
Kisan Vikas Patra (KVP)
National Saving Certificates (NSC)
National Savings Certificates (NSC) are certificates issued by Department of post, Government
of India and are available at all post office counters in the country. It is a long term safe savings
option for the investor. The scheme combines growth in money with reductions in tax liability as
per the provisions of the Income Tax Act, 1961. The duration of a NSC scheme is 6 years.

Features
NSCs are issued in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000 for a
maturity period of 6 years. There is no prescribed upper limit on investment.
Individuals, singly or jointly or on behalf of minors and trust can purchase a NSC by applying to
the Post Office through a representative or an agent.
One person can be nominated for certificates of denomination of Rs. 100- and more than one
person can be nominated for higher denominations.
The certificates are easily transferable from one person to another through the post office. There
is a nominal fee for registering the transfer. They can also be transferred from one post office to
another
One can take a loan against the NSC by pledging it to the RBI or a scheduled bank or a co-
operative society, a corporation or a government company, a housing finance company approved
by the National Housing Bank etc with the permission of the concerned post master.
Though premature encashment is not possible under normal course, under sub-rule (1) of rule 16
it is possible after the expiry of three years from the date of purchase of certificate.
Tax benefits are available on amounts invested in NSC under section 88, and exemption can be
claimed under section 80L for interest accrued on the NSC. Interest accrued for any year can be
treated as fresh investment in NSC for that year and tax benefits can be claimed under section 88.
Return
It is having a high interest rate at 8% compounded half yearly. Post maturity interest will be paid
for a maximum period of 24 months at the rate applicable to individual savings account. A 1000
rs denomination certificate will increase to 1601Rs. on completion of 6 years.
Interest rates for the NSC Certificate of Rs 1000
Year Rate Of Interest

1 year Rs 81.60
2 years Rs 88.30
3 years Rs95.50
4 years Rs103.30
5 years Rs 111.70
6 years Rs 120.80
Advantages
Tax benefits are available on amounts invested in NSC under section 88, and exemption can be
claimed under section 80L for interest accrued on the NSC. Interest accrued for any year can be
treated as fresh investment in NSC for that year and tax benefits can be claimed under section 88.
NSCs can be transferred from one person to another through the post office on the payment of a
prescribed fee. They can also be transferred from one post office to another. The scheme has the
backing of the Government of India so there are no risks associated with your investment.
How to start
Any individual or on behalf of minors and trust can purchase a NSC by applying to the Post
Office through a representative or an agent. Payments can be made in cash, cheque or DD or by
raising a debit in the savings account held by the purchaser in the Post Office. The issue of
certificate will be subject to the realization of the cheque, pay order, DD. The date of the
certificate will be the date of realization or encashment of the cheque. If a certificate is lost,
destroyed, stolen or mutilated, a duplicate can be issued by the post-office on payment of the
prescribed fee.
National Savings Schemes (NSS)
National Savings Scheme (NSS) offers an assured return and tax rebates under Section 88 of the
Income Tax Act, 1961. The rate of interest is 9 per cent per annum, compounded annually.
NSS has a duration of four years as compared to NSC, which has a duration of six years. You
can extend the duration of your NSS units thereafter if you so desire.

