Page 53 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management

Notes proportion to their investments. The mutual funds normally come out with a number of schemes
with different investment objectives which are launched from time to time. A mutual fund is
required to be registered with Securities and Exchange Board of India (SEBI) which regulates
securities markets before it can collect funds from the public. Basically, mutual funds are
functioning as a financial institution to mobilize resources from various investors to invest
them in financial assets, since the average investor does not have the necessary resources, time,
knowledge and expertise to participate in today’s complex and volatile investment markets.
Further, the mutual fund ensure its participants a professional management for portfolio selection,
diversify the investment in large number of companies and selects various forms of securities
viz., shares, debentures and bonds. Mutual funds do not determine an investor’s risk preference.
But once he determines his risk-return preferences, an investor can choose a mutual fund from
a large and growing variety of alternative funds designed to meet almost any investment goal.
In other words, each mutual fund has its own investment objective such as capital appreciation,
high current income or money market income. A mutual fund will state its own investment
objective and investors as a part of their own investment strategies, will choose the appropriate
mutual fund in which to invest.
1. Unit Investment Trusts (UITs): These instruments resemble mutual funds in that each unit
of the trust represents a portion of each security that is held within the portfolio. However,
they are more tax-efficient than actively managed funds, although they may post substantial
gains or losses when the trust matures.
2. Variable Annuity Sub accounts: These are essentially clones of taxable retail funds, but
must be treated and reported as separate securities for regulatory reasons. Variable sub
accounts have most of the same disadvantages as open-ended funds except that they do not
post capital gains distributions.
3. Closed-End Mutual Funds: These funds have a limited number of shares than can be
issued to investors. Once all of the shares are sold, the fund is closed to new investors and
the shares begin trading in the secondary market.
4. Exchange-Traded Funds (ETFs): Although this class of fund is still the new kid on the
block, ETFs have quickly become very popular with serious investors for a number of
reasons. As their name implies, these funds trade like stocks on the major exchanges and
can be sold like any other security while the markets are open. They provide liquidity,
diversity and some degree of professional management as well as tax efficiency in most
cases. They can be ideal instruments for tax-loss harvesting.

Investments in Gold Deposit Scheme

It is controlled by SBI; Gold Deposit Scheme was instigated in the year 1999. Investments in this
scheme are open for trusts, firms and HUFs with no specific upper limit. The investor can
deposit invest minimum of 200 gm in exchange for gold bonds holding a tariff free rate of
interest of 3% - 4% on the basis of the period of the bond varying with a lock in period of 3 to 7
years.
Moreover, Gold bonds are not entitled of capital gains tax and wealth tariff. The sum insured can
be accrued back in cash or gold, as per the investor’s preference.

Investments in Real Estate

Indian real estate industry has huge prospects in sectors like commercial, housing, hospitality,
retail, manufacturing, healthcare etc. Calculated realty demand for IT/ITES industry in 2010 is
estimated at 150mn sq.ft. around the chief Indian cities. Termed as the “money making industry”,
realty sector of India promises annual profits of 30% to 100% through real estate investments.

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