PROJECT REPORT ON

“INVESTMENT AVENUES FOR MIDDLE CLASS AND

SMALL INVESTORS”

EXECUTIVE SUMMARY

This project focuses on the various aspects in connection to ‘Investment Avenues for a Middle Class
Investor and small investors ’. Most Indians identify themselves as middle class even if they are not
empirically. It depends upon the standard of living of people which is directly associated with their
income and cost of living. In other words, if their income is sufficient enough to meet the cost of
living in the place they live, they can indeed be counted among the middle-class. An investor, before
committing his capital to any investment vehicle, should consider his financial needs, goals and
aspirations as well as the risk profile. On the basis of these factors, the retail investor can consider
investing his corpus in several areas like Bank Deposits, Post office savings, SSY, Chit funds,
Insurance, Mutual funds, NPS, NSC, Property and so on. Investing wisely in these avenues by linking
it to his financial objectives would fetch him good returns.

OBJECTIVES OF STUDY

To find out the saving and investing habits among the middle class and small investors
To study the various investment avenues available for middle class and small investors
create awareness about various investment options that would help a retail investor.
 SCOPE OF STUDY
The study deals with the various avenues for investment available to middle class investors and how
effectively these investment options are used by the middle class around us. The study has been
carried out through a questionnaire that was circulated among 50 middle class and small
respondents. The respondents are classified on the basis of the tax percentage that they are paid.
Therefore the analysis and interpretation of the data is based on the responses obtained from these
50 respondents and the recommendations are framed keeping in mind the revelations made by them
with respect to their investment decisions.

Research Methodology
The information provided in this project has been collected majorly from Primary and Secondary
sources:
Primary data: The primary data has been gathered through a questionnaire carrying a set of 15
questions. The questions were framed in order to obtain answers that would fulfil the objectives of
study.
Secondary data: The secondary data has been gathered from various sites, newspapers, books and
supplementary booklets. The secondary data gives a brief idea about the various investment avenues
and several aspects associated with each of these avenues.
 TABLE OF CONTENT

CHAPTER TOPIC REMARK

NO

1 Introduction

1.1 What is Investment?

1.2 Elements or Attributes of Investment

1.3 Investment Process

1.4 Criteria or Objective of Investment

1.5 Investment strategies

1.6 Types of risk

1.7 Investment is not a Gambling

1.8 Investment vs Gambling

1.9 Types of Investors

2 Various Investment Avenues for Middle class Investors

2.1 Bank Deposits

2.2 Post Office Saving

2.3 Sukanya Samruddhi Yojana

2.4 Insurance

2.5 National Pension Scheme

2.6 Chit Funds

2.7 Public Provident Fund

2.8 National Saving Certificate(NSC)

2.9 Mutual Fund

2.10 Property

3 Essential Funds for Small Investors

3.1 Diversified Equity Fund

3.2 ELSS(Equity Linked Saving Scheme)

3.3 Gold Fund

3.4 Short Term Income Fund

3.5 Fixed Maturity Plan

4 Literature Review

5 Data Analysis and Interpretation

6 Suggestion and Recommendation

7 Conclusion

8 Annexure

9 Biblography
 CHAPTER 1: INTRODUCTION

• Investment

Investment is the employment (application) of funds on assets with the aim of earning
income or capital appreciation. Present consumption is sacrificed to get return in the
future. Ideally it means employment of funds with the aim to achieve additional income
or growth in the invested amount over the period of time. Thus, investment may be
defined as ‘’ a commitment of funds made in the expectation of some positive rate of
return’’ expectation of return is an essential element of the investment. Since the return
is expected to be realised in future. There is possibility that return actually realized is
lower than the return expected to be realised. This possibility of variation in the actual
return is known as investment risk. Thus every investment involves return and risk.

There are two main concepts of investment

• Economic investment
• Financial investment

• Economic investment – when a person invests his fund for the acquisition of some
physical asset, say a building or equipment such type of investment is called as
economic investment. Economic investment can be defined as the investment that
contributes to the net additional to the capital stock of the society. Capital stock refers
to the goods and services that are used in the production of other goods and services.

• Financial investment- when a person invests his funds for the acquisition of some
financial asset like shares, debentures, insurance policies, mutual funds, government
bonds etc. such investment are known as financial investment. Financial investment is
the commitment of a person’s fund to derive future income in the form of interest,
dividend, premium, pension benefits or appreciation in the value of capital. Such
investment generates financial assets.
• Elements /Attributes of Investment

1. Return: Investments are made with the primary objective of deriving returns out of it.
Thus, a good rate of return from an investment is the first and foremost condition for
 effective investment. The returns may be received in the form of Annual Incomes
(Dividends, Interests) as well as capital gains or loss (difference between selling price
and purchasing price).
2. Risk capacity: Risk of an investment is related with the probability of actual returns
becoming less than the expected returns. It can be termed as the variability in the
expected return. Risk may relate to loss of capital, loss of interest/dividend, delay in
repayment of capital, variability of returns, etc. Risk and returns of an investment are
related to each other. Ideally higher the risk, higher is the return expected. Although the
degree of risk varies from investment to investment, it is important to determine how
much risk is involved in the investment.
3. Safety: Safety in an investment implies the certainty of return of capital without loss of
money or time. Safety is another feature which an investor desires from his investment.
Every investor expects to get back his capital on maturity without loss and without
delay. Investments done with the government assures more safety than with the private
sector.
4. Liquidity: Liquidity means marketability of an investment. Liquidity in an investment
refers to the ability of an investment to be converted in cash by sale or transfer.
5. Tax Benefits: The investors may also desire to get the benefit of tax exemption from
the investments. Some investments offer tax benefits while others do not. Investments
can offer tax benefits at the time of initial deposits. Investments can offer tax benefits
on returns generated. Investments can offer tax benefits when it is redeemed on
maturity.
6. Time gap: The time gap means duration. Duration of an investment particularly how
long it may take to generate healthy rate of return is a vital consideration for the
investor. The investment horizon should match the period that your funds must be
invested for or how long it would take to generate a desired return
Investment Process

1. Identifying Investment Objective: This step can be considered as one of the most
important step in investment process. The investor needs to identify his true financial
needs and objectives, both in the short run & in the long run. Some of the common
objectives of investors are returns, capital appreciation, safety, liquidity and tax benefit.
Moreover, the constraints resulting from the investment such as liquidity, time horizon,
tax etc. should also be considered.
2. Choice of Asset Mix: The most important decision in the investment process is the
asset mix decision. In a broader sense, asset mix comprises of combination of various
assets in different proportions. The appropriate asset mix depends mainly on the risk
tolerance of the investor and the time horizon of investment.
3. Formulation of Portfolio Strategy: Once a certain asset mix is chosen, an appropriate
portfolio strategy has to be chalked out. This involves creating a strategy that combines
the investor’s goals and objectives with current financial market and economic
conditions. An investment strategy should be such that it suits the investor’s needs and
provides maximum returns at minimum risk.
4. Selection of Securities: The next step is selection of securities in which investment
needs to be made. Generally, investors are actively involved in selection of securities.
Some of the factors that are taken in consideration while selecting the securities are
yield to maturity, credit rating, term to maturity, tax shelter and liquidity.
5. Portfolio Execution: This is the phase of portfolio management which is concerned
with implementing the portfolio plan by buying and / or selling specified securities in
given amounts.
6. Portfolio Revision: Both markets and investors needs change as time changes. In
response to such changes, periodic rebalancing of the portfolio is required.
7. Performance Evaluation: The performance of a portfolio should be evaluated
periodically. The key dimensions of portfolio performance evaluation are risk and
return and the key issue is whether the portfolio return is equivalent with its risk
exposure. Such a review may provide useful feedback to improve the quality of the
portfolio management process on a continuing basis.

