INTRODUCTION TO INVESTMENTS
INTRODUCTION
There are many different definitions of what ‘investment’ 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 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. Investing means putting your money to work for you.
These days almost everyone is investing in somewhere… 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.. 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 bandwagon and probably don’t know as much about what’s out there as you think.
Before you can confidently choose an investment path that will help you achieve your personal goals and objectives, it’s virtually important that you understand the basics about the types of investments available. Knowledge is your strongest ally when it comes to weeding out bad investment advice and is crucial to successful investing whether you go at it alone or use a professional.
The investment option before you is many. Pick the right investment 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.
DIFFERENT INVESTMENT OPTIONS ARE GIVEN BELOW
1.Equities
2. Dividend
3.Bonds
4.Mutual Fund
5.Real Estate
6.Life insurance
EQUITY INVESTMENT
Stocks are investments 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 share holders .Some companies are privately held, which means the shares are available 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 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.
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 investments, while others are considered value investments. 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 investments. 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 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, 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 .For example, if lots of investors buy stock A, its price will be driven up. The stock becomes more valuable because there is demand for it. But the reverse is also true. If a lot of investors sell stock Z, its price will plummet. The further the stock price falls, the more investors sell it off, driving the price down even more.
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.
Analysts looking at intrinsic value divide a company’s estimated future earnings by the number of it s existing shares to determine whether a stock’s current price is a bargain. This measure allows investors to make decisions based on a company’s future potential independent of short-term enthusiasm or market hype.
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, 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 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 even if the price per share drops for a time.
Stock Research and Evaluation:
Before investing in a stock, its important to research the issuing company and understand how the investment 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 investments and helping you develop long and short-term investment goals.
NEED FOR THE STUDY
The principal objective of corporate financial management is to maximize the market value of the equity shares. Hence the key question of interest to us in this study is, on “investment decisions”.
We need to study on various investment options that are prevailing in the financial markets in India. With lots of investment options like banks, Fixed Deposits, Government bonds, stock market, real estate, gold and mutual funds the common investor ends up more confused than ever. Each and every investment option has its own merits and demerits..
To provide the information about various alternatives of investment available to retail investors and other investors.
To understand the importance of investment proposal.
OBJECTIVE OF THE STUDY
➢ The primary objective of the project is to make an analysis of various investment decision.
➢ To compare the returns given various investment decision.
➢ 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.
➢ The project work was undertaken in order to have reasonable understanding about the investment industry.
➢ To know that the investment decisions like equity, bond, real estate, gold and mutual fund.
➢ To give a clear picture with regard to different investment alternatives and the suitability.
RESEARCH METHODOLOGY
Research can be defined as the search for knowledge or any systematic investigation to establish facts. The primary purpose for applied research (as opposed to basic research) is discovering, interpreting, and the development of methods and systems for the advancement of human knowledge on a wide variety of scientific matters of our world and the universe. Research can use the scientific method, but need not do so.
Scientific research relies on the application of the scientific method, a harnessing of curiosity. This research provides scientific information and theories for the explanation of the nature and the properties of the world around us. It makes practical applications possible. Scientific research is funded by public authorities, by charitable organizations and by private groups, including many companies. Scientific research can be subdivided into different classifications according to their academic and application disciplines.
Artistic research, also seen as 'practise-based research', can take form when creative works are considered both the research and the object of research itself. It is the debatable body of thought which offers an alternative to purely scientific methods in research in its search for knowledge and truth.
Historical research is embodied in the scientific method.
The term research is also used to describe an entire collection of information about a particular subject.
Research processes
Scientific research
Generally, research is understood to follow a certain structural process. Though step order may vary depending on the subject matter and researcher, the following steps are usually part of most formal research, both basic and applied:
• Formation of the topic
• Hypothesis
• Conceptual definitions
• Operational definition
• Gathering of data
• Analysis of data
• Test, revising of hypothesis
• Conclusion, iteration if necessary
A common misunderstanding is that by this method a hypothesis can be proven or tested. Generally a hypothesis is used to make predictions that can be tested by observing the outcome of an experiment. If the outcome is inconsistent with the hypothesis, then the hypothesis is rejected. However, if the outcome is consistent with the hypothesis, the experiment is said to support the hypothesis. This careful language is used because researchers recognize that alternative hypotheses may also be consistent with the observations. In this sense, a hypothesis can never be proven, but rather only supported by surviving rounds of scientific testing and, eventually, becoming widely thought of as true (or better, predictive), but this is not the same as it having been proven.
Artistic Research
One of the characteristics of Artistic Research is that it must accept subjectivity as opposed to the classical scientific methods. As such, it is similar to social sciences in using quantitative research and inter subjectivity as tools to apply measurement and critical analysis.
Historical method
Main article: Historical method
The historical method comprises the techniques and guidelines by which historians use historical sources and other evidence to research and then to write history. There are various history guidelines commonly used by historians in their work, under the headings of external criticism, internal criticism, and synthesis. This includes higher criticism and textual criticism. Though items may vary depending on the subject matter and researcher, the following concepts are usually part of most formal historical research:
• Identification of origin date
• Evidence of localization
• Recognition of authorship
• Analysis of data
to digout something and to unearth something or unveal something
• Identification of integrity
• Attribution of credibility
Research methods
The goal of the research process is to produce new knowledge, which takes three main forms (although, as previously discussed, the boundaries between them may be obscure.):
• Exploratory research, which structures and identifies new problems
• Constructive research, which develops solutions to a problem
• Empirical research, which tests the feasibility of a solution using empirical evidence
The research room at the New York Public Library, an example of secondary research in progress.
Research can also fall into two distinct types:
• Primary research
• Secondary research
In social sciences and later in other disciplines, the following two research methods can be applied, depending on the properties of the subject matter and on the objective of the research:
• Qualitative research
• Quantitative research
Research is often conducted using the hourglass model Structure of Research[1]. The hourglass model starts with a broad spectrum for research, focusing in on the required information through the methodology of the project (like the neck of the hourglass), then expands the research in the form of discuss
SCOPE OF THE STUDY
The scope of the project includes acquiring knowledge about the investment decisions. As a whole this included the detailed study of investments like their types, benefits, investment options like banks, fixed deposits, govt bonds, stock market, real estate, mutual funds
Any investor before investing should take into consideration about the safety, liquidity, returns, entry/exit barriers and tax efficiency parameters. We need to evaluate each investment option on the above mentioned basis and then invest money. Today investor faces too much confusion in analyzing the various investment options available and then selecting the best suitable one, options are compared on the basis of returns. This project has discussed about few investment options available
LIMITATIONS OF THE STUDY
• The study was limited to only five investment options.
• Most of the information collected is secondary data.
• The data is compared and analyzed on the basis of performance of the investment 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 real estate and hence averages were taken.
• Duration of the project is only 45 days
COMPANY PROFILE
ABOUT KOTAK SECURITIES:
Kotak Securities Ltd. 100 % subsidiary of Kotak Mahindra Bank is one of the oldest and largest broking firms in the Industry. Our offerings include stock broking through the branch and Internet, Investments in IPO, Mutual funds and Portfolio management service.
Mahindra Group. The institutional business division, which brings you AKSESS, primarily covers secondary market broking. It caters to the needs of foreign and Indian institutional investors in Indian equities (both local shares and GDRs). The division also has a comprehensive research cell with sectoral analysts covering all the major areas of the Indian economy.
Kotak Securities Limited:-
Kotak Securities Limited, a subsidiary of Kotak Mahindra Bank, is the stock broking and distribution arm of the Kotak Mahindra Group. The company was set up in 1994. Kotak Securities is a corporate member of both The Bombay Stock Exchange and The National Stock Exchange of India Limited. Its operations include stock broking and distribution of various financial products - including private and secondary placement of debt and equity and mutual funds. Currently, Kotak Securities is one of the largest broking houses in India with wide geographical reach. The company has four main areas of business: (1) Institutional Equities, (2) Retail (equities and other financial products), (3) Portfolio Management and (4) Depository Services.
• Institutional Business: This division primarily covers secondary market broking. It caters to the needs of foreign and Indian institutional investors in Indian equities (both local shares and GDRs). The division also incorporates a comprehensive research cell with sectoral analysts who cover all the major areas of the Indian economy.
• Client Money Management: This division provides professional portfolio management services to high net-worth individualsand corporates. Its expertise in research and stock broking gives the company the right perspective from which to provide its clients with investment advisory services.
• Retail distribution of financial products: Kotak Securities has a comprehensive retail distribution network, comprising 870 offices (own and franchisees) across 309 cities and towns, servicing 590,000 customers. This network is used for the distribution and placement of a range of financial products that includes company fixed deposits, mutual funds, Initial Public Offerings, secondary debt and equity and small savings schemes.
• Depository Services: Kotak Securities is a depository participant with the National Securities Depository Limited and Central Depository Services (India) Limited for trading and settlement of dematerialized shares. Since it is also in the broking business, investors who use its depository services get a dual benefit. They are able to use its brokerage services to execute transactions and its depository services to settle these.
