COMPARISON OF FIXED

DEPOSITS OF BANKS AND

SHARE MARKET AND
ANALYSISIS WHICH IS THE
MOST PREFERABLE
INVESTMENT PORTFOLIO OF
CUSTOMERS

A
SYNOPSIS

Submitted for the fulfillment of

the bachelor degree of
commerce (Hon’s)

Under the supervision of:

submitted by:
Mr. Manish Rai
Shilpi Agarwal

08A040
 DISTANCE EDUCATION STUDY CENTRE
AGRA CITY BRANCH
DAYALBAGH EDUCATIONAL INSTITUE
(DEEMED UNIVERSITY)
DAYALBAGH, AGRA

INDEX
1. INTRODUCTION

2. REVIEW OF LITERATURE

3. NEED OF STUDY

4. OBJECTIVES OF STUDY

5. RESEARCH METHODOLOGY

6. PROPOSED PLAN OF THE STUDY

7. REFERENCES $ BIBLIOGRAPHY
 INTRODUCTION
During last few decades the economic structure of India is enhancing which
makes the people of India to earn more and to invest more, weather in fixed
deposits or in share market. Every individual will always select a good
investment plan because he wants to make his money more valuable and to
seek more opportunities for future. He also wants to get more returns in
exchange of his investments. Thus he can invest his savings in fixed
deposits with banks and also in the share market. These two kinds of
investment plans are both good for making the investments. Banks generally
lends money, further to other financial institutions or companies which give
them return in exchange on the basis of market conditions. Many peoples
may have these doubts whether to invest in share market or in fixed
deposits. This is a report which compares the two types of investments i.e.
of fixed deposits banks and share market.

Fixed deposits of banks

Fixed deposit is the term used in banking sector. When we deposit some
amount in bank and it gives a regular fixed profit then it would be called as
fixed deposit in the bank. A Fixed Deposit also known as a Term Deposit is
an account a certain sum of money is deposited in the bank for a specified
time period with a fixed rate of interest. A Fixed Deposit is a specific sum of
money deposited in a financial institution for a fixed term earning a pre-
agreed interest rate. The rate of interest for Bank Fixed Deposits depends on
the maturity period. It is higher in case of longer maturity period. There is
great flexibility in maturity period and it ranges from 15days to 5 years. The
interest can be compounded quarterly, half-yearly or annually and varies
from bank to bank. Minimum deposit amount is Rs. 1000/- and there is no
upper limit. In simple words, fixed deposit is the amount in the bank which
does not change and gives the profit on every month of same percentage.
This is called fixed deposit. Today most of the banks used this fixed
deposit. Loan/overdraft facility is available against bank fixed deposits. The
system operates in this way they take money from the investors and then
with that they give loans to a third person at a higher rate of interest.
Share market
The share market is a place where the collective shares of different
companies are traded. In the share market the other forms of securities and
derivatives are also sold. These are managed and operated by large fund
houses and in which just give our share of investment and the fund manager
collectively invests our money under various portfolios in order to maximize
the returns. The interest rate may be from 30% to even 60% but there we
may lose our capital, resulting in negative interest rate, otherwise we may
increase our capital, resulting in positive interest rate. Though the economic
position of all the countries is going on up and downs all over the world, the
banking system in India is so strong till now.

The businessmen in India have positive feeling regarding their financial

position. As the economic position of India is mostly based on the
government organisations, the speculation and financial crises have not
shown much effect on Indian economy. If one can study the present
economic position of India, he/ she can come to a conclusion that investing
in a stock market will make him/ her to face many problems. A lot of
insecurity and confusions are faced by the investors, who want to invest in
their money in public or private sectors. In these situations, they are
searching for the best alternatives to save or invest their money.

Many of the economists in India say that going for fixed deposit is the right
solution, when it compared to all the other sources where they can invest
your money. This is the best source to rescue from the present liquidity
crisis. The main advantage of going for these deposits is that the depositors
get high interest rates than the saving bank account holders. They will get
lump-sum of money at a time, after the completion of maturity period of the
deposit. If they are looking to invest in shares, so aware of that what they
are and how they are bought and sold. Stocks represent proportional shares
of ownership in the company that you are interested in investing. For
example, if you buy 10,000 shares of stock in a company that has 100,000
shares issued, you own 10 percent of the company. Stocks are traded on
public exchanges which bring buyers and sellers together.
Literature review
Dr.(Mrs.) Sushant Nagpal (2006)

Psychology of investments and investor’s preferences every individual investor must

follow three principles of investing: using a long investing approach, following the right
strategy to maximize the return on investment and proper allocation of investible funds.
While applying these three principles, an individual investor has to confront his/her
demographics, lifestyle and investment psychology. The knowledge of all these aspects is
imperative for all progressive investors, researchers, financial consultants, academicians,
students, and the marketer of the financial products.

