INVESTMENT OPTIONS
CHAPTER-I
INTRODUCTION
INTRODUCTION TO INVESTMENT DECISIONS
There are many different definitions of what ‘Investment decision’ and ‘investing’ actually means. One of the simplest ways of describing it is using your money to try and make more money. This can happen in many different ways.
All investors are different. The common factor is that you would like to invest money to aim to make it grow or to receive a regular income from it. We would like to show you that choosing the most suitable Investment decision for you does not need to be difficult. All you need is the right help along the way.
The act committing money or capital to an endeavor with the expectation of obtaining an additional income or profit is known as Investment decision. Investing means putting your money to work for you.
Investment decision has different meanings in finance and economics. Finance Investment decision is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time. In contrast putting money into something with an expectation of gain without thorough analysis, without security of principal, and without security of return is speculation or gambling. As such, those shareholders who fail to thoroughly analyze their stock purchases, such as owners of mutual funds, could well be called speculators. Indeed, given the efficient market hypothesis, which implies that a thorough analysis of stock data is irrational, all rational shareholders are, by definition, not investors, but speculators.
Investment decision is related to saving or deferring consumption. Investment decision is involved in many areas of the economy, such as business management and finance whether for households, firms, or governments.
To avoid speculation an Investment decision must be either directly backed by the pledge of sufficient collateral or insured by sufficient assets pledged by a third party. A thoroughly analyzed loan of money backed by collateral with greater immediate value than the loan amount may be considered an Investment decision
NEED AND IMPORTANCE OF STUDY
Essentially, Investment decision Planning involves identifying your financial goals throughout your life, and prioritizing them. For example, if you want to invest for funding your vacation next year, don't choose an Investment decision vehicle that has a three-year lock-in. Similarly, if you want to invest for your daughter's marriage after 10 years, don't invest in 1yr bonds for the next 10 years. Instead, choose an option that matches your Investment decision horizon.
Investment decision Planning is important because it helps you to derive the maximum benefit from your Investment decisions. Your success as an investor depends upon your ability to choose the right Investment decision options. This, in turn, depends on your requirements, needs and goals. The choice of the best Investment decision options for you will depend on your personal circumstances as well as general market conditions. For example, a good Investment decision for a long-term retirement plan may not be a good Investment decision for higher education expenses.
SCOPE OF THE STUDY:
• You can take Investment decision only after analyzing entire process of Investment decision that starts with funds contribution and ends with getting expectations fulfilled.
• The Investment decision rules allow you to formalize the process and specify what condition or conditions need to be met to accept the project.
• You will take decision only after ensuring that the required expectations in terms of returns are ensured at any cost.
• The study is conducted to understand the functioning of Equities in India Equity market.
• The choice of location for the study is based on the responses given by the investors of who are operating the stock market in twin cities
• This study will helpful in understanding the behavior and risk preferences of investors.
OBJECTIVE OF THE STUDY
• To conduct analysis of various Investment decision.
• To compare the returns given by various Investment decisions.
• To cater the different needs of investor, these options are also compared on the basis of various parameters like safety, liquidity, risk, entry/exit barriers, etc.
• To understand operations of Investment industry.
• The project work includes knowing about the Investment decision such as equity, bond, gold and mutual fund.
METHODOLOGY
Equities, Bonds, Gold, Mutual Funds and Life Insurance were identified as major types of Investment decision.
The primary data for the project regarding Investment decision and various Investment decision DECISIONS were collected through interactions had with the employees in the organization i.e ICICI.
The secondary data for the project regarding Investment decision and various Investment decision DECISIONS were collected from websites, textbooks and magazines.
Then the averages of returns over a period of 10 years are considered for the purpose of comparison of Investment decision options. Then, critical analysis is made on certain parameters like returns, safety, liquidity, etc. Giving weight age to the different type of needs of the investors and then multiplying the same with the values assigned does this.
LIMITATIONS OF THE STUDY
The study was limited to only five Investment decision options.
▪ Most of the information collected is secondary data.
▪ The data is compared and analyzed on the basis of performance of the Investment decision options over the past five years.
▪ While considering the returns from mutual funds only top performing schemes were analyzed.
▪ It was very difficult to obtain the date regarding the returns yielded by others and hence averages were taken.
CHAPTER-II
REVIEW OF LITERATURE
REVIEW OF LITERATURE 1
Investors must assess co's annual report before investing
Aman Dhall, ET Bureau Jul 19, 2009, 02.09am IST
[pic]There are rules and there are practices. Sticking to rules doesn't always reap dividends if the basics are not mastered. Investors should first go through a company's annual report before deciding to pick up a particular stock, yet because of lack of clarity or ignorance it is often skipped.
Not realising how important the document is, we overlook the purpose for which the report is prepared — satisfying the information needs of stakeholders, potential stockholders, creditors, financial analysts, economists, customers, suppliers and the promoters themselves. To help you through the maze, here's a lowdown on keys to reading an annual report — which serves beyond a performance report card.
REVIEW OF LITERATURE 2
Don't base your investment decisions on sharp stock price movements Prashant Mahesh, ET Bureau Feb 4, 2013, 04.00AM IST
Several stocks fluctuated sharply in January. Infosys was up 16% after its results, while BPCL, ONGC, Oil India gained 10% after the government decided to raise diesel prices every month; Suzlon gained 17% after its debt recast plan. On the other hand, HDIL lost 21% in a single day after its promoter sold shares on the stock exchange.
Investors punished Exide after the company announced poor results; while HUL fell after a decision to increase the royalty payment to its parent.
REVIEW OF LITERATUE 3
Time to invest in longer duration funds:
Dhawal Dalal, DSP BlackRock
We follow a top-down approach while managing fixed income assets. We make investment decisions after studying a host of factors, such as macro-economic indicators, the RBI's monetary policy bias, government's fiscal policy, inflation trajectory in the near term, systemic liquidity in the banking system, current account deficit, and demand-supply dynamics in the bond currency market
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REVIEW OF LITERATURE 4
How to induce discipline in one's investment decisions
ROSHINI THITE Dec 10, 2011, 08.14AM
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Roshini Thite acknowledges that her portfolio has been volatile and has fetched poor returns because of the way she manages it. She likes to be invested in the best performers at any time and takes the advice of her friends. She shifts in and out of investments based on any information she gets. She ignores her bad choices and does not take any action to rectify these. Thite knows that she has to change her investment style if she wants her money to contribute to her goals and wants to know how to go about doing it.
REVIEW OF LITERATURE 5
Ten tax saving investment options
Bakul Chugan Tongia, ET Bureau Jan 17, 2011, 02.59am IST
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[pic]As the fiscal end comes closer, it is time for investing to save tax. ET Intelligence Group brings you a ready reckoner of the various tax-saving investment options.
Apart from the regular investment options under Section 80C of the income tax act, this year investors have an added advantage of investing in infrastructure bonds and enjoy an additional deduction in tax under section 80CCF of the Income Tax Act.
INVESTMENT DECISION DECISIONS
Introduction
These days almost everyone is investing in something… even if it’s a savings account at the local bank or a checking account the earns interest or the home they bought to live in.
However, many people are overwhelmed when they being to consider the concept of investing, let alone the laundry list of choices for Investment decision vehicles. Even though it may seem the everyone and their brothers knows exactly who, what and when to invest in so they can make killing, please don’t be fooled. Majorities of investor typically jump on the latest Investment decision bandwagon and probably don’t know as much about what’s out there as you think.
Before you can confidently choose an Investment decision path that will help you achieve your personal goals and objectives, it’s vitally important that you understand the basics about the types of Investment decisions available. Knowledge is your strongest ally when it comes to weeding out bad Investment decision advice and is crucial to successful investing whether you go at it alone or use a professional.
The Investment decision option before you are many. Pick the right Investment decision tool based on the risk profile, circumstance, time available etc. if you feel the market volatility is something, which you can live with then buy stocks. If you do not want risk, the volatility and simply desire some income, then you should consider fixed income securities. However, remember that risk and returns are directly proportional to each other. Higher the risk, higher the returns.
TYPES OF INVESTMENT DECISION OPTIONS
A brief preview of different Investment decision options is given below:
Equities: Investment decision in shares of companies is investing in equities.
Stocks can be brought/sold from the exchanges (secondary market) or via IPO’s – Initial Public Offerings (primary market). Stocks are the best long-term Investment decision options wherein the market volatility and the resultant risk of losses, if given enough time, are mitigated by the general upward momentum of the economy. There are two streams of revenue generation from this from of Investment decision.
1.Dividend: Periodic payments made out of the company’s profits are termed as dividends.
2.Growth: The price of the stock appreciates commensurate to the growth posted by the company resulting in capital appreciation.
On an average an Investment decision in equities in India has a return of 25%. Good portfolio management, precise timing may ensure a return of 40% or more. Picking the right stock at the right time would guarantee that your capital gains i.e. growth in market value of stock possessions, will rise.
Bonds: It is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with fixed rate of interest on a specified date, called as the maturity date. Other fixed income instruments include bank deposits, debentures, preference shares etc.
The average rate of return on bond and securities in India has been around 10-13% p.a.
Mutual Fund: These are open and close-ended funds operated by an Investment decision company, which raises money from the public and invests in a group of assets, in accordance with a stated set of objectives. It is a substitute for those who are unable to invest directly in equities or debt because of resource, time or knowledge constraints. Benefits include diversification and professional money management. Shares are issued and redeemed on demand, based on the funs net asset value, which is determined at the end of each trading session. The average rate of return as a combination of all mutual funds put together is not fixed but is generally more than what earn is fixed deposits.
Precious Projects: Precious objects are items that are generally small in size but highly valuable in monetary terms. Some important precious objects are like the gold, silver, precious stones and also the unique art objects.
Life insurance: In broad sense, life insurance may be reviewed as an Investment decision. Insurance premiums represent the sacrifice and the assured the sum the benefits. The important types of insurance policies in India are:
▪ Endowment assurance policy.
▪ Money back policy.
▪ Whole life policy.
▪ Term assurance policy.
▪ Unit-linked insurance plan.
EQUITY INVESTMENT DECISION
Stocks are Investment decisions that represent ownership --- or equity --- in a corporation. When you buy stocks, you have an ownership share --- however small --- in that corporation and are entitled to part of that corporation’s earnings and assets. Stock investors --- called shareholders or stockholders --- make money when the stock increases in value or when the company the issued the stock pays dividends, or a portion of its profits, to its shareholders.
Some companies are privately held, which means the shares are available to a limited number of people, such as the company’s founders, its employees, and investors who fund its development. Other companies are publicly traded, which means their shares are available to any investor who wants to buy them.
The IPO
A company may decided to sell stock to the public for a number of reasons such as providing liquidity for its original investor or raising money. The first time a company issues stock is the initial public offering (IPO), and the company receives the proceeds from that sale. After that, shares of the stock are treaded, or brought and sold on the securities markets among investors, but the corporation gets no additional income. The price of the stock moves up or down depending on how much investors are willing to pay for it.
Occasionally, a company will issue additional shares of its stocks, called a secondary offering, to raise additional capital.
Types Of Stocks
With thousands of different stocks trading on U.S. and international securities markets, there are stocks to suit every investor and to complement every portfolio.
For example, some stocks stress growth, while others provide income. Some stocks flourished during boom time, while others may help insulate your portfolio’s value against turbulent or depressed markets. Some stocks are pricey, while others are comparatively inexpensive. And some stocks are inherently volatile, while others tend to be more stable in value.
Growth & Income
Some stocks are considered growth Investment decisions, while others are considered value Investment decisions. From an investing perspective, the best evidence of growth is an increasing price over time. Stocks of companies that reinvest their earnings rather than paying them out as dividends are often considered potential growth Investment decisions. So are stocks of young, quickly expanding companies. Value stocks, in contrast, are the stocks of companies that problems, have been under performing their potential, or are out of favor with investors. As result, their prices tend to be lower than seems justified, though they may still be paying dividends. Investors who seek out value stocks expect them to stage a comeback.