Kotak Securities' width, volume and quality of offerings regularly earn it accolades from industry monitors. In recent times, these have included:
✓ Asia Money (2007): Best Equity House in India
✓ Thomson Extel Survey Awards (2007): Leading Equity House in India
✓ Avaya Global Connect Customer Responsiveness Awards in Financial Services Sector, 2007
✓ CNBC TV18 — Optimix Financial Advisory Awards (2008): Best Performing Equity Broker in India
• Kotak Institutional Equities: Kotak Institutional Equities, among the top institutional brokers in India. It mainly covers secondary market broking and the marketing of equity offerings, including IPOs, to domestic and foreign institutions investors. Its full-fledged research division comprises 26 analysts engaged in macro-economic studies, industry-and company-specific equity research.
AN OVERVIEW:
Welcome to the Media Kit. Whether you are looking for that one fact, milestone or just the latest news about Kotak Securities, you are at the very right place.
The information within the Media Kit shall help you know us better and provide you with the corporate profile, press coverages and the latest events at Kotak Securities.
This section has been designed to provide Individuals with easy access to all the information and thus acts as a comprehensive data reserve. Check out the latest news and press releases Kotak Securities and get a glimpse into the accomplishments, happenings and events.
Why Kotak Securities?
Welcome to Kotak Securities. We see investing from your perspective, and make recommendations based on your needs. One of our important goals is to simplify investing for you; along with this we also provide long term values to our customers.
We have a million reasons for you to choose us. Listed below are a few:
1. Stability: We are a 100% subsidiary of Kotak Mahindra Bank and one of the oldest and largest broking firms in the Industry. We have been the first and only NBFC to receive the license to be converted into a bank.
2. Innovators in the Industry: We have been the first in providing many products and services which have now become industry standards.
➢ First to provide Margin Financing to the customers.
➢ First to enable investing in IPOs and Mutual Funds on the phone.
➢ Providing SMS alerts before execution of depository transactions.
➢ Launching of Mobile application to track portfolio.
➢ Auto Invest - A systematic investing plan in Equities and Mutual fund.
➢ Provision of margin against securities automatically against shares in your Demat account.
3. Reliability: Our accolades are a testimony to our services and high standards. We have been awarded as:
➢ Best Performing Equity Broker in India – CNBC Financial Advisor Awards 2008.
➢ Avaya Customer Responsiveness Awards (2007) in Financial Services Sector.
➢ Best Brokerage Firm in India" by Asia money in 2007.
➢ The Leading Equity House in India' in Thomson Extel Surveys Awards for the year 2007.
➢ Euro money Award (2006 & 2007) - Best Provider of Portfolio Management: Equities.
4. Value: Whether you are a customer with a small or large wallet size, you can expect us to bring value to you in every form.
➢ Quality Research
➢ Quick trade execution
➢ Low brokerages
➢ Accounts that suit your investment profile
➢ Risk Profiler
➢ Superior Customer Service
5. Service: We believe in high standards of service and that's precisely what we offer. It's an honour to be awarded the most customer responsive company award in the Financial Institution sector by AVAYA Global Connect Award both in 2006 and 2007.
6. Robust Technology: We have developed our own proprietary trading platform which is robust and among the best in the industry. We have more than 150 technology professionals constantly working on upgrading and speeding up all our systems.
7. Centralised Risk Management System: Unlike many other players we have a centralised risk management system. This allows us to offer the same levels of service to customers across all locations.
8. Exceptional Research: Unlike most other competitors we have our own in house research team. Our in house research team is among the best in the industry and they have years of experience in the financial markets. They scan through the plethora of stocks and find the scrips that have a high potential of providing you good returns. Our investors get research Technical, Fundamental, Derivatives, Macro-economic and mutual fund research.
9. Large Presence: We are present in 321 cities with 877 offices all over the country. Our employee strength extends beyond 5100.
KOTAK-HISTORY:
The company history sections lists out major chronological events that happened to the company.
➢ 1985
- The company was incorporated on 21st November 1985 under the name Kotak Capital Management Finance Ltd. The Company has been promoted by Mr Uday S Kotak, Mr S.A.A Pinto and Kotak & Company. The company obtained the certificate of commencement of business on 11th February 1986 and the Existing promoters were joined by Mr. Harish Mahindra and Mr Anand Mahindra. The company's name was changed on 8th April 1986 to its present name Kotak Mahindra Finance Ltd.
- The Company deals in Bill discounting, leasing and hire purchase, corporate finance, management of fixed deposit mobilization, financing against securities, money market operations, consumer finance, investment banking and clients' money management.
➢ 1990
- 3, 08,770 No. of equity shares subscribed for by the promoters, directors, 3,41,230 No. of equity shares allotted as rights as on 28.3.89. 19,50,000 shares issued as bonus (6,50,000 shares in prop. 1:1 as on 29.7.89 and 13,00,000 shares in prop. 1:1 as on 27.2.91).
➢ 1991
- An application was made to SEBI for approval for setting up a Mutual Fund trust and an asset management company. The newly set up Corporate Advisory Services Group received several mandates for advice on mergers and acquisitions and re-structuring.
- The Company's newly established Foreign Exchange Risk Management Service carters to the vast potential demand for price risk management. The Company established itself as a major leasing and hire-purchase company and as a source of finance for purchasers of automobiles.
➢ 1992
- In January, the Company offered and allotted 15,50,000 - 14% secured partly convertible debentures of Rs 90 each for a total value of Rs 13.95 crores in the following manner: (i) 2,00,000 debentures to promoters, directors, etc. (ii) 77,500 debentures to employees (including working directors)/workers on preferential basis (iii) 12,72,500 debentures to Indian public through prospectus.
- Additional 30,000 debentures to promoters, directors, etc., 9,500 debentures to employees and 1,93,000 debentures to Indian public were allotted to retain oversubscription.
- As per the terms of debenture issue, a portion of Rs 45 of each debenture of Rs 90 was to be converted into 1 equity share of Rs 10 each at a premium of Rs 35 per share as on the date of allotment of the debentures. Accordingly 17,82,500 No. of equity shares allotted as on 25th February, 1992, being the date of allotment of the debentures. The non-convertible portion of Rs 45 of each debenture would be redeemed at par in three equal instalments of Rs 15, Rs 15 and Rs 15 at the end of the 7th, 8th and 9th year respectively from the date of allotment of the debentures.
- In April, the Company has raised Rs. 18 crores by issue of Commercial Paper which has been awarded P1 + rating by Credit Rating and Information Services of India limited (CRISIL) indicating highest standards of safety.
➢ 1993-
During February, the Company issued 69,82,500 Rights equity shares of Rs 10 each at a premium of Rs 15 per share in proportion 1:1 (all were taken-up).
Additional 13,950 shares were allotted to those who had applied for additional shares.
- The Company issued through a Prospectus 44,00,000 No. of equity shares of Rs 10 each for cash at a premium of Rs 140 per share of which the following were reserved for allotment (i) 1,30,000 shares to promoters, directors, their relatives etc., (ii) 25,000 shares to Foreign/Indian Financial Institutions (all were taken up). Of the remaining 50,000 shares reserved for allotment on a preferential basis to employees (only 34,600 shares taken up). Another 5,55,000 shares to NRIs were reserved on non-repatriation basis (all were taken up).
- Balance 36,40,000 shares, along with 15,400 shares not taken up by employees', were offered for public subscription.
- At the 8th Annual General Meeting held on 28th September the Company has reserved 61,22,000 No. of equity shares of Rs 10 each for cash to be allotted at such issue price as may be decided by the board to Foreign Institutional Investors and/or, Foreign and/or Indian Pension and/or Mutual and/or other Funds and/or Institutions, Banks, Companies, Bodies and/or individuals and/or Groups of Individuals.
- The Company's newly set up Corporate Advisory Services Group received several mandates for advice on mergers and acquisitions and re-structuring and some have already been executed with success.
➢ 1994
- The Company entered into a Memorandum of Understanding with KB Currency Advisors Inc. USA to market their Foreign Exchange Fund Management programme.
- 183,65,500 Rights equity shares issued in prop. 1:1. 11,800 No. of equity shares forfeited.
- The Company has received the approval of Securities and Exchange Board of India (SEBI) for setting up a Mutual Fund.
➢ 1995
- The Company issued 4,00,000 - 17% Secured Redeemable Non-convertible Debenture of Rs 2500 each including 96000 - 16% NCDs reserved for NRIs/URB (only 9510 taken-up).
- The Company entered into a joint venture agreement with Ford Credit International Inc. (FCI), a subsidiary of Ford Motor Credit Co., USA. It was proposed to finance all non Ford Passenger cars.
- Kotak Mahindra Capital company became a subsidiary of the Company.
➢ 1996
- The Company's operations were affected by the liquidity crunch, scarcity of resources, sluggishness in the capital markets and the overall deceleration of economic growth.
- The Company has entered into a MOU with the Chubb Corporation, New Jersey, U.S.A., one of the largest American Insurance firms, to develop a Joint Venture dedicated to the conduct of casuallity and property insurance business in India.
- The Company has invested a sum of about Rs 200 lakhs in Matrix Information Services private Ltd. (Matrix), a company formed for providing comprehensive value added information to business and general users. Matrix is a wholly owned subsidiary of the company.
- The Company's public issue of 400000 16-17% Secured Redeemable Non-Convertible Debentures of Rs.2500 each for cash at par aggregating Rs.100 crores in January.
➢ 1997
- In recognition of the Company's prudent funds management, CRISIL has assigned a rating of AA+ to the Company's public issue of Non-Convertible Debentures and P1+ for all short term borrowings up to Rs.35000 lakhs.
- The company has diversified into various activities for which it has set up subsidiaries including broking, capital market activities, auto finance, etc.