Aradhya (21 June 2010)

As you are planning for a short term investment, I won’t suggest share market. As it
will have an Exit load. Now coming to Recurring Deposit and Fixed Deposit, it totally
depends on your financial condition. If you have the amount that you wish to invest then
go for Fixed Deposit else go for a recurring deposit.
Fixed Deposits will give you higher returns when compared to Recurring deposits. For
higher returns I would always suggest you long term investments.

Ankit (22 Jun 2010)

To compare between share market and fixed deposits you need to first need the
objective of savings. Though they both are under investment types but the Risk and
Returns Factor associated with both of them differentiates them. Now to discuss which
one is better depends upon the risk that person can take because:
1) Share market follow the policy of high risk and high returns whereas fixed deposit
follows low risk and low return.
2) Fixed deposit can give upto 8% of return whereas the returns given by share market
can be upto 70% is kept for long duration.

Rajeev Vashisht (15 Jul 2010)

It depends on your risk profile, financial status and optionally age. If you have lots of
cash invest a percentage of it in FD depending on your age. For example if you are 35
invest 20% of surplus cash in FD. If 60 5% in FD. If you don't have surplus cash invest
only in FD's. Also actively manage your portfolio or investment. i.e. when market is
expected to go down sell your MF units and buy when market is down, or switch
between debt and equity fund based on the interest rate scenario.

Allen N. Berger David, B. Humphrey and Lawrence B. Pulley

(Published: 26 February 1999)

Title: Do consumers pay for one-stop banking? Evidence from an alternative revenue
function

In providing financial services jointly, banks may reduce costs due to complementarities
in production (cost economies of scope) or raise revenues from complementarities in
consumption (revenue economies of scope). Cost economies of scope between bank
deposits and loans have been found to be small. Revenue economies of scope are
investigated here for the first time and found to be insignificant over 1978–1990 for both
small and large banks and for those on or off the revenue-efficient frontier. The lack of
complementarities between deposits and loans — where benefits are most likely to occur
— suggests that claims of important synergies from an expansion of banking powers be
taken with caution.

Astrid A. Dick (published: 15 December 2007)

Title: Demand estimation and consumer welfare in the banking industry

This paper estimates a structural demand model for commercial bank deposit services in
order to measure the effects on consumers given dramatic changes in bank services
throughout US branching deregulation in the 1990s. Following the discrete choice
literature, consumer decisions are based on prices and bank characteristics. Consumers
are found to respond to deposit rates, and to a lesser extent, to account fees, in choosing a
depository institution. Moreover, consumers respond favorably to the branch staffing and
geographic density, as well as to the bank’s age, size, and geographic diversification.
Consumers in most markets experience a slight increase in welfare throughout the period.

R. Nagaraj (published: 1998)

Title: India's Capital Market Growth: Trends, Explanations and Evidence

This study, first, documents India's capital market boom, and its proximate causes. What
does it mean for the economy and private corporate sector? It is largely
disintermediation: household sector substituted 'shares and debentures' for bank deposits,
and corporate sector securitized its debt. There is no association between growth rates of
the capital market mobilisation and aggregate saving rate, corporate physical investment
and value added. Long-term decline in the contribution of internal finance to corporate
fixed investment and in profitability in 1980s are noted, despite a fall in ratio of corporate
tax to gross profit. The study concludes by raising some questions.

Anil K. Kashyap Raghuram Rajan (published: 2000)

Title: Banks as Liquidity Providers: An Explanation for the Coexistence of

Lending and Deposit-Taking

What ties together the traditional commercial banking activities of deposit-taking and
lending? We argue that since banks often lend via commitments, their lending and
deposit-taking may be two manifestations of one primitive function: the provision of
liquidity on demand. There will be synergies between the two activities to the extent that
both require banks to hold large balances of liquid assets: If deposit withdrawals and
commitment takedowns are imperfectly correlated, the two activities can share the costs
of the liquid-asset stockpile. We develop this idea with a simple model, and use a variety
of data to test the model empirically.