Criteria / objective for investment

1. Maximizing Returns: Investments are made with the primary objective of deriving
returns out of it. Thus, one of the main objectives of an investor is to earn maximum
returns out of the investment. Returns may be further sub divided into two parts as
follows:
 R etu rns

Annual Income Capital Gains

• Annual income includes periodic receipts / regular receipts in the form of interest and
dividends.
• Capital Gains refer to increase in the value of investment over a period of time. Capital
Gains are the profits that an investor receives when he or she sells the capital asset
(Investment) for a price that is higher than the purchase price.
For example: If a share of XYZ company was purchased at Rs.100 and was sold out
later at Rs.250, then the capital gain will be Rs.150 (selling price – purchase price).
However, capital gain cannot be realized until the asset is sold.
2. Minimizing Risk: Risk of an investment is related with the profitability of the actual
return becoming less than expected return. It can be termed as variability in return.
Risk may relate to loss of capital, loss of interest/dividend, delay in repayment of
capital, variability of returns, etc. Investors, in general, desire to earn as large return
as possible with the minimum risk. The objective is maximization of returns but at
minimum risk.
3. Safety: Safety in an investment implies the certainty of return of capital without loss
of money or time. Safety is another feature which an investor desires from his
investment. Every investor expects to get back his capital on maturity without loss and
without delay. Investments done with the government assures more safety than with
the private sector.
4. Liquidity: Liquidity means marketability of an investment. Liquidity in an investment
refers to the ability of an investment to be converted in cash by sale or transfer. In
simple terms, liquidity means to get your money whenever you need it. If the
investment could be converted into cash without much loss of time, it would help the
investor to meet the emergencies.
5. Tax Benefit: The investors may also desire to get the benefit of tax exemption from
the investments. Some investments offer tax benefits while others do not. Tax benefits
available to an investment can be in one of the following form:
 Investments can offer tax benefits at the time of initial deposits.
 Investments can offer tax benefits on returns generated.
 Investments can offer tax benefits when it is redeemed on maturity.

Various investment strategies

Start Early:

If you invest money starts early so that your money grows faster. It is good idea to start
with the simple investment options as you learn rest of it in due course.

Create Emergency Fund First:

A little money should always be kept aside in case of emergencies. It is advisable to

have cash reserves equal to first 6 month of your income. The emergency fund can save
you in the emergency situations.

Consider Your Risk Bearing Capacity:

Measure your risk bearing capacity- age and risk appetite should play key deciding roles
before selecting investment options. For example, for people close to their retiring age,
debt instrument are better than equities as they have comparatively lower risk bearing
threshold. Younger people have the capacity to bear and absorb losses, risk appetite and
the time to hold onto their investment. Hence equities are a better option for them.

Beat Inflation:

Remember a risk of inflation always exists. Before investing must keep in mind that
along with their money growing the cost of living will also increase. Hence along with
their saving pooling the expenditure will also significantly increase over time.

Decide period plans:

One’s age, risk bearing appetite and patience should be the deciding factors while
determining the period plans.

Spread Diversified Scripts:

Spread your money across a range of investment. You can invest in bank, FD, NSC<
KVP, Gold, Silver and so forth. Some of these have tax breaks that will make them of
an advantage to you. You can also invest in stocks, bonds mutual funds and real estate.

Make Investment A Habit:

Develop a habit of regularly investing a part of your savings. You cannot just sit back
and relax or forget about it.

Review & Monitor Investment

Once shouldn’t blindly invest and leave it. We should always keep track of all our
investment and regularly review and evaluate our options. One can review, daily,
monthly, quarterly, yearly etc. it is an on –going process.
Various types of risk

Interest rate risk:

Interest rate risk is concerned with a declining in the price of bond due to increase in
the market rates (interest rate) and increase in the price of bond due to decrease in the
interest rate.

Market risk:

The risk of loss caused by adverse changes in the market variable such as interest rate,
foreign exchange rate, equity prices and commodity price. RBI defined the market risk
as the possibility of loss to a bank caused by the changes in the market rates / prices.
Market risk is the possibility for investors to experience losses due to factors that affect
the overall market performance of the financial market in which he has invested money.
Market risk also called as “systematic risk” the market risk cannot be eliminated
through diversification

Credit risk:

A credit risk is the risk of default on a debt that may arise from a borrower failing to
make required payments. Investors losses include lost of principal and interest,
decreased cash flows and increased collection cost. The loss may complete or partial.

Currency risk:

Risk of loss that entity suffers from an adverse fluctuation in the exchange rates and
movements of currencies. One of the most widely used methods to hedge against this
risk is to take position in currency and futures. A firm which has foreign payable can
take long position in derivatives and firm having foreign currency receivable should
take short position in currency derivatives.
Liquidity risk:

Liquidity risk means the risk that company or an entity may be unable to meet short
term financial demands, means they can converted their asset into cash. This usually
occurs due to the inability to convert a security or hard asset to cash without a loss of
capital or income.

Legal risk:

It arises from uncertainty due to a legal action or uncertainty in the application

interpretation of contracts, laws or regulations. Legal risk is the risk arising from the
failure to comply with statutory or legal requirements.

Operational risk
 Operation risk is associated with the operation of an organisation. It is the risk of loss
resulting from failure of people employed in the organisation, internal process, system
or external factors acting upon it’s to the detriment of the organisation. The operational
risk includes legal risk.
Investment is not a gambling: gambling is putting money at risk by betting on an
uncertain outcome with the hope that you might win money. Part of the confusion
between investing and gambling, however may come from way some people use
investment vehicles. For example, it could be argued that buying a stock based on a ‘’
hot tip’’ you heard at the water cooler is essentially is the same as playing at the casino.

True investing doesn’t happen without some action on your part. A ‘’real’’ investor
does not simply throw his or her money at any random investment, he or she perform
through analysis and commits capital only when there is a reasonable expectation of
profit. There still is a risk, and here are no guarantees, but investment is more than
simply gambling.

In India the concept of saving is well and understood by most people, however very few
understand the concept of investing. We all save money to cater our future needs.
In order to get the best of our saved money, we must understand:

• Our possible future requirement, needs and aspirations.

• Various avenues/vehicles available for investing this saved money • Pros and cons of
investing vehicles
• What are the various concerns and how to address these concerns?

Once we understand the available investment opportunities along with the pros and cons
of investing of these vehicles, it would become easier to align our investment to achieve
our financial goals
Investment v/s Gambling

Investment Gambling
 Investment is defined as “a commitment Gambling is betting or wagering
Meaning of funds made in the expectation of money in an uncertain event whose
some positive rate of return”. outcome may result in either a gain
or total loss of money put up.

Investment is normally done for a Gambling is for a very short time

Time Horizon longer duration. horizon.

Investment usually involves lower risk. Gambling involves very high risk.
Level of Risk

Investors are cautious, Conservative, Gamblers are Daring, Careless and

Attitude of Risk Neutral or Risk Averse. Risk Takers.
Investors
Decision Investment decisions are based on Gambling is based on tips, rumors,
Making sufficient information and analysis. etc.

Investment usually generates stable Returns are highly uncertain and

Returns returns. unstable in gambling

Investment Stocks, Bonds, Real Estate etc. Lottery, Casinos, Online Betting,
Vehicle Race track etc.

Types of Investors

Investors can be classified into three types on the basis of risk taking capacity of
investor

a. Risk Averse Investors: A risk adverse investor is a type of investor who would prefer
such investments that has comparatively lower risk. A risk – averse investor dislikes
risk and therefore will stay away from adding high – risk stocks or investments to their
portfolio.
A risk adverse investor is an investor who prefers lower returns with known risks
rather than higher returns with unknown risks. In other words, among various
 investments giving the same return with different level of risk, this investor always
prefers the alternatives with lowest risk.
Thus, such investors stay away from high risk investments and prefer investments
which provide a sure shot return. Such investors like to invest in government bonds,
debentures and index funds.

b. Risk Taking Investor: Risk aggressive investor is a type of investor who is willing to
take high risk. Such investors are ready to invest in high risk securities in the hope of
earning huge returns. These investors also called as hedger. Such investors usually
invest in equity shares, real estates, mutual funds – equity schemes, etc.

c. Risk Neutral Investor: A risk neutral investor is someone who is only concerned about
the return but does not worry about the risk posed by the investment. As long as an
investment provides high returns, this type of investors will go for it.
In general, investors are not risk neutral. An investor may be risk neutral if the
investment is not so significant.