➢ 1998
- Kotak Mahindra Asset Management Company Limited (KMAMCL) launched its mutual fund schemes in December.
- The Company it would launch its mutual fund with two schemes -- KGilt Unit Scheme and K30 Unit Scheme.
- Kotak Mahindra Finance, is a joint venture with Goldman Sachs.
➢ 1999
- The `FAA' (pronounced `F double A') rating assigned to the fixed deposit programme of Ford Credit Kotak Mahindra (FCKM) has been reaffirmed.
- With the allotment to the Company of 50,000 equity shares of Rs. 10 each by Kotak Mahindra Trustee Company Limited (KMTCL) on 12th May.
➢ 2000
- Kotak Mahindra Finance Ltd (KMFL) and Chubb Corporation of the US have decided to call off their joint venture for entering the general insurance business in India.
- The Company has decided to set up a venture capital fund with an initial corpus of Rs. 100 crore.
- KMFL has set up a new asset reconstruction division to offer recovery management services to players in the financial services industry.
- The Company Issue of 91,82,500 No. of Equity Shares of Rs. 10/- each for cash at a premium of Rs. 90/- per share aggregating Rs. 91,82,50,000 to the Equity Shareholders of the Company on Rights basis in the ratio of one equity share for every our equity shares held on 15th February.
- Mr. K.K. Sheth has resigned effective from May 8.
- Kotak Securities an affiliate of Kotak Mahindra Finance Ltd., has launched electronic broking services for retail investors.
- The Company has proposed to start-up capital of Rs 150 crore in its life insurance joint venture with Old Mutual, the UK based financial services group.
- The Company proposes to make the necessary applications to the RBI and the Insurance Regulatory and Development Authority for entering the life insurance business.
- Kotak Mahindra Finance Ltd has been assigned Ind AAA rating (indicating highest credit quality) for its Rs.510 million medium term borrowing programme.
- The Bharath Petroleum Corporation Ltd (BPCL) has decided to part ways with Kotak Mahindra, one of the leading domestic financial services company, in its convenient store venture In & Out.
➢ 2002
-KMFL's business has seen a fast growth with the total disbursement of commercial vehicle loan of the company in the last fiscal was tuned to Rs. 250cr.
-RBI has given in-principle approval to Kotak Mahindra Finance Ltd to convert itself into a bank, thereby becoming the first ever non-banking finance company converted into a bank.
-Kotak Mahindra Finance Ltd has mobilised Rs.104.89cr , asset-backed securitisation of commercial vehicle receivables.
-Business Standard and Business Standard digital have ceased to be the subsidiaries of Kotak Mahindra Finance Ltd.
-Mr.C Jayaram and Mr. Dipak Gupta are appointed as whole time Directors on the Board of Kotak Mahindra Finance Ltd.
➢ 2003
-Madison Communications has won the Rs.30cr Kotak Mahindra's media AOR account.
-The proposal of changing the name from 'Kotak Mahindra Finance Ltd' to 'Kotak Mahindra Bank Ltd' and the proposal to change the Authorised capital from 100,00,00,000 divided into 10,00,00,000 equity shares of Rs.10 each has been approved by the company shareholders.
-RBI has granted licence to Kotak Mahindra Finance Ltd to embark on its banking business.
-Kotak Mahindra Bank has entered into an ATM sharing agreement with UTI Bank, which would allow KMB's customer free access to around 800 ATM's.
-Kotak Mahindra Bank has started its operations in New Delhi by inaugurating a branch Cannaught place office.
-The Board of Kotak Mahindra Bank Ltd accepts the resignation of Mr.S.A.A Pinto and Mr.M.R Punja as the Directors of the Bank.
-Kotak Mahindra Investment Co Ltd. PCC a subsidiary of Kotak Mahindra Capital Company has constituted itself from a private company to a public limited co. and has changed its name to 'Global Investment Opportunities Fund Ltd'.
-In reponse to the repo rate cut by theRBI, the Kotak Mahindra Bank has reduced its lending rates in home loans.
➢ 2004
-Kotak Mahindra Bank Limited has informed that the Bank's equity shares will be delisted from The Stock Exchange, Ahmedabad with effect from January 20, 2004.
-Kotak Mahindra Bank sets up branch in Surat
-Kotak Mahindra Mutual Fund has launched Kotak Opportunities, an open-ended equity growth scheme
-Kotak Mahindra Bank inks pact with Reuters
➢ 2006
-Kotak Mahindra joins hand HDFC Bank to share ATMs.
➢ 2008
Kotak Mahindra Bank launched credit cards for its customers.
Senior Management
Kotak Mahindra Group
Mr. Uday S. Kotak
Executive Vice Chairman & Managing Director
Mr. Uday Kotak, , MMS (Masters in Management Studies), aged 50 years, is the Executive Vice-Chairman and Managing Director of the Bank, and its principal founder and promoter. Mr. Kotak is an alumnus of Jamnalal Bajaj Institute of Management Studies.
In 1985, when he was still in his early twenties, Mr Kotak thought of setting up a bank when private Indian banks were not even seen in the game. First Kotak Capital Management Finance Ltd (which later became Kotak Mahindra Finance Ltd), and then with Kotak Mahindra Finance Ltd, Kotak became the first non-banking finance company in India's corporate history to be converted into a bank. Over the years, Kotak Mahindra Group grew into several areas like stock broking and investment banking to car finance, life insurance and mutual funds.
Among the many awards to Mr Kotak's credit are the CNBC TV18 Innovator of the Year Award in 2006 and the Ernst & Young Entrepreneur of the Year Award in 2003. He was featured as one of the Global Leaders for Tomorrow at the World Economic Forum's annual meet at Davos in 1996. He was also featured among the Top Financial Leaders for the 21st Century by Euro money magazine. Most recently, he was named as CNBC TV18 India Business Leader of the Year 2008.
Mr. C Jayaram
Executive Director
Mr. C. Jayaram, aged 53 years, is an Executive Director of the Bank and is currently in charge of the Wealth Management Business of the Kotak Group. An alumnus of IIM Kolkata, he has been with the Kotak Group since 1990 and came on the Kotak board in October 1999.
He also oversees the international subsidiaries and the alternate asset management business of the group. He is the Director of the Financial Planning Standards Board, India. He varied experience of over 25 years in many areas of finance and business, has built numerous businesses for the Group and was CEO of Kotak Securities Ltd. An avid player and follower of tennis, he also has a keen interest in psephology.
THE KOTAK MAHINDRA GROUP:
Kotak Mahindra is one of India's leading financial conglomerates, offering complete financial solutions that encompass every sphere of life. From commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the financial needs of individuals and corporates. The group has a net worth of over Rs. 5,609 crore, employs around 17,100 people in its various businesses and has a distribution network of branches, franchisees, representative offices and satellite offices across 344 cities and towns in India and offices in New York, London, Dubai, Mauritius and Singapore. The Group services around 3.6 million customer accounts.
Awards
Recent achievements
At Kotak Mahindra Group we take a client-centric view and constantly innovate to provide you with the best of services and infrastructure. We have regularly received accolades that stand testimony to our success in this endeavour. Some of our recent achievements are:
Banking
• IR Global Rankings
Best Corporate Governance Practices - Ranked among the top 5 companies in Asia Pacific, 2009
• FinanceAsia
Best Private Bank in India, for Wealth Management business, 2009
• Kotak Royal Signature Credit Card
Was chosen "Product of the Year" in a survey conducted by Nielsen in 2009
• IBA Banking Technology Awards
Best Customer Relationship Achievement - Winner 2008 & 2009
Best overall winner, 2007
Best IT Team of the Year, 4 years in a row from 2006 to 2009
Best IT Security Policies & Practices, 2007
• Euromoney
Best Private Banking Services (overall), 2009
Securities
• CNBC Financial Advisor Awards
Best Performing Equity Broker, 2008 & 2009
• Asiamoney
Best Brokerage Firm in India, 2006, 2007 & 2008
Best Analyst in India, second year in row awarded to Mr. Sanjeev Prasad by investors in the Asiamoney 2008 Brokers Poll
• Thomson Extel Surveys Awards
India's Leading Equity House, 2007
• FinanceAsia
Best Broker in India, 2006 & 2009
• SuperBrands Council of India
Business Superbrand India, 2008
• Institutional Investor
Best Local Broker, 2009
Investment Banking
• IFR Asia
India Equity House of the Year, 2008
• Asiamoney
Best Equity House in India, 2008 & 2009
• Global Finance
Best Investment Bank in India, 2008 & 2009
• Asset Asian Awards
Triple A - Best Domestic Investment Bank - India, 2006, 2007 & 2008
• FinanceAsia
Best Investment Bank, 4 years in a row from 2006 to 2009
Best Equity House in India, 2008
• Global Investor
Asian Asset Manager of the Year, 2009
Ranked the #1 Book Running lead Manager for IPOs and QIPs in CY 2008
Asset Management
• ICRA Mutual Fund Awards 2009
Kotak Liquid (Regular Plan) - Ranked as a Seven Star Fund for its 1 year performance
Kotak Flexi Debt Fund - Ranked as a Five Star Fund for its 1 year performance
Kotak Flexi Debt Fund - Ranked as a Five Star Fund for its 3 year performance
Kotak 30 - Ranked as a Five Star Fund for its 3 year performance
Miscellaneous
• IBA Banking Technology Awards
Best Use of Business Intelligence - up, 2008
Best Enterprise Risk Management - Runner up, 2008
• The Great Places to Work Institute, India
Best Workplaces in India, 2008
• Hewitt
10th Best Employer in India, 2007, 2008 & 2009
• Financial Insights Innovation Award
Best Innovation in Enterprise Security Management in the Asia Pacific Region, 2009
• Frost & Sullivan
Best Passenger Vehicle Finance Company in India, 2006
• CNBC TV 18
Indian Business Leader of the Year, 2008 awarded to Uday Kotak, Executive Vice Chairman & Managing Director
Kotak Group Structure :
[pic]
KOTAK-Achievements:-
• Among the top 5 stock brokers in India (4% of NSE volumes).
