Page 76 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Unit 4: Measuring Investment Return

Optionally convertible debentures provide an option to the debenture holder, to convert Notes
or not to convert. They usually carry an interest rate that they keep on paying if the
investor decides not to convert these into equity shares because the market price of the
shares is less than the conversion price.
Foreign Currency Convertible Bonds (FCCBs) are exactly like optionally convertible
debentures with the difference that these are offered only to overseas investors.
4. Social Security Funds: Household sector savings in the form of social security funds,
which include savings in insurance and in provident and pension funds, constitute the
second major category of financial savings next only to deposits.
Household sector savings in the form of insurance comprise of the life funds of Life
Insurance Corporation of India (LIC), Postal Insurance, State Insurance Fund and Central
Government Group Insurance Funds.

Various National Savings Schemes have been introduced from time to time to mobilise
public savings for financing the economic development plans. These schemes have
been very popular in view of tax benefits enjoyed by them. Unlike commercial bank
schemes, these schemes are uniform all over the country. Again, the interest is paid on
completed years, no payment being admissible for broken periods of a year. Premature
encashment is discouraged. Some of the schemes are offered through the State Bank of
India/nationalised banks. The national savings certificates sold through the SBI are
designated as “Bank Series”. Unlike commercial banks schemes, nomination facility is
available for all the National Savings Schemes. Accounts can also be transferred from one
post office to another. Further, many of these savings certificates can be pledged as security,
towards loan guarantee.
5. Fixed Income Securities: Fixed income securities consist of government securities, corporate
securities and PSU bonds. Securities issued by the Central Government, State Governments,
semi-government authorities, autonomous institutions like part trusts, electricity boards,
public sector financial institutions and other public sector units are broadly known as gilt-
edged securities. Gilt-edged securities include treasury bills and dated securities.
6. Bullion/Gold, Silver, and Platinum: From times immemorial gold and silver have
constituted important media for investment from the points of view of both capital
appreciation and liquidity. But these precious metals do not yield any current return. In
fact, there is a cost, even if modest, in holding bullion; capital appreciation could also be
on some equity shares besides a current return.
(i) Gold: The monthly average price of gold in the Mumbai market recorded a sharp rise
of ` 9,200 per 10 grams in March 2007 as compared to 27 years ago. Presently,
investment on gold (not in jewellery) is a good investment. The rally in gold prices
during the second half of 2006-07 in the national and international markets could be
largely attributed to supply-demand imbalances. On the supply side, a deceleration
in gold production in major gold producing countries and a virtual stoppage of sale
of official gold holding by central banks reduced the supply in the market. On the
demand side, investors’ disappointment with global equity markets and
apprehension regarding future inflation following the Federal Reserve’s lowering
of the short-term lending rate led to a sharp increase in demand for the yellow
metal.

(ii) Silver/Platinum: Silver prices in the domestic market in Mumbai fluctuated in a narrow
range during April-December 2006, but soared during January through early April
2007. It increased thereafter and this trend continued till May 2007. Silver and
Platinum became major investment avenues in our country.

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