Investment Avenues

There are various investment alternatives which are available to an Indian investor. An
investor may select one or a combination of the best investment options which appeals
to him or her. The selection of the investment options also depends on the age, income,
dependents etc. of a particular person. Different avenues and alternatives of investment
include share market, debentures or bonds, money market instruments, mutual funds,
life insurance, real estate, precious objects, derivatives, non-marketable securities. All
investment avenues are differentiated based on their distinctive features in terms of risk,
return, term etc.
 Mutual
funds

Equity Prefrenc
share e share

Debentur
avenues
e and
Real
share estate

Gold and Life

Siver Insurance

There are many investment avenues which are available for an investor. Generally, we
categorise investors into two categories.

• Small investors
• Middle class investors

The small and middle class investors are categories on the income tax slab.

The government imposes tax on taxable income of all persons who are individuals,
Hindu undivided families(HUF’s), companies, firms, LLP, association of person, body
of individuals, local authority an any other artificial juridical person. Levy on tax on a
person depend upon his residential status. The CBDT administer the income tax
department, which is the part of department of revenue under the ministry of finance,
govt. of India. Income tax is the key source of funds that the government uses to fund
its activities and serve the public.

Income tax slab

Income range Tax applicable

Income Up to Rs2,50,000 0%
2,50,001 – 5,00,000 5%
5,00,001 – 10,00,000 20%
Above 10,00,000 30%

We divided the small investors and middle class investors on the basis of tax slab. The
small investors are whose income is 2, 50,000 – 5, 00,000 and the middle class investors
whose income is 5, 00,001 to 10, 00,000.

Investment avenues available for middle class investor

• BANK DEPOSITS

Bank deposits are one of the safest instruments and assured means of return that
a middle class investor can ask for. The principal activity of a bank is to accept deposits
for the purpose of lending and investing. The banks mobilize deposits from the public
& invest 25%-30% of these instruments in Government of India securities/debt
instruments, lend 65% to 70% of these deposits to individuals, firms & corporate who
are in need of funds & keep nearly 5% with the RBI as cash.
 Deposit Products

Broadly, deposits are classified as demand deposits & time deposits. While demand
deposits are repayable on demand, they carry low interest rates or no interest; time
deposits are repaid after the expiry of the deposit period and carry higher interests that
vary depending upon the period.

1. Demand deposits:

• Savings Accounts-
Savings bank accounts are opened by individuals and the purpose of this account
is to inculcate the habit of savings. Savings Bank accounts carry interest rates that vary
from bank to bank. Normally, the interest is calculated daily and paid out half yearly.
The customers can withdraw money through cheques orwithdrawal form. The number
of transactions per day/week is restricted and these vary from banks to banks. Further,
some banks prescribe average monthly/quarterly minimum balance and failure to
maintain the average balance will attract penalty. Further, interest earned in Savings
Bank deposits up to Rs. 10,000 is exempt from Income Tax.

2. Time deposits
Time deposit is an interest bearing bank deposit that has a specified date of maturity.
Time deposits are accepted for specific periods normally ranging from 7 days to 120
months and repayable on maturity. The rate of interest is fixed by each bank for different
periods. The deposits are kept for specific periods but the customer has

got the option to withdraw the deposit at his will before maturity at a reduced rate of
interest. The interest paid on deposits can be cumulative or non-cumulative. Cash
payment of time deposits is possible only if the amount of deposit including interest
does not exceed Rs.20, 000. If the amount exceeds Rs.20, 000 payments has to be made
either through crossed cheque or credited to current or savings bank accounts of the
customer. Tax has to be deducted at source on the interest credited/paid to the customer
on time deposits if the interest credited/paid exceeds Rs. 10,000 at a time.
The rate of taxes 10% plus surcharge is applicable as per the extent Income Tax Rules
where Permanent Account Number (PAN) is submitted by the customer and if PAN
Number is not submitted then the rate of tax to be deducted is 20%. However if the
depositor furnishes a declaration in writing in Form 15G/15H to the effect that his
income is below the taxable limit, then tax will not be deducted at source. This form
needs to be submitted for each deposits and will be valid only for that financial year
Time deposits are classified as under:
a. Fixed Deposits (interest payable half yearly)
b. Fixed Deposits (interest payable quarterly)
c. Fixed Deposits (interest payable monthly)
d. Reinvestment or Cumulative Deposit (interest is not paid out but added to the
deposit)
e. Recurring Deposits (deposits are credited in equal monthly instalments)
f. flexi Recurring Deposit (a special type of deposit which allows the depositor to save
by paying into account an agreed minimum monthly instalments with an option
to deposit excess amount as per bank’s scheme over a specific period.)
3. Hybrid Deposits

These deposits are a combination of demand and fixed deposits introduced for meeting
the customer’s financial needs in a flexible manner. Banks give their own brand names
to such deposits and these flexi deposits show a fusion of demand deposits and fixed
deposits.

Advantages of bank deposit:

• Highly safe and secured investment
Bank deposit is the highly safe and secured investment because the bank is
regulated by the central bank; the central bank has sole authority to maintain
the security of the customer. Bank provide safety locker to the customer for
maintaining his reserves and gold.
• Reasonable return on investment:
The bank provides regular return on the investment. The interest rate become
depends on the amount kept or reserved in the bank, so the interest rate
becomes the earning benefit for the customer.

• Higher liquidity:
Bank provides higher liquidity option to its customer. Liquidity means the asset
can be easily converted into cash. So the customer can easily withdraw the
money whenever they required.

Disadvantages of bank deposit:

• No scope for capital appreciation:
Bank deposit not provide capital appreciation because the amount deposited in
the bank it earns only interest.
• Low return:
The bank provides an interest sometime which is low. The interest rate defined
by the central bank. Bank cannot change the interest rate given by central bank.
 POST OFFICE SAVINGS

• A post office recurring deposit account (RDA) is similar to a recurring deposit in a

bank, where you can invest a fixed amount on a monthly basis. The postal RDA has a
fixed tenure of five years.
Period -5 years
Interest rate-8.4%
Maximum deposit - no limit
Tax benefit – Not available

• These deposits accumulate money at an annual fixed rate of interest of 8 per cent. The
interest is compounded on a quarterly basis. The minimum investment in a post office
RDA is Rs 10 and there is no prescribed upper limit.
For example, if one invests 100 every month in 60 instalments, one will earn a sum of
Rs 7,289 after 5 years.

• An individual can open an RDA account with a post office individually or one in a
joint form with another investor, or a guardian on behalf of the minor who has attained
the age of 10 years can open an RDA account in his/her own.
 The advantage with post-office deposits is that it offers a fixed rate of return for the
duration of the deposit, while banks constantly review their recurring deposit rates.

• However, the disadvantage with post office savings is that that in the age of
convenience banking, you will have to visit the post office every month. In case of
banks, the amount is automatically debited from your account. Premature withdrawal,
however, cannot earn you desired returns.

• In post office RDA, you can withdraw up to half the balance. On premature closure of
the account (after one year), interest is payable as per the rate for the Post Office
Savings Bank Account, which is 3.5 per cent.

• Just like banks' fixed deposits (FDs), post office time deposits are meant for those
investors who want to deposit a lump sum for a fixed period.

• Time Deposits are of 1 year, 2 year, 3 year and 5 year tenures. The minimum investment
should be Rs 200 and its multiples.

• In case of postal time deposits, the account can be closed after 6 months but before
one year of opening the account. On such closure, the amount invested is returned
without interest. If a time deposit of two or three years is withdrawn prematurely, post
office will pay interest only for the completed year or years. For example, a fixed
deposit for two years is withdrawn after 20 months; interest will be paid only for the
one full year completed. The depositor will lose interest for the remaining 8 months

• A postal time deposit fetches annual interest rates in the range of 6.25 to 7.5 per cent.
A bank FD offers annual interest rates in the range of 3.75 per cent to 7.27 per cent.
Senior citizens enjoy the privilege of earning higher interest rates on bank FDs, ranging
from 4.25 per cent and 7.95 per cent.
 • In the post-office scheme your investment grows at a pre-Determined rate with no
risk as it is backed by the government.

• Sukanya Samruddhi Yojana (SSY)

The Sukanya Samriddhi Yojana (SSY) which was launched in January as part of the
Prime Minister's Beti Bachao Beti Padhao initiative was already eligible for
deduction under Section [Link] scheme has now been made tax free under the
new Budget. The SSY is more attractive than the PPF because it offers a higher
interest rate. The accounts can be opened at any India Post office or a branch of
some authorised commercial banks. Initially, the interest rate was set at 9.1% but
later revised to 9.2% in late March 2015 for FY2015-16. Interest Rate has been
revised for FY 2016-17 to 8.6%.