• India's No. 1 Registrar & Securities Transfer Agents.
• Among the top 3 Depository Participants.
• Largest Network of Branches & Business Associates.
• ISO 9002 certified operations by DNV.
• Among top 10 Investment bankers.
• Largest Distributor of Financial Products.
• Adjudged as one of the top 50 IT uses in India by MIS Asia.
• Full Fledged IT driven operations.
• Largest mobilize of funds as per PRIME DATABASE.
• First ISO-9002 Certified Registrars in India.
• Ranked as “The Most Admired Registrar” by MARG.
• First depository participant from Andhra Pradesh.
• Handled over 500 public issues as Registrars.
• Handling the Reliance account, which accounts for nearly 10 million account holders?
KOTAK Group-Vision:-
Kotak’s aspiration of establishing itself as an integrated financial services company is propelled by a vision that is shared by its entire work force. Towards this end Kotak has dedicated itself to
1. Have a single-minded focus on investor servicing.
2. Established Kotak as household name for financial services.
3. Set industry standards.
4. Establish a leadership position in all chosen areas of business.
And in the process, become the crucial link between industry, finance and people.
KOTAK Group - Products & Services:-
➢ Life Insurance
➢ Mutual Fund
➢ Car Finance
➢ Securities
➢ Institutional Equities
➢ Investment Banking
➢ Kotak Mahindra International
➢ Kotak Private Equity
➢ Kotak Realty Fund
Products and Services - Specialized
Structured Products:
A structured investment product is generally a pre-packaged investment strategy which is based on derivatives, such as a single security, a basket of securities, options, indices, commodities, debt issuances and foreign currencies. A feature of some structured products is a "principal protection" function which offers protection of principal if held to maturity.
Discretionary Portfolio Management Service (PMS) and Non-Discretionary Portfolio Management Service (NDPMS):
Investing in equities requires time, knowledge and constant monitoring of the market. For those who need an expert to help manage their investments, discretionary Portfolio Management Service (PMS) comes as an answer. The benefits of PMS are:
Your portfolio is tailored after a thorough research backed by the expertise of the Discretionary Portfolio Management Service team.
An experienced team of portfolio managers ensure your portfolio is tracked, monitored and optimized at all times.
Non-Discretionary Portfolio Management Service (NDPMS) is a consultative and transparent method of investing. With NDPMS, the investor is always consulted and informed of all investment decisions, thus giving him total control of the portfolio.
Private Equity:
Private equities are equity securities of unlisted companies. They are generally illiquid and thought of as a long-term investment. Private equity investments are not subject to the same high level of government regulation as stock offerings to the general public. Private equity is also far less liquid than publicly traded stock.
Real Estate:
Real estate funds are founded by a group of real estate professionals/experts to 'manage' property/real estate for the investor. Apart from sale of property, real estate funds also make money from rentals on property owned by them. Some real estate funds may not actually own property as that may involve above-average risk from volatility in property prices. Instead such funds invest in bonds/instruments that are secured by property. The coupon rate that they receive on these bonds/instruments is then distributed to investors/unit holders as dividends.
Estate Planning:
Estate Planning includes creating a plan incorporating your wishes regarding your Estate which provides for effective management, preservation and legacy of the Estate during and after your life time.
The primary goal of Estate Planning is ensuring that the Estate of the individual passes to the Estate owner's intended beneficiaries, often including efficient tax and succession planning and avoiding or minimizing court proceedings in succession.
Commodities:
You may have your debt and equity funds in place, but investing in commodities could just be the one element to improve your portfolio. Commodity trading provides an ideal asset allocation, also helps you hedge against inflation and buy a piece of global demand growth. Investors must understand the demand cycle that commodities go through and should have a view on what factors may affect this. Because commodities prices usually rise when inflation is accelerating, they offer protection from the effects of inflation. Few assets benefit from rising inflation, particularly unexpected inflation, but commodities usually do. As demand for goods and services increases, the price of goods and services usually rises too, as does the price of the commodities used to produce those goods and services. Commodity exposure can be taken either directly through the commodity exchange or through various mutual funds with a mandate of investing in commodities.
Investment Alternatives
Mutual funds
■ Mutual funds are professionally managed portfolios of securities that are owned by the shareholders and managed by a fund management firm. For example, Fidelity branded mutual funds are managed by Fidelity Management & Research, but the portfolios are owned by the shareholders.
■ Each mutual fund has an investment style that is described in its prospectus. Funds may invest in stocks, government bonds, municipal bonds, etc.
Foreign Stocks
■ Many foreign common stocks are listed on U.S. stock exchanges.
■ Some are directly listed (not many) and others trade in the form of an American Depositary Receipt (ADR).
■ ADRs are created by a U.S. Bank (Bank of New York is the largest) and usually contain more than one foreign share per ADR
Closed-end Funds
■ Closed-end funds are like mutual funds, except that they have a fixed number of shares and are traded on a stock exchange.
■ They are traded all day during regular market hours and the price changes continuously throughout a trading session.
■ Closed-end funds may trade at a premium or discount to the net asset value of the underlying portfolio. There are likely many reasons for this, but there is currently no complete explanation for the phenomenon
■ Funds that continually trade at a discount to NAV are occasionally liquidated and the money returned to shareholders. This gives shareholders an immediate gain equal to the amount of the discount.
Corporate Bonds
■ Corporations issue bonds that typically have original maturities of 5 to 30 years, and occasionally as long as 100 years (Coca-Cola and Disney).
■ There are several possible categorizations:
← Debentures – Unsecured debt
← Subordinated Debentures – Unsecured and have lower claim than regular debentures
← Mortgage Bonds – Secured by specific assets
← Income Bonds – Pay interest and principal based on income produced by specific assets
Convertible Securities
■ Convertible bonds and preferred stock are similar to regular bonds and preferred but they also have an embedded call option on the company’s common stock.
■ The owner of a convertible security has the right, but not the obligation, to convert the security into a pre-specified number of common shares at a specific price on or before the maturity date.
■ Part of the value of these securities is therefore derived from the value of the stock. The higher the stock price (among other factors), the more attractive conversion becomes.
Indirect Investments
■ An indirect investment is a professionally managed portfolio in which investors can buy shares. Investors do not have a direct claim on the individual assets in the portfolio.
■ Examples include:
← Mutual Funds (open-end)
← Closed-end funds
← Exchange-traded funds
← Hedge funds
← Real Estate Investment Trusts (REITs)
REVIEW OF LITERATURE
INVESTMENT DECISIONS
There are many different definitions of what ‘investment’ 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 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. Investing means putting your money to work for you
INVESTOR:
An investor is any party that makes an investment.
The term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company. Less frequently, the term is applied to parties who purchase real estate, currency, commodity derivatives, personal property, or other assets.
The term implies that a party purchases and holds assets in hopes of achieving capital gain or cash flow, not as a profession or for short-term income.
Types of investors:
Here is an overlapping, non-exclusive list of investor types:
- Individual investors (including trusts on behalf of individuals, and umbrella companies formed for two or more to pool investment funds)
-Collectors of art, antiques, and other things of value
-Angel investors, either individually or in groups
-Sweat equity investor
Venture capital funds which serve as investment collectives on behalf of individuals, companies, pension plans, insurance reserves, or other funds.
-Investment banks
-Businesses that make investments, either directly or via a captive fund
-Investment trusts, including real estate investment trusts
Mutual funds, hedge funds, and other funds, ownership of which may or may not be publicly traded (these funds typically pool money raised from their owner-subscribers to invest in securities)
Sovereign wealth funds
-Also, investors might be classified according to their styles. In this respect, an important distinctive investor psychology trait is risk attitude.
Investor protection:
The term “investor protection” defines the entity of efforts and activities to observe, safeguard and enforce the rights and claims of a person in his role as an investor. This includes advise and legal action. The assumption of a need of protection is based on the experience that financial investors are usually structurally inferior to providers of financial services and products due to lack of professional knowledge, information and/or experience.
INVESTMENT MANAGERS:
Investment management is the professional management of various securities (shares, bonds and other securities) and assets (e.g., real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds or exchange-traded funds) .
The term asset management is often used to refer to the investment management of collective investments, (not necessarily) whilst the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth management or portfolio management often within the context of so-called "private banking".
The provision of 'investment management services' includes elements of financial statement analysis, asset selection, stock selection, plan implementation and ongoing monitoring of investments. Investment management is a large and important global industry in its own right responsible for caretaking of trillions of dollars, euro, pounds and yen. Coming under the remit of financial services many of the world's largest companies are at least in part investment managers and employ millions of staff and create billions in revenue.