NSS does not offer the benefits of liquidity. There is no premature withdrawal facility except in
case of the death of the holder. However, the interest accrued on NSS can be withdrawn at any
point. The deposit (principal) can be withdrawn only on maturity of the instrument at the end of
four years and the account can be closed at the discretion of the investor.
Features
NSS is mostly viewed upon as a tax-saving instrument. It combines growth in money (capital
appreciation) with cuts in tax outgo, albeit at a lower rate.
NSS is not meant for earning regular income. It serves primarily as an instrument to reduce tax
liability.
Since the NSS has a fixed rate of return, it cannot provide adequate safeguards against high
inflation rates.
It is a savings plan that also offers tax benefits, and it cannot be pledged as security to any bank
for availing a loan.
Your income is assured at the specified rate of interest. Since the NSS has the backing of the
GOI, this is a risk-free avenue of investment.
The NSS has the backing of the Government Of India. Therefore, you can be assured of getting
back your full investments. This is a safe option to go in for, as the risks are minimal.
Since the NSS is backed by the Government Of India, it requires no commercial rating, and is
deemed to be a risk-free investment.
Return
NSS has a duration of four years as compared to NSC, which has a duration of six years. You
can extend the duration of your NSS units thereafter if you so desire.
Advantages
National Savings Scheme units are issued in various denominations with the minimum
investment being Rs 100. There is no prescribed upper limit on investment. However, the
scheme offers a coupon of 9 per cent as compared to 9.5 per cent offered by NSC. Moreover, the
interest is compounded annually as against semi-annually in NSC.
The NSS offers tax incentives as per the provisions of the Income Tax Act, 1961. You can avail
of rebates on both the principal invested as well as the interest income under Section 88 of the
Income Tax Act. The annual interest income qualifies for exemption under Section 80L, i.e.,
interest income upto Rs 9,000 is tax-exempt. Moreover, interest income is not subject to TDS.
NSS units are held physically in the form of certificates that are issued to the investors by the
post office.
How to start
NSS is available at post offices across the country. You can open only one account in a year.
There is no prescribed upper limit to the amount you might want to invest in the scheme.
Accounts cannot be opened by an investor in the name of his/her spouse. But you can avail of the
nomination facility to nominate any person as the beneficiary.
Post Office Time Deposit Scheme

A Post-Office Time Deposit Account (RDA) is a banking service similar to a Bank Fixed
Deposit offered by Department of post, Government of India at all post office counters in the
country. The scheme is meant for those investors who want to deposit a lump sum of money for
a fixed period; say for a minimum period of one year to two years, three years and a maximum
period of five years. Investor gets a lump sum (principal + interest) at the maturity of the deposit.
Time Deposits scheme return a lower, but safer, growth in investment
Features
Time Deposits can be made for the periods of 1 year, 2 years, 3 years and 5 years. The minimum
investment in a post-office Time deposit is Rs 200 and then its multiples and there is no
prescribed upper limit on your investment.
Account may be opened by an individual, Trust, Regimental Fund and Welfare Fund.
The account can be closed after 6 months but before one year of opening the account. On such
closure the amount invested is returned without interest. 2 year, three year and five year accounts
can be closed after one year at a discount. They involve a loss in the interest accrued for the time
the account has been in operation.

Interest is payable annually but is calculated on a quarterly basis at the prescribed rates. Post
maturity interest will be paid for a maximum period of 24 months at the rate applicable to
individual savings account.
One can take a loan against a time deposit with the balance in your account pledged as security
for the loan
Returns
This investment option pays annual interest rates between 6.25 and 7.5 per cent, compounded
quarterly. Time deposit for 1 year offers a coupon rate of 6.25%, 2-year deposit offers an interest
of 6.5%, 3 years is 7.25% while a 5-year Time Deposit offers 7.5% return.
Quarterly
Duration of
Compound
Account
Interest
1 year 6.25%
2 years 6.5%
3 years 7.25%
5 years 7.5%
Advantages
In this scheme your investment grows at a pre- determined rate with no risk involved. With a
Government of India-backing, your principal as well as the interest accrued is assured under the
scheme. The rate of interest is relatively high compared to the 4.5% annual interest rates
provided by banks. Although the amount invested in this scheme is not exempted as per section
88 of Income Tax, the amount of interest earned is tax free under Section 80-L of Income Tax
Act.
How to start a Time Deposit
A Time Deposit account can be opened at any post-office in the country. Account may be
opened by an individual, i.e., Single, Joint A/B (not more than two adults) Trust, Regimental
Fund and Welfare Fund. On opening a Time Deposit, you will receive an account statement
stating the amount deposited and the duration of the account. The account can be closed after 6
months of opening the account. On such closure the amount invested is returned with/without
interest depending on the time the deposit was maintained.
Post Office Recurring Deposit Account (RDA)
A Post-Office Recurring Deposit Account (RDA) is a banking service offered by Department of