The account can be opened anytime between the birth of a girl child and the time she
attains 10 years ago by the guardian. Only one account is allowed per child. Parents
can open a maximum of two accounts for each of their children (exception allowed for
twins and triplets). The account can be transferred to anywhere in India.

A minimum of Rs.1, 000 must be deposited in the account annually. The maximum
deposit limit is Rs 150, 000. If the minimum deposit is not made in a year, a fine of Rs. 50
will be levied.
The girl can operate her account after she reaches the age of 10. The account allows
50% withdrawal at the age of 18 for higher education purposes. The account reaches
maturity at the age of 21. If the account is not closed, then it will continue to earn
interest at the prevailing rate. If the girl is over 18 and married, normal closure is
allowed.

Tax benefits

At the time of launch, only the deposits in the account were eligible for tax deduction
under Section 80C of the Income Tax Act, which is Rs. 150,000 in 2015-16. However,
Finance Minister announced, during the 2015 Union Budget, tax exemption on the
interest from the account and on withdrawal from the fund after
 maturity, making the tax benefits similar to that of the Public Provident Fund. These
changes were applied retrospectively from 1 April 2015. These benefits will be
reassessed annually.

Insurance

Insurance is the claimed to be the best option for investment. Insurance is a contract,
represented by a policy, in which an individual or entity receives financial protection
against losses from an insurance company. The company pools clients' risks to make
payments more affordable for the insured. It is a form of investment that is stable as
long as the premiums are paid. There are different types of insurances; it is essential to
familiarize with them prior to opting. As with any kind of investment insurance
investment option also has its benefits and detriments.

The following insurance products are available:

➢ Life insurance policies, to protect the family from the financial consequences of
demise of the assured
 ➢ Health insurance policies to cover medical expenses that the client may have to incur
on self or family

➢ General insurance for protection against loss of assets through fire, theft, earth quake,
terrorism and such other exigencies

Life Insurance

Life insurance is a form of contract under which the insurer undertakes to pay to
the insured, a certain amount of money, either on the death of the insured or after expiry of the
contract.
1. Term plans:
The insurance provide financial protection to the policy holder for a specific period of
time. If the policy holder survive the term period, nothing is payable. In case his death, the
beneficiaries are entitled to receive the sum.
2. Endowment plan:
Unlike the term plan, an endowment plan provides the sum along with the profits to the
policy holder in the event of death and survival of the policy holder and also once the
contract is expired. However the premium is paid by the policy holder is very high.

3. Unit linked insurance plan:

These are essentially life insurance plans where the premium is invested in the capital
market and the return are based on the performance of the specific fund. The fund
choice are made by the customers therefore, the investment risks are borne by the
customers. There is also specified life insurance risk cover available for which premium
will be deducted before investment.
3. Whole life insurance policy:

The policy holder pays the regular premium until his death and thus enjoys the life cover
throughout his life. After his death, the sum is paid to the family. However, in case of
an eventually the policy expires as there is no predefined tenure of the policy.
 4. Money back policy:

Here, the insured gets a portion of the sum insured at regular intervals. If the policy
holder survives the term, he gets the balance sum which is assured. In case of his death,
his beneficiaries will get the full sum assured.

5: group life insurance

Here, the group of individual are covered under a common life insurance policy. It is
very common in corporate.

Function of insurance:

There are mainly two function of insurance.

• Primary function
• Secondary function

Primary functions:

• Insurance provide certainty

Insurance provide certainty to the insured by protecting him against the risk of
losses that incur due to uncertainties. The losses will be compensated in the form of payment.
• Insurance provide protection:
An insured is protected from any form of risk that occur due to any uncertainty the
main purpose to buy an insurance cover is to protect the insured by hedging
against all risk.

• Risk- sharing:
Risk is uncertain and therefore the losses arising from them are also uncertain.
The losses are shared among the entire person who is exposed to the risk.

Secondary function:
 • Prevention of losses:
If a person does not get insurance, he is responsible for all the losses incurred
or that might incur in the future. In case of an uncertainty, the insurance
company is liable to compensate for the losses incurred as per the contract.
• It provide capital :
Insurance is one of the best options that help to increase the productivity. All
the business, industries & individuals are benefited.
• It improve efficiency:
An insured person need not worry about the risk that may arise in future. He can
engage himself in other productive activities
• It help in economic progress:
Insurance companies contribute to the progress of the nation by protecting the
economy from the risk like death, destruction any damage etc. And thus boosts
economic development.
• It boosts savings:
Insurance enables person to save money and thus people are more responsible
and future oriented. This culture of saving also encourages the development of
the nation.
HEALTH INSURANCE

Health insurance is an insurance product which covers medical and surgical expenses
of an insured individual and reimburses the expenses incurred due to an injury or illness
to the insured individual. It is the contract between the insurer and individual which the
insurer agree to provide specified health insurance cover a particular ‘’premium’’
subject to the term and conditions specified in the policy.

Given the ever increasing medical costs and ever widening range of ailments, every
family should have medical insurance. The policy may be cashless or re- imbursement.
The cashless policy works better because the individual does not need to pay the
hospital. With a reimbursement policy, the individual needs to pay the hospital and then
file a claim for reimbursement. This takes time, and comes with the risk of the insurer
rejecting the claim or reducing it substantially.
A range of medical insurance policies are available with different mixes of ailments
covered or not covered. Similarly, there are differences in the extent to which
 domiciliary treatment or tests are covered. The person should thoroughly understand
The policy conditions and keeps in mind the family history of ailments before
buying a policy.

Health Insurance also includes the following:

Sum insured
The sum insured may be an individual basis or a floater basis for entire family.

Cumulative Bonus:
For every year where there is no amount claimed, the sum insured is increased by a
certain percentage subject to maximum percentage (generally 50%). In case where
claim is made, cumulative bonus will reduced by 10% at the next interval.

Health Check up Cost

Health policies also have a provision for reimbursement of the cost of the health check
up
Minimum Period of Stay in Hospital:
In order to make a claim under the policy the insured is required to stay in the hospital
for a minimum number of hours, which is usually 24 hours. This time limit may not be
applicable for accidental injuries and for a specific treatment.
Pre and Post Hospitalisation:
Expenses incurred during a certain number of days are also considered as a part of claim
provided that they are related to the disease and sickness.

Cashless Facility:
 Insurance companies have tie ups with a network of hospitals in the country through
the third party administrator who make the claim settlements process hassle free as
they provide cashless facility and act as an interface between the policyholders and
their hospitals.
Importance of Health Insurance
All in one:
A health insurance policy may not cover primary medical expenses due to
hospitalisation, but also the cost like ambulance charges pre and post hospitalisation
expenses like consultation fees, medicines and physiotherapy charges etc.

Medical Insurance Also Includes Day Care Insurance Cover:

Day care is a kind of medical treatment that includes hospitalisation for less than 24
hours. Many mediclaim policies cover domiciliary treatment, master health checkups,
preventive and diagnostic tests.

Covers the Family

A health covers extend to all the members of the family. It is affordable and some
policies also include the maternity benefits.
Plans for the Critical Illness:
It covers the life threatening diseases like heart attack, kidney failures and cancer, if the
insured diagnosis provides declared medical conditions, a onetime lump sum amount is given
to the insured.
Ease and Flexibility:
Third party administrator make the claim settlements process hassle free as they
provide cashless facility and act as an interface between the policy holder and their
hospitals.
• NATIONAL PENSION SCHEME (NPS)

The National Pension System (NPS) is a voluntary defined contribution pension system
administered and regulated by Pension Fund Regulatory and Development Authority
(PFRDA) created by an Act of Parliament of India. . While the scheme was initially
designed for government employees only, it was opened up for all citizens of India in
2009. NPS is an attempt by the government to create a pensioned society in India.

One can open NPS accounts at designated banks, post office branches or brokerages.

