3.
Mr. Girish who’s age is 29 years, is a shopkeeper in urban area in Jaipur city.
He earns and saves a good amount of money every month.
In his dependents he is having his wife (27 years).
He lives in Vishali nagar into his ancestral house and having one plot at kalwad
road as investment.
He Is young and and aggressive investor and planning to buy a SUV car in near
future.
He is also looking forward to invest a good amount of money for earnings and
corpus building
Case study
4.
Risk taker
One dependent
Aggressive investor
Young in age
Good amount of surplus income
Owns a home and investment in land
Having no children so no responsibility in near future
Risk profiling
(Mr. Girish)
5. Allocation of investments: Also known as asset allocation, this term refers to
the types of investments/asset categories you own and the percentage of each
you have in your investment portfolio.
Diversification: This is a risk management technique that mixes a wide variety
of investments to potentially minimize your investment risk.
Rupee cost averaging: An investment strategy used whereby an investor
purchases fixed investment amounts at predetermined times, regardless of the
price of the investment.
Investment strategies
https://www.wellsfargo.com/financial-education/investing/investment-types/
6. Bond: A debt instrument, a bond is essentially a loan that you are giving to the government or
an institution in exchange for a pre-set interest rate paid regularly for a specified term.
Stock: A type of investment that gives you partial ownership of a publicly traded company.
Mutual fund: An investment vehicle that allows you to invest your money in a professionally-
managed portfolio of assets that, depending on the specific fund, could contain a variety of
stocks, bonds, market-related indexes, and other investment opportunities.
Money market account: A type of savings account that offers a competitive rate of interest
(real rate) in exchange for larger-than-normal deposits.
Exchange-Traded Fund (ETF): ETFs are funds –referred to as baskets or portfolios of
securities – that trade like stocks on an exchange
Different types of investments
(substitutes)
7. A debt instrument issued for a period of more than one year with the purpose of raising capital
by borrowing.
The government, states, cities, corporations, and many other types of institutions sell bonds.
A bond is a promise to repay the principal along with interest (coupons) on a specified date
(maturity).
When an investor buys a bond, he/she becomes a creditor of the issuer. However, the buyer does
not gain any kind of ownership rights to the issuer, unlike in the case of equities.
On the hand, a bond holder has a greater claim on an issuer's income than a shareholder in the
case of financial distress (this is true for all creditors).
Bonds
8.
Bonds are often divided into different categories based on
Tax status,
Credit quality,
Issuer type,
Maturity,
Secured/unsecured.
Categories of bonds
9. A debenture is a medium to long-term debt instrument used by large companies to borrow
money, at a fixed rate of interest.
The legal term "debenture" originally referred to a document that either creates a debt or
acknowledges it.
A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the
company is liable to pay a specified amount with interest and although the money raised by the
debentures becomes a part of the company's capital structure, it does not become share capital.
Debentures
12. Interest rates when interest rates rise, bond prices fall. When interest rates fall, bond prices rise.
Example – You own a bond paying 3% interest. When interest rates are low – say 1% – your interest rate
is higher than the going rate. This makes your bond attractive to other investors. But if interest rates rise to
5%, your bond is less attractive.
Inflation when inflation is on the rise, bond prices fall. When inflation is decreasing, bond prices rise.
That’s because rising inflation erodes the purchasing power of what you’ll earn on your investment. In
other words, when your bond matures, the return you’ve earned on your investment will be worth less in
today’s dollars.
Credit ratings Credit rating agencies assign credit ratings to bond issuers and to specific bonds. A credit
rating can provide information about an issuer’s ability to make interest payments and repay the principal
on a bond. In general, the higher the credit rating, the more likely an issuer is to meet its payment
obligations
How Was the Return Planned?
16. Here Mr. Girish is a young investor with only one dependent and having a good amount of monthly
surplus. He is not having any sort of near future responsibility that means he can take a sufficient
amount of risk while making investment decisions.
More risk leads to more returns so investing his hard earned money into bonds and debentures is
not a good option, by doing that not only he is going to stuck his money and also not going to get
desired amount of return. On the other hand he can play in the market and can earn handsome
returns
In case if the investor is of older age and needing a secure investment options than only bonds and
debentures will work because he is not ready to make more risky investmentsHe needs a regular
income and capital protection.
Thus it depends on investors age and risk appetite to decide that bonds and debentures are good
investment options for him or not
Conclusion