This document summarizes various money market instruments and investment avenues. It discusses traditional money market instruments like treasury bills, certificates of deposit, and commercial paper. It also discusses modern money market instruments like repo instruments, money market mutual funds, and inter-corporate deposits. Equity investments discussed include stocks, limited partnerships, private placements, and American/global depository receipts. Preferred stocks and hybrid securities are also summarized. Real estate investments are noted to provide capital appreciation, income from rents, and tax benefits.

1. INVESTMENT AVENUES
Money market instruments:
Definition: As per RBI definitions “A market for short terms financial assets that are
close substitute for money, facilitates the exchange of money in primary and secondary
market.”
Meaning: A segment of the financial market in which financial instruments with high
liquidity and very short maturities are traded.(less than one year)
It does not actually deal in cash or money but deals with substitute of cash like trade bills,
promissory notes etc which can be converted into cash without any loss at low transaction
cost.
Advantages / uses / features of money market instruments:
They are very useful for over coming short term deficits. In case of an immediate cash
crunch, a trader can make use of money market instruments to raise funds at short notice.
These instruments are readily convertible into cash at short notice with very low
transaction costs.
To enable the Central Bank to influence and regulate liquidity in the economy through its
intervention in this market.
To provide a holding place to employ short term surplus funds. Short term surplus funds
can be effectively employed in such a manner. These instruments have a very short
maturity period and hence can be traded and liquidated whenever the need arises.
Types of money market instruments :
Traditional instruments:
• Treasury Bills
• Money at call and short notice
• Banker’s acceptance
Modern Instruments:
• Commercial Papers
• Repo Instruments
• Money Market Mutual Funds
• Inter-Corporate Deposits
• Euro Dollar

2. 1. Treasury Bills :
Treasury Bills are money market instruments to finance the short term requirements of
the Government. These are discounted securities and thus are issued at a discount to face
value. The return to the investor is the difference between the maturity value and issue
price.
Features:
1) No TDS: there is any tax deductible at source. The company doesn’t pay
tax before giving the returns to the investor.
2) Zero Default Risk: There is no risk of default as these instruments are
backed by the Govt of India and hence the investor would always be
assured of getting atleast the money he invested back.
3) Highly Liquid: These instruments can be quickly converted into cash with
very low transaction costs and hence make for an excellent short term
investment.
2 . Money at Call & short notice :
Next in liquidity after cash, money at call is a loan that is repayable on demand, and
money at short notice is repayable within 14 days of serving a notice.
Features :
1) Interest Rates are charged as per Market Condition.
2) Involves Transaction Cost : At the time of liquidation; the investor has to
pay a high amount as transaction cost.
3) Highly effective in Banking transactions.
3. Banker’s Acceptance :
 It is like a post dated cheque.
 A banker's acceptance, or BA, is a negotiable instrument or time draft drawn on
and accepted by a bank.
 The rates at which they trade are called bankers' acceptance rates

3. Features :
1) Maturity period is about 6 months.
2) Generally used in International Business.
Modern Instruments :
1. Repo Instruments :
A form of short-term borrowing for dealers in securities. The dealer sells the
securities to investors, usually on an overnight basis, and buys them back on the
agreed date.
For the party selling the security (and agreeing to repurchase it in the future) it is a
repo; for the party on the other end of the transaction, (buying the security and
agreeing to sell in the future) it is a reverse repurchase agreement.
Features :
1) Helps in liquidity management and speculation
2) Involves bankers as middleman
3) Generally used by commercial banks.
2. Money Market Mutual Fund :
An open-end mutual fund which invests only in money markets.
These funds invest in short term (one day to one year) debt obligations such
as Treasury bills, certificates of deposit, and commercial paper. The main goal is the
preservation of principal, accompanied by modest dividends.
Features :
1) It helps in capital preservation as the risk is shared by all.
2) Dividends received here are quite modest.