You will be charged a onetime fee of Rs. 40

• you will be allotted a Permanent Retirement Account Number. This is the

unique identification number given to your NPS account. There is a one-time
fee of Rs. 50 & an annual maintenance fee of Rs. 350
• There are two types of NPS Accounts. Tier I Account is a pension account from
which you can’t withdraw before you turn [Link] 50, you can stop
contributing and start withdrawing from it.
• You can withdraw 60% of the corpus as a lump sum or in a phased manner over
the next 10 years till you turn 70. At least 40% will have to be put in an
annuity to give you pension. At 70, entire balance is withdrawn.
• You need to deposit at least Rs. 6,000 a year in a Tier I account, with a minimum
of four deposits in a year. Making too many small contributions should be
avoided as there is a fixed charge on every transaction.
• A Tier II Account is more like a mutual fund from which you are free to
withdraw any time you want. But one can open this only if he has a Tier I
account. A Tier II account must have a minimum balance of Rs. 2000.

Tax Benefits for NPS

NPS qualifies for tax benefits fewer than three different sections of Indian tax laws
• Section 80C up to Rs. 150,000
 • Section 80CCD (1) up to Rs 50,000

• Section 80CCD (2) up to 10% of basic salary contributed by the employer.

All these tax breaks are independent of each other and can be availed simultaneously.

• CHIT FUNDS

A chit fund is a kind of savings scheme practiced in India. A chit fund company is a
company that manages, conducts, or supervises a chit scheme. It is regulated by the
Chit Fund Act, 1982.
Chit means a transaction which a person enters into an agreement with a specified of
persons that every one of them shall subscribe a certain sum of money by way of
periodical instalments over a definite period and that each such subscriber shall, in his
turn, as determined by lot or by auction or by tender as may be specified in the
chitagreement, be entitled to the prize amount.
How do they work?

Once chit fund begins it has to register itself with the authority and submit 100% amount
of chit as security amount. Suppose one chit fund start with 50 members with a
monthly contribution of Rs.10, 000 per month.
50 people x Rs 10,000 =5Lakh

The amount collected from all members in a group called as

pot.
Once this amount is collected it is placed for the auction among subscribers. The
subscriber who agrees to take the lowest amount will get the prize (pot amount).
Suppose for the first month one subscriber bid lowest say 65% of pot amount. This
means 3.25 Lakh (65% of pot amount) will be given to this subscriber as a prize. 5 Lakh
– 3.25 Lakh = 1.75 Lakh (Remaining amount)

Suppose 5% commission is charged by Foreman. Foreman is a person or

company who started chit fund. 5% of 5 Lakh (Total Pot amount) =
Rs25,000

The remaining amount will be 1.5 Lac. This amount will be distributed among other
subscribers. All remaining subscribers get Rs.3000 each. So, effective contribution for
the first month would be Rs 7000 for every subscriber. The process of auction will
continue every month till all subscribers get the pot at least once. In next month
auction only non-prize subscribers can participate as a bidder.

Are chit funds really profitable?

It all depends on how low the bidding for the particular chit fund happens. Lower the
bidding more profitable would the returns be.

Advantage of Chit Funds

 • Chit fund gives the flexibility to borrow and save.
• You can get a chance to borrow money (pot) just by paying first monthly
instalment.
Best for needy people. You can get finance without any documents like IT returns,
PAN card etc.
• The non-prized subscriber who is a saving member up to the last instalments
gets a dividend which is comparatively higher than the interest that are accrued
by way of other Deposit Schemes.
• You need not disclose for which purpose you will be using the prize money.

Disadvantage of Chit Funds

• No guarantee of fix returns.

• Chance of fraud is high suppose foreman run away with corpus amount.

• A winning subscriber may disappear after winning the first bid.

• The subscriber may default and not ready to pay next instalments.

• High degree of risk with very little protection.

• PUBLIC PROVIDENT FUND (PPF)

The Public Provident Fund is a savings-cum-tax-saving instrument in India,

introduced by the National Savings Institute of the Ministry of Finance in [Link]
aim of the scheme is to mobilize small savings by offering an investment with
reasonable returns combined with income tax benefits.
A minimum yearly deposit of Rs. 500 is required to open and maintain a PPF account,
and a maximum deposit of Rs.1.5 lakhs (as on financial year 2015-2016) can be made
in a PPF account in any given financial year. The subscriber should not deposit more
than Rs.1.50 lakhs per annum as the excess amount will neither earn any interest nor
will be eligible for rebate under Income Tax Act. The amount can be deposited in
lump sum or in a maximum of 12 instalments per year.

The government of India decides the rate of interest for PPF account. The current
interest rate effective from 1 April 2016 is 8.1% p.a. (compounded annually) Interest
will be paid on 31 March every year. Interest is calculated on the lowest balance
between the close of the fifth day and the last day of every month.

In a generalized view, if an individual deposits an amount of 1 lakh every year for 15

years without any exception, then he would receive a total sum of more than 30 lakh.
This reflects the huge amount of benefit applicable on PPF account, for a total
investment of 15 lakh (1 lakh every year * 15 years) interest received is more than 16
lakh, which is also in fact non-taxable.
• NATIONAL SAVINGS CERTIFICATE (NSC)

National saving certificates (NSC) are similar to Tax Saving Fixed Deposit. But today
it gives less return than Bank Fixed Deposit. National Saving Certificate (NSC) is the
most popular saving scheme among all the government saving schemes. It is very
simple to subscribe and anyone can take it from the post office. Since many years,
people put their saving into this scheme. It has been very reliable saving scheme and it
has been the preferred tax saving option.

Interest Rate on National Saving Certificate (NSC)

The government of India decides the interest rate of NSC. The interest rate of NSC is
linked to the yield of 10-year government bond. It is reviewed every year before 1st of
April. However, the government is planning to review it more frequently.
The interest rate of NSC does not change during the 5-year tenure of the NSC. At the
time of NSC purchase, you know the maturity value of NSC. It does not change because
of interest rate fluctuation in between.
The Interest rate of NSC is compounded half yearly. But it gets deposited into the
account every year.
The interest rate on 5-year NSC is 8.8% per year. It had been 8.7% for 10-year
NSC.10year NSC is discontinued now.
 Tax Saving Through Nsc

➢ The National Saving Certificate (NSC) gives tax deduction under section 80C. It
means the investment into NSC would be deducted from the taxable income. Total
1.5 laks can be deducted for tax saving under section 80C.

➢ the interest earning from the NSC is taxable. Since the interest is accrued every year,
the notional interest is added to the total taxable income of every year.

➢ the interest of NSC is not paid every year; rather it is reinvested at the same interest
rate. This reinvestment of interest is further eligible for tax deduction under section
[Link] is not applicable on the National Saving Certificate (NSC).

➢ The taxpayer should show the interest earned as an income while e-Filing income tax
return. Further, this income can be claimed for tax deduction under section 80C.

Types of NSC Certificate

There are 3 types of National Savings Certificate

1. Single holder Type Certificate: It is issued to the holder himself or on behalf of the
minor.
2. Joint A type Certificate: It is issued jointly to 2 adults. It is paid to both of the joint
holders.
3. Joint B type Certificate: This type of NSC is issued jointly to 2 adults payable to
either of the holders.
• MUTUAL FUNDS

Mutual fund is the trust that pools the savings of a number of investors who share
common financial goals. The money that invested in the mutual funds are invested by
the number of peoples, it is the collective investment process. The money thus collected
is then invested in capital market instruments such as shares debentures and other
securities. The income through this investments are capital appreciation realized is
shared by its unit holder in proportion to the number of units hold by them. Mutual fund
is the basket of securities.

TYPES OF MUTUAL FUNDS

1. SCHEMES ACCORDING TO MATURITY PERIOD:

1. Open ended scheme: open ended fund is one that is available for subscription
and can be redeemed on a continuous basis. It is available for the subscription
throughout the year and investors can buy and sell units and NAV related prices. These
funds do not have a fixed maturity date.
 2. Close ended scheme: a close ended fund is the one that has a defined maturity
period. These funds are open for subscription for a specified period at the time of initial
launch. These funds are listed on a recognized stock exchange.