C. Manish (published: 1998)

Title: Market Discipline by Depositors: A Summary of the Theoretical and Empirical
Arguments
Fifty-four banks failed in the first quarter of 1987, more than in any quarter since
1933. 1 Because bank failures are linked to bank risk, most of the regulatory proposals
offered to control the growing number of bank failures are designed to encourage
depositors to exert market discipline on bank officers and directors, thereby decreasing
bank risk and lowering the incidence of bank failure. 2 For policies relying on depositor
discipline to be effective, depositors' assets must be exposed to some risk, so that
depositors will have an incentive to check the soundness of the banks in which they have
deposited their money. At present, however, bank failure policy uses federal bailouts and
arranged mergers for most failing banks, providing essentially complete protection for all
depositors, regardless of the size of their deposits. This policy reduces the effectiveness
of depositor discipline. In addition, the policy removes the incentive for bank managers
to limit risk-taking, in effect subsidizing poorly managed, risky banks, and increases the
likelihood of bank failures.
Reint Gropp (published: 2001)

Title: Deposit Insurance, Moral Hazard and Market Monitoring

The paper analyses the relationship between deposit insurance, debt-holder monitoring,
and risk taking. In a stylised banking model we show that deposit insurance may reduce
moral hazard, if deposit insurance credibly leaves out non-deposit creditors. Testing the
model using EU bank level data yields evidence consistent with the model, suggesting
that explicit deposit insurance may serve as a commitment device to limit the safety net
and permit monitoring by uninsured subordinated debt holders. We further find that
credible limits to the safety net reduce risk taking of smaller banks with low charter
values and sizeable subordinated debt shares only. However, we also find that the
introduction of explicit deposit insurance tends to increase the share of insured deposits
in banks' liabilities.

STEVEN A. SHARPE (published: 2004)

Title: The Effect of Consumer Switching Costs on Prices: A Theory and its Application
to the Bank Deposit Market

If households face a cost of switching among Brands of a differentiated good, pricing is

likely to be more competitive, the greater is the fraction of customers that move into or
around the market. I generalize this theory to a world with arbitrary market structure and
test it empirically using panel data on bank retail deposit interest rates. I find that the
amount of household migration in a market has a significant competitive influence on
price markups, that is, a positive effect on the level of deposit interest rates. Consistent
with the model, the magnitude of this effect depends in some cases upon the degree of
market concentration.
 OBJECTIVE
Primary Objective:

The primary objective was to analysis the market and find out the potential customer who
wants to invest their money in a share market or a fixed deposits of banks and what are
the factore that influence or promote them to invest.

Secondary Objectives

 To analyze the preferred investment opportunities of the people.

 To study the share of fixed deposits of banks and share market.
 To do the comparative analysis of between these i.e. fixed
deposits of banks and share market.
 To determine purpose of investment from the view point of
investors.

Need of Study
Risk and uncertainties are part of life’s and they will never stop like accident, illness
,theft and other uncertainties they will happen in life suddenly and we cannot manage our
expenses according to them. We will invest our money for make a solution of big future
expenses that can never change like higher education. The need for the study of this topic
is to know the present situation of the fixed deposits of banks and share market. It is also
important to find out the measures and to give the suggestions for the purpose of
investments with respect to share market and fixed deposits of banks. It also help to
know about the need of the investors.
Research methodology
Research methodology which was use in market research qualitative and quantitative
techniques. While deciding about the method of data collection to be used for the study,
two types of data’s can be used:

1. Primary data
2. Secondary data

1. Primary data: The primary data are those which are collected as:

a) Personal Interviews
b) Observation method
c) Questionnaires
d) Schedules

2. Secondary data: The secondary data are those which are collected as:

a) Internet
b) Journals
c) Magazines
 Sample size of survey
In relation to the study which is related to fixed deposits of banks and share market in
India. The researcher will use primary as well as secondary sources of collection of data
for that purpose.

For primary source we visited public and private banks:

PUBLIC BANKS:-

1. State Bank Of India

2. Punjab National Bank

PRIVATE BANKS:

1. ICICI Bank
2. HDFC Bank

The researcher will visit:

1. 4 dealers
2. 50 customers.
 Proposed plan of the
study

1. INTRODUCTION.

2. REVIEW OF THE LITERATURE.

3. A COMPARATIVE STUDY OF FIXED DEPOSITS OF

BANKS & SHARE MARKET.

4. INTERPRETATION & ANALYSIS.

5. CONCLUSION & FINDINGS.

 REFERENCES
1. http://www.scribd.com/doc/5497841/CONSUMER-PERFERENCE-TO-FIXED-
DEPOSITS-OVER-MUTUAL-FUND

2. http://www.google.co.in/search?
hl=en&source=hp&q=share+market&btnG=Google+Search

3. http://www.google.co.in/search?
hl=en&source=hp&q=fixed+deposits+of+banks+and+share+market&btnG=Goog
le+Search

4. http://www.google.co.in/search?
hl=en&source=hp&q=fixed+deposits&btnG=Google+Search

5. http://www.indiastudychannel.com/experts/13948-Which-better-Mutual-fund-or-
fixed-deposit.aspx

6. http://www.scribd.com/doc/33726562/Mba-Project

7. http://www.slideshare.net/shagun88-investment-decision-at-hero-cycles-limited-
5209025