post, Government of India at all post office counters in the country. The scheme is meant for
investors who want to deposit a fixed amount every month, in order to get a lump sum after five
years. The scheme, a systematic way for long term savings, is one of the best investment option
for the low income groups.
Features
The minimum investment in a post-office RDA is Rs 10 and then in multiples of Rs. 5/- for a
period of 5 years. There is no prescribed upper limit on your investment.
The deposit shall be paid as monthly installments and each subsequent monthly installment shall
be made before the end of the calendar month and shall be equal to the first deposit. In case of
default in payment, a default fee is chargeable for delayed deposit at 0.20 Paise per month of
delay, for Rs.10 Denomination. After more than four defaults, the account shall be treated as
discontinued in case the account is not revived within two months from the fifth default.
For Advance deposits for 6 months or 12 months, a rebate is allowed at the prescribed rate (For
Rs 10 denomination:- Rs.1/- for 6 advance deposits, Rs.4/- for 12 advance deposits.
One withdrawal is allowed after one year of opening a post-office RDA on meeting certain
conditions. You can withdraw up to half the balance lying to your credit at an interest charged at
15%. The withdrawal or the loan may be repaid in one lump or in equal monthly installments.
Premature closure is allowed on completion of three years from the date of opening and in such
case, interest is payable as per the rate applicable for the Post Office Savings Bank Account.
After maturity of the account, it can be continued for a further period of 5 years with or without
further deposits. During this extended period, the account can be closed at any time.
Returns
The post-office recurring deposits offers a fixed rate of interest, currently at 7.5 per cent per
anum compounded quarterly.
Money returned
Monthly Total
on Maturity
Investment Investment(60months)
(after 60 months)
10 600 728.90
20 1,200 1457.80
50 3,000 3644.50
100 6,000 7289.00
500 30,000 36445.00
1000 60,000 72890.00
1375 82,500 100224.00
5000 3,00,000 364450.00
Advantages
The post office offers a fixed rate of interest unlike banks which constantly change their
recurring deposit interest rates depending on their demand supply position. As the post office is a
department of the government of India, it is a safe investment. The principal amount in the
Recurring Deposit Account is assured. Moreover Interest earned on this account is exempted
from tax as per Section 80L of Income Tax Act.
How to Start Post office RDA
A post-office RDA can be opened at any post office in the country by filling up the appropriate
forms. The account can be opened by an individual adult as a single person account, two adults
in a joint mode, or by a guardian on behalf of the minor who has attained the age of 10 years in
his own name. A pass book is issued at the time of opening the account. If there is a loss, theft or
the passbook is mutilated, a duplicate is issued on a charge. The deposit can be made personally

at the particular post office every month or can be made through an appointed agent, who would
collect the money from you and enter the same in your passbook.
Post Office Monthly Income Scheme

The post-office monthly income scheme (MIS) provides for monthly payment of interest income
to investors. It is meant for investors who want to invest a sum amount initially and earn interest
on a monthly basis for their livelihood. The MIS is not suitable for an increase in your
investment. It is meant to provide a source of regular income on a long term basis. The scheme
is, therefore, more beneficial for retired persons.
Features
Only one deposit is available in an account.
Only individuals can open the account; either single or joint.( two or three).
Interest rounded off to nearest rupee i.e, 50 paise and above will be rounded off to next rupee.
The minimum investment in a Post-Office MIS is Rs 1,000 for both single and joint accounts.
The maximum investment for a single account is Rs 3 lakh and Rs 6 lakh for a joint account.
The duration of MIS is six years.
Returns
The post-office MIS gives a return of 8% plus a bonus of 10 per cent on maturity. However, this
10 per cent bonus is not available in case of premature withdrawals. The minimum investment in
a Post-Office MIS is Rs 1,000 for both single and joint accounts.
Amount returned
Deposit Rs Monthly Interest
on maturity
5,000 33 5,500
10,000 66 11,000
50,000 333 55,000

1,00,000 667 1,10,000
2,00,000 1,333 2,20,000
3,00,000 2,000 3,30,000
6,00,000 4,000 6,60,000
Advantages
Premature closure of the account is permitted any time after the expiry of a period of one year of
opening the account. Deduction of an amount equal to 5 per cent of the deposit is to be made
when the account is prematurely closed. Investors can withdraw money before three years, but a
discount of 5%. Closing of account after three years will not have any deductions. Monthly
interest can be automatically credited to savings account provided both the accounts standing at
the same post office. The interest income accruing from a post-office MIS is exempt from tax
under Section 80L of the Income Tax Act, 1961. Moreover, no TDS is deductible on the interest
income. The balance is exempt from Wealth Tax.
How to Open
You can buy a post office MIS at any post-office in India. When you open an MIS, you will get a
certificate issued by the post office. In addition, the investor is provided with a passbook to
record his transactions against his MIS.
Post Office Senior Citizen Scheme