3. Interval funds: interval funds combine the feature of open ended and close
ended funds. These funds trade on the exchanges and are open for sale or redemption
at predetermined intervals on the prevailing stocks

2. SCHEMES ACCORDING TO INVESTMENT OBJECTIVE: A scheme can also

be classified as growth scheme, income scheme, or balanced scheme considering its
investment objective. Such schemes may be open-ended or close- ended schemes as
described earlier. Such schemes may be classified mainly as follows:

1. Growth /equity oriented schemes: the aim of growth funds is to provide capital
appreciation over the medium to long term. Such schemes normally invest a major part
of their funds in equities. Such funds have comparatively high risk.

2. income/debt oriented scheme: the aim of the income fund is to provide regular and
steady income to investors. Such schemes generally invest in the fixed income securities
and the money market instrument. Such funds are less risky compared to equity
schemes. These funds are not affected because of fluctuations in equity market.

3. Balanced fund / hybrid scheme: the aim of the balanced funds is to provide both
growth and regular income. Such schemes invest in both equities and fixed income
securities in the proportion indicated in their offer document. These are appropriate for
investors looking for moderate growth.

ADVANTAGES OF MUTUAL FUNDS:

 • an investor can invest even small amounts like Rs. 500/-
• an investor’s money is managed by professionals, who have access to research
data and information, which the investor may not possess, thus enabling him to
get a better return on his investment.
• An investor’s risk is reduced by investing in mutual funds rather than in shares
directly.

• The transaction costs of mutual funds is usually lesser due to the large amount
that the fund invests and this benefit is directly passed on to the investor.
• there are a wide range of schemes available to the investor, which he can choose,
according to his risk & return appetite.

• Mutual funds are very liquid and can be converted into money or another
scheme easily.
• Dividends received from mutual funds are non taxable.

DISADVANTAGES OF MUTUAL FUNDS

• there are too many schemes available and this causes confusion in the minds of
the investor on which scheme to select.
• the fund management charges might be higher than the charges that might be
incurred in case of direct investment in certain cases.
• certain mutual fund schemes are close ended, meaning, it cannot be redeemed at
will.
CONCLUSION:

Mutual fund is a good investment option irrespective of the age of the investor. Even
for senior people, whose risk appetite tends to be limited, there are many funds like
Fixed Maturity Plans, Daily Dividend Schemes etc, which might be a better option than
bank deposits. Those who take an exposure to mutual funds at a very young age,
through ‘Systematic Investment Plans’ (SIP’s)are bound to create substantial wealth in
the long run.

• PROPERTY

A house is a dream purchase for most Indians. What many don't realize is that it can
be an excellent investment as well. Here are a few reasons why one should consider
parking his money in a property.
1. Capital Appreciation & Liquidity: We all know property is a lasting asset and you
would rarely lose money in this asset in the long-term. However, for the past few years
real estate has been a rewarding asset class even if you look at the short-term
appreciations.

2. Regular Cash Flow from Rent: Guaranteed return from bank deposit interest is
fixed only for a certain period of time. Monthly income plans in mutual funds are
market linked and there is a chance of exhausting your principle one day. Assets like
gold will give you a lump-sum on sale. Rental income, on the other hand, gives you
regular and inflation-protected cash flow without. That is, along your maintenance costs
the rental income will also go up compensating any additional outgo. Also, you can
claim tax deduction for maintenance cost of property at flat rate every financial year.
3. Tax Breaks: A house, especially your first one, makes you eligible for significant tax
breaks as well. You can claim deduction up to Rs 1 lakh for repayment of home loan
principal under the overall limit of Section 80C of the Income Tax Act. Moreover, if
you have taken a loan, you can claim an additional deduction of up to Rs 1.5 lakh
under Section 24B for interest payment once you get possession and occupy the house.
Any pre-construction interest is allowed for deduction only if your project gets
completed within 3 years of starting of the construction.

41

Once the house is ready, you can claim the deduction for it within five years from
possession in equal instalments within the Rs 1.5 lakh under Section 24B. However, if
you rent out the property, you can claim the entire interest component as deduction
from the rental income. Tax deductions are also available on second homes. If you have
paid your municipal taxes in the current year, you can show them as deductions from
your total income. A flat
30% of the annual value can also be claimed as deduction is for maintenance expenses
such as repairs, insurance, etc., irrespective of the level of actual incurred expenditure.
3. Back-up Plan for Retirement: In worst case scenario, one has the option to
reverse mortgage their property if the retirement corpus falls inadequate in your sunset
years. Unlike a traditional loan, under a reverse mortgage loan, can borrow money
against the value of his or her home. However does not have to repayment of the
mortgage (principal or interest) until the borrower dies or the home is sold. Any home
owner above 60 can reverse mortgage a self-occupied house and either get a one-time
lump sum payment or a regular income from lenders. What makes the facility more
attractive for senior citizens is a tax break on instalment earned by pledging his
residential property.
After the death of the home owner, their heirs get the first opportunity to repay the
mortgage and get the ownership of the property. If the heirs cannot repay, the bank
recovers its money by selling the property. Any money left after the settlement of the
loan is returned to the legal heirs. If the proceeds of the sale are less than the accrued
principal plus interest, the bank takes the loss.
ESSENTIAL FUNDS TO INVEST IN FOR A SMALL INVESTOR

Diversified equity fund

If mutual funds are the best vehicle for small investors to invest in stocks, diversified
equity schemes are, by far, the most cost-efficient. A large-cap fund with a good track
record should be part of every investor's core portfolio. If you want to be more
aggressive, opt for a mid-cap fund, though these can be riskier than the large-cap ones.
You could also go for multi-cap schemes, which invest in a mix of small-, mid and
large-cap stocks. For those with a lower risk appetite, an index fund is a better option.
Such funds invest in stocks of the index they track and, hence, their returns are not very
different from those of the index. However, these are not as spectacular as those churned
out by diversified schemes. In the past five years, the average diversified equity fund
has outperformed the broader market by 4-5 percentage points, but this is the average
return, and some funds have also underperformed the market. This is why choosing a
good equity fund is important.

• ELSS (Equity Linked Saving Scheme)

An ELSS fund serves many purposes in your portfolio. It saves tax under Section 80C,
offers exposure to equities and can provide regular income by way of dividends. The
 ELSS category is the tax-saving option with the shortest lock-in period of three years.
If you choose the dividend option, you could get a part of your investment back even
before this period. The lock-in period is what differentiates these funds from normal
diversified equity funds. It also allows the fund manager to line the portfolio with stocks
that may not reap immediate results, but could be rewarding if held for a longer period.
Perhaps this is why ELSS funds have outperformed the diversified equity fund category
in the past few years. Before you take the plunge, remember that you will not be able
to withdraw your investment before three years. This can also be a blessing in disguise
for investors who tend to withdraw too soon or get jumpy when the markets turn
volatile

Tax Saving • Money invested in ELSS get tax deduction

under 80C.

•
Dividend paid is also tax-free.
• Maturity amount is also not taxed.

Lock-In Period you This option has smallest lock-in period. After 3 year
can redeem

Your money.

You can invest any amount, but tax benefit is limited to

Investment 80C rules. (Upper limit for 80C tax rebate is 1 lakh total)

Limit

Safety It is as risky as any diversified equity mutual fund. As all of your money
is invested in share market you can experience the roller coaster ride.

Return Traditionally, long term Equities give a better return than

any other investment. But it may happen that after the completion of 3 year lock in
period your money gets depleted.
How to invest many fund houses have the ELSS. You can Invest online

directly through

The Fund house’s own website or through the distributors

There is no limitation for recurring investment. But fixed SIP would be

Recurring
Suitable to overcome the market’s ups and downs.
Investment
Gold fund

Physical gold offers an advantage to the buyer because he can use it even as its value
appreciates. If the purpose is purely investment, gold ETFs are a better option. There
are no making charges, liquidity is high, and one doesn't have to bother about purity or
storage. These funds also allow investors to accumulate gold in small quantities.
Importantly, these don't invite sales tax, VAT or securities transaction tax.

As units of such funds are traded like stocks on the exchange, they are eligible for
long-term capital gains after a year. For physical gold, long-term capital gains are
applicable after three years. Besides, unlike physical gold, investors don't have to pay
wealth tax. Remember that gold should account for 5-15 per cent of your total
investment portfolio.