Market Capitalization
One of the main ways to categorize stocks is by their market capitalization, sometimes known as market value. Market capitalization (market cap) is calculated by multiplying a company’s current stock price by the number of its existing shares. For example, a stock with a current market value of $30 a share and a hundred million shares of existing stock would have a market cap of $3 billion.
P/E ratio
A popular indicator of a stock’s growth potential is its price-to-earnings ratio, or P/E – or multiple – can help you gauge the price of a stock in relation to its earnings. For instance, a stock with a P/E of 20 is trading at a price 20 times higher than its earnings.
A low P/E may be a sign that a company is a poor Investment decision risk and that its earnings are down. But it may also indicate that the market undervalues a company because its stock price doesn’t reflect its earnings potential. Similarly, a stock with a high P/E may live up to investor expectations of continuing growth, or it may be overvalued.
Investor demand
People buy a stock when they believe it’s a good Investment decision, driving the stock price up. But if people think a company’s outlook is poor and either don’t invest or sell shares they already own, the stock price will fall. In effect, investor expectations determine the price of a stock.
The Dividends
The rising stock price and regular dividends that reward investors and give them confidence are tied directly to the financial health of the company.
Dividends, like earnings, often have a direct influence on stock prices. When dividends are increased, the message is that the company is prospering. This in turn stimulates greater enthusiasm for the stock, encouraging more investors to buy, and riving the stock’s price upward. When dividends are cut, investors receive the opposite message and conclude that the company’s future prospects have dimmed. One typical consequence is an immediate drop in the stock’s price.
Companies known as leaders in their industries with significant market share and name recognition tend to maintain more stable values than newer, younger, smaller, or regional competitors.
Earnings and Performance
Investor enthusiasm for a stock can sometimes take on a momentum of its own, driving prices up independent of a company’s actual financial outlook. Similarly, disinterest can drive prices down. But to a large extent, investors base their expectations on a company’s sales and earnings as evidence of its current strength and future potential.
When a company’s earnings are up, investor confidence increases and the price of the stock usually rises. If the company is li9sin g money—or not making as much as anticipated -- the stock price usually falls, sometimes rapidly.
Intrinsic Value
A company’s intrinsic value, or underlying value, is closely tied to its prospects for future success and increased earnings. For that reason, a company’s future as well as its current assets contributes to the value of its stock.
You can calculate intrinsic value by figuring the assets a company expects to receive in the future and subtracting its long-term debt. These assets may include profits, the potential for increased efficiency, and the proceeds from the sale of new company stock. The potential for new shares affects a company’s intrinsic value because offering new shares allows the company to raise more money.
Stock Splits
If a stock’s price increases dramatically the issuing company may split the stock to bring the price per share down to a level that stimulates more trading. For example, a stock selling at $100 a share may be split 2 for 1 doubling the number of existing shares and cutting the price in half.
The split doesn’t change the value of your Investment decision, at least initially. If you had 100 shares when the price was $100 a share, you’ll have 200 shares worth $50 a share after the split. Either way, that’s $10000. But if the price per share moves back toward the pre-split price, as it may do your Investment decision will increase in value. For example if the price goes up to $75 a share your stock will be worth $15000, a 50% increase.
Investors who hold a stock over many years, through a number of splits, may end up with a substantial Investment decision even if the price per share drops for a time.
A stock may be split 2 for 1, 3 for 1, or even 10 for 1 if the company wishes, though 2 for 1 is the most common.
Stock Research and Evaluation
Before investing in a stock, its important to research the issuing company and understand how the Investment decision is likely to perform, for example, you’ll want to know ahead of time whether you should anticipate a high degree of volatility, or more stable slower growth.
A good place to start is the company’s 10 k report, which it must file with the Securities and Exchange Commission (SEC) each year. Its extremely detailed and quite dry, but it is through. You’ll want to pay attention to the footnotes as well as the main text, since they often provide hints of potential problems.
Company News and Reports
Companies are required by law to keep shareholders up to date on how the business is doing. Some of that information is provided in the firm’s annual report, which summarizes the company’s operations for individual investors. A summary of current performance is also provided in the company’s quarterly reports.
Buying and Selling Stock
To buy or sell a stock you usually have to go through a broker. Generally the more guidance you want from your broker the higher the broker’s fee. Some brokers usually called full-service brokers provide a range of service beyond filling buy and sell orders for clients such as researching Investment decisions and helping you develop long and short-term Investment decision goals.
Discount brokers carry out transactions for clients at lower fees than full-service brokers but typically offer more limited services. And for experienced investors who trade often and in large blocks of stock there are deep-discount brokers whose commissions are even lower.
Online Trading is the cheapest way to trade stocks. Online brokerage firms offer substantial discounts while giving you fast access to your accounts through their Web Sites. You can research stocks track Investment decisions and you to trade before and after normal market hours. Most of today’s leading full-service and discount brokerage firm make online trading available to their customers. Online trading is an extremely cost-effective option for independent investors with a solid strategy who are willing to undertake their own research. However the ease of making trades and the absence of advice may tempt some investors to trade in and out of stocks too quickly and magnify the possibility of locking in short-term losses.
Volatility
One of the risks you’ll need to plan for as a stock investor is volatility. Volatility is the speed with which an Investment decision gains or loses value. The more volatile an Investment decision is the more you can potentially make or lose in the short term.
Managing Risk
One thing for certain: Your stock Investment decision will drop in value at some point. That’s what risk is all about. Knowing how to tolerate risk and avoid selling your stocks off in a panic is all part of a smart Investment decision strategy.
Setting realistic goals allocating and diversifying your assets appropriately and taking a long-term view can help offset many of the risks of investing in stocks. Even the most speculative stock Investment decision with its potential for large gains may play an important role in a well-diversified portfolio.
BONDS INVESTMENT DECISION
Have you ever-borrowed money? Of course you have whether we hit our parents up for a few bucks to buy candy as children or asked the bank for a mortgage most of us have borrowed money at some point in our lives.
Just as people need money so do companies and governments. A company needs funds to expand into new markets, while governments need money for everything from infrastructure to social programs. The problem large organizations run into is that they typically need far more money than the average bank can provide. The solution is to raise money by issuing bonds (or other debt instruments) to a public market. Thousands of investors then each lend a portion of the capital needed. Really a bond is nothing more than a loan for which you are the lender. The organization that sells a bond is known as the issuer. Your can think of a bond as an IOU given by a borrower (the issuer) to a lender (the investor).
Of course, nobody would loan his or her hard-earned money for nothing. The issuer of a bond must pay the investor something extra for the privilege of using his or her money. This ‘extra’ comes in the form of interest payments, which are made at a predetermined rate and schedule. The interest rate is often referred to as the coupon. , say you buy a bond with a face value of $1000 a coupon of 8% and a maturity of 10 years. This means you’ll receive a total of $80 ($1000*8%) of interest per year for the next 10 years. Actually because most bonds pay interest semi-annually you’ll receive two payments of $40 a year for 10 years. When the bond matures after a decade, you’ll get your $1000 back.
Face Value / Par Value
The face value (also known as the par value or principal) is the amount of money a holder will get back once a bond matures. Newly issued bond usually sells at the par value. Corporate bonds normally have a par value of $1000 but this amount can be much greater for government bonds. What confuses many people is that the par value is not the price of the bond. A bond’s price fluctuates throughout its life in response to a number of variables (more on this later). When a bond trades at a price above the face value, it is said to be selling a premium. When a bond sells below face value it is said to be selling at a discount.
Coupon (The Interest Rate)
The coupon is the amount the bondholder will receive as interest payments. It’s called a ‘coupon’ because sometimes there are physical coupons on the bond that you tear off and redeem for interest. However this was more common in the past. Nowadays records are more likely to kept electronically.
As previously mentioned most bonds pay interest every six months but it’s possible for them to pay monthly, quarterly or annually. The coupon is expressed as a percentage of the par value. If a bond pays a coupon of 10% and its par value is $1000 then it’ll pay %100 of interest a year. A rate that stays as a fixed percentage of the par value like this is a fixed-rate bond. Another possibility is an adjustable interest payment known as a floating-rate bond. In this case the interest rate is tied to market rates through an index such as the rate on Treasury bills.
You might think investors will pay more for a high coupon than for a low coupon. All things being equal a lower coupon means that the price of the bond will fluctuate more.
Maturity
The maturity date is the date in the future on which the investor’s principal will be repaid. Maturities can range from as little as one day to as long as 20 years (though terms of 100 years have been issued).
A bond that matures in one year is much more predictable and thus less risky than a bond that matures in 20 years. Therefore in general the longer the time to maturity the higher the interest rate. Also all things being equal a longer-term bond will fluctuate more than a shorter-term bond.
Issuer
The issuer of a bond is a crucial factor to consider, as the issuers stability is your main assurance of getting paid back. For example, the U.S government is far more secure than any corporation. Its default risk (the chance of the debt not being paid back) is extremely small – so small that U.S government securities are known as risk-free assets. The reason behind this is that a government will always be bale to bring in future revenue through taxation. A company on the other hand must continue to make profits, which is far from guaranteed. This added risk means corporate bond must offer a higher yield in order to entire investors – this is the risk / return tradeoff in action.
Moody’s Standard and Poors and Fitch Ratings.
|Bond Rating |Grade |Risk |
|Moody’s |S&P / Fitch | | |
|Aaa |AAA |Investment decision |Highest Quality |
|Aa |AA |Investment decision |High Quality |
|A |A |Investment decision |Strong |
|Baa |BBB |Investment decision |Medium Grade |
|Ba, B |BB, B |Junk |Speculative |
|Caa/Ca/C |CCC/CC/C |Junk |Highly Speculative |
|C |D |Junk |In Default |
Notice that if the company falls below a certain credit rating, its grade changes from Investment decision quality to junk status. Junk bonds are aptly named: they are the debt of companies in some sort of financial difficulty. Because they are so risky, they have to offer much higher yields than any other debt. This brings up an important point: not all bonds are inherently safer than stocks. Certain types of bonds can be just risky, if not riskier, than stocks.
Yield to Maturity
Of course, these matters are always more complicated in real life. When bond investor refers to yield, maturity (YMT). YTM is more advanced yield calculation that show the interest payment you will receive (and assumes that you will reinvest the interest payment at the same rate as the current yield on the bond) plus any gain (if you purchased at discount) or loss (if you purchased at a premium).
Knowing how to calculate YTM isn’t important right now. In fact, the calculation is rather sophisticated and beyond the scope of this tutorial. The key point here is that YTM is more accurate and enables you to compare bond with different maturities coupons.
The link between Price and yield
The relationship of yield to price can be summarized as follows: when price goes up, goes down and vice versa. Technically, you’d say the bonds and its yield are inversely related.
Here’s a commonly asked question: How can high yield and high prices both be good when they can’t happen at the same time? The answer depends on your point of view. If you are a bond buyer, you want high yields. A buyer wants to pay $800 for the $1,000 bond, which gives the bond, a high yield of 12.5%. On the other hand, if you already own a bond, you’ve locked in your interest rate, so you hope the price of the bond goes up. This can cash out by selling your bond in the future.
Price in the Market
So far we’ve discussed the factors of face value, coupon, maturity, issuers and yield. All if these characteristics of a bond play a role in its price, However, the factor that influences a bond more than any other is the level of prevailing interest rates in the economy. When interest rates rise, the prices of bonds in the market fall, thereby raising the yield of older bonds and bringing them into line with newer bonds being issued with higher coupons. When interest rates fall the prices of bonds in the market rise, thereby lowering the yield of the older bonds and bringing them into line with newer bonds being issued with lower coupons.
Different Types of Bonds
Government Bonds
In general, fixed-income securities are classified according to the length of time before maturity. These are the three main categories:
Bill – debt securities maturing in less than one year,
Notes – debt securities maturing in one to 10 years.
Bonds - debt securities maturing in more than 10 years.
Municipal Bonds
Municipal bonds, known as “munis”, are the next progression in terms of risk. Cities don’t go bankrupt that often, but it can happen. The major advantage to munis is that the returns are free from federal tax. Furthermore, local governments will sometimes make their debt non-taxable for residents, thus making some municipal bonds completely tax-free..