Fund manager (or investment adviser in the United States) refers to both a firm that provides investment management services and an individual who directs fund management decisions.
Industry scope:
The business of investment management has several facets, including the employment of professional fund managers, research (of individual assets and asset classes), dealing, settlement, marketing, internal auditing, and the preparation of reports for clients. The largest financial fund managers are firms that exhibit all the complexity their size demands. Apart from the people who bring in the money (marketers) and the people who direct investment (the fund managers), there are compliance staff (to ensure accord with legislative and regulatory constraints), internal auditors of various kinds (to examine internal systems and controls), financial controllers (to account for the institutions' own money and costs), computer experts, and "back office" employees (to track and record transactions and fund valuations for up to thousands of clients per institution).
Key problems of running such businesses:
Key problems include:
▪ revenue is directly linked to market valuations, so a major fall in asset prices causes a precipitous decline in revenues relative to costs;
▪ above-average fund performance is difficult to sustain, and clients may not be patient during times of poor performance;
▪ successful fund managers are expensive and may be headhunted by competitors;
▪ above-average fund performance appears to be dependent on the unique skills of the fund manager; however, clients are loath to stake their investments on the ability of a few individuals- they would rather see firm-wide success, attributable to a single philosophy and internal discipline;
▪ analysts who generate above-average returns often become sufficiently wealthy that they avoid corporate employment in favour of managing their personal portfolios.
Representing the owners of shares
Institutions often control huge shareholdings. In most cases they are acting as fiduciary agents rather than principals (direct owners). The owners of shares theoretically have great power to alter the companies they own via the voting rights the shares carry and the consequent ability to pressure managements, and if necessary out-vote them at annual and other meetings.
In practice, the ultimate owners of shares often do not exercise the power they collectively hold (because the owners are many, each with small holdings); financial institutions (as agents) sometimes do. There is a general belief that shareholders - in this case, the institutions acting as agents—could and should exercise more active influence over the companies in which they hold shares (e.g., to hold managers to account, to ensure Boards effective functioning). Such action would add a pressure group to those (the regulators and the Board) overseeing management.
However there is the problem of how the institution should exercise this power. One way is for the institution to decide, the other is for the institution to poll its beneficiaries. Assuming that the institution polls, should it then: (i) Vote the entire holding as directed by the majority of votes cast? (ii) Split the vote (where this is allowed) according to the proportions of the vote? (iii) Or respect the abstainers and only vote the respondents' holdings?
The price signals generated by large active managers holding or not holding the stock may contribute to management change. For example, this is the case when a large active manager sells his position in a company, leading to (possibly) a decline in the stock price, but more importantly a loss of confidence by the markets in the management of the company, thus precipitating changes in the management team.
Some institutions have been more vocal and active in pursuing such matters; for instance, some firms believe that there are investment advantages to accumulating substantial minority shareholdings (i.e. 10% or more) and putting pressure on management to implement significant changes in the business. In some cases, institutions with minority holdings work together to force management change. Perhaps more frequent is the sustained pressure that large institutions bring to bear on management teams through persuasive discourse and PR.
On the other hand, some of the largest investment managers—such as BlackRock and Vanguard—advocate simply owning every company, reducing the incentive to influence management teams. A reason for this last strategy is that the investment manager prefers a closer, more open and honest relationship with a company's management team than would exist if they exercised control; allowing them to make a better investment decision.
The national context in which shareholder representation considerations are set is variable and important. The USA is a litigious society and shareholders use the law as a lever to pressure management teams. In Japan it is traditional for shareholders to be low in the 'pecking order,' which often allows management and labor to ignore the rights of the ultimate owners. Whereas US firms generally cater to shareholders, Japanese businesses generally exhibit a stakeholder mentality, in which they seek consensus amongst all interested parties (against a background of strong unions and labour legislation).
Size of the global fund management industry
Conventional assets under management of the global fund management industry fell 19% in 2008, to $61.6 trillion. Pension assets accounted for $24.0 trillion of the total, with $18.9 trillion invested in mutual funds and $18.7 trillion in insurance funds. Together with alternative assets (sovereign wealth funds, hedge funds, private equity funds and exchange traded funds) and funds of wealthy individuals, assets of the global fund management industry totalled around $90 trillion at the end of 2008, a fall of 17% on the previous year. The decline in 2008 followed five successive years of growth during which assets under management more than doubled. Falls on equity markets, poor investment performance, reduced inflow of new funds, and investor redemptions, all contributed to the fall in assets in 2008. The decline reported in US dollars was also exacerbated by the strengthening of the US dollar during the year.
The US remained by far the biggest source of funds, accounting for over a half of conventional assets under management in 2008 or over $30 trillion. The UK was the second largest centre in the world and by far the largest in Europe with around 9% of the global total.
Investment managers and portfolio structures
At the heart of the investment management industry are the managers who invest and divest client investments.
A certified company investment advisor should conduct an assessment of each client's individual needs and risk profile. The advisor then recommends appropriate investments.
Asset allocation
The different asset class definitions are widely debated, but four common divisions are stocks, bonds, real-estate and commodities. The exercise of allocating funds among these assets (and among individual securities within each asset class) is what investment management firms are paid for. Asset classes exhibit different market dynamics, and different interaction effects; thus, the allocation of money among asset classes will have a significant effect on the performance of the fund. Some research suggests that allocation among asset classes has more predictive power than the choice of individual holdings in determining portfolio return. Arguably, the skill of a successful investment manager resides in constructing the asset allocation, and separately the individual holdings, so as to outperform certain benchmarks (e.g., the peer group of competing funds, bond and stock indices)...
Long-term returns
It is important to look at the evidence on the long-term returns to different assets, and to holding period returns (the returns that accrue on average over different lengths of investment). For example, over very long holding periods (eg. 10+ years) in most countries, equities have generated higher returns than bonds, and bonds have generated higher returns than cash. According to financial theory, this is because equities are riskier (more volatile) than bonds which are themselves more risky than cash.
Diversification
Against the background of the asset allocation, fund managers consider the degree of diversification that makes sense for a given client (given its risk preferences) and construct a list of planned holdings accordingly. The list will indicate what percentage of the fund should be invested in each particular stock or bond. The theory of portfolio diversification was originated by Markowitz (and many others) and effective diversification requires management of the correlation between the asset returns and the liability returns, issues internal to the portfolio (individual holdings volatility), and cross-correlations between the returns.
Investment styles
There are a range of different styles of fund management that the institution can implement. For example, growth, value, market neutral, small capitalisation, indexed, etc. Each of these approaches has its distinctive features, adherents and, in any particular financial environment, distinctive risk characteristics. For example, there is evidence that growth styles (buying rapidly growing earnings) are especially effective when the companies able to generate such growth are scarce; conversely, when such growth is plentiful, then there is evidence that value styles tend to outperform the indices particularly successfully.
Performance measurement
Fund performance is the acid test of fund management, and in the institutional context accurate measurement is a necessity. For that purpose, institutions measure the performance of each fund (and usually for internal purposes components of each fund) under their management, and performance is also measured by external firms that specialize in performance measurement. The leading performance measurement firms (e.g. Frank Russell in the USA or BI-SAM in Europe) compile aggregate industry data, e.g., showing how funds in general performed against given indices and peer groups over various time periods.
In a typical case (let us say an equity fund), then the calculation would be made (as far as the client is concerned) every quarter and would show a percentage change compared with the prior quarter (e.g., +4.6% total return in US dollars). This figure would be compared with other similar funds managed within the institution (for purposes of monitoring internal controls), with performance data for peer group funds, and with relevant indices (where performance measurement firms calculate quartile and decile data and close available) or tailor-made performance benchmarks where appropriate. The specialist attention would be paid to the (percentile) ranking of any fund.
Generally speaking, it is probably appropriate for an investment firm to persuade its clients to assess performance over longer periods (e.g., 3 to 5 years) to smooth out very short term fluctuations in performance and the influence of the business cycle. This can be difficult however and, industry wide, there is a serious preoccupation with short-term numbers and the effect on the relationship with clients (and resultant business risks for the institutions).
An enduring problem is whether to measure before-tax or after-tax performance. After-tax measurement represents the benefit to the investor, but investors' tax positions may vary. Before-tax measurement can be misleading, especially in regimens that tax realised capital gains (and not unrealised). It is thus possible that successful active managers (measured before tax) may produce miserable after-tax results. One possible solution is to report the after-tax position of some standard taxpayer.
INVESTMENT ANALYSIS:
Valuation overview
Valuation of financial assets is done using one or more of these types of models:
Discounted Cash Flows determine the value by estimating the expected future earnings from owning the asset discounted to their present value.
Relative value models determine the value based on the market prices of similar assets.
Option pricing models are used for certain types of financial assets (e.g., warrants, put options, call options, employee stock options, investments with embedded options such as a callable bond) and are a complex present value model. The most common option pricing models are the Black-Scholes-Merton models and lattice models.
Common terms for the value of an asset or liability are fair market value, fair value, and intrinsic value. The meanings of these terms differ. The most common sets market price. For instance, when an analyst believes a stock's intrinsic value is greater than its market price, the analyst makes a "buy" recommendation and vice versa. Moreover, an asset's intrinsic value may be subject to personal opinion and vary among analysts.
For a comprehensive discussion on financial valuation see Aswath Damodaran, Investment Valuation, (New York: John Wiley & Sons, 2002).
