Personal Investment Management: A Comprehensive Guide to Savings and Investments

II B.COM III Semester PERSONAL INVESTMENT MANAGEMENT

Unit I Introduction to Investment Saving V/s Investment Need of Investment Principles of Investment 1. Liquidity 2. Safety or Security 3. Profitability of Return 4. Other Considerations Tax Implications Rate of Interest Inflation Unit II Investment Avenues Term Deposits-Insurance Policies- Retirement Plans- Real Estate-Gold and Bullion-Stock market securities-Mutual Funds.

Unit III Investment in Stock Market Securities Meaning of Stock Market Securities How to Invest in Stock Market Stock Indices : SENSEX , NIFTY Risk involved in Stock Market Investments Investor Protection -SEBI Unit IV Invest in Mutual Funds Meaning of Mutual Fund Types/ Classification of Mutual Funds How to Invest in Mutual Funds Net Asset Value Benefits of Mutual Fund Investment Unit V Personal Investment Planning Personal Financial Planning Personal Investment Planning

II B.COM III Semester PERSONAL INVESTMENT MANAGEMENT

INTRODUCTION TO INVESTMENT Meaning Of Investment Investment is a monitory asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at higher price. The prospect of gaining something more at later date by sacrificing something today is know as Investment.

Savings refers to setting aside money not spent now for emergencies or for future use. Saving is money that one wants to be able to access quickly, with little or no risk and with the least amount of tax. Making choice between savings or investing will depend on one s goals for the money and risk tolerance.

Savings Investments Savings V/s Investment 1. Low return 2. Low risk 3. Short term 4. Relatively easy 5. Types of savings includes : Saving A/c, Money Market, Certificate of deposits. 6. Guarantied return 7. Excellent choice with short time horizon/ emergency fund 1. High return 2. High risk 3. Long Term 4. More complicated 5. Types of investment includes : Stocks, bonds, Mutual funds etc. 6. No Guarantied return 7. Excellent choice with long time horizon/ goals

Need for Investment 1. 2. 3. 4. Growth of money (returns earned allows money to grow) Save for retirement (to meet post-retirement expenses) Earn higher returns Reach financial goals ( purchase house, car, children's education expenses) Start and extend business Be a part of new ventures ( need financial backing) Reduce taxable income (Investment in shares, bonds , Mutual funs are non taxable) Meeting cost ( Operational cost of business, cost of living, cost of health, education etc.) Decline in purchasing power (Inflation- Price increases fall in value of money/purchasing power ) 10. Payment of tax ( as tax rates keeps on changing or when it increases) 5. 6. 7. 8. 9.

Principles of Investment a. Tax Implications b. Rate of Return c. Inflation Adjusted Returns d. Discipline and Regularity in investment Liquidity Diversification Principles of Investment Safety/ Security Profitability

1. Liquidity The very purpose of investment is to tide over any financial crisis that we may come across in near future. It a how easily or quickly investment could be converted in to cash or how easily investments could be bought or sold . It represents convertibility of investments into cash without undue loss of capital The principle of liquidity is against the principle of profitability because the idle cash will earn nothing and invested cash will have no liquidity. Investment in Stock, bonds, are very liquid since they can be converted into cash within short time. Before investing it is important to keep in mind about the liquidity level of investment.

2. Safety V/s Security Safe investment can help to keep ones money secure Safety or security of investment is a very big consideration for conservative investors. For an aggressive investor, it may not be a top priority because the focus is more on higher returns. The investment world follows a simple rule, HIGHER THE RISK, HIGHER THE RETURN . It is very important for every investor to understand his/her risk profile risk bearing ability, retirement age and the very purpose of investment. Security not only involves keeping the principal sum intact but also keeping intact its purchasing power.

In order to provide safety, a careful review of economic and industry trends is necessary. In other words , errors in portfolio are unavoidable and it extensive diversification. Even investor wants that his basic amount of investment should remain safe. require Speculative investments involving possibilities of large profits or of large losses are not safe investment. Safe investment includes : Bank saving a/C, Certificate of Deposit, Govt. bonds, Mutual funds.

3. Profitability or Return Return is refers to return one get or realize on investments made- act of returning-Measure used to evaluate the efficiency of investment and amount of return- Profit expressed as a percentage of initial investment Return may be in the form of Interest- (Bank A/c, bonds)- Dividends(Shares), Capital Gain(sale of assets). Profitability= Total Revenue Earned Expenses

Return on investment isnt necessarily the same as profit. ROI deals with the money one invest in company and return one realize on that money based on net profit . Profit (owners equity) on the other hand measures the performance of business. In Individuals Investment point of view return is important. Entrepreneurs point of view whole business Profit is important than return on individual investment.

DIVERSIFICATION: Diversification is one of the most important principles of investment. It goes without saying that a well-diversified investment can give both safety and better returns. It is connected with a very old adage, Don't keep all eggs in one basket . A well-diversified portfolio of investments can average out the risk arising from one sector with returns from another sector. For those who don't have enough financial resources or those who cannot track the stock market on daily basis, SIP's of various mutual fund offers a great diversified platform for investment. The rule here is, Buy Right and Hold Tight .

Other Considerations Tax Implications 1. It Means Tax on income earned . If an investor owns investment which generates income he or she is taxed on that income in the year in which it s received. Investments should give better returns and the same time be tax efficient. It is a very rare combination but a few investment products da exist in the market but have lock-in period you have to stay invested for a minimum number of years. Ex: An ELSS (Equity Linked Savings Scheme) is a tax efficient investment product with average returns but has a lock-in period of minimum 3 years. Point to be noted: Investments should be more for the sake of wealth creation and not just with the objective of earning negligible returns and saving tax.

2. Rate of Interest Higher rate of interest reduce investment, because higher rates increase the cost of borrowing and require Investment to have a higher rate of return to be profitable. Rate of interest is a criteria that can be looked upon by an investor at the time of starting to invest. But in the longer run, it does not matter because, if the returns are to be good, there cannot be a guarantee of fixed rate. It is always a risk averse investment that specified the rate of interest. In all other cases of investments, the market performance of an investment product decides the rate of return. Hence, in all major investment products we find a disclaimer that, Investments are subject to market risks, please read the offer document carefully before investing and Past performance of the product can never be _ an indicator for its future returns .

3. Inflation It is a sustained rise in overall price level. It is the steady increase in the price of goods and services, people need more money to the same quantity of goods after inflation as the value of money decreases. Every informed investor will and should consider that inflation is the greatest enemy of any investment. The returns that are mentioned are usually before adjusting tax and inflation. A good investment will always beat the inflation hands down and provide handsome returns to the investors.

The investors should try to buy investment products with return that is equal to or greater than inflation. Eg: If ABC stock returned 4% and inflation was 5%, then the real rate of return on investment would be minus 1%(5%-4%). So the need of the hour is an investment which gives a better Net Adjusted Returns/Real Rate of return (which is efficient both from tax and inflation point of view). Net Adjusted returns after tax & Inflation Real rate of return = Rate of Return-Inflation rate-Tax rate

4. DISCIPLINE AND REGULARITY IN INVESTMENT: The most essential quality of a successful investor is the discipline and regularity in investment. Markets can tumble, share prices may go down, inflation may be at its peak or any other criteria, shouldn't affect an investor, Wait and watch and making the right investment decisions can surely help. Be disciplined and regular in investment as it will help average out the ups and downs of stock market. Start a SIP at a very young age with a reliable fund house and continue so for a period beyond imagination. After a decade or two, when we look back we would surely be happy that a right financial decision was taken and benefits can be reaped for times to come