Corporate Bonds
A company can issued bonds just as it can issue stock. Large corporations have a lot of flexibility as to how much debt they can issue: the limit is whatever the market will bear. Generally, a short-term corporate bond is less than five years; intermediate is five to 12 years, and long term is over 12 years.
Corporate bonds are characterized by higher yi8eld because there is a higher risk of a company defaulting than a government. The upside is that they can also be the most rewarding fixed-income Investment decisions because of the risk the investor must take on. The company’s credit quality is very important: the higher the quality, the lower the interest rate the investor receives.
Other variations on corporate bonds include convertible bonds, which the holder can convert into stock, and callable bonds, which allow the company to redeem an issue prior to maturity.
Risks
As with any Investment decision, there are risks inherent in buying even the most highly related bonds. For example, your bond Investment decision may be called, or redeemed by the issuer, before the maturity date. Economic downturns and poor management on the part of the bond issuer can also negatively affect your bond Investment decision. These risks can be difficult to anticipate, but learning how to better recognize the warning signs and knowing how to respond will help you succeed as a bond investor.
GOLD INVESTMENT DECISION
Gold is the oldest precious metal known to man. Therefore, it is a timely subject for several reasons. It is the opinion of the more objective market experts that the traditional Investment decision vehicles of stocks and bonds are in the areas of their all-time highs and may due for a severe correction.
Why gold is “good as old” is an intriguing question. However, we think that the more pragmatic ancient Egyptians were perhaps more accurate in observing that gold’s value was a function of its pleasing physical characteristics its scarcity.
WORLD GODL INDUSTRY
• Gold is primarily monetary asset and partly a commodity.
• The Gold market is highly liquid and gold held by central banks, other major institutions and retail Jeweler keep coming back to the market.
• Economic forces that determine the price of gold are different from, and in many cases opposed to the forces that influence most financial assets.
• Indian is the world’s largest gold consumer with an annual demand of 800 tons.
World Gold Markets
Physical - London, Zurich, Istanbul, Dubai, Singapore, Hong Kong, Mumbai.
Futures – NYMEX in New York, TOCOM in Tokyo.
Indian Gold Market
• Gold is valued in India as a savings and Investment decision vehicle and is the second preferred Investment decision after bank deposits.
• India is the world’s largest consumer of gold in jeweler as Investment decision.
• In July 1997 the RBI authorized the commercial banks to import gold for sale or loan to jewelers and exporter. At present, 13 banks are active in the import of gold.
• This reduced the disparity between international and domestic prices of gold from 57 percent during 1986 to 1991 to 8.5 percent in 2001.
• The gold hoarding tendency is well ingrained in Indian society.
• Domestic consumption is dictated by monsoon, harvest and marriage season. Indian jewellery off takes is sensitive to price increase and even more so to volatility.
• In the cities gold is facing competition from the stock market and a wide range of consumer goods.
How gold stacks up as Investment decision option
Gold and silver have been popular in India because historically these acted as a good hedge against inflation. In that sense these metals have been more attractive than bank deposits or gilt-edged securities.
Despite recent hiccups, gold is an important and popular Investment decision for many reasons:
• In many countries gold remains an integral part of social and religious customs, besides being the basic form of saving. Shakespeare called it ‘the saint-seducing gold’.
• Superstition about the healing powers of gold persists. Ayurvedic medicine in India recommends gold powder and pills for many ailments.
• Gold is indestructible. It does not tarnish and is also not corroded by acid-except by a mixture of nitric and hydrochloric acids.
• Gold is so malleable that one ounce of the metal can be beaten into a sheet covering nearly a hundred square feet.
• Gold is so ductile that one ounce of it can be drawn into fifty miles of thin gold wire.
• Gold is an excellent conductor of electricity; a microscopic circuit of liquid gold ‘printed’ on a ceramic strip saves miles of wiring in a computer.
• Gold is so highly valued that a single smuggler can carry gold worth Rs.50 lakh underneath his shirt.
• Gold is so dense that all the 90,000 tones estimated to have been mined through history could be transported by one single modern super tanker.
• Finally, gold is scam-free. So far, there have been no Mundra-type or Mehta-type scams in gold.
Thus the lure of this yellow metal continues.
One the other hand, it is interesting to note that apart from its aesthetic appeal gold has no intrinsic value. You cannot eat it, drink it, or even smell it. This aspect of gold compelled Henry Ford, the founder of Ford Motors, to conclude that ‘gold is the most useless thing in the world.’
Why People Buy Gold
A) Industrial applications take advantage of gold’s high resistance to corrosion, its malleability, high electrical conductivity and its ability to adhere firmly to other metals. There is a wide range of industries from electronic components to porcelain, which use gold. Dentistry is an important user of gold. The jewellery industry is another.
B) Acquisition of gold because of its long-proven ability to retain value and to appreciate in value.
C) Purchases by the central banks and international monetary organizations like the International Monetary Fund (IMF).
Investment decision Options
There has been a shift in demand from jewellery (ornamentation) to coins and bars (Investment decisions). Coins cost less when compared to jewellery (which has additional making charges). Assayed, certified coins and bars are available through authorized banks. Demand for jewellery remains strong in traditional circles though gold-plated jewellery is also becoming popular.
Gold futures: Right now, 75% of Indians demand is for jewellery, the rest is for coins and bars. Investors can also dabble in gold futures; with demat delivery on stock exchanges. This is low cost and physical delivery is at 0.995 purity. Gold futures trading clocked a recent turnover of Rs4, 300 crore.
Gold ETFs: More sophisticated Investment decision products will come. One possibility is exchange traded funds (ETFs) where gold is the underlying asset. Investors can trade ETF units with real time quotes. Gold ETF is long overdue, says Naveen Kumar, Head of Financial Initiatives, World Gold Council. Gold ETFs could be launched soon; it is a awaiting clearance from the Finance Ministry.
Worldwide more than 600 exchange listed structured products based on gold are available. Street track an ETF owned by the World Gold Council is listed on the NYSE.
MUTUAL FUND INVESTMENT DECISION
A Mutual Fund is an entity that pools the money of many investors—its Unit-Holders -- to invest in different securities. Investment decisions may be in shares, debt securities, money market securities or a combination of these. Those securities are professionally managed on behalf of the Unit-Holder and each investor hold a pro-rata share of the portfolio i.e. entitled to any profits when the securities are sold but subject to any losses in value as well.
Mutual Funds and sell stocks, bonds or other securities. A Fund raises money to make its purchases, known as its underlying Investment decisions by selling shares in the fund. Earnings the fund realizes on its Investment decision portfolio, after the trading costs and expenses of managing and administering the fund are subtracted are paid out to the funds shareholders.
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 holders. Asset Management Company (AMC) approved by SEBI manages the funds by making Investment decisions 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 invested 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 trustee must be independent. I.e. they should not be associated with the sponsors. Also 50% of the directors of ANC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme. However, Unit Trust of India (UTI) is not registered with SEBI (as on January 15, 2002).
Types of Funds
• Stock funds also called equity funds- invest primarily in stocks.
• Bond funds invest primarily in corporate or government bonds
• Balanced funds invest in both stocks and bonds.
Every fund in each category has a price known as its net asset value (NAV) and each NAV differs based on the value of the funds holdings and the number of shares investors own. The price changes once a day, at a 4 pm EST, when the markets close for the day. All transactions for the day – buys and sells –are executed at that price.
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 one 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 decision Objective
A Scheme can also be classified a growth scheme, income scheme or balanced scheme considering its Investment decision 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 preference. 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.
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.
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 decision in specified avenues. E.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefit. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.
The Appeal of Mutual Funds
Mutual Funds simplify what you may find most complicated about investing—figuring out what to buy and when to sell to meet your particular goals or objectives. For example, if you are seeking growth by investing in blue chip stocks, there are a wide variety of funds to chose from that pursuing precisely this strategy.
To chose the fund that will help you meet a specific goal, you can compare its long-term performance – over 5 or 10 years – to other funds with similar objectives learn about whom the manager is and how the fund is run and check out its fee structure. You can use the funds prospectus, information on the fund company’s Web Sites and professi0onal advice. Mutual funds can help you diversify your portfolio or spread out the money you have to invest to meet different goals. One way to diversify is to chose funds with different objectives aligned with your own, or representing different segments of the market. For example, you might buy a blue-chip fund, a small company growth fund, an international stock fund and a government fund.
Diversification
Most expert agrees that it’s more effective to invest in a variety of stocks and bonds than to depend on a strong performance of just one or two securities. But diversifying can be a challenge because buying a portfolio of individual stocks and bonds can be expensive. And knowing what to buy – and when – taken time and concentration.
Mutual funds can offer solution. When you put money in to a fund, it’s pooled with money from other investors to create much greater buying power than you build a diversified portfolio. Since a fund may own hundreds of different securities, its success isn’t dependent on how one or two holding do.
Investment decision objectives
To achieve its Investment decision objective – whether it is long – term growth or capital preservation or anything in between – the fund’s manager invests in securities he or she believes will provide the result the fund seeks. To identify those securities, a fund’s research staff often uses what’s known as a bottom – up style, which involves a detailed analysis of the individual companies issuing the securities. When the object is small– company growth or the focus is on emerging markets, the process can be more difficult because there’s limited information available.
You may choose mutual funds with specific Investment decision objectives to round out your portfolio of individual holdings. Or you may choose a number of mutual funds with different objectives creating a diversified portfolio in that way.
Professional management
Another reason investors are attracted to mutual funds is that each fund has a professional manager who sets its Investment decision buying style and directs the key buy and sell decisions.
A buying style defines the particular Investment decisions or types of Investment decisions a fund makes from the pool that may be appropriate for meeting its objective. For example, in seeking long-term capital appreciation, some equity fund managers stress value Investment decisions, which mean they buy stocks whose prices are lower than might be expected. Others stress growth Investment decisions; often younger, dynamic companies the manager believes will become major players in their industry or in the economy as a whole.
Some experts believe that a fund’s manager has a major role in determining the results a fund achieves. They advise that you confirm that a successful manager is still with the fund before you invest and that you consider selling your shares if that manager leaves.
Reinvestment decision
Being able to reinvest your distributions to buy additional shares is another advantage of investing in mutual funds. You can choose that option when you open a new account, or at any time while you own shares. And of course you also have the option to receive your distributions if you need the income the fund would provide.
By investing regularly, you build the Investment decision base on which future earnings will be able to accumulate, a process known as compounding. The more you have invested, the greater you’re potential for future growth.
Risk
There is always the risk that a mutual fund wont meet its Investment decision objective or provide the return you are seeking. And some funds are by definition, riskier than others. For example a fund that invests in small new companies-whether for growth or value –exposes you to the risk that the companies will not perform as well as the fund manager expects. And in market downturns, falling prices for a funds underlying Investment decision may produce a loss rather than a gain for the fund.
Short-Term Gains
Each time a mutual fund sells an Investment decision for more than the fund paid to buy it, the fund realizes a capital gain. And those gains are passed along to the funds investors in proportion to the number of shares in the fund that investor owns.
Most actively managed funds don’t wait more than a year before selling Investment decisions. That means that any profit on the sale is a short-term capital gain, which is taxed at your regular tax rate. And since a fund typically doesn’t withhold taxed on your behalf, as an employer does, you must come up with the amount your owe from other sources if you don’t want to sell shares-at a potential additional gain – to raise the money you owe.
LIFE INSURANCE INVESTMENT DECISION
Life Insurance is income protection in the event of your death. The person you name, as your beneficiary will receive proceeds from an insurance company to offset the income lost as a result of your death. You can think of life insurance as a morbid from of gambling: if you lived longer than the insurance company expected you to then you would “lose” the bet. But if you died early, then you would “win” because the insurance company would have to pay out your beneficiary.
Insurers (or underwriters) look carefully at decades worth of data to try to predict exactly how long you will live. Insurance underwriters classify individuals based on their height, weight, lifestyle (i.e. whether or o not they smoke) and medical history (i.e. if they have had any serious health complications). All these variables will determine what rate class category a person fits into. This doesn’t mean that smokers and people who have had serious health problems can’t be insured, it just means they’ll pay different premiums.