Short-term income fund

Short-term income funds are a good way to save for short- and medium-term goals.
They are liquid—the money reaches your bank account within a day. Unlike a fixed or
recurring deposit, you can make partial withdrawals from the debt fund without
breaking the entire investment. Debt funds are far more tax-efficient than fixed
deposits. After one year of investment, the income from a debt fund is treated as a
long-term capital gain and is taxed at either 10 per cent or at 20 per cent after
indexation. There is also no TDS in debt funds. In fixed deposits, if your interest
income exceeds Rs10,000 a year, the bank will deduct 10.3 per cent from this income.
Fixed maturity plan
A fixed maturity plan (FMP) is a closed-ended debt scheme that invests in bonds and
deposits matching the tenure of the scheme. An FMP is a tax-efficient replacement for
fixed deposits. Like debt funds, the profit is treated as long term gain after a year and
taxed at a lower rate of flat 10 per cent or 20 per cent after indexation.
These gains can be offset against certain capital losses. Right now, the post-tax yield
of FMPs is close to 9.5 per cent, much higher than that of tax-free bonds. Investors can
claim indexation benefit if the holding period is across two or more financial years. If
a 375-day FMP is bought in March 2014, it will mature in April 2015. Since it is spread
over three financial years, the investor will get indexation benefit for two [Link]
can reduce the tax to almost nil.
 Chapter 2 :Literature review

Every individual investor must follow three principles of investing: using a long term
investing approach, following right strategy to maximize the return on the investment
and proper allocation of investible funds. While applying thus three principles, an
individual investor has to face off the lifestyle and investment psychology. Weather the
investors age or occupation or family income has a role to play in making choice of
investment avenues. Is the investor choice affected by his overconfidence, reference
group and framing of available alternatives? The knowledge of these aspects is
imperative for all progressive investors, researcher, financial consultant, academics
students and the, marketer of financial product
(DR. (Mrs) Sushant Nagpal, psychology of investment and investors preference)

In the paper he discusses the basic of investment and the need for investment benefits
both economy and the society. It is an outgrowth of economic development and the
maturation of modern capitalism. for the economy as whole, aggregate investment
sanctioned in the current period is a major factor in determining aggregate demand and
hence, the level of employment. In the long term current investment determines the
economy’s future productive capacity and ultimately, a growth in the standard of living.
By increasing can contribute to higher overall economic growth and prosperity.(DR.
A.P. Dash, sr. Faculty, PMI, Basic of investment)

Indian investors today have to endure a sluggish economy, the sleep market declines
prompted by deteriorating revenues, alarming reports of scandals ranging from illegal
corporate accounting practices like satyam to insider trading to make investment
decisions. Stock market performance is not simply the result of intelligible
characteristics but also due to emotions that are still baffling to the analysis. It is not
cold calculation of financial wizard or a company performance or widely accepted
criterion of stock performance but the investors irrational emotions like
overconfidence, fear, risk aversion etc.
(Ms. M. Kothai & Mrs. P. Prema. A study of individual investor behaviour )
Investment are made with an avowed objective of maximising wealth. Investors need
to make rational decisions for maximising their returns based on the information
available by taking judgement free from emotions. Investors behaviour is characterised
by over excitement and overreaction in both rising and falling stock market. Most of
the investment and financial theories are based on the idea that everyone take careful
account of all available information before making investment decision. This research
is conducted to analyse the factors influencing the behaviour of investors in capital
market.
([Link] and v balkrishnan,investment decision making)

Madhumati R.(1998) in her study entitled “ risk perception of individual investors and
its impact on the investment decisions “ examined risk perception of 450 investors
selected a random from major metropolitan cities in India dividing them into three
groups as risk seekers, risk bearer and risk avoider. The major finding of the study
revealed that majority of the investors where risk bearer and they had tendency to use
the company performance as a basic factor to take investment decisions. They also
depend on the share brokers and investment consultants. The risk seeker generally took
decision based on the market conditions, industrial positions and social changes. They
relied on the newspaper and reports for information. Risk avoider did not have any
specific traits. They were very objective and looked for facts and certainty in their
investment [Link] relied on the friends and relatives

[Link] in their article entitled “ impact of risk analysis in selection of investment

avenues – A study of debt market investors” suggested that the study in the debt market
instrument as become an impressive choice of investors with the objective of return
optimization. Uncertainty of expected return is vital part of the investment option in
debt market .variation in the anticipated return and actual return lead to the possible
consequence of the decision related to the selection of debt market investment vehicle.
Risk in the debt market instrument are poised of the demand that being variation in the
return of income. market price and interest play significance role on the risk associated
with debt market. Which are being influence by the various internal and external
considerations. uncontrollable external risk have a grater impact of the volatility of
return.

Chapter 3: Data Analysis and Interpretation

What is your source of income?

( ) Service / salaried

( ) Business

32%

Service
Business

68%

choices % count
Service 68% 34
Business 32% 16
Interpretation :

In the above diagram we can see that 68% respondent are engaged with the service
sector and around 32% of respondent have their own business.
which tax bracket do you belong to? (
) 5%

( ) 20%

( ) 30%

6%

20%

5%
20%
30%

74%

choices % count
5% 74% 37
20% 20% 10
30% 6% 3

Interpretation :
In the above diagram we can see that 74% respondent are belongs to 5% tax bracket
means their income 2,50,000 to 5,00,00. The 20% respondents are belongs to 20% tax
bracket means their income is 5,00,000 to 10,00,000. The 6% respondents are belongs
to 30% tax bracket means their income is more than 10,00,000.
what percentage of your total income do you keep aside as saving?

( ) Up to 20%

( ) More than 20%

40%
Up to 20%
More than 20%
60%

choices % count
Up to 20% 60% 30
More than 20% 40% 20

Interpretation :

Saving is an important part of individual financial life. Saving is the part of income
which turned into investment. In the above diagram we can seen that , about 60%
respondents believe in keeping aside 20% of their monthly income as a saving. The
remaining 40% respondents believe in keeping aside more than 20% of their income as
a saving.
which type of investor you are?
( ) Risk averse/ avoider
( ) Risk taker
( ) Risk neutral

30%
40%
Risk avoider
Risk taker
Risk neutral

30%

choices % count
Risk averse 40% 20
Risk taker 30% 15
Risk neutral 30% 15
Interpretation :

In the above diagram we can see that 40% respondents are risk avoider, means they fear
to take more risk in the investment options. 30% respondents are risk taker, means they
ready to take any risk in the investment. 30% respondents are risk neutral, means they
have neutral opportunity in the risk.
Do you monitor your monthly expenses? do you maintain monthly budget?
( ) Yes
( ) No

24%

Yes
No

76%

choices % count
Yes 76% 38
No 24% 12

Interpretation :
In the above diagram we can see that 76% of the respondents are monitor their monthly
budget, means they monitor their monthly income and expenses. The remaining 24%
respondents are not monitor the monthly budget.

what do you do in case you overshoot your budget?

( ) Borrow
( ) Liquidate your investment

48% Borrow

52% Liquidate your investment

Choices % count
Borrow 48% 24
Liquidate your investment 52% 26

Interpretation :
Incurring expenses over the estimated budget does happen sometimes due to various
reasons. It becomes difficult to adhere to the budget during such circumstances. In the
above diagram we can seen that 48% of the respondent use the borrow option to
overshoot the budget. 52% of the respondents are use liquidate the investment to
overshoot the budget.
Do you have insurance?
( ) Yes
( ) No

0%

Yes
No

100%

choices % count
Yes 100% 50
No 0% 0

Interpretation :
Nowadays, insurance also treated as utmost necessity by most middle class families
since uncertainties can crop any time. It also give benefit of investment in the long run.
In the above diagram we can seen that the 100% respondents having insurance. They
insured their safety with the life insurance.
which type of insurance do you have?
( ) Life insurance
( ) Health insurance
( ) General insurance

28%

Life insurance
Health Insurance
54% General Insurance

18%

choices % count
Life insurance 54% 27
Health insurance 18% 9
General insurance 28% 14

Interpretation :
In the above diagram we can seen that 54% respondents having life insurance ,they
insured their life with various insurance policies. The 18% respondents having health
insurance and 28% respondents having general insurance like motor insurance travel
insurance.
Do you invest in mutual fund? have you heard about SIP ?
( ) Yes
( ) No

36%

Yes
No

64%

choices % count
Yes 64% 32
No 36% 18

Interpretation :
In the above diagram we can seen that 64% respondents invest in mutual fund and they
heard about (SIP) i.e. systematic investment plan. The remaining 36% of respondents
are not aware about the mutual funds.
As per knowledge and convenience which instrument do you preferably invest in ?
( ) Equity
( ) Debt (
) Other

12%

20% Equity
Debt
Other

68%

choices % count
Equity 68% 34
Debt 20% 10
Other 12% 6

Interpretation :

In the above diagram we can seen that as per knowledge and convenience of investors
68% of respondents are invest in Equity. 20% respondents are ready to invest in the
debt and securities and the 12 % respondents are ready to invest in the other investment
options like fixed deposits and saving accounts
who recommends you to invest in various financial investments? it is done by
you on your own or through someone else advice?