Business valuation
Businesses or fractional interests in businesses may be valued for various purposes such as mergers and acquisitions, sale of securities, and taxable events. An accurate valuation of privately owned companies largely depends on the reliability of the firm's historic financial information. Public company financial statements are audited by Certified Public Accountants (US), Chartered Certified Accountants (ACCA) or Chartered Accountants (UK and Canada) and overseen by a government regulator. Alternatively, private firms do not have government oversight—unless operating in a regulated industry—and are usually not required to have their financial statements audited. Moreover, managers of private firms often prepare their financial statements to minimize profits and, therefore, taxes. Alternatively, managers of public firms tend to want higher profits to increase their stock price. Therefore, a firm's historic financial information may not be accurate and can lead to over- and undervaluation. In an acquisition, a buyer often performs due diligence to verify the seller's information.
Financial statements prepared in accordance with generally accepted accounting principles (GAAP) often show the values of assets at their historic costs rather than at their current market values. For instance, a firm's balance sheet will usually show the value of land it owns at what the firm paid for it rather than at its current market value. But under GAAP requirements, a firm must show the values of some types of assets—securities held for sale, for instance—at their market values rather than at cost. When a firm is required to show some of its assets at market value, some call this process "mark-to-market." But reporting asset values on financial statements at market values gives managers ample opportunity to slant asset values upward—to artificially increase profits and stock prices. Managers may be motivated to alter earnings upward so they can earn bonuses. Despite the risk of manager bias, investors and creditors prefer to know the market values of a firm's assets—rather than their costs—because the current values give them better information to make decisions.
Main business valuation Method
Discounted cash flows method:
This method estimates the value of an asset based on its expected future cash flows, which are discounted to the present (i.e., the present value). This concept of discounting future monies is commonly known as the time value of money. For instance, an asset that matures and pays $1 in one year is worth less than $1 today. The size of the discount is based on an opportunity cost of capital and it is expressed as a percentage. Some people call this percentage a discount rate.
The idea of opportunity cost can be illustrated in an example. A person with only $100 to invest can make just one $100 investment even when presented with two or more investment choices. If this person is later offered an alternative investment choice, the investor has lost the opportunity to make that second investment since the $100 is spent to buy the first opportunity. This example illustrates that money is limited and people make choices in how to spend it. By making a choice, they give up other opportunities.
In finance theory, the amount of the opportunity cost is based on a relation between the risk and return of some sort of investment. Classic economic theory maintains that people are rational and averse to risk. They, therefore, need an incentive to accept risk. The incentive in finance comes in the form of higher expected returns after buying a risky asset. In other words, the more risky the investment, the more return investors want from that investment.
Using the same example as above, assume the first investment opportunity is a government bond that will pay interest of 5% per year and the principal and interest payments are guaranteed by the government. Alternatively, the second investment opportunity is a bond issued by small company and that bond also pays annual interest of 5%. If given a choice between the two bonds, virtually all investors would buy the government bond rather than the small-firm bond because the first is less risky while paying the same interest rate as the riskier second bond. In this case, an investor has no incentive to buy the riskier second bond.
Furthermore, in order to attract capital from investors, the small firm issuing the second bond must pay an interest rate higher than 5% that the government bond pays. Otherwise, no investor is likely to buy that bond and, therefore, the firm will be unable to raise capital. But by offering to pay an interest rate more than 5% the firm gives investors an incentive to buy a riskier bond.
For a valuation using the discounted cash flow method, one first estimates the future cash flows from the investment and then estimates a reasonable discount rate after considering the riskiness of those cash flows and interest rates in the capital markets. Next, one makes a calculation to compute the present value of the future cash flows.
DECISION TOOLS
In the social sciences, quantitative research refers to the systematic empirical investigation of quantitative properties and phenomena and their relationships. The objective of quantitative research is to develop and employ mathematical models, theories and/or hypotheses pertaining to phenomena. The process of measurement is central to quantitative research because it provides the fundamental connection between empirical observation and mathematical expression of quantitative relationships.
Quantitative research is used widely in social sciences such as sociology, anthropology, and political science. Research in mathematical sciences such as physics is also 'quantitative' by definition, though this use of the term differs in context. In the social sciences, the term relates to empirical methods, originating in both philosophical positivism and the history of statistics, which contrast qualitative research methods.
Qualitative methods produce information only on the particular cases studied, and any more general conclusions are only hypotheses. Quantitative methods can be used to verify, which of such hypotheses are true.
A comprehensive analysis of 1274 articles published in the top two American sociology journals between 1935 and 2005 found that roughly two thirds of these articles used quantitative methods[
Quantitative research is generally made using scientific methods, which can include:
• The generation of models, theories and hypotheses
• The development of instruments and methods for measurement
• Experimental control and manipulation of variables
• Collection of empirical data
• Modeling and analysis of data
• Evaluation of results
In the social sciences particularly, quantitative research is often contrasted with qualitative research which is the examination, analysis and interpretation of observations for the purpose of discovering underlying meanings and patterns of relationships, including classifications of types of phenomena and entities, in a manner that does not involve mathematical models. Approaches to quantitative psychology were first modelled on quantitative approaches in the physical sciences by Gustav Fechner in his work on psychophysics, which built on the work of Ernst Heinrich Weber. Although a distinction is commonly drawn between qualitative and quantitative aspects of scientific investigation, it has been argued that the two go hand in hand. For example, based on analysis of the history of science, Kuhn (1961, p. 162) concludes that “large amounts of qualitative work have usually been prerequisite to fruitful quantification in the physical sciences”. Qualitative research is often used to gain a general sense of phenomena and to form theories that can be tested using further quantitative research. For instance, in the social sciences qualitative research methods are often used to gain better understanding of such things as intentionality (from the speech response of the researchee) and meaning (why did this person/group say something and what did it mean to them?)(Kieron Yeoman).
Although quantitative investigation of the world has existed since people first began to record events or objects that had been counted, the modern idea of quantitative processes have their roots in Auguste Comte's positivist framework.
Statistics in quantitative research
Statistics is the most widely used branch of mathematics in quantitative research outside of the physical sciences, and also finds applications within the physical sciences, such as in statistical mechanics. Statistical methods are used extensively within fields such as economics, social sciences and biology. Quantitative research using statistical methods starts with the collection of data, based on the hypothesis or theory. Usually a big sample of data is collected - this would require verification, validation and recording before the analysis can take place. Software packages such as SPSS and R are typically used for this purpose.
Causal relationships are studied by manipulating factors thought to influence the phenomena of interest while controlling other variables relevant to the experimental outcomes. In the field of health, for example, researchers might measure and study the relationship between dietary intake and measurable physiological effects such as weight loss, controlling for other key variables such as exercise. Quantitatively based opinion surveys are widely used in the media, with statistics such as the proportion of respondents in favor of a position commonly reported. In opinion surveys, respondents are asked a set of structured questions and their responses are tabulated. In the field of climate science, researchers compile and compare statistics such as temperature or atmospheric concentrations of carbon dioxide.
Empirical relationships and associations are also frequently studied by using some form of General linear model, non-linear model, or by using factor analysis. A fundamental principle in quantitative research is that correlation does not imply causation. This principle follows from the fact that it is always possible a spurious relationship exists for variables between which covariance is found in some degree. Associations may be examined between any combination of continuous and categorical variables using methods of statistics.
Measurement in quantitative research
Views regarding the role of measurement in quantitative research are somewhat divergent. Measurement is often regarded as being only a means by which observations are expressed numerically in order to investigate causal relations or associations. However, it has been argued that measurement often plays a more important role in quantitative research. For example, Kuhn argued that within quantitative research, the results that are shown can prove to be strange. This is because accepting a theory based on results of quantitative data could prove to be a natural phenomenon. He argued that such abnormalities are interesting when done during the process of obtaining data, as seen below:
When measurement the parts from theory, it is likely to yield mere numbers, and their very neutrality makes them particularly sterile as a source of remedial suggestions. But numbers register the departure from theory with an authority and finesse that no qualitative technique can duplicate, and that departure is often enough to start a search (Kuhn, 1961, p. 180).
In classical physics, the theory and definitions which underpin measurement are generally deterministic in nature. In contrast, probabilistic measurement models known as the Rasch model and Item response theory models are generally employed in the social sciences. Psychometrics is the field of study concerned with the theory and technique for measuring social and psychological attributes and phenomena. This field is central to much quantitative research that is undertaken within the social sciences.
Quantitative research may involve the use of proxies as stand-ins for other quantities that cannot be directly measured. Tree-ring width, for example, is considered a reliable proxy of ambient environmental conditions such as the warmth of growing seasons or amount of rainfall. Although scientists cannot directly measure the temperature of past years, tree-ring width and other climate proxies have been used to provide a semi-quantitative record of average temperature in the Northern Hemisphere back to 1000 A.D. When used in this way, the proxy record (tree ring width, say) only reconstructs a certain amount of the variance of the original record. The proxy may be calibrated (for example, during the period of the instrumental record) to determine how much variation is captured, including whether both short and long term variation is revealed. In the case of tree-ring width, different species in different places may show more or less sensitivity to, say, rainfall or temperature: when reconstructing a temperature record there is considerable skill in selecting proxies that are well correlated with the desired variable.
Quantitative methods
Quantitative methods are research techniques that are used to gather quantitative data - information dealing with numbers and anything that is measurable. Statistics, tables and graphs, are often used to present the results of these methods. They are therefore to be distinguished from qualitative methods.