There are two very common kinds of life insurance term life and permanent life. Term life insurance is usually for a relatively short period of time, whereas a permanent life policy is one that you pay into throughout your entire life. These payments are usually fixed from the time you purchase your policy. Basically, the younger you are when you sign-up for this type of insurance, the cheaper your monthly payments will be.
Need for life insurance
Risks and uncertainties are part of life’s great adventure – accident, illness, theft natural disaster – they’re all built into the working of the Universe, waiting to happen. Insurance then is man’s answer to the vagaries of life. If you cannot beat man-made and natural calamities, well at least be prepared for them and their aftermath.
Term Insurance Policy
• A term insurance policy is a pure risk cover for a specified period of time. What this means is that the sum assured is payable only if the policyholder ides within the policy term. For instance, if a person buys Rs.2 lakh policy for 10-years period? Well, then he is not entitled to any payment; the insurance company keeps the entire premium paid during the 10-year period.
• What if he survives the 10-year period? Well, then he is not entitled to any payment; the insurance company keeps the entire premium paid during the 10-year period.
• So, there is no element of savings or Investment decision in such a policy. It is a 100 percent risk cover. It simply means that a person pays a certain premium to protect his family against his sudden death. He forfeits the amount if he outlives the period of the policy. This explains why the Term Insurance Policy comes at the lowest cost.
Endowment Policy
Combining risk cover with financial savings, an endowment policy is the most popular policies in the world of life insurance.
• In an Endowment Policy, the sum assured is payable even if the insured survives the policy term.
• If the insured dies during the tenure of the policy, the insurance firm has to pay the sum assured just as any other pure risk cover.
• A pure endowment policy is also a form of financial saving whereby if the person covered remains alive beyond the tenure of the policy; he gets back the sum assured with some other Investment decision benefits.
In addition to the basic policy, insurers offer various benefits such as double endowment and marriage / education endowment plans. The cost of such a policy is slightly higher but worth its value.
Whole Life Policy
• As the name suggests, a Whole Life Policy is an insurance cover against death, irrespective of when it happens.
• Under this plan, the policyholder pays regular premiums until his death, following which the money is handed over to his family.
This policy, however fails to address the additional needs of the insured during his post-retirement years. It doesn’t take into account a person’s increasing needs either. While the insured buys the policy at young age, his requirements increase over time. By the time he dies, the value of the sum assured is too low to meet his family’s needs. As a result of these drawbacks, insurance firms now offer either a modified Whole Life Policy or combine in with another type policy.
Money Back Policy
• These policies are structured to provide sums required as anticipated expenses (marriage, education etc) over a stipulated period of time. With inflation becoming a big issue, companies have realized that sometimes the money value of the policy is eroded. That is why with –profit policies are also being introduced to offset some of the losses incurred on account of inflation.
• A portion of the sum assured is payable at regular intervals. On survival the remainder of the sum assured is payable.
• In case of death, the full sum assured is payable to the insured.
• The premium is payable for a particular period of time.
UNIT-linked insurance
Bima Plus is a unit-linked endowment plan. The plan is available over a duration of 10 years. Premium can be paid either yearly, half-yearly, or at one shot.
The premium is used to purchase units in a fund of one's choice, after the necessary deductions.
The value of the units varies with the Investment decision performance of the assets in the fund.
Investment decisions can be made in one of three types of funds: Secured fund, which invests predominantly in debt and money market instruments; Risk fund, in which the tilt is towards equities; and a Balanced Fund, a blend of the two.
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What the beneficiary receives depends on when the death of the policyholder occurs.
• If death occurs within the first six months of the policy, the payout is 30 per cent of the sum assured plus the cash value of the units.
• Between months seven and 12 of the policy, the payout is 60 per cent of the sum assured plus cash value of units.
• After first year, the sum assured and cash value of the units is paid.
• During the 10th year, 105 per cent of the sum assured and cash value of units is paid out.
• If death occurs due to an accident, a sum equal to the sum assured, over and above the benefit mentioned above is paid.
• On survival up to maturity, the policyholder will receive 5 per cent of the sum assured plus the cash value of the units.
As is the case with unit-linked plans, this plan, too, comes with a set of charges. This includes a level annual mortality charge, the quantum of which is a function of the policyholder's entry age; accident benefit charge at Rs.0.50 per thousand sum assured; annual administrative and commission charges; and a fund management charge.
On surrendering the policy, the cash value of the units, subject to certain deductions that depend on the year surrendered, is paid out to the policyholder.
Annuities and Pension
In annuity, the insurer agrees to pay the insured a stipulated sum of money periodically. The purpose of an annuity is to protect against risk as well as provide money in the form of pension at regular intervals.
Over the years, insurers have added various features to basic insurance policies in order to address specific needs of a cross section of people.
Objectives and Risks
No matter who you are, one benefit of life insurance is the peace of mind it gives you. If anything happens to you, your beneficiary will receive a check in a matter of days. Life Insurance can also be used to cover any debts or liabilities you leave behind. The bank doesn’t just write off your mortgage once you pass away – these payments must be made or your house may be liquidated. Life Insurance can also create an inheritance for your heirs or it can be used to leave a legacy if it’s put toward donations to charitable organizations.
Most life insurance policies carry relatively little risk because insurance companies are usually stable and heavily regulated by the government. In “cash value” policies you are allowed to invest you policy in stock, bond or money market funds. In these types of policies the value of your insurance depends on the performance of those funds.
How to Buy or Sell it
There are thousands of insurance brokers and banks across North America. Keep in mind that you will usually have to pay a commission for the salesperson
Strengths
• Life insurance provides excellent peace of mind – it eases concerns about what will happen to your loved ones if you die suddenly.
• A life insurance policy is a relatively low risk Investment decision
Weaknesses
• If you live a long life, your family likely won’t get the full value out of your policy.
• Cash value funds can fluctuate depending on the financial markets.
Three Main Uses
• Income Protection
• Capital Appreciation
• Tax-Deferred Savings.
Reality Check
What’s the verdict? Do you have the time, discipline and financial awareness to take charge of your finances and not count on the lowly returns from endowment plans? Do you want absolutely certainty in your Investment decisions? If the answer to the first question is a ‘no’ and the second a ‘yes’, your options will be severely limited. There are a few endowment plans that offer guaranteed returns and the best it gets is about 6 percent. If on the other hand, you are willing to take calculated risks, you can certainly do better than that with a mix of post office schemes and bank deposits at the very low-risk end of the spectrum to equity funds and stock s at the other end, with debt funds and balanced funds featuring somewhere in the middle. Fine your comfort level and you will know if insurance plans can double up your Investment decisions for you.
An Investment decision bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. An Investment decision bank may also assist companies involved in mergers and acquisitions, and provide ancillary services such as market making, trading of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities.
Unlike commercial banks and retail banks, Investment decision banks do not take deposits. From 1933 (Glass–Steagall Act) until 1999 (Gramm–Leach–Bliley Act), the United States maintained a separation between Investment decision banking and commercial banks. Other industrialized countries, including G8 countries, have historically not maintained such a separation.
There are two main lines of business in Investment decision banking. Trading securities for cash or for other securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) is the "sell side", while dealing with pension funds, mutual funds, hedge funds, and the investing public (who consume the products and services of the sell-side in order to maximize their return on Investment decision) constitutes the "buy side". Many firms have buy and sell side components.
An Investment decision bank can also be split into private and public functions with a Chinese wall which separates the two to prevent information from crossing. The private areas of the bank deal with private insider information that may not be publicly disclosed, while the public areas such as stock analysis deal with public information.
An advisor who provides Investment decision banking services in the United States must be a licensed broker-dealer and subject to Securities & Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) regulation.
Organizational structure
Main activities
Investment decision banking is split into the so-called front office, middle office, and back office. While large service Investment decision banks offer all of the lines of businesses, both sell side and buy side, smaller ones sell side Investment decision firms such as boutique Investment decision banks and small broker-dealers focus on Investment decision banking and sales/trading/research, respectively.
Investment decision banks offer services to both corporations issuing securities and investors buying securities. For corporations, Investment decision bankers offer information on when and how to place their securities on the open market, an activity very important to an Investment decision bank's reputation. Therefore, Investment decision bankers play a very important role in issuing new security offerings.
Core Investment decision banking activities
Front office
• Investment decision banking (corporate finance) is the traditional aspect of Investment decision banks which also involves helping customers raise funds in capital markets and giving advice on mergers and acquisitions (M&A). This may involve subscribing investors to a security issuance, coordinating with bidders, or negotiating with a merger target. Another term for the Investment decision banking division is corporate finance, and its advisory group is often termed mergers and acquisitions. A pitch book of financial information is generated to market the bank to a potential M&A client; if the pitch is successful, the bank arranges the deal for the client. The Investment decision banking division (IBD) is generally divided into industry coverage and product coverage groups. Industry coverage groups focus on a specific industry, such as healthcare, industrials, or technology, and maintain relationships with corporations within the industry to bring in business for a bank. Product coverage groups focus on financial products, such as mergers and acquisitions, leveraged finance, project finance, asset finance and leasing, structured finance, restructuring, equity, and high-grade debt and generally work and collaborate with industry groups on the more intricate and specialized needs of a client.
• Sales and trading: On behalf of the bank and its clients, a large Investment decision bank's primary function is buying and selling products. In market making, traders will buy and sell financial products with the goal of making money on each trade. Sales is the term for the Investment decision bank's sales force, whose primary job is to call on institutional and high-net-worth investors to suggest trading ideas (on a caveat emptor basis) and take orders. Sales desks then communicate their clients' orders to the appropriate trading desks, which can price and execute trades, or structure new products that fit a specific need. Structuring has been a relatively recent activity as derivatives have come into play, with highly technical and numerate employees working on creating complex structured products which typically offer much greater margins and returns than underlying cash securities. In 2010, Investment decision banks came under pressure as a result of selling complex derivatives contracts to local municipalities in Europe and the US.Strategists advise external as well as internal clients on the strategies that can be adopted in various markets.
• Research is the division which reviews companies and writes reports about their prospects, often with "buy" or "sell" ratings. While the research division may or may not generate revenue (based on policies at different banks), its resources are used to assist traders in trading, the sales force in suggesting ideas to customers, and Investment decision bankers by covering their clients. Research also serves outside clients with Investment decision advice (such as institutional investors and high net worth individuals) in the hopes that these clients will execute suggested trade ideas through the sales and trading division of the bank, and thereby generate revenue for the firm. Hence in recent years the relationship between Investment decision banking and research has become highly regulated, requiring a Chinese wall between public and private functions.
Other businesses that an Investment decision bank may be involved in
• Global transaction banking is the division which provides cash management, custody services, lending, and securities brokerage services to institutions. Prime brokerage with hedge funds has been an especially profitable business, as well as risky, as seen in the "run on the bank" with Bear Stearns in 2008.
• Investment decision management is the professional management of various securities (shares, bonds, etc.) and other assets (e.g., real estate), to meet specified Investment decision goals for the benefit of investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via Investment decision contracts and more commonly via collective Investment decision schemes e.g., mutual funds). The Investment decision management division of an Investment decision bank is generally divided into separate groups, often known as Private Wealth Management and Private Client Services.
• Merchant banking can be called "very personal banking"; merchant banks offer capital in exchange for share ownership rather than loans, Merchant banking is also a name used to describe the private equity side of a firm.Merchant Banking: Past and Present Current examples include Defoe Fournier & Cie. and JPMorgan's One Equity Partners and the original J.P. Morgan & Co. Rothschilds, Barings, Warburgs and Morgans were all merchant banks
Middle office
• Risk management involves analyzing the market and credit risk that traders are taking onto the balance sheet in conducting their daily trades, and setting limits on the amount of capital that they are able to trade in order to prevent "bad" trades having a detrimental effect on a desk overall. Another key Middle Office role is to ensure that the economic risks are captured accurately (as per agreement of commercial terms with the counterparty), correctly (as per standardized booking models in the most appropriate systems) and on time (typically within 30 minutes of trade execution). In recent years the risk of errors has become known as "operational risk" and the assurance Middle Offices provide now includes measures to address this risk. When this assurance is not in place, market and credit risk analysis can be unreliable and open to deliberate manipulation.