30

25

20

15

10

father own friend lic agent relatives

Choices count
Father 05
Own 20
Friend 10
Lic agent 07
Relatives 03

Interpretation:
In the above diagram we can seen that 5 people are started investment because of the
father recommendation, the 25 people are invested in various financial plan by their
own, 10 respondents are started investment because of their friends, the 7 respondents
are started investment with consult with their LIC agent or knowledgeable persons and
the remaining 3 respondents started investment because of their relatives
which factor do you consider before investment?
( ) Safety of principal
( ) Low risk
( ) High Returns
( ) Maturity period

4%

32%
Safety of principal
38% Low risk
High Returns
Maturity period

26%

Choices % count
Safety of principal 32% 16
Low risk 26% 13
High return 38% 19
Maturity period 4% 2
Interpretation :
In the above diagram we can see that 38% of respondents having consider high return
before investment. 32% of respondents consider safety of principal,26% of respondents
consider low risk and 4% 0f respondents consider the maturity period before investing.
Do you invest in equity? if yes, how much are you ready to invest in the same?

( ) Around 20%
( ) More than 20%

14%

Around 20%
More than 20%

86%

choices % count
Around 20% 86% 43
More than 20% 14% 7
Interpretation :

In the above diagram we can seen that 86% of the respondents having interested to
invest up to 20% in the equity. The 14% respondents having interestred to invest in the
equity more than 20%
if you receive increment/bonus/additional profits, would you consider investing or
spending it?
( ) Spending
( ) Saving and Investing

14%

Spending
Saving and Investing

86%

choices % count
Spending 86% 43
Saving and investing 14% 7
Interpretation:

In the above diagram we can see that 86% of the respondents would consider spending
the money of additional profits and increments. The remaining 14% of respondents
would consider saving and investing the additional profits and increment.
Do you have your own house or is it on rent?
( ) Own
( ) Rent

18%

Own
Rent

82%

Choices % count
Own 82% 41
Rent 18% 9

Interpretation :
In the above diagram we can seen that 82% respondents having their own hose means
they invest in the property, and the remaining 18% respondents having a house at rent.
Chapter 4 –Recommendation

The middle class investors can diversify their investment across various avenues so as
to reduce risk. As they saying by renowned investors Warren Buffet goes “do not put
all eggs in one basket” sometimes the investor has more risk about their investment so
the investor can use diversification strategy.

Diversification refers to constructing portfolio comprising of various group of assets.

These assets can be Equity, Bonds, Real estate, Fixed deposits, company ,Debentures
etc. Diversification is the risk management technique that mixes a wide variety of
investment within a portfolio thus minimising the impact of any one security on an
overall portfolio performance. diversification is one of the general technique for
reducing investment risk. The other is hedging.

You can diversify with a portfolio of individual securities of group of mutual funds,
bonds funds, ETF’s or a combination of all these. But the idea isn’t buy hundred or
even dozens of securities in each assets class. Even if you could afford to assemble a
portfolio that big you probably couldn’t research or manage effectively.

One should not rely on the risk free investments or investment bearing risk, rather it
should be an optimal balance the former would ensure security of the corpus while the
latter would ensure capital appreciation and high return in long run

“Once should not save what is left after spending; rather spend what is left after saving”
this would ensures that the person does not overshoot his budget. As an investor, one
tend to postpone his investment, waiting for the month end the hoping for some left
over cash to invest .right at the outset , one should earmark 10%-25% of income as a
saving and learn to run the household within the rest, however hard it maybe.
As Warren Buffet right says, “compounding is the eighth wonder of the World”, one
should not consider liquidating his /her investment that have been done over the years.
Following simple investment technique like ‘systematic investment plans’ along with
the power of compounding are what will eventually help one achieve his financial
targets.
“If you buy things you don’t need soon you will sell things you need”. No matter how
rich one is, spending just for the neck of it is sheer wastage and ends badly. So one
should buy things that he want because he may actually able to do without it.“Risk
come from not knowing what you are doing” if one invest in securities without knowing
the risk associated with the same, his investment decisions would prove to be futile.

Most of people think that investment is riskier process, but there are lots of options
available for the investment. Investor can also invest small amount depend on their
capability, investment provide an return to the investors. In day to day life people can
take many type of risk, so without risk there is no success. Sometimes investment
decisions are totally depend on the market conditions, everyday market goes up and
down, on that fluctuation investor has chance to earn the money or some type of
benefits.
 Chapter 5-Conclusion

The middle class and small investors are categorise on the basis of tax slabs given by
the government. The middle class and small investors refer to that category of people
who neither fall in the category of poor or the wealthiest. They earn sufficient income
to lead a comfortable life through at times they have a burden of expenses lomming
overhead. The middle class investor have plenty of investment option like bank
deposits, chit funds, insurance, national pension scheme, public provident fund, mutual
fund property and so on. The small investor also have an investment option like
diversified equity fund, equity linked saving scheme, gold fund, short term income
fund, fixed maturity plan etc. The middle class and small investors can diversify their
investment across various avenues so as to reduce risk. One should not rely solely on
risk free investment or investment bearing risk, rather it should be an optimal balance.
The investor would ensure security of the corpus while the latter would ensure capital
appreciation and high returns in the long run.

The investment decisions are totally depend upon the nature of investor. Nature of
investor are risk averse, risk neutral and risk taker. The investment decisions are made
by the investor but the investor have an proper knowledge about the investment related
activities. Some activities are risky in nature and some investment are risk free in
nature.
QUESTIONNAIRE

1. What is your source of income?

( ) Service / salaried ( ) Business

2. which tax bracket do you belong to?

( ) 5% ( ) 20% ( ) 30%
3. what percentage of your total income do you keep aside as saving?
( ) Up to 20% ( ) More than 20%

4. which type of investor you are?

( ) Risk averse/ avoider ( ) Risk taker ( ) Risk neutral

5. Do you monitor your monthly expenses? do you maintain monthly

budget?
( ) Yes ( ) No

6. what do you do in case you overshoot your budget?

( ) Borrow ( ) Liquidate your investment

7. Do you have insurance?

( ) Yes ( ) No

8. which type of insurance do you have?

( ) Life insurance ( ) Health insurance ( ) General insurance

9. Do you invest in mutual fund? have you heard about SIP ?

( ) Yes ( ) No

10. As per knowledge and convenience which instrument do you preferably

invest in ?
( ) Equity ( ) Debt ( ) Other

11. who recommends you to invest in various financial investments? it

is done by you on your own or through someone else advice?
12. which factor do you consider before investment?
( ) Safety of principal ( ) Low risk ( ) High Returns ( ) Maturity period

13. Do you invest in equity? if yes, how much are you ready to invest in the

same? ( ) Around 20% ( ) More than 20%

14. if you receive increment/bonus/additional profits, would you consider

investing or spending it?
( ) Spending ( ) Saving and Investing

15. Do you have your own house or is it on rent?

( ) Own ( ) Rent
BIBLIOGRAPHY

Websites:
➢ [Link]
savings-105121501003_1.html

➢ [Link]

➢ [Link]

➢ [Link]
fund-income-fund-index-fund

➢ [Link]

➢ [Link]

➢ [Link]
option/articleshow/[Link]
Books, Booklets & Newspapers:
➢ Bank, Banker and Banking Options

➢ NCFM modules

➢ Swatantra-An Investor’s education initiative by UTI Mutual Funds.