In most physical and biological sciences, the use of either quantitative or qualitative methods is uncontroversial, and each is used when appropriate. In the social sciences, particularly in sociology, social anthropology and psychology, the use of one or other type of method has become a matter of controversy and even ideology, with particular schools of thought within each discipline favouring one type of method and pouring scorn on to the other. Advocates of quantitative methods argue that only by using such methods can the social sciences become truly scientific; advocates of qualitative methods argue that quantitative methods tend to obscure the reality of the social phenomena under study because they underestimate or neglect the non-measurable factors, which may be the most important. The modern tendency (and in reality the majority tendency throughout the history of social science) is to use eclectic approaches. Quantitative methods might be used with a global qualitative frame. Qualitative methods might be used to understand the meaning of the numbers produced by quantitative methods. Using quantitative methods, it is possible to give precise and testable expression to qualitative ideas. This combination of quantitative and qualitative data gathering is often referred to as mixed-methods research.
Examples of quantitative research:
Research that consists of the percentage amounts of all the elements that make up Earth's atmosphere.
Survey that concludes that the average patient has to wait two hours in the waiting room of a certain doctor before being selected.
An experiment in which group x was given two tablets of Aspirin a day and Group y was given two tablets of a placebo a day where each participant is randomly assigned to one or other of the groups.
The numerical factors such as two tablets, percent of elements and the time of waiting make the situations and results quantitative.
Valuation of a distressed company:
Additional adjustments to a valuation approach, whether it is market-, income- or asset-based, may be necessary in some instances. These involve:
• excess or restricted cash
• other non-operating assets and liabilities
• lack of marketability discount
• control premium or lack of control discount
• above or below market leases
• excess salaries in the case of private companies.
There are other adjustments to the financial statements that have to be made when valuing a distressed company. Andrew Miller identifies typical adjustments used to recast the financial statements that include:
• working capital adjustment
• deferred capital expenditures
• cost of goods sold adjustment
• non-recurring professional fees and costs
• certain non-operating income/expense items.
Valuation of intangible assets:
Valuation models can be used to value intangible assets such as patents, copyrights, software, trade secrets, and customer relationships. Since few sales of benchmark intangible assets can ever be observed, one often values these sorts of assets using either a present value model or estimating the costs to recreate it. Regardless of the method, the process is often time consuming and costly.
Valuations of intangible assets are often necessary for financial reporting and intellectual property transactions.
Stock markets give indirectly an estimate of a corporation's intangible asset value. It can be reckoned as the difference between its market capitalisation and its book value (by including only hard assets in it).
Valuation of mining projects:
In mining, valuation is the process of determining the value or worth of a mining property. Mining valuations are sometimes required for IPOs, fairness opinions, litigation, mergers & acquisitions and shareholder related matters. In valuation of a mining project or mining property, fair market value is the standard of value to be used. The CIMVal Standards are a recognised standard for valuation of mining projects and is also recognised by the Toronto Stock Exchange (Venture).
ALL ABOUT LIFE INSURANCE INVESTMENT
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.
Types of life Insurance:
Most of the products offered by Indian Life insurers are developed and structured around these “basic” policies and are usually an extension or a combination of these policies. So, the different types of insurance policies are
1.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 in such a policy. It is a 100 percent risk cover.
2.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 benefits.
3.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.
4.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.
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.
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
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
ALL ABOUT REAL ESTATES INVESTMENT
Before the stock market and mutual funds became popular places for people to put their investment dollars, investing in real estate was extremely popular. We still maintain that investing in real estate is not just for land barons or the rich and famous. As a matter of fact, the home we buy and live in is often our biggest investment.
Flying high on the wings of booming real estate, property in India has become a dream for every potential investor looking forward to dig profits. All are eyeing Indian property market for a wide variety of reasons It’s ever growing economy, which is on a continuous rise with 8.1 percent increase witnessed in the last financial year. The boom in economy increases purchasing power of its people and creates demand for real estate sector.
Once you have made the decision to become a homeowner, it usually means you will have to borrow the largest amount you have ever borrowed to purchase something. This realization may make you want to bury your head in the sand and sign on the dotted line, but you shouldn’t. For most people, this is the largest purchase they will ever make during their
Life time, and this makes it all the more important to gather as much knowledge as possible about what they’re getting into.
You can also use real estate, whether land or building strictly as investment vehicles, and depending on your individual situation, you can do it on a grand or smaller scale. Let’s look at the world of real estate and the investing options available.
Home as an Investment:
Owing a home is the most common form of real estate investing. Let us show you how your home is not just the place you live, but its also perhaps your largest and safest investment as well.
Investment Real Estate:
The in and outs of investing in real estate and whether it’s the right investment vehicle for you. Whether you are thinking in terms of renting out your first home when you move on to a bigger one or investing in a building full of apartments we will explain what you need to know.
Real Estate & Property:
Usually, the first thing you look at when you purchase a home is the design and the layout. But if you look at the house as an investment, it could prove very lucrative years down the road. For the majority of us, buying a home will be the largest single investment we make in our lifetime. Real estate investing doesn’t just mean purchasing a house- it can include vacation homes, commercial prosperities, land (both developed and undeveloped), condominiums and many other possibilities.
When buying property for the purpose of investing, the most important factor to consider is the location. Unlike other investments, real estate is dramatically affected by the condition of the immediate area surrounding the property and other local factors. Several factors need to be considered when assessing the value of real estate. This includes the age and condition of the home, improvements that have been made, recent sales in the neighborhood, changes to zoning regulations etc. You have to look at the potential income a house can produce and how it compares to others houses in the area.
How to Buy or Sell it?
Real estate is almost exclusively bought through real estate agents or Brokers their compensation usually is a percentage of the purchase price of the property. Real estate can also be purchased directly7 from the owner, without the assistance of a third party. If you find buying property too expensive, then consider investing in real estate investment trusts (REITs) which are discussed in the next section.
Rental Property:
You can buy real estate for rental purposes and receive an income stream from renters. You may also be able to eventually sell the property for more than you bought it for and make a good profit. Although, don’t forget that you will now be a landlord who may have to deal with nonpaying tenants and destructive tenants. Even if you have the worlds best tenants, you still have to deal with upkeep of the property and any problems that come up. Some investors hire a property manager or management company to manage their investment real estate. This is fine but don’t forget to factor in the management fees when you are calculating your profit from the investment.
Please remember that rental real estate is subject to different tax rules than the home you reside in. you may be able to take tax deductions for losses, capital expenditure and depreciation if you meet certain requirements, but other deductions specific to principle residence may not be available to you.
Unimproved Land:
Unimproved land is difficult investment to make a profit in. Unless you manage to buy a piece of land that is extremely desirable at a good price and are certain that it is not barred from profitable use for the neighborhood it is located in (because of zoning or other issues), it will probably cost you more to own the property than you will ever make selling it (Remember you will still have to pay property taxes and will also likely incur other upkeep costs on the land and you won’t be receiving any income from rents).
If you have some sort of inside scoop on a piece of land (for example the person in the house on the lot next to the land is a wealthy recluse and does not want the property built upon so you can name your price to sell it to him) or plan on developing it yourself (building you home on a piece of property next to a lake), in that case it may be a good investment.
Second Homes:
Second Homes or vacation homes should be purchased primarily for vacation purposes not investment purposes. Most people end up with a loss on their vacation home properties because even if you can manage to rent the home, the costs of owning the home almost always exceed the rental income it bring in.
Data collection methods
Data Collection is an important aspect of any type of research study. Inaccurate data collection can impact the results of a study and ultimately lead to invalid results.
Data collection methods for impact evaluation vary along a continuum. At the one end of this continuum are quantatative methods and at the other end of the continuum are Qualitative methods for data collection.
Data collection mainly in two types
1) Primary data
2) Secondary data
Primary data
In primary data collection, you collect the data yourself using methods such as interviews and questionnaires. The key point here is that the data you collect is unique to you and your research and, until you publish, no one else has access to it.
There are many methods of collecting primary data and the main methods include:
• questionnaires
• interviews
• focus group interviews
• observation
• case-studies
• diaries
• critical incidents
• Portfolios.
Secondary data
Secondary data is data collected by someone other than the user. Common sources of secondary data for social science include censuses, surveys, organizational records and data collected through qualitative methodologies or qualitative research. Primary data, by contrast, are collected by the investigator conducting the research.
Secondary data analysis saves time that would otherwise be spent collecting data and, particularly in the case of quantitative data, provides larger and higher-quality databases than would be unfeasible for any individual researcher to collect on their own. In addition to that, analysts of social and economic change consider secondary data essential, since it is impossible to conduct a new survey that can adequately capture past change and/or developments.
Sources of secondary data
As is the case in primary research, secondary data can be obtained from two different research strands:
Quantitative: Census, housing, social security as well as electoral statistics and other related databases.
Qualitative: Semi-structured and structured interviews, focus groups transcripts, field notes, observation records and other personal, research-related documents.
A clear benefit of using secondary data is that much of the background work needed has been already been carried out, for example: literature reviews, case studies might have been carried out, published texts and statistic could have been already used elsewhere, media promotion and personal contacts have also been utilized.