A new savings scheme called â€˜Senior Citizens Savings Schemeâ€™ has been notified with
effect from August 2, 2004. The Scheme is for the benefit of senior citizens and maturity period
of the deposit will be five years, extendable by another three years. Initially the scheme will be
available through designated post offices through out the country.
Features
The minimum investment is 1000Rs and in multiples of Rs.1000 subject to a maximum of Rs.15
lakh.
Citizens of 60 years of age and above are eligible to invest. Single or joint account (with spouse

only) can be opened. 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.
The deposit will carry an interest of 9% per annum (taxable). The maturity period of the deposit
will be five years, extendable by another three years.
Premature withdrawal after a period of one year will be allowed, subject to some deductions.
The investments in the scheme will be non-tradable and non-transferable. However, nomination
facility will be available
Non-Resident Indians and Hindu Undivided Families are not eligible to invest in the scheme.
Returns
The deposit will carry an interest of 9% per annum (taxable).
Advantages
This Scheme is most beneficial to Senior citizens and provides a high rate of interest as
compared to bank interest of 4.5- 4.75%. Although the interest on the deposit is taxable, the
deposits themselves are tax free. As the post office is a department of the government of India, it
is a safe investment. The principal amount is assured
How to Start Post office Senior Citizens account

A Senior Citizen Account can be opened through any designated post office through out the
country. The account can be opened by any individual 60 years of age and above either
individually, or jointly (with spouse only).
Kisan Vikas Patra (KVP)

Kisan Vikas Patra (KVP) doubles your money in 7 years and 3 months with the advantage of
premature withdrawal. KVP is sold through all Head Post Offices and other authorised post
offices throughout India. The rate of return is 9.75 per cent, compounded annually.
KVP accumulates money at a fixed rate, and your money doubles in 7 years and 3 months. But
KVP is not meant for regular income. It is for those looking for a safe avenue of investment
without the pressing need for a regular source of income.
Features
The minimum investment in KVP is Rs 100. Certificates are available in denominations of Rs
100, Rs 500, Rs 1,000, Rs 5,000, Rs 10,000 and Rs 50,000. The denomination of Rs 50,000 is
sold through head post offices only. There is no limit on holding of these certificates. Any
number of certificates can be purchased. A KVP is sold at face value; the maturity value is
printed on the Certificate.
It is a good option if you are looking for hassle-free investment as it assures a certain sum of
money at the expiry of the duration of your investment.
With a fixed rate of return, KVP does not provide safeguards against the perils of high inflation
rates.
Depending on whether the finance company or the bank from where you are raising the loan
accepts it or not. Some banks accept it for raising house loans.
Income is assured at the prescribed rate of interest. As mentioned, this is a risk-free investment
channel as the KVP comes with the backing of the Government of India.
Since the KVP has the backing of the Government of India and is, therefore, extremely safe, it
does not require any commercial rating.
KVP is not a bearer certificate, and is not easily transferable. Permission of the post master is
required for any transfer. These cannot be traded in the secondary market.
KVP cannot be traded in the secondary market and, hence, the question of its market value does
not arise.
KVP is held physically in the form of certificates that are issued to the investors by the post
office. The option of holding KVP in demat form is not available Although no TDS is applicable
on the interest income from KVP, there are no tax incentives as per the provisions of the Income
Tax Act, 1961.
Maturity on providing proper identity and by simple discharge of the certificate on the reverse.

Returns
KVP Scheme doubles money in seven years and three months.
What is the liquidity of KVP?