• Corporate treasury is responsible for an Investment decision bank's funding, capital structure management, and liquidity risk monitoring.
• Financial control tracks and analyzes the capital flows of the firm, the Finance division is the principal adviser to senior management on essential areas such as controlling the firm's global risk exposure and the profitability and structure of the firm's various businesses via dedicated trading desk product control teams. In the United States and United Kingdom, a Financial Controller is a senior position, often reporting to the Chief Financial Officer.
• Corporate strategy, along with risk, treasury, and controllers, also often falls under the finance division.
• Compliance areas are responsible for an Investment decision bank's daily operations compliance with government regulations and internal regulations. Often also considered a back-office division.
Back office
• Operations involves data-checking trades that have been conducted, ensuring that they are not erroneous, and transacting the required transfers. While some believe that operations provides the greatest job security and the bleakest career prospects of any division within an Investment decision bank, many banks have outsourced operations. It is, however, a critical part of the bank. Due to increased competition in finance related careers, college degrees are now mandatory at most Tier 1 Investment decision banks. A finance degree has proved significant in understanding the depth of the deals and transactions that occur across all the divisions of the bank.
• Technology refers to the information technology department. Every major Investment decision bank has considerable amounts of in-house software, created by the technology team, who are also responsible for technical support. Technology has changed considerably in the last few years as more sales and trading desks are using electronic trading. Some trades are initiated by complex algorithms for hedging purposes.
Size of industry
Global Investment decision banking revenue increased for the fifth year running in 2007, to a record US$84.3 billion, which was up 22% on the previous year and more than double the level in 2003. Subsequent to their exposure to United States sub-prime securities Investment decisions, many Investment decision banks have experienced losses since this time.
The United States was the primary source of Investment decision banking income in 2007, with 53% of the total, a proportion which has fallen somewhat during the past decade. Europe (with Middle East and Africa) generated 32% of the total, slightly up on its 30% share a decade ago. Asian countries generated the remaining 15%. Over the past decade, fee income from the US increased by 80%. This compares with a 217% increase in Europe and 250% increase in Asia during this period. The industry is heavily concentrated in a small number of major financial centers, including City of London, New York City, Hong Kong and Tokyo.
Investment decision banking is one of the most global industries and is hence continuously challenged to respond to new developments and innovation in the global financial markets. New products with higher margins are constantly invented and manufactured by bankers in the hope of winning over clients and developing trading know-how in new markets. However, since these can usually not be patented or copyrighted, they are very often copied quickly by competing banks, pushing down trading margins.
For example, trading bonds and equities for customers is now a commodity business, but structuring and trading derivatives retains higher margins in good times—and the risk of large losses in difficult market conditions, such as the credit crunch that began in 2007. Each over-the-counter contract has to be uniquely structured and could involve complex pay-off and risk profiles. Listed option contracts are traded through major exchanges, such as the CBOE, and are almost as commoditized as general equity securities.
In addition, while many products have been commoditized, an increasing amount of profit within Investment decision banks has come from proprietary trading, where size creates a positive network benefit (since the more trades an Investment decision bank does, the more it knows about the market flow, allowing it to theoretically make better trades and pass on better guidance to clients).
The fastest growing segment of the Investment decision banking industry are private Investment decisions into public companies (PIPEs, otherwise known as Regulation D or Regulation S). Such transactions are privately negotiated between companies and accredited investors. These PIPE transactions are non-rule 144A transactions. Large bulge bracket brokerage firms and smaller boutique firms compete in this sector. Special purpose acquisition companies (SPACs) or blank check corporations have been created from this industry.
Vertical integration
In the U.S., the Glass–Steagall Act, initially created in the wake of the Stock Market Crash of 1929, prohibited banks from both accepting deposits and underwriting securities, and led to segregation of Investment decision banks from commercial banks. Glass–Steagall was effectively repealed for many large financial institutions by the Gramm–Leach–Bliley Act in 1999.
Another development in recent years has been the vertical integration of debt securitization. Previously, Investment decision banks had assisted lenders in raising more lending funds and having the ability to offer longer term fixed interest rates by converting lenders' outstanding loans into bonds. For example, a mortgage lender would make a house loan, and then use the Investment decision bank to sell bonds to fund the debt, the money from the sale of the bonds can be used to make new loans, while the lender accepts loan payments and passes the payments on to the bondholders. This process is called securitization. However, lenders have begun to securitize loans themselves, especially in the areas of mortgage loans. Because of this, and because of the fear that this will continue, many Investment decision banks have focused on becoming lenders themselves, making loans with the goal of securitizing them. In fact, in the areas of commercial mortgages, many Investment decision banks lend at loss leader interest rates in order to make money securitizing the loans, causing them to be a very popular financing option for commercial property investors and developers. Securitized house loans may have exacerbated the subprime mortgage crisis beginning in 2007, by making risky loans less apparent to investors.
2008 Financial crisis
The 2007 credit crisis proved that the business model of the Investment decision bank no longer worked without the regulation imposed on it by Glass-Steagall. Once Robert Rubin, a former co-chairman of Goldman Sachs became part of the Clinton administration and deregulated banks, the previous conservatism of underwriting established companies and seeking long-term gains was replaced by lower standards and short-term profit. Formerly, the guidelines said that in order to take a company public, it had to be in business for a minimum of five years and it had to show profitability for three consecutive years. After deregulation, those standards were gone, but small investors did not grasp the full impact of the change.
Investment decision banks Bear Stearns, founded in 1923 and Lehman Brothers, over 100 years old, collapsed; Merrill Lynch was acquired by Bank of America, which remained in trouble, as did Goldman Sachs and Morgan Stanley. The ensuing financial crisis of 2008 saw Goldman Sachs and Morgan Stanley "abandon their status as Investment decision banks" by converting themselves into "traditional bank holding companies", thereby making themselves eligible to receive billions of dollars each in emergency taxpayer-funded assistance. By making this change, referred to as a technicality, banks would be more tightly regulated. Initially, banks received part of a $700 billion Troubled Asset Relief Program (TARP) intended to stabilize the economy and thaw the frozen credit markets. Eventually, taxpayer assistance to banks reached nearly $13 trillion dollars, most without much scrutiny, lending did not increase and credit markets remained frozen.
A number of former Goldman-Sachs top executives, such as Henry Paulson and Ed Liddy moved to high-level positions in government and oversaw the controversial taxpayer-funded bank bailout. The TARP Oversight Report released by the Congressional Oversight Panel found, however, that the bailout tended to encourage risky behavior and "corrupt[ed] the fundamental tenets of a market economy".
Under threat of a subpoena by Senator Chuck Grassley, Goldman Sachs revealed that through TARP bailout of AIG, Goldman received $12.9 billion in taxpayer aid (some through AIG), $4.3 billion of which was then paid out to 32 entities, including many overseas banks, hedge funds and pensions. The same year it received $10 billion in aid from the government, it also paid out multi-million dollar bonuses to 603 employees and hundreds more received million-dollar bonuses. The total paid in bonuses was $4.82 billion.
Morgan Stanley received $10 billion in TARP funds and paid out $4.475 billion in bonuses. Of those, 428 people received more than a million dollars and of those, 189 received more than $2 million.
Possible conflicts of interest: Conflicts of interest may arise between different parts of a bank, creating the potential for market manipulation. Authorities that regulate Investment decision banking (the FSA in the United Kingdom and the SEC in the United States) require that banks impose a Chinese wall to prevent communication between Investment decision banking on one side and equity research and trading on the other.
Some of the conflicts of interest that can be found in Investment decision banking are listed here:
• Historically, equity research firms have been founded and owned by Investment decision banks. One common practice is for equity analysts to initiate coverage of a company in order to develop relationships that lead to highly profitable Investment decision banking business. In the 1990s, many equity researchers allegedly traded positive stock ratings for Investment decision banking business. On the flip side of the coin: companies would threaten to divert Investment decision banking business to competitors unless their stock was rated favorably. Laws were passed to criminalize such acts, and increased pressure from regulators and a series of lawsuits, settlements, and prosecutions curbed this business to a large extent following the 2001 stock market tumble.
• Many Investment decision banks also own retail brokerages. Also during the 1990s, some retail brokerages sold consumers securities which did not meet their stated risk profile. This behavior may have led to Investment decision banking business or even sales of surplus shares during a public offering to keep public perception of the stock favorable.
• Since Investment decision banks engage heavily in trading for their own account, there is always the temptation for them to engage in some form of front running – the illegal practice whereby a broker executes orders for their own account before filling orders previously submitted by their customers, there benefiting from any changes in prices induced by those orders.
CHAPTER-III
INDUSTRY PROFILE
&
COMPANY PROFILE
INDUSTRY PROFILE
A bank is a financial institution that accepts deposits and channels those deposits into lending activities. Banks primarily provide financial services to customers while enriching investors. Government restrictions on financial activities by banks vary over time and location. Banks are important players in financial markets and offer services such as Investment decision funds and loans. In some countries such as Germany, banks have historically owned major stakes in industrial corporations while in other countries such as the United States banks are prohibited from owning non-financial companies. In Japan, banks are usually the nexus of a cross-share holding entity known as the keiretsu. In France, bancassurance is prevalent, as most banks offer insurance services (and now real estate services) to their clients.
The level of government regulation of the banking industry varies widely, with countries such as Iceland, having relatively light regulation of the banking sector, and countries such as China having a wide variety of regulations but no systematic process that can be followed typical of a communist system.
The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, which has been operating continuously since 1472.
History
Origin of the word
The name bank derives from the Italian word banco "desk/bench", used during the Renaissance by Jewish Florentine bankers, who used to make their transactions above a desk covered by a green tablecloth. However, there are traces of banking activity even in ancient times, which indicates that the word 'bank' might not necessarily come from the word 'banco'.
In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would set up their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu, from which the words banco and bank are derived. As a moneychanger, the merchant at the bancu did not so much invest money as merely convert the foreign currency into the only legal tender in Rome—that of the Imperial Mint.
The earliest evidence of money-changing activity is depicted on a silver drachm coin from ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350–325 BC, presented in the British Museum in London. The coin shows a banker's table (trapeza) laden with coins, a pun on the name of the city.
In fact, even today in Modern Greek the word Trapeza (Τράπεζα) means both a table and a bank.
Traditional banking activities
Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, EFTPOS, and ATM.
Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending.
Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account.
Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings to.
Entry regulation
Currently in most jurisdictions commercial banks are regulated by government entities and require a special bank licence to operate.
Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's order—although money lending, by itself, is generally not included in the definition.
Unlike most other regulated industries, the regulator is typically also a participant in the market, i.e. a government-owned (central) bank. Central banks also typically have a monopoly on the business of issuing banknotes. However, in some countries this is not the case. In the UK, for example, the Financial Services Authority licences banks, and some commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to those issued by the Bank of England, the UK government's central bank.
Definition
The definition of a bank varies from country to country.
Under English common law, a banker is defined as a person who carries on the business of banking, which is specified as:
• conducting current accounts for his customers
• paying cheques drawn on him, and
• collecting cheques for his customers.
In most English common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to negotiable instruments, including cheques, and this Act contains a statutory definition of the term banker: banker includes a body of persons, whether incorporated or not, who carry on the business of banking' (Section 2, Interpretation). Although this definition seems circular, it is actually functional, because it ensures that the legal basis for bank transactions such as cheques do not depend on how the bank is organised or regulated.
The business of banking is in many English common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking or banking business. When looking at these definitions it is important to keep in mind that they are defining the business of banking for the purposes of the legislation, and not necessarily in general. In particular, most of the definitions are from legislation that has the purposes of entry regulating and supervising banks rather than regulating the actual business of banking.
• "banking business" means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation).
• "banking business" means the business of either or both of the following:
1. receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than [3 months] ... or with a period of call or notice of less than that period;
2. paying or collecting cheques drawn by or paid in by customers[6]
Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct debit and internet banking, the cheque has lost its primacy in most banking systems as a payment instrument. This has led legal theorists to suggest that the cheque based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect cheques.