DATA ANALYSIS AND INTERPRETATION
Equity returns at a glance:
If we have a look at equity returns of the past 9 years it is like this:
SENSEX:
|YEAR |INDEX* |ABSOLUTE |PERCENTAGE (%) |
|2001 |3262 |0 |0 |
|2002 |3377 |115 |3.52 |
|2003 |5838 |2461 |72.88 |
|2004 |6602 |764 |13.08 |
|2005 |9397 |2795 |42.34 |
|2006 |13786 |4389 |46.70 |
|2007 |13908 |122 |0.88 |
|2008 |20323 |6415 |31.57 |
|2009 |14324 |5999 |29.51 |
[pic]
Interpretation:
From the above chart, it can be seen that during the period 2001-02 there is a gradual decrease in the index value of the company and there is a –ve value of absolute & percentage value. During the period 2008-2009 it is gradually decreased in the index value of the company.
BSE100:
|YEAR |INDEX |ABSOLUTE |PERCENTAGE |
|2001 |1559 |0 |0 |
|2002 |1664 |107 |6.88 |
|2003 |3076 |1412 |84.74 |
|2004 |3580 |506 |16.46 |
|2005 |4953 |1373 |38.32 |
|2006 |6982 |2029 |40.96 |
|2007 |7026 |44 |0.65 |
|2008 |9132 |2106 |23.06 |
|2009 |6187 |2945 |31.00 |
[pic]
Interpretation:
From the above chart, it can be seen that during the period 2001-02 there is a
gradual decrease in the index value of the company and there is a –ve value of
absolute percentage value. During the period 2002-2008 it is gradually increased
but in 2009 due to financial crisis the index value of the company decreased.
BSE200:
|YEAR |INDEX* |ABSOLUTE |PERCENTAGE (%) |
|2001 |340 |0 |0 |
|2002 |394 |53 |15.54 |
|2003 |766 |372 |94.41 |
|2004 |884 |118 |15.66 |
|2005 |1186 |300 |33.86 |
|2006 |1655 |469 |39.54 |
|2007 |1662 |7 |0.42 |
|2008 |2160 |498 |23.05 |
|2009 |1522 |638 |29.57 |
[pic]
Interpretation:
From the above chart, it can be seen that during the period 2001-02 there is a
gradual decrease in the index value of the company and there is a –ve value of
absolute & percentage value. During the period 2002-2008 it is gradually increased
but in 2009 due to financial crisis in the index value of the company decreased.
BSE500:
|YEAR |INDEX* |ABSOLUTE |PERCENTAGE |
|2001 |1005 |0 |0 |
|2002 |1176 |171 |17.01 |
|2003 |2368 |1192 |101.20 |
|2004 |2779 |413 |17.46 |
|2005 |3795 |1016 |36.56 |
|2006 |5268 |1473 |38.86 |
|2007 |5295 |25 |0.47 |
|2008 |6883 |1588 |23.07 |
|2009 |5084 |1799 |29.14 |
[pic]
Interpretation:
From the above chart, it can be seen that during the period 2001-02 there is a
gradual decrease in the index value of the company and there is a –ve value of
absolute & percentage value. During the period 2002-2009 it is gradually increased
in the index value of the company.
Gold returns at a glance:
The trend of gold prices in India in the last few years is given in the following table.
|YEAR |PRICE ($)* |ABSOLUTE |PERCENTAGE (%) |
|2001 |278 |- |- |
|2002 |346 |68 |24.46 |
|2003 |414 |68 |19.65 |
|2004 |438 |24 |5.79 |
|2005 |517 |79 |18.03 |
|2006 |517 |79 |18.03 |
|2007 |636 |119 |23.01 |
|2008 |995 |359 |36.08 |
|2009 |1060 |65 |6.83 |
[pic]
Interpretation:
From the above chart , it can be seen that during the period 2001-04 it is gradually increased price value of the company and there is a +ve value of absolute & percentage value.During the period 2005-2006 it maintained the same price level of
Rs 517 in the company.
Mutual Funds returns on magnum tax gain:
| |Magnum Tax Gain |
|NAV |47.7 |
|1 Yr |107.70 |
|2 Yr |93.40 |
|3 Yr |112.30 |
[pic]
Interpretation:
The NAV of magnum is 47.7 cr. 1st year return was 107.7 cr, return in 2nd year was 93.40 cr and 3rd year return was 112.30. The first year return was good than that of the second year return but in third year the return was maximum
Mutual Funds returns on principal tax gain:
| |Principal tax gain |
|NAV |74.60 |
|1 Yr |91.20 |
|2 Yr |59.30 |
|3 Yr |73.70 |
[pic]
Interpretation:
The NAV of magnum is 74.60 cr. 1st year return was 91.20 cr, return in 2nd year was 59.30 cr and 3rd year return was 73.70. The first year return was good than that of the second year return but in third year the return does not exceed the first year return.
Mutual Funds returns on HDFC tax saver:
| |HDFC Tax Saver |
|NAV |138.50 |
|1 Yr |104.60 |
|2 Yr | 83.60 |
|3 Yr |91.60 |
[pic]
Interpretation:
The NAV of magnum is 138.50 cr. 1st year return was 104.60 cr, return in 2nd year was 83.60 cr and 3rd year return was 91.60. The first year return was good than that of the second year return but in third year the return does not exceed the first year return.
➢ COMPARISON OF MUTUAL FUND returns:
|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 |
|HDFC Tax Saver |138.50 |104.60 |83.60 |91.60 |
[pic]
Interpretation:
During the NAV period, HDFC tax saver has the highest value of 138.50 and
magnum tax gain has the lowest value of 47.7.In the same way in the 1st year
magnum tax gain has the highest value of 107.70 and Principal tax savings has
lowest value of 91.20.In the 2nd year magnum tax gain has the highest value of
93.40 and principal tax savings has the lowest value of 59.30.In the 3rd year
magnum tax gaining has the highest value of 112.30 and HDFC tax saver has the
lowest value of 91.60.
Equity balanced:
|EQUITY BALANCED |NAV |1 YR |2 YR |3 YR |
|Magnum Balanced |32.40 |74.60 |53.40 |63.70 |
|religare Balanced |23.80 |71.10 |49.10 |52.80 |
|HDFC Prudential |96.30 |61.80 |42.90 |55.90 |
[pic]
Interpretation:
During the NAV period, HDFC Prudential has the highest value of 96.30 and Religeare
Balanced has the lowest value of 23.80.In the same way in the 1st year magnum balanced
has the highest value of 74.60 and HDFC Prudential has lowest value of 61.80.In the 2nd
year magnum balanced has the highest value of 53.40 and HDFC prudential has the lowest
value of 42.90.In the 3rd year magnum balanced has the highest value of 63.70 and
Religeare balanced has the lowest value of 52.80.
FINDINGS OF THE STUDY
• Evaluating an investment option is never an attempt to run down the
credentials of other instruments in the block.
• Mutual funds are an ideal investment 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 instrument that truly fits his needs.
• Abandoning the marketing tricks, I stretched out my analysis with a
ranking scale of 10 as a fundamental figure crunching exercise.
Gradually, I have identified and categorized all the investment
requirements into three broad heads to seize the flaws into procedure.
And in a remarkable finding, mutual funds appears to act as a treat to
all embodies investment at its best and widely addresses the savings
component of safety to suite your income tolerance.
• The basic requirements an investor looks for in an investment 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 options.
• Coming to mutual funds, though the dividends are being taxed
in the hands of the investor this year, there is another route to save to
tax the growth option or the systematic withdrawal plans.
• 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 funds need huge
investment to start off, but one can start investing in mutual funds
with a nominal amount of Rs.500/- in case of systematic investment
plan.
SUGGESTIONS (modify)
Before investing your hard earned money one should take care of the following:
1. Obtain written documents explaining the investment.
2. Read and understand such documents.
3. Verify the legitimacy of the investment.
4. Find out the costs and benefits associated with the investment.
5. Assess the risk-return profile of the investment.
6. Know the liquidity and safety aspects of the investment.
7. Ascertain if it is appropriate for your specific goals.
8. Compare these details with other investment opportunities available.
9. Examine if it fits in with other investments you are considering or you
have already made.
10. Deal only through an authorised intermediary.
11. Seek all clarifications about the intermediary and the investment.
12. Explore the options available to you if something were to go wrong,
and then, if satisfied, make the investment.
CONCLUSION
There are several investments 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 investments try hard to find a single asset. 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 investments in order to reduce risk.
Things changed in early may 2006 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 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. My gut feeling is that a large weightage in equity and in real estate will pay off during 2007-2008. But don’t exit debt or sell off your gold. Try and buy more in the way of equity and research real estate options in small towns/suburbs.
Regardless of your means of method, keep in mind that there is no generic diversification model that will meet the needs of every investor. Your personal time horizon, risk tolerance, investment goals, financial means, and level of investment experience will play a large role in dictating your investment experience will play a large role in dictating your investment mix. Start by figuring out the mix of stock, bonds and cash that will be required to meet your needs. From there determine exactly which investments to in completing the mix, substituting traditional assets for alternatives as needed.
BIBLIOGRAPHY
Websites:
kotak
.com
Text Books:
“Investment Analysis and Portfolio Management” - Prasanna Chandra
“Investments Management” - Sharpe & Alexander
“Security Analysis and Portfolio Management” - Fischer & Jordan
1. Prasanna Chandra, Financial Management: Theory and Practice, 7/e, 2008, Tata McGraw-Hill Education.
Magazines:
Business world
Business Today
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