Page 52 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 1: Introduction to Capital Market

Investments in Public Provident Fund (PPF) Notes

Like NSC, Public Provident Fund (PPF) is also supported by the Indian government. An
investment of minimum 500 and maximum 70, 000 is required to be deposited in a fiscal
year. The prospective investor can create it PPF account in a GPO or head post office or in any
sub-divisions of the centralized bank.
PPF also falls under Section 80C of IT Act so investors could gain income tax deduction of up to
1, 00,000. The rate of interest of PPF is evaluated yearly with a lock in tenure of maximum 15
years. The basic rate of interest in PPF is 8%.

Investments in Stock Market

Investing in share market yields higher profits. Influenced by unanticipated turn of market
events, stock market to some extent cannot be considered as the safest investment options.
However, to accrue higher gains, an investor must update himself on the recent stock market
news and events.

Investments in Mutual Funds

Mutual Fund firms accumulate cash from willing investors and invest it in share market. Like
stock market, mutual fund investment are also entitled for various market risks but with a fair
share of profits. As defined in the pamphlet of the Association of Mutual Funds in India (AMFI),
“A mutual fund is a trust that pools the savings of a number of investors who share common
financial goal Anybody with an investible surplus of as little as a few thousand rupees-can
invest in \mutual funds. These investors buy units of a particular mutual fund scheme that has
a defined investment objective and strategy.” According to SEBI Regulations, 1996, “Mutual
fund means a fund established in the form of a trust to raise monies through the sale of units to
the public or a section of public under one or more schemes for investing in securities, in
accordance with Regulations”. Investment is the sacrifice of certain present value of the uncertain
future reward. It involves the decisions like, where to invest, when to invest and how much to
invest. In the last few years, there have been a variety of investments that have been made
available to choose from. Mutual Fund is one form of them. It is one of those areas of financial
services which has grown rapidly and is playing a significant role in mobilizing individual
saving and providing stability to the Indian capital market. Mutual Fund, a financial innovation,
provides for a novel way of mobilizing savings from small investors and allowing them to
participate in the equity and other securities of the industrial organisations with less risk. A
Mutual Fund is a trust that pools together the savings of a number of investors who share a
common financial goal. They buy units of a fund that best suits their needs. The Fund Manager
then invests this pool of money (called a corpus) in securities ranging from shares to debentures
to money market instruments depending on the objective of the scheme. The income earned
through this investment and the capital appreciation realised by the scheme, are distributed
amongst the investors in proportion to the number of units they own by way of dividend or Net
Asset Value (NAV) appreciation. Thus, a mutual fund is the most suitable form of investment for
the common man as it offers an opportunity to invest in a diversified, professionally managed
basket of securities at a relatively low cost. Mutual Fund is a mechanism for pooling the resources
by issuing units to the investors and investing funds in securities in accordance with objectives
as disclosed in offer document. Investments in securities are spread across a wide cross-section
of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all
stocks may not move in the same direction in the same proportion at the same time. Mutual fund
issues units to the investors in accordance with quantum of money invested by them. Investors
of mutual funds are known as unit holders. The profits or losses are shared by the investors in

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