Solution Manual for Financial Accounting, 11th Edition by Robert Libby, Patri...
Β
Personal investment
1. By Tax Team - ABM
Personal Investment
New methods of investment
2.
3. Old Methods
β’ Bank Deposits
β’ Purchase of Gold & Silver Ornaments & Utensils.
β’ Chit Fund
β’ Purchase of Land & Residential Property
β’ Purchase of Shares & Securities.
4. Pros & Cons of Old Methods
SN Method Pros Cons
1 Bank Deposits (a) Fixed rate of return (a) Return are not
(b) Safety matching with inflation
2 Purchase of Gold & Silver (a) Assured growth (a) Payment for
Ornaments & Utensils (b) Safety making charges is a
cost
(b) Risk of theft
(c) Impurity
3 Chit Fund (a) Good rate of return (a) Highly Insecure
4 Purchase of Land & (a) Assured Growth (a) Huge Investment
Residential Property (b) Safety (b) Slow moving
5 Purchase of Shares & (a) Good rate of return (a) Volatile & Risky
Securities.
5. Why new methods needed
β’ The return which are getting from secured mode of
investments are not matching with inflation.
β’ For Example A fixed deposit made for Rs. 10,000/- today
become Rs.16000/- after 5 Years, whereas what we can
purchase today for 10,000/- required Rs. 20,000/- after 5
Years.
β’ The return is preety smart in the case of unsecured mode
of investment but the risk involved is very high and it may
happen that a person will loose the principal amount also
β’ Hence, to meet the inflation we require mixed kind of
portfolio which will reduce the risk and increase the return.
6.
7. New Methods
β’ Investment in Mutual Fund via SIP
β’ Investment in Gold ETF through NSE
β’ Investment in Gold & Silver Units through NSEL.
β’ Investment in LIP
8. If you do not have time to learn analyzing
shares, invest in mutual funds through SIP
route
β’ Syatematic Investment Plans (SIPβs) are like a blessing for small
investors. People who do not have lot of fund can invest in
equity on monthly basis through SIP route. Systematic
Investment Plan allows small time investors to even invest
money as low as Rs. 1000/- per month. As on today diversified
equity fund SIPβs are the most popular among small investors.
SIP route of investing in equity linked mutual funds will give
advantages to small investors like rupee cost averaging which
has other benefits like compounding of money in times to come.
SIP Mutual Funds are perfect for those investors who have a
long term investing horizon or even for those investors who has
short term goals. For short term investors dividend option of
mutual fund will be a great alternative. Yearly (or even quarterly)
investors will get the dividends earnings in their pocket.
9. A new investment vehicle called as
Exchange Traded Fund (ETFβs) is great
for long term small investors
β’ ETF is a financial instrument that small investors has loved from
their core. Particularly index ETF have proved to be an instant
hit with small investors. Exchange Traded funds (ETFβs)
combines the advantages of shares and mutual funds. Investing
in ETF gives advantage of direct investing like shares and also
allows excellent investment diversification opportunity.
Exchange Traded Funds is perfect that let how the maket
behave they will always give average market returns to
investors
10. What is gold etf
β’ Gold ETF means Gold Exchange Traded Fund . In simple terms , it is a mutual fund for gold , like the
mutual fund which invests in shares on your behalf. This mutual fund- i.e Gold ETF β buy gold and
safe keep it on your behalf.When you want to sell , you can sell it on the recognised stock exchange .
If you want to get the gold in physical form, you can also get it .
β’ Which are Indian mutual fund managing Gold ETF ?
β’ In India , on the date , there are ten GOLD ETF listed on National Stock Exchange which is the only
stock exchange where Gold ETF are traded right now. All the usual big players of mutual fund
industry are also managing Gold ETF. Here is the list of listed Gold ETF as on 07/01/2011
β’ How can you buy or sell?
Purchase of Gold ETF are as simple as buying mutual fund units or shares. You can buy online from
these fund managers or many online broking firms like icicidirect and all major online broking firms. So
basically you need
β’ Demat account
β’ account with a broker who is a member of NSE to buy a Gold ETF.
β’ Some of the popular brokerage firms like ICICI Direct, HDFC Securities, KOTAK Securities, India
Infoline, Geojit, IndiaBulls, Sharekhan gives both the aforesaid facilities. So just open account with
them , and you can easily buy or seel from your home.
β’ How will I get the gold ?
β’ When you buy the units of GOLD ETF , the bought units are credited to your demat account. Each unit
represents roughly one gram. Therefore, if you have bought 100 units , it means you will get credit for
100 units of GIOLD ETF which represents 100 grams of gold.
β’ Can you convert your bought units from GoldETF in actual gold?
β’ Yes, you can c0onvert the bought units to actual gold at any point of time. So, in aforesaid example , if
you want to concert 100 units, you can get 10 grms from the fund which manages your GoldETF.
11. Process of investment
β’ The Investment should be on regular basis i.e on Monthly basis.
β’ The investment should be made irrespective of the market
conditions & other economic factor.
β’ The target of the investment should be long term & not short
term.
β’ This investments may not be usable during personal
emergencies.
12. How it works
β’ Once we start the investment on monthly basis, then we come to
a situation called βAverageβ.
β’ Each market moves on cycle, i.e ups & down is common.
β’ Again, due to inflation, the cycle will always move upwards only
β’
13. Investment in Mutual fund through SIP
Month NAV of the Investment Unit Market Value Actual
Mutual Fund Investment
1 Rs. 10 1000 100 1000 1000
2 Rs. 12 1000 83.33 2200 2000
3 Rs. 11 1000 90.91 3017 3000
4 Rs. 8 1000 125 3194 4000
5 Rs. 6 1000 167 3397 5000
6 Rs. 10 1000 100 6662 6000
7 Rs. 13 1000 77 9662 7000
The IRR for the above comes to 11%. The Average return of
SIP is 13-15%. However, there are some poor performer also.
14. Benefits of New Methods
β’ Via SIP Module , you will get benefit of higher return of share
market.
β’ Further, no extra knowledge or efforts required for investment
thru SIP.
β’ Invest in ETFF will be saving taxes
β’ Return in long term are tax free.
β’ Purchasing of Gold & Silver in Demat form will enable to buy
100% pure in value.
β’ This units & ETS are available in small denomination.