Accounting for bank accounts
Bank statements are accounting records produced by banks under the various accounting standards of the world. Under GAAP and IFRS there are two kinds of accounts: debit and credit. Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and Expenses. This means you credit a credit account to increase its balance, and you debit a debit account to decrease its balance.
This also means you debit your savings account every time you deposit money into it (and the account is normally in deficit), while you credit your credit card account every time you spend money from it (and the account is normally in credit).
However, if you read your bank statement, it will say the opposite—that you credit your account when you deposit money, and you debit it when you withdraw funds. If you have cash in your account, you have a positive (or credit) balance; if you are overdrawn, you have a negative (or deficit) balance.
The reason for this is that the bank, and not you, has produced the bank statement. Your savings might be your assets, but the bank's liability, so they are credit accounts (which should have a positive balance). Conversely, your loans are your liabilities but the bank's assets, so they are debit accounts (which should also have a positive balance).
Where bank transactions, balances, credits and debits are discussed below, they are done so from the viewpoint of the account holder—which is traditionally what most people are used to seeing.
Economic functions
1. issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer's order. These claims on banks can act as money because they are negotiable and/or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a cheque that the payee may bank or cash.
2. netting and settlement of payments – banks act as both collection and paying agents for customers, participating in interbank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economise on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables the offsetting of payment flows between geographical areas, reducing the cost of settlement between them.
3. credit intermediation – banks borrow and lend back-to-back on their own account as middle men.
4. credit quality improvement – banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and capital which provides a buffer to absorb losses without defaulting on its obligations. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position.
5. maturity transformation – banks borrow more on demand debt and short term debt, but provide more long term loans. In other words, they borrow short and lend long. With a stronger credit quality than most other borrowers, banks can do this by aggregating issues
Law of banking
Banking law is based on a contractual analysis of the relationship between the bank (defined above) and the customer—defined as any entity for which the bank agrees to conduct an account.
The law implies rights and obligations into this relationship as follows:
1. The bank account balance is the financial position between the bank and the customer: when the account is in credit, the bank owes the balance to the customer; when the account is overdrawn, the customer owes the balance to the bank.
2. The bank agrees to pay the customer's cheques up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit.
3. The bank may not pay from the customer's account without a mandate from the customer, e.g. a cheque drawn by the customer.
4. The bank agrees to promptly collect the cheques deposited to the customer's account as the customer's agent, and to credit the proceeds to the customer's account.
5. The bank has a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship.
6. The bank has a lien on cheques deposited to the customer's account, to the extent that the customer is indebted to the bank.
7. The bank must not disclose details of transactions through the customer's account—unless the customer consents, there is a public duty to disclose, the bank's interests require it, or the law demands it.
8. The bank must not close a customer's account without reasonable notice, since cheques are outstanding in the ordinary course of business for several days.
These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force within a particular jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bank-customer relationship.
Some types of financial institution, such as building societies and credit unions, may be partly or wholly exempt from bank licence requirements, and therefore regulated under separate rules.
The requirements for the issue of a bank licence vary between jurisdictions but typically include:
1. Minimum capital
2. Minimum capital ratio
3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior officers
4. Approval of the bank's business plan as being sufficiently prudent and plausible.
Types of banks
Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to high net worth individuals and families; and Investment decision banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit organizations.
Central banks are normally government-owned and charged with quasi-regulatory responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis.
Types of retail banks
• Commercial bank: the term used for a normal bank to distinguish it from an Investment decision bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas Investment decision banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
• Community Banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners.
• Community development banks: regulated banks that provide financial services and credit to under-served markets or populations.
• Postal savings banks: savings banks associated with national postal systems.
• Private banks: banks that manage the assets of high net worth individuals.
• Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.
• Savings bank: in Europe, savings banks take their roots in the 19th or sometimes even 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralised distribution network, providing local and regional outreach—and by their socially responsible approach to business and society.
• Building societies and Landesbanks: institutions that conduct retail banking.
• Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible Investment decisions.
• Islamic banks: Banks that transact according to Islamic principles.
Types of Investment decision banks
• Investment decision banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital market activities such as mergers and acquisitions.
• Merchant banks were traditionally banks which engaged in trade finance. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike venture capital firms, they tend not to invest in new companies.
Both combined
• Universal banks, more commonly known as financial services companies, engage in several of these activities. These big banks are very diversified groups that, among other services, also distribute insurance— hence the term bancassurance, a portmanteau word combining "banque or bank" and "assurance", signifying that both banking and insurance are provided by the same corporate entity.
Other types of banks
• Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around several well-established principles based on Islamic canons. All banking activities must avoid interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on the financing facilities that it extends to customers.
COMPANY PROFILE
COMPANY PROFILE
ICICI Bank is India's second-largest bank with total assets of Rs. 4,062.34 billion (US$ 91 billion) at March 31, 2011 and profit after tax Rs. 51.51 billion (US$ 1,155 million) for the year ended March 31, 2011. The Bank has a network of 2,556 branches and 7,440 ATMs in India, and has a presence in 19 countries, including India.
ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of Investment decision banking, life and non-life insurance, venture capital and asset management.
The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany.
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).
Corporate Profile
ICICI Bank is India's second-largest bank with total assets of Rs. 3,562.28 billion (US$ 77 billion) as on December 31, 2009.
Board Members
Mr. K. V. Kamath, Chairman
Mr. Sridar Iyengar
Mr. Homi R. Khusrokhan
Mr. Lakshmi N. Mittal
Mr. Narendra Murkumbi
Dr. Anup K. Pujari
Mr. Anupam Puri
Mr. M.S. Ramachandran
Mr. M.K. Sharma
Mr. V. Sridar
Prof. Marti G. Subrahmanyam
Mr. V. Prem Watsa
Ms. Chanda D. Kochhar,
Managing Director & CEO
Mr. Sandeep Bakhshi,
Deputy Managing Director
Mr. N. S. Kannan,
Executive Director & CFO
Mr. K. Ramkumar,
Executive Director
Mr. Sonjoy Chatterjee,
Executive Director
Mr. K. V. Kamath is a mechanical engineer and did his management studies from the Indian Institute of Management, Ahmedabad. He joined ICICI in 1971 and worked in the areas of project finance, leasing, resources and corporate planning. In 1988, he joined the Asian Development Bank and spent several years in south-east Asia before returning to ICICI as its Managing Director & CEO in 1996. He became Managing Director & CEO of ICICI Bank in 2002 following the merger of ICICI with ICICI Bank. Under his leadership, the ICICI Group transformed itself into a diversified, technology-driven financial services group, that has leadership positions across banking, insurance and asset management in India, and an international presence. He retired as Managing Director & CEO in April 2009, and took up the position of non-executive Chairman of ICICI Bank effective May 1, 2009. He was the President of the Confederation of Indian Industry (CII) for 2008-09. He was awarded the Padma Bhushan by the President of India in May 2008. He was conferred the Lifetime Achievement Awards at the Financial Express Best Bank Awards 2008 and the NDTV Profit Business Leadership Awards 2008; was named 'Businessman of the Year' by Forbes Asia and The Economic Times' 'Business Leader of the Year' in 2007; Business Standard's "Banker of the Year" and CNBC-TV18's "Outstanding Business Leader of the Year" in 2006; Business India's "Businessman of the Year" in 2005; and CNBC's "Asian Business Leader of the Year" in 2001. He has been conferred with an honorary PhD by the Banaras Hindu University. He is a member of the Board of the Institute of International Finance, a Director on the Board of Infosys Technologies and a member of the Board of Governors of the Indian Institute of Management, Ahmedabad.
Awards:
• Ms. Chanda Kochhar, Managing Director & CEO was awarded the "CNBC Asia India Business Leader Of The Year Award". She also received the "CNBC Asia's CSR Award 2011"
• For the third year in a row ICICI Bank has won The Asset Triple A Country Awards for Best Domestic Bank in India
• ICICI Bank won the Most Admired Knowledge Enterprises (MAKE) India 2009 Award. ICICI Bank won the first place in "Maximizing Enterprise Intellectual Capital" category, October 28, 2009
• Ms Chanda Kochhar, MD and CEO was awarded with the Indian Business Women Leadership Award at NDTV Profit Business Leadership Awards , October 26, 2009.
• ICICI Bank received two awards in CNBC Awaaz Consumer Awards; one for the most preferred auto loan and the other for most preferred credit Card, on September 30, 2009
• Ms. Chanda Kochhar, Managing Director & CEO ranked in the top 20 of the World's 100 Most Powerful Women list compiled by Forbes, August 2009
• Financial Express at its FE India's Best Banks Awards, honoured Mr. K.V. Kamath, Chairman with the Lifetime Achievement Award , July 25, 2009
• ICICI Bank won Asset Triple A Investment decision Awards for the Best Derivative House, India. In addition ICICI Bank were Highly commended , Local Currency Structured product, India for 1.5 year ADR GDR linked Range Accrual Note., July 2009
• ICICI bank won in three categories at World finance Banking awards on June 16, 2009
o Best NRI Services bank
o Excellence in Private Banking, APAC Region
o Excellence in Remittance Business, APAC Region
• ICICI Bank Mobile Banking was adjudged "Best Bank Award for Initiatives in Mobile Payments and Banking" by IDRBT, on May 18, 2009 in Hyderabad.
• ICICI Bank bags the "Best bank in SME financing (Private Sector)" at the Dun & Bradstreet Banking awards 2009.
• ICICI Bank NRI services wins the "Excellence in Business Model Innovation Award" in the eighth Asian Banker Excellence in Retail Financial Services Awards Programme.
• ICICI Bank's Rural Micro Banking and Agri-Business Group wins WOW Event & Experiential Marketing Award in two categories - "Rural Marketing programme of the year" and "Small Budget On Ground Promotion of the Year". These awards were given for Cattle Loan 'Kamdhenu Campaign' and "Talkies on the move campaign' respectively.
• ICICI Bank's Germany Branch has been certified by "Stiftung Warrentest". ICICI Bank is ranked 2nd amongst 57 savings products across 19 banks
• ICICI Bank Germany won the yearly banking test of the investor magazine €uro in the "call money"category.
• ICICI Bank's Organisational Excellence Group was recently awarded ISO 9001:2008 certification by TUV Nord. The scope of certification comprised processes around consulting and capability building on methods of quality & improvements.
• ICICI Bank has been awarded the following titles under The Asset Triple A Country Awards for 2009:
o Best Transaction Bank in India
o Best Trade Finance Bank in India
o Best Cash Management Bank in India
o Best Domestic Custodian in India
ICICI Bank has bagged the Best Cash Management Bank in India award for the second year in a row. The other awards have been bagged for the third year in a row.
• ICICI Bank Canada received the prestigious Canadian Helen Keller Award at the Canadian Helen Keller Centre's Fifth Annual Luncheon in Toronto. The award was given to ICICI Bank its long-standing support to this unique training centre for people who are deaf-blind.
ICICI Foundation for Inclusive Growth (ICICI Foundation) was founded by the ICICI Group in early 2008 to give focus to its efforts to promote inclusive growth amongst low-income Indian households.
We believe our fundamental challenge is to create a “just” society – one where everyone has equal opportunity to develop and grow. Towards this end, ICICI Foundation is committed to making India’s economic growth more inclusive, allowing every individual to participate in and benefit from the growth process.
We hold a set of core beliefs and values that defines our pathway towards inclusive growth and guides our five strategic partnerships.
Vision:
Our vision is a world free of poverty in which every individual has the freedom and power to create and sustain a just society in which to live.
Mission:
Our mission is to create and support strong independent organisations which work towards empowering the poor to participate in and benefit from the Indian growth process.
As a key partner in India's economic growth for more than five decades, the ICICI Group endeavours to promote growth in all sectors of the nation ’s economy. To give focus to its efforts to promote inclusive growth amongst low-income Indian households, the ICICI Group founded ICICI Foundation for Inclusive Growth in January 2010.
The foundations of ICICI Group’s approach towards human and social development were established with the Social Initiatives Group (SIG), a non-profit resource group within ICICI Bank, in 2000.