If the premature encashment takes place within a period of one year from the date of purchase of
the certificate, only the face value of the certificate shall be payable. No interest is payable in this
case.
After the expiry of one year, but before two years and six months from the date of the issue of
the certificate, the face value of the certificate together with simple interest at the specified rate
for the completed months for which the certificate has been held, shall be payable.
If a certificate is encashed any time after expiry of two-and-a-half years, the amount payable is
as specified by the government from time to time.
SAVE TAX BY SAVINGS
Choose Your Tax Saver
Section 80C of Income Tax Act, 1961, sets out a number of options or tax-saving
instruments that are eligible for tax deduction. Broadly, we can divide tax-saving
avenues into two categories:
Expenditure related deductions such as tuition fees and home loan principal
repayment; and
Investment instruments or options such as EPF (Employee's provident fund),
VPF (Voluntary provident fund), PPF (Public Provident Fund), NSC (National Savings
Certificates), ULIPs (Unit-linked insurance plans), ELSS (Equity linked savings scheme), SCSS
(Senior Citizens Savings Scheme), 5-Yr POTD (Post office time deposits), 5-Yr tax-saving fixed
deposits (FDs) of banks, Mutual funds pension plans , NABARAD (National Bank for
Agriculture and Rural Development) Rural Bonds and life insurance premium.Here's the brief
over view of various tax-saving avenues or options under section (u/s) 80C of the IT Act, 1961:
Expenditure avenues u/s 80C

The various expenses which are eligible for section 80C tax break are:
Tuition Fees: Expenses : only tuition fees - incurred on children's full time education in India
are eligible for deduction under section 80C. No other charges or expenses are allowed.
Repayment of principal sum of home Loans : The EMI (Equated Monthly Installment) that
you pay against your home loan comprises of two components - principal and interest. While
principal part is deductible under section 80C, there is a separate deduction for interest portion
under section (u/s) 24(b) of Income tax Act.
Expenses incurred on purchase of house property : Stamp duty, registration fees, and other
expenses incurred for the purpose of purchase of house property are also entitled for section 80C
deduction.
Investment options / avenues u/s 80C Various investment options can be broadly divided into
three categories: first is equity instruments, second is debt instruments and third one is life
insurance and pension plans.
Equity Instruments
Equity linked savings scheme (ELSS): Considered as the best section 80C option, it's a mutual
fund scheme investing entirely in equities and therefore has the potential to deliver the best
returns.
Debt Instruments
Public Provident Fund (PPF) : Among all the assured returns small saving schemes, Public
Provident Fund (PPF) is one of the best. Current rate of interest is 8% tax-free and the normal
maturity period is 15 years. Minimum amount of contribution is Rs 500 and maximum is Rs
70,000. A point worth noting is that interest rate is assured but not fixed.
Employee's Provident Fund (PF) : PF is automatically deducted from your salary. Both you
and your employer contribute to it. While employer's contribution is exempt from tax, your
contribution (i.e., employee's contribution) is counted towards section 80C investments. You also
have the option to contribute additional amounts through voluntary contributions (VPF). Current
rate of interest is 8.5% per annum (p.a.) and is tax-free.
National Savings Certificate (NSC) : National Savings Certificate (NSC) is a 6-Yr small
savings instrument eligible for section 80C tax benefit. Rate of interest is eight per cent
compounded half-yearly, i.e., the effective annual rate of interest is 8.16%. If you invest Rs
1,000, it becomes Rs 1601 after six years. The interest accrued every year is liable to tax (i.e., to
be included in your taxable income) but the interest is also deemed to be reinvested and thus
eligible for section 80C deduction.
Senior Citizen Savings Scheme 2004 (SCSS) : A recent addition to section 80C list, Senior
Citizen Savings Scheme (SCSS) is the most lucrative scheme among all the small savings
schemes but is meant only for senior citizens. Current rate of interest is 9% per annum payable
quarterly. Please note that the interest is payable quarterly instead of compounded quarterly.
Thus, unclaimed interest on these deposits won't earn any further interest. Interest income is
chargeable to tax.
5-Yr post office time deposit (POTD) scheme : POTDs are similar to bank fixed deposits.
Although available for varying time duration like one year, two year, three year and five year,
only 5-Yr post-office time deposit (POTD) - which currently offers 7.5 per cent rate of interest
-qualifies for tax saving under section 80C. Effective rate works out to be 7.71% per annum
(p.a.) as the rate of interest is compounded quarterly but paid annually. The Interest is entirely
taxable.
5-Yr bank fixed deposits (FDs) : Tax-saving fixed deposits (FDs) of scheduled banks with
tenure of 5 years are also entitled for section 80C deduction
At present, rate of interest offered on these FD's is at par with plain vanilla FDs. For instance,
current - as on 2nd February 2009 - applicable rate of interest on ICICI Bank 'Tax-Saver Fixed
Deposit' is 8.25% per annum (p.a.) for general category and 8.75% for senior citizens which are
similar to what the bank is offering on its other fixed deposits of similar maturity. Likewise, SBI
(w.e.f. 01.01.2009) is currently offering rate of interest of 8.5% for general public and 9.0% for
senior citizens on SBI tax-saving FD's called "SBI tax saving scheme 2006 (SBITSS)" which are
also same as being offered on other FDs with similar tenure
.However, remember that unlike plain vanilla FDs, premature exit is not possible. Besides,
interest income is taxable.
NABARD rural bonds : There are two types of Bonds issued by NABARD (National Bank for
Agriculture and Rural Development): NABARD Rural Bonds and Bhavishya Nirman Bonds
(BNB). Out of these two, only NABARD Rural Bonds qualify under section 80C. At present,
'NABARD rural bonds' are not open for subscription. Last year NABARD opened the
subscription for these bonds - 5-Yr tenure carrying coupon rate / interest rate of 8.25% - during
end of January 2008 but received a lukewarm response.
Life Insurance & Pension Plans
Life Insurance : Any amount paid towards life insurance premium for yourself or your family
(spouse and children) is eligible for section 80C tax break.
This is the most popular investment avenue among all the tax-saving instruments but for all the
wrong reasons. If you would like to know why, please read "How to do Section 80C tax
planning".
Unit linked insurance plans (ULIPs) : Although, Ulips gets covered under life insurance, but

