Page 100 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Unit 5: Investment Vehicles

Where, Notes
R = Personal Return of investor
1
R = Mutual Fund earnings
2
Effective Yield on Mutual Fund Investment

Dividend + Capital Appreciation 365
= × × 100
Initial Investment No. of days

Self Assessment

Fill in the blanks:
6. A ..................... is a trust that pools the savings of a number of investors who share a
common financial goal.

7. A Mutual fund is the most suitable investment for the common man as it offers an
opportunity to invest in a ..................... basket of securities at a relatively low cost.
8. A ……………………..is one that charges a percentage of NAV for entry or exit.

9. Most …………………have service centres/authorised agents/brokers across the country
through whom you can invest in mutual funds.
10. ……………………..instruments in India typically include company bonds, fixed deposits
and government schemes.

5.5 Other Types of Investment Vehicles

The investment options before you are many. Pick the right investment tool based on the risk
profile, circumstance, time zone available etc. If you feel market volatility is something which
you can live with then buy stocks. If you do not want to 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. A brief
preview of different investment options is given below:
Equities: Investment in shares of companies is investing in equities. Stocks can be bought/sold
from the exchanges (secondary market) or via IPOs – Initial Public Offerings (primary market).
Stocks are the best long-term investment options wherein the market volatility and the resultant
risk of losses, if given enough time, is mitigated by the general upward momentum of the
economy. There are two streams of revenue generation from this form of investment.
1. Dividend: Periodic payments made out of the company’s profits are termed as dividends.
2. Growth: The price of a stock appreciates commensurate to the growth posted by the
company resulting in capital appreciation.
On an average an investment in equities in India has a return of 25%. Good portfolio management,
precise timing may ensure a return of 40% or more. Picking the right stock at the right time
would guarantee that your capital gains i.e. growth in market value of your stock possessions,
will rise.
Bonds: It is a fixed income (debt) instrument issued for a period of more than one year with the
purpose of raising capital. The central or state government, corporations and similar institutions
sell bonds. A bond is generally a promise to repay the principal along with fixed rate of interest
on a specified date, called as the maturity date. Other fixed income instruments include bank
fixed deposits, debentures, preference shares etc.

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