ICICI Foundation for Inclusive Growth (ICICI Foundation) has been set up as a public charitable trust registered at Chennai vide registration of the Trust Deed with the Sub-Registrar’s Office at Chennai on January 04, 2010.
The application for registration of the Foundation under section 12AA of the Income tax Act, 1961 (“the Act”) was filed on February 7, 2008 and the application under section 80G of the Act was filed on February 14, 2008. Subsequently, ICICI Foundation was registered as a “PUBLIC CHARITABLE TRUST” under Section 12AA of the Act with effect from February 7, 2008. Further, ICICI Foundation received approval under Section 80G(5)(vi) of the Act on March 19, 2008. This approval is valid in respect of donation received by ICICI Foundation from February 14, 2008 to March 31, 2009. Accordingly, ICICI Bank and Group Companies will be eligible to get a deduction under section 80G on donations made during this period.
ICICI Foundation has also obtained its Permanent Account Number (PAN) and Tax deduction Account Number (TAN).
Funds Flow 2010-2011
ICICI Foundation received Rs.617.80 million from the following sources as grants:
(January 4, 2008 to March 31, 2011) (spanning two financial years)
|Source (January 4, 2008 – March 31, 2011) |Amount (Rs. million) |
|ICICI Bank |500.00 |
|ICICI Prudential Life Insurance |67.72 |
|ICICI Lombard General Insurance |17.12 |
|ICICI Securities |14.98 |
|ICICI Securities PD |6.99 |
|ICICI Home Finance |1.99 |
|ICICI Venture |9.00 |
|Total |617.80 |
ICICI Foundation also incurred total expenses of Rs.1.25 million during this period and had a fund balance of Rs.61.55 million as on March 31, 2011.
Disbursements (January 4, 2008 to March 31, 2011)
|Grant Beneficiaries (January 4, 2010 – March 31, 2011) |Amount (Rs. million) |
|ICICI Foundation Programmes | |
|ICICI Centre for Child Health and Nutrition |150.00 |
|IFMR Finance Foundation |200.00 |
|Environmentally Sustainable Finance |20.00 |
|CSO Partners |50.00 |
|CARE (Policy Unit) |5.00 |
|Strategy and Advisory Group |20.00 |
|ICICI Group Corporate Social Responsibility Programmes | |
|Read to Lead |25.00 |
|MITRA (ICICI Fellows Programme) |55.00 |
|CARE (Disaster Management Unit) |5.00 |
|Rang De |25.00 |
|Total |555.00 |
Grant Beneficiaries for 2010-2011
ICICI Foundation Programmers
ICICI Centre for Child Health and Nutrition (ICCHN)
The grant of Rs.150.00 million was provided to ICCHN by way of corpus support and for pursuing various projects consistent with its mission.
IFMR Finance Foundation (IFF)
The grant of Rs.200.00 million was provided to IFMR Finance Foundation by way of corpus support and for pursuing various projects consistent with its mission.
Environmentally Sustainable Finance (ESF)
The grant of Rs.20.00 million was provided to ESF for their collaboration work with Rural Energy Network Enterprise (RENE) on sustainable energy and environment projects benefiting remote rural end users. The proposed projects will promote developing tools and driving innovation to scale rural energy access for remote rural users.
CSO Partners
The grant of Rs.50.00 million was provided to CSO Partners by way of corpus support and for pursuing various projects consistent with its mission.
CARE (Policy Unit)
A grant of Rs.5.00 million was provided to CARE, an Indian NGO that is closely affiliated with CARE (USA), to create a policy unit in Delhi. Learning from CARE’s work in India and world-wide as well as from the work of ICICI Foundation and its partners, the unit will serve as a platform to engage the government and policymakers in an effort to bring about required policy changes in areas such as maternal and child health.
Strategy and Advisory Group (SAG)
Charitable foundations in India and world-wide struggle to fully develop the strategy formulation, knowledge management and impact assessment dimensions of their work. A grant of Rs.20.00 million was provided to Strategy and Advisory Group (SAG), a team at Centre for Development Finance that provides strategic advisory services to clients in the development sector, to develop these functions and to offer their expertise to foundations in general, including ICICI Foundation.
ICICI Group Corporate Social Responsibility Programmers .Read to Lead
Read to Lead is an initiative of ICICI Bank to facilitate elementary education for disadvantaged children in the age group of 6-13 years. An amount of Rs.25.00 million has thus far been disbursed to 100,000 children through 30 NGOs. The balance amount of Rs.75.00 million is planned to be disbursed during the period 2009-2010.
MITRA (ICICI Fellows Programme)
MITRA is an affiliate of CSO Partners that is focused on addressing the challenge of human resources for civil society organisations (CSOs). In partnership with CSO Partners and MITRA, ICICI Foundation proposes to launch an ICICI Fellows Programme. An amount of Rs.55.00 million has been disbursed to MITRA for developing and launching the programme over the period 2009-2010.
CHAPTER-IV
DATA ANALYSIS AND INTERPRETATION
PERFORMANCE ANALYSIS OF RETURNS
Equity returns at a glance
If we have a look at equity returns of the past 9 years it is like this:
SENSEX
|YEAR |INDIEX* |ABSOLUTE CHANGE |PERCENTAGE CHANGE (%) |
|2003 |3972 |0 |0 |
|2004 |3262 |-710 |-17.88 |
|2005 |3377 |115 |3.52 |
|2006 |5838 |2461 |72.88 |
|2007 |6602 |764 |13.08 |
|2008 |9397 |2795 |42.34 |
|2009 |13786 |4389 |46.70 |
|2010 |13908 |122 |0.88 |
|2011 |20323 |6415 |31.57 |
[pic]
BSE100
|YEAR |INDEX |ABSOLUTE CHANGE |PERCENTAGE CHANGE (%) |
|2003 |2032 |0 |0 |
|2004 |1559 |-477 |-23.38 |
|2005 |1664 |107 |6.88 |
|2006 |3076 |1412 |84.74 |
|2007 |3580 |506 |16.46 |
|2008 |4953 |1373 |38.32 |
|2009 |6982 |2029 |40.96 |
|2010 |7026 |44 |0.65 |
|2011 |9132 |2106 |23.06 |
[pic]
BSE200
|YEAR |INDEX* |ABSOLUTE CHANGE |PERCENTAGE CHANGE (%) |
|2003 |437 |0 |0 |
|2004 |340 |-95 |-21.96 |
|2005 |394 |53 |15.54 |
|2006 |766 |372 |94.41 |
|2007 |884 |118 |15.66 |
|2008 |1186 |300 |33.86 |
|2009 |1655 |469 |39.54 |
|2010 |1662 |7 |0.42 |
|2011 |2160 |498 |23.05 |
[pic]
BSE500
|YEAR |INDEX* |ABSOLUTE CHANGE |PERCENTAGE CHANGE (%) |
|2003 |1304 |0 |0 |
|2004 |1005 |-299 |-22.93 |
|2005 |1176 |171 |17.01 |
|2006 |2368 |1192 |101.20 |
|N 2007 |2779 |413 |17.46 |
|2008 |3795 |1016 |36.56 |
|2009 |5268 |1473 |38.86 |
|2010 |5295 |25 |0.47 |
|2011 |6883 |1588 |23.07 |
[pic]
Bonds returns at a glance
If we have a look at the average return, which the central government securities have given over a period of one year, it is 9.11%. Now if we look at the average return, which the state government securities have given over a period of one year, it is 9.28%.
ICICI returns at a glance
“ICICI shines when everything else falls apart” goes an old adage. True, the glitter is back. During the 50s gold appreciated marginally. The next decade, 1960-1970, it moved from $35 to $40 and between 1970-1980 came the massive rise from $40 to $614, a whopping 1407%. The trend of gold prices in India in the last few years is given in the following table.
|YEAR |PRICE ($)* |ABSOLUTE CHANGE |PERCENTAGE CHANGE (%) |
|2003 |272 |- |- |
|2004 |278 |6 |2.20 |
|2005 |346 |68 |24.46 |
|2006 |414 |68 |19.65 |
|2007 |438 |24 |5.79 |
|2008 |517 |79 |18.03 |
|2009 |517 |79 |18.03 |
|2010 |636 |119 |23.01 |
|2011 |995 |359 |36.08 |
[pic]
*Price indicates December end prices of that particular year
Mutual Funds return at a glance
|EQUITY TAX SAVING |NAV |1 YR |2 YR |3 YR |
|Magnum Tax Gain |47.7 |107.70 |93.40 |112.30 |
|Principal Tax Savings |74.60 |91.20 |59.30 |73.70 |
|ICICI Tax Saver |138.50 |104.60 |83.60 |91.60 |
[pic]
|EQUITY BALANCED |NAV |1 YR |2 YR |2 YR |
|Magnum Balanced |32.40 |74.60 |53.40 |63.70 |
|Kotak Balanced |23.80 |71.10 |49.10 |52.80 |
|ICICI Prudential |96.30 |61.80 |42.90 |55.90 |
[pic]
Real Estate Returns
Real Estate industry in India has come of age and competes with other Investment decision options in the structured markets. Commercial real estate continues to be a desirable Investment decision option in India. On an average the returns from rental income on an Investment decision in commercial property in metros is around 10.5%, which is the highest in the world. In case of other Investment decision opportunities like bank deposits and bonds, the returns are in the range of 5.5% - 6.5%. Rejuvenated demanded since early 2004 has led to the firming up of real estate markets across the three sectors – commercial, residential and retail. The supply just about matches demand in almost all metros around the country. There has been an upward pressure on the real estate values. From a technical perspective, robust demand and upward prices are helping revive Investment decision and speculative interest in real estate and this is being further aided by excess money supply, stock market gains and policy changes in favor of the real estate sector.
Investment decision Yield
Increasing demand from the IT/ITES and BPO sector has led to approximately 20% - 40% increase in capital values for office space in the last 12-18 months across major metros in India. Grade-A office property net yields have come down from 12% -15% in 2003 and currently average around 10.5% - 11% p.a. The fall in yields has resulted from decreasing interest rates and increasing appetite from investors. This has in turn resulted from abundant liquidity options available coupled with the acceptability of real estate as a conventional class of asset. Lower interest rates, easy availability of housing finance, escalating salaries and job prospects have been lending buoyancy to the residential sector. The net yields (after accounting for all outgoings) on residential property are currently at 4% - 6% p.a. However, these Investment decisions have benefited from the improving residential capital values. As such, investor can count on potential capital gains to improve their overall returns. Capital values in the residential sector have risen by about 25% - 40% p.a. in the last 15 – 18 months. The retail market in India has been growing due to increasing demand from retailers, higher disposable incomes and dearth of quality space as on date. Though the net yields on retail property have registered a fall from 10% - 13% p.a. reported earlier to 9% - 10.5% p.a. currently, the capital appreciation in this sector is close to 20% 40% p.a. However, the risks associated with this sector are higher as retailers are prone to cyclical changes typical of a business cycle.
Life Insurance returns at a glance
Life Insurance as “Investment decision”
Insurance is an attractive option for Investment decision. While most people recognize the risk hedging and tax saving potential of insurance, many are not a aware of its advantages as an Investment decision option as well. Insurance products yield more compared to regular Investment decision options and this is besides the added incentives (bonuses) offered by insurers.
In fact, the premium you pay for an insurance policy is an Investment decision against risk. Thus, before comparing with other schemes, you must accept that a part of the total amount invested in life insurance goes towards providing for the risk cover, while the rest is used for savings.
In life insurance except for term insurance, unlike non-life products you get maturity benefits on survival at the end of the term. In other words, if you take a life insurance policy for 20 years and survive and survive the term, the amount invested as premium in the policy will come back to you with added returns. In the unfortunate event of death within the tenure of the policy the family of the deceased will receive the sum assured.
Now let us compare insurance as an Investment decision options. If you invest INR 10000 in PPF, your money grows to Rs.10950 at 9.5% interest over a year. But in this case, the access to your funds will be limited. One can withdraw 50% of the initial deposit only after 4 years.
