14-08-2013, 03:29 PM
ANANLYSIS OF INVESTMENT OPTIONS
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ABSTRACT
The project “ANANLYSIS OF INVESTMENT OPTIONS” gives the brief idea regarding the 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. This project I have discussed about few investment options available.
Any investor before investing should take into consideration tae 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. In the present project, investment options are compared on the basis of returns as well as on the parameters like safety, liquidity, term holding etc. thus assisting the investor as a guide for investment purpose.
INTRODUCTION TO INVESTMENTS
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.
OBJECTIVE OF THE STUDY
The primary objective of the project is to make an analysis of various investment decision. The aim is to compare the returns given by 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 a reasonable understanding about the investment industry. The project work includes knowing about the investment DECISIONS like equity, bond, real estate, gold and mutual fund. All investment DECISIONS are discussed with their types, workings and returns.
METHODOLOGY
Equities, Bonds, Real Estate, Gold, Mutual Funds and Life Insurance were identified as major types of investment decision.
The primary data for the project regarding investment and various investment DECISIONS were collected through.
The secondary date for the project regarding investment and various investment DECISIONS were collected from websites, textbooks and magazines.
Then the averages of returns over a period of 5 years are considered for the purpose of comparison of investment options. Then, critical analysis is made on certain parameters like returns, safety, liquidity, etc. Giving weightage to the different type of needs of the investors and then multiplying the same with the values assigned does this.
INVESTMENT DECISIONS
Introduction
These days almost everyone is investing in something… even if it’s a savings account at the local bank or a checking account the earns interest or the home they bought to live in.
However, many people are overwhelmed when they being to consider the concept of investing, let alone the laundry list of choices for investment vehicles. Even though it may seem the everyone and their brothers knows exactly who, what and when to invest in so they can make killing, please don’t be fooled. Majorities of investor typically jump on the latest investment 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 vitally 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 are 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. If you do not want risk, the volatility and simply desire some income, then you should consider fixed income securities. However, remember that risk and returns are directly proportional to each other. Higher the risk, higher the returns.
ALL ABOUT 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 shareholders.
Some companies are privately held, which means the shares are available to a limited number of people, such as the company’s founders, its employees, and investors who fund its development. Other companies are publicly traded, which means their shares are available to any investor who wants to buy them.
The IPO
A company may decided to sell stock to the public for a number of reasons such as providing liquidity for its original investor or raising money. The first time a company issues stock is the initial public offering (IPO), and the company receives the proceeds from that sale. After that, shares of the stock are treaded, or brought and sold on the securities markets among investors, but the corporation gets no additional income. The price of the stock moves up or down depending on how much investors are willing to pay for it.
Occasionally, a company will issue additional shares of its stocks, called a secondary offering, to raise additional capital.
Types Of Stocks
With thousands of different stocks trading on U.S. and international securities markets, there are stocks to suit every investor and to complement every portfolio.
For example, some stocks stress growth, while others provide income. Some stocks flourished during boom time, while others may help insulate your portfolio’s value against turbulent or depressed markets. Some stocks are pricey, while others are comparatively inexpensive. And some stocks are inherently volatile, while others tend to be more stable in value.
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.
A stock may be split 2 for 1, 3 for 1, or even 10 for 1 if the company wishes, though 2 for 1 is the most common.
All ABOUT BONDS INVESTMENT
Have you ever-borrowed money? Of course you have whether we hit our parents up for a few bucks to buy candy as children or asked the bank for a mortgage most of us have borrowed money at some point in our lives.
Just as people need money so do companies and governments. A company needs funds to expand into new markets, while governments need money for everything from infrastructure to social programs. The problem large organizations run into is that they typically need far more money than the average bank can provide. The solution is to raise money by issuing bonds (or other debt instruments) to a public market. Thousands of investors then each lend a portion of the capital needed. Really a bond is nothing more than a loan for which you are the lender. The organization that sells a bond is known as the issuer. Your can think of a bond as an IOU given by a borrower (the issuer) to a lender (the investor).
Of course, nobody would loan his or her hard-earned money for nothing. The issuer of a bond must pay the investor something extra for the privilege of using his or her money. This ‘extra’ comes in the form of interest payments, which are made at a predetermined rate and schedule. The interest rate is often referred to as the coupon. The date on which the issuer has to repay the amount borrowed (known as face value) is called the maturity date. Bonds are known as fixed-income securities because you know the exact amount of cash you’ll get back if you hold the security until maturity. For example, say you buy a bond with a face value of $1000 a coupon of 8% and a maturity of 10 years. This means you’ll receive a total of $80 ($1000*8%) of interest per year for the next 10 years. Actually because most bonds pay interest semi-annually you’ll receive two payments of $40 a year for 10 years. When the bond matures after a decade, you’ll get your $1000 back.
Coupon (The Interest Rate)
The coupon is the amount the bondholder will receive as interest payments. It’s called a ‘coupon’ because sometimes there are physical coupons on the bond that you tear off and redeem for interest. However this was more common in the past. Nowadays records are more likely to kept electronically.
As previously mentioned most bonds pay interest every six months but it’s possible for them to pay monthly, quarterly or annually. The coupon is expressed as a percentage of the par value. If a bond pays a coupon of 10% and its par value is $1000 then it’ll pay %100 of interest a year. A rate that stays as a fixed percentage of the par value like this is a fixed-rate bond. Another possibility is an adjustable interest payment known as a floating-rate bond. In this case the interest rate is tied to market rates through an index such as the rate on Treasury bills.
You might think investors will pay more for a high coupon than for a low coupon. All things being equal a lower coupon means that the price of the bond will fluctuate more.
Maturity
The maturity date is the date in the future on which the investor’s principal will be repaid. Maturities can range from as little as one day to as long as 20 years (though terms of 100 years have been issued).
A bond that matures in one year is much more predictable and thus less risky than a bond that matures in 20 years. Therefore in general the longer the time to maturity the higher the interest rate. Also all things being equal a longer-term bond will fluctuate more than a shorter-term bond.
Price in the Market
So far we’ve discussed the factors of face value, coupon, maturity, issuers and yield. All if these characteristics of a bond play a role in its price, However, the factor that influences a bond more than any other is the level of prevailing interest rates in the economy. When interest rates rise, the prices of bonds in the market fall, thereby raising the yield of older bonds and bringing them into line with newer bonds being issued with higher coupons. When interest rates fall the prices of bonds in the market rise, thereby lowering the yield of the older bonds and bringing them into line with newer bonds being issued with lower coupons.