still require a specific mention due to their immense popularity. Undoubtedly, better than
traditional insurance plans; nevertheless, you should avoid them
Mutual fund pension plans : Another variable return instrument available under section 80C is
pension plans of mutual funds. There are only two such plans available in the market -Templeton
India Pension Plan (TIPP) and UTI Retirement Benefit Pension Plan (UTI-RBP). These are
open-ended debt-oriented mutual fund schemes with a maximum exposure of 40% to equities. In
the long run, you can expect these pension funds to deliver better returns than the assured return
schemes like PPF and NSC.
Pension plans of insurance companies : Contribution towards pension plans offered by

insurance companies qualifies for tax benefit under section 80CCC instead of section 80C.
However, the aggregate deduction allowed under section 80C and section 80CCC can't exceed
Rs one lakh.
There are basically two kinds of pension plans offered by the insurance companies: traditional
pension plans which invest mostly in fixed income products and unit-linked pension plans
(ULPPs) which are more flexible. If you want to invest, make sure that you buy pure pension
plan without a life cover. Also note that while pension (or annuity) is taxable, commutation of
pension is tax-free
Instead of using one product, one can use a combination of products.
Best Tax Saving Combo : EPF+PPF+ELSS+ Term Insurance Premium

CHAPTER: 3
RESEARCH
METHODOLOGY AND
DESIGN
Research Methodology
The methodology of my research design is exploratory as well as descriptive. Study was

conducted on both the primary data as well as secondary data. But main focus was on primary
data. The methodology adopted by me is:
SAMPLING TECHNIQUE

The sampling technique used in this study is convenient sampling. Any person who had the
ability to save and invest is selected as respondent .
SAMPLE SIZE
The sample size for the research is 60.

Chapter: 4
DATA ANALYSIS AND
INTERPRETATION

Investments made in past
12% 8%
FDs &/money market funds

Govt./securities & corporate
bonds
Mutual funds
15% shares or Equity or Derivatives
65%
The above figure shows that 65% of the respondents have invested in fixed deposits. This
displays the risk taking ability of the people. They usually invest in fixed deposits instead of
equity or mutual funds. They like to preserve their original investment.

% of cash & bank balance investors plan to invest now

less than 25% more than 25% but less than 50%
more than 50% but less than 75% more than 75%
22%
78%
The above figure shows that 78% of the respondents want to invest less than 25% of their
income, which show that they are not willing to take any risk at this point of time. This could be
because of the economic slow down.

Risk profile of investors

conservative moderate aggressive
10%
90%
This figure shows the risk profile of investors. Investors are divide into three catogries :
 Conservative
 Moderate
 Aggressive
90% of the respondents were conservative in their approach, 10% of them had moderate profile
and none of them were aggressive.
The 90% which are conservative had majority of people who were either not aware about the
functioning of other investment instruments or had known someone who had suffered loss in
recent time.