The same amount of Rs.10000 can give you an insurance cover of up to approximately Rs.5 – 11 lakh (depending upon the plan, age and medical condition of the life insured etc) and this amount can become immediately available to the nominee of the policyholder on death. Thus insurance is a unique Investment decision avenue that delivers sou8nd returns in addition to protection.
Life Insurance as “Tax Planning”
Insurance serves as an excellent tax saving mechanism too. The Government of India has offered tax incentives to life insurance products in order to facilitate the flow of funds into productive assets. Under section 88 of income tax act 1961, an individual is entitled to a rebate of 20% on the annual premium payable on his/her and life of his/her children or adult children.
CHAPTER-V
FINDINGS
SUGGESTIONS
CONCLUSION
BIBLIOGRAPHY
FINDINGS
Should be in bullet points
Evaluating an Investment decision option is never an attempt to run down the credentials of other instruments in the block. Rather the aim is to uncover ways to make the scene more persuasive and more rational. Mutual funds are an ideal Investment decision in more ways than one. After a number of investigation and back seat squabbling over the latest budget, investors have finally started asking for the right Investment decision instrument that truly fits his needs. At the backdrop of this uncertainty I am trying to size up the depts. And breadth of benefits of six Investment decision instruments in this section of triggering thoughts. Abandoning the marketing tricks, I stretched out my analysis with a ranking scale of 10 as a fundamental figure crunching exercise. GraduallyAnd in a remarkable finding, mutual funds appears to act as a treat to all embodies Investment decision at its best and widely addresses the savings component of safety to suite your income tolerance.
Primary Needs
The basic requirements an investor looks for in an Investment decision are safety, returns and liquidity. After the US-64 fiasco, many people are confused whether to invest in any government backed financial institutions. Most of them are now transferring their money to bank FD's, which according to them is one of the safest Investment decision options. Many state that ‘ I don’t mind getting low returns, but I should be sure to receive them’.
Secondary Needs
Ancillary requirements for an Investment decision are absence of entry barrier, tax efficiently and cash flow effectiveness. In an attempt to encourage real estate or the housing business in the country a lot of tax soaps have been given to this sector.. In the case of lone term capital gain tax, one has the option of either paying 20% tax with indexation benefits or a flat rate of 10%. Apart from good tax soaps mutual funds also enjoy the benefits of entry barriers i.e. unlike in bonds, any person need not have to wait for an issue to be open to invest in a mutual fund, instead can enter anytime he wishes to do so. One may think that with so many advantages mutual funs need huge Investment decision to start off, but one can start investing in mutual funds with a nominal amount of Rs.500/- in case of systematic Investment decision plan.
Tertiary Needs
The stock market is one of the options for investing your money. Stocks are unmatched to any other Investment decision tool. They are the best way to make money and stay ahead of inflation over time. This is ideal if you have long-term Investment decision goals. When you buy stock in a company and if they go bankrupt then the stock will not be the worth the price you paid for it. These thing do happen, gut if invest with proper strategies you will usually come out a winner.
For e.g. If someone had invested Rs.1 lakh in the equity market 22 years back, the thing would have appreciated to Rs.25 lakhs today. Another classic example is the Infosys stock where in if one had invested Rs.10000 in June 1993, when it came out with its maiden IPO, your holding would be worth more than Rs.85 lakhs. Over the same period debt has generated an annual return of 12% whereas gold 3.4% and real estate, though it gave 10% during this period it continued to be bogged with problems relating valuation, liquidity, sale proceeds etc. another good option is the systematic Investment decision plan (SIP) in the mutual funds.. They are benefit of compounding rupee cost averaging and convince. With cost averaging one need not worry about the price of the unit, instead just invest regularly over a long-term period. This approach turns the odds in your favor over the long-term period.
Indeed the last couple of years were bad for the mutual fund industry. However as the saying goes ‘every dark cloud has a silver lining’ so the same is happening to mutual fund industry. With most of AMC’s coming up with innovative products to beat the drawbacks of what they faced in the past, definitely the industry will take a new high from here. For a better understanding, after a through analysis our in house research team has quantified the Investment decision options, as figures speak louder than words. With the help of the asset grid one can easily make a choice of Investment decision. A careful look at those figures below reflects that investing in mutual stand at an advantage over the others.
| |Equity |Bonds |Gold |Equity MF |Debt MF |
|Primary Needs |2.33 |1.90 |2.33 |2.91 |2.64 |
|Secondary Needs |2.42 |1.33 |1.65 |2.65 |2.32 |
|Tertiary Needs |1.50 |2.46 |1.27 |2.20 |2.30 |
|Value of Specific |6.25 |5.69 |5.25 |7.76 |7.26 |
|Instrument | | | | | |
Procedure followed
Firstly, the primary requirements have been broadly classified into three i.e. Basic Requirements, Ancillary Requirements and Portfolio Fit. These have been further classified into Primary needs, Safety returns and Liquidity. Secondary needs – tax efficiency, entry barriers and cash flow effectiveness. Tertiary needs – long term goals and holdings/liquidation cost. The primary secondary and tertiary needs have been assigned 40%, 30%, 30% respectively and each of the subcategories have also been assigned individual weights.
These ranks are multiplied with respective weights each category and in turn the sum of these are multiplied with by the weights assigned to the primary requirements. For safety as the parameter, in comparison with mutual funds equity is ranked the lowest because of the risk it carries with it. Most of the scripts are market driven. Anything or anyone can affect the market. On the other hand bonds are ranked the highest because they are government backed. Contrast equity is ranked the highest for returns, as it is one of the best Investment decision options to give good returns. Bond are rated the lowest because of the assured returns promised by the government. Both of them pay around 8% - 9% of annual returns.
For liquidity mutual funds and gold are ranked the highest as these can be converted into cash immediately as and when the investor wishes to do so. However that is not the case with the real estate or PPF account as the former is not easy to dispose and the later has a lock in period of 15 years. Even in case of entry barrier, equity and mutual funds are ranked the highest at they can be bought at any point of time with minimal Investment decision. But, it s is not the same with the real estate, since you cannot buy the land you wish to until and unless there is someone wishing to sell it.
|Investment decision |Weight (%) |Equity |Bonds |Gold |Equity MF |Debt MF |
|Needs | | | | | | |
|Safety |40 |2 |7 |7 |5 |7 |
|Returns |40 |8 |4 |5 |8 |5 |
|Liquidity |20 |7 |4 |8 |7 |9 |
|Entry barrier |60 |9 |5 |5 |8 |7 |
|Tax Efficiency |20 |3 |6 |3 |7 |8 |
|Cash Flow |20 |8 |3 |9 |8 |9 |
|Effectiveness | | | | | | |
|Long Term Goals |40 |4 |5 |6 |9 |7 |
|Holding / Liquidation|60 |5 |9 |3 |7 |8 |
|cost | | | | | | |
Note: 9 – indicates highest positive value on a parameter and 1 – indicates the lowest positive value on a parameter.
SUGGESTIONS:
Improvement is needed
The following Suggestions are being provide to The ICICI BANK LIMITED.
1) Investors always prefer the dividend payment for Capital appreciation. Hence some amount of Dividend must be paid regularly. Unless the Payment will reduce the net worth of the industry.
2) The industry should improve the dividend per share.
3) The industry should follow stable dividend policy.
4) The industry should maintain high per share.
5) The industry must improve and maintain high ratio.
6) When the industry gets the price earning highly, that industry will grow
7) In The industry Net worth is very good. The industry has to maintain this type of Net worth.
CONCLUSION
Bullet points
There are several Investment decisions to choose from these include equities, debt, real estate and gold. Each class of assets has its peculiarities. At any instant, some of those assets will offer good returns, while others will be losers. Most investors in search of extraordinary Investment decisions try hard to find a single asset. Some look for the next infosys, other buys real estate or gold. Many of them deposit their savings in the Public Provident Fund (PPF) or post office deposits, others plump for debt mutual funds. Very few buy across all asset classes or diversify within an asset class. Therefore it has been widely said that “Don’t put all your eggs in one basket”. The idea is to create a portfolio that includes multiple Investment decisions in order to reduce risk.
Things changed in early may 2011 since then the stock market moved up more than 70%, while many stocks have moved more. Real estate prices are also swinging up, although it is difficult to map in this fragmented market. Gold and Silver prices have spurted.
Bonds continue to give reasonable returns but it is no longer leads in the comparative rankings. Right now equity looks the best bet, with real state coming in second. The question is how long will this last? If it is a short-term phenomenon, going through the hassle of switching over from debt may not be worth it. If it’s a long-term situation, assets should be moved into equity and real estate. This may be long-term situation. The returns from the market will be good as long as profitability increases. Since the economy is just getting into recovery mode, that could hold true for several years. Real estate values, especially in suburban areas or small towns could improve further. The improvement in road networks will push up the value of far-flung development. There is also some attempt to amend tenancy laws and lift urban ceilings, which have stunted the real estate market.
BIBLIOGRAPHY
Text Books
Investment decision Analysis and Portfolio Management - Prasanna Chandra
Investment decisions - Sharpe & Alexander
Security Analysis and Portfolio Management - Fischer & Jordan
BIBLIOGRAPHY
1. Alexander. G.J, Sharpe. W.F and Bailey. J.V, “Fundamentals of Investments”, PHI, 3rd Ed.
2. Zvi Bodie, Alex Kane, Marcus.A.J, Pitabas Mohanty, “Investments”, TMH, 8th Ed.
3. Prasanna Chandra, “Investment Analysis and Portfolio Management”, TMH, 3rd Ed.
4. Charles.P.Jones, “Investments: Analysis and Management”, John Wiley &Sons, Inc. 9th Ed.
5. Francis. J.C. & Taylor, R.W., “Theory and Problems of Investments”. Schaum’s Outline Series,
McGraw Hill
6. Herbert. B. Mayo, “Investments: an Introduction”, Thomson – South Western. 9th Ed.
7. Peter L. Bernstein and Aswath Damodaran, “Investment Management”,Wiley Frontiers in
Finance.
8. Dhanesh Khatri, “Security Analysis and Portfolio Management”, 2010, Macmillan Publishers.
9. Sudhindra Bhat, “Security Analysis and Portfolio Management”, 2009, Excel Books.
10. Preeti Singh, Investment Management, 2010, HPH, 17th Revised Edition.
11. Stephen A. Ross, Randolph Westerfield, and Jeffrey Jaffe, “Corporate Finance”, TMH.
12. S. Chand “Investment Management: Security Analysis & Portfolio Management”.
13. S. Kevin, “Analysis and Portfolio Management”, PHI.
14. Punithavathy Pandian, “Security Analysis and Portfolio Management”, Vikas Publishing House
15. Donald E. Fisher and Ronald J. Jordan: “Securities Analysis and Portfolio Management”,
Prentice Hall.
16. Graham & Dodd, “Security Analysis and Portfolio Management”, McGraw Hill.
17. Jack Clark Francis, “Investment”, TMH, New Delhi.
1. Meir Kohn, “Financial Institutions and Markets”, 2009 2nd Ed. Oxford University Press.
2. Khan. M.Y., “Financial Services”, 2010, 5th Ed. Tata McGraw-Hill, Pvt. Ltd., New Delhi.
3. Gordon and Natarajan, “Financial Markets and Services’, 2009, HPH, 7th Ed. Mumbai.
4. Bharti Pathak, “Indian Financial System”, 2010, 3rd Ed. Pearson Education.
5. Avadhani. V.A., “Financial Services in India”, 2009, 1st Ed. HPH.
6. Dr. Gurusamy. S., “Financial Services”, Tata McGraw-Hill, Education Pvt. Ltd. 2nd Ed., New Delhi.
7. Vasant Desai, “Financial Markets and Financial Services”, 2009, HPH, 1st Ed., Mumbai.
8. Punithavathy Pandian, “Financial Services and Markets”, 2009 Vikas Publishing House.
9. Mishkin. F.S. and Eakins. S.G., “Financial Markets and Institutions”, 2006, 5th Ed. Pearson
Education,
10. Harold L Vogel, “Financial Markets Bubble and Crashes” 1st ed, 2009, Cambridge.
Magazines
Business world
Business Today
Websites
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