When is the earliest investor needs all or a substantial

portion of investment
less than 1 year
15%
More than 5 years
22%
1 to 2 years
18%
2 to 5 years
45%
This figure shows the time horizon for which the investors are willing to invest their money.
Only 22% of the respondents are willing to invest over a period of 5 years. Investors are thinking
for short term rather than long term.
Some of the modern investment instruments do not generate good returns in short term and
which do generate good return are high on risk.

Expected rate of return on investment

more than 15% 6%-8%
13% 10%
12%-15%
25%
9%-11%
52%
This figure shows the expected rate of return on investment.

Chapter: 5
Conclusion and
Recommendations

CONCLUSION
 Investors are not willing to risk. Most of them are conservative in their approach.
 Investors are not aware about various modern invest instruments and their functioning.
They need more information about the various products and companies need to take the
initiative of educating them.
 Investors are willing to invest for a long period of time.
 Most of the people are investing in fixed deposits because they want to preserve their
original investment.

RECOMMENDATION

REFERENCES
WEBSITES
1) www.iniveshak.com
2) http://www.moneycontrol.com/mf/bestpicks/index.php
3) http://www.amfiindia.com/spages/InvestorGuide.pdf
4) www.mutualfundsindia.com
5) www.valueresearchonline.com
6) http://www.webindia123.com/finance/post/time.htm (Last accessed on 15th July’10)
7) “Life Insurance Industry in India” http://www.irda.gov.in/insurance.htm (Last accessed on 17 th
July’10)
8) http://www.raagvamdatt.com/postofficetime-deposit-account-fixed-term-deposit/193/htm(Last
accessed on 18th July’10)
9) http://www.investopedia.com

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Risk Profiling of investors 02019103909

Ms. Swati Narula Dr. S.S. Narula

Assistant Professor Director

Project Guide Gitarattan International Business School

Gitarattan International Business School

Mr. Kumar Gaurav

Enrollment No. 02019103909

Gitarattan International Business School

I express my gratitude towards Mr Anubhav Talwar, Regional Manager, Niveshak Mpowered to

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TOPIC PAGE NO.

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Determining Risk And The Risk Pyramid

The Five Investment Risk Categories

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Conservative portfolios produce very little capital gains distributions.

Gitarattan International Business School

Moderately Conservative portfolios produce little capital gains distributions.

Gitarattan International Business School

Moderate portfolios produce a moderate amount of capital gains distributions.

Gitarattan International Business School

Moderately Aggressive: If an investor wants to outperform a basket of similarly weighted

Moderately Aggressive portfolios produce a high amount of capital gains distributions.

Aggressive portfolios produce a very high amount of capital gains distributions.

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Investment Risk Pyramid

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Personalizing the Pyramid

NEED FOR RISK PROIFILNG

WHAT IS ASSET ALLOCATION

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Who should consider Asset Allocation?

Purpose of Asset Allocation

Asset Allocation helps you with

The study has the following objectives:

SCOPE OF THE STUDY:

LIMITATION OF THE STUDY:

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Mr. Kamal Somani, FCA,

He is a senior finance professional with over 30 years of experience in

Mr. Sandeep Parwal, B.Com (Hons), FCA,

He has over 20 years of experience in various aspects of financial services. He handles

Gitarattan International Business School

He is an alumnus of Indian Institute of Management Calcutta and Indian Institute of Technology

SPA Capital Service Ltd

Gitarattan International Business School

Acsys Software (India) Pvt. Ltd

Gitarattan International Business School

 It operates in a dynamic environment dictated by enormous growth in the Indian Mutual

 Demonstrated capabilities overseas, through offshore development, which resulted in an

 Multi-currency functionality to include Euro compliancy.

Gitarattan International Business School

Gitarattan International Business School

Investment refers to a commitment of funds to one or more assets that

Investment Fundamentals - Some of the fundamental rules of investments are:

Gitarattan International Business School

Make regular investments

WHAT ARE AVAIKABLE INVESTMENT OPTIONS?

Savings Bank Account

Money Market Funds (also known as liquid funds)

Bank Fixed Deposit (Bank FDs)