4. 3. Inter corporate Deposits :
An ICD is a loan extended by one corporate to another.
ICDs are crucially dependent on personal contacts.
Sec. 372A of Companies Act must be considered.
Features :
1) These instruments involve high risk and consequently high rewards.
2) Meant for solving temporary capital crisis.
3) The period of such deposit is generally 3 months.
4. Euro Dollar :
Contrary to the name, Eurodollars have very little to do with the euro or European
countries. Eurodollars are U.S.-dollar denominated deposits at banks outside of the
United States.
This market evolved in Europe (specifically London), hence the name, but
Eurodollars can be held anywhere outside the United States.
Features:
1) Bankers Opt for this market to operate on narrow margin than their
counterparts in US.
2) They are relatively safe since they are backed by US dollar denominated
deposits.
3) Return on these instruments is about 2-3%.
Equity Investments:
Stock:
• Original capital paid or invested into the business by its founders.
• Serves as security for creditors of the business
• Types:
– EQUITY OR COMMON STOCK
– PREFERRED STOCK OR PREFERENCE SHARES

5. Equity Capital:
• Risk: Since the investor has ownership rights; the risk faced by the investors is
obviously high.
• No preferential rights: At the time of winding up of the company, the equity
share holders are not given preferential rights for repayment of funds.
• Voting rights : They have voting rights. All major company decisions cannot be
taken without the consent of the equity share holders.
• Tax treatment:
– Dividends are tax free in the hands of shareholders
– After October 1, 2004 equity share sold through a recognized stock
exchange would be entitled for an exemption from the Long Term Capital
Gains provided STT (Securities Transaction Tax)has been paid
OPTIONS RELATED TO EQUITY SHARES
1. LIMITED PARTNERSHIP
– A limited partnership (LP) consists of two or more persons, with at least
one general partner and one limited partner.
– It is a separate entity and files taxes as a separate entity.
– Created by statute (Revised Uniform Limited Partnership Act)
– General Partners pay the Limited Partners a return on their investment.
– Tax treatment:
• LPs and general partnerships have been accorded the same tax
treatment.
• Taxation is in the hands of the entity, profit accruing is exempt
from tax
• Remuneration of partners, taxed under ‘income from business and
profession’
• Conversion from general to LLP- no tax obligation provided the
rights & obligations remain same.

6. 2. PRIVATE PLACEMENT
– Issue of shares or of convertible securities by a company to a select group
of persons under Section 81 of the Companies Act, 1956
– Types:
• Preferential allotment
• Qualified institutional placement
3. DIVIDEND REINVESTMENT PLAN (DRIP)
– Equity investment option offered directly from the underlying company.
– Returns from dividends immediately invested for the purpose of price
appreciation
– No brokerage fees
– Tax treatment :
• No tax deductions or rebates given.
ADR, GDR and IDR :
• Negotiable certificates or financial instruments that provide investors ownership
rights to stocks or bonds in a foreign country
• Foreign Venture Capital Investors (FVCIs) and Venture Capital funds (VCFs)
would not be eligible to invest in IDRs.
• No tax exemption or rebate available for these instruments
PREFERRED STOCK
• They have a prior claim on the assets of the company in the event of liquidation
• Less risky
• Types:
– Cumulative or non- cumulative : The dividend if not paid in case of a
cumulative preference shares accumulates and is paid at a later date.
– Redeemable or non- redeemable : irredeemable preference shares are no
longer in existence.
– Participating or non-participating : this implies having voting right and not
having them
– Convertible & Non convertible : into equity shares
• Tax treatment:
– Classified as ‘franked investment income’
– No standard rate tax to be paid on the income

7. HYBRID SECURITIES
• Combines the elements of the two broader groups of securities DEBT and
EQUITY
• Predictable return until certain date
• Options available at maturity
• Examples:
– Preference shares
– Convertible/ exchangeable bond
– Warrants
– Options
• Tax treatment:
– Based on the different hybrid securities used
Miscellaneous Investment Options
Characteristic Features of Real Estate Investments and Markets
I. Capital appreciation
Real estate appreciates in capital - particularly land and property.A key aspect of the
capital appreciation is that, it can be realised only when it is sold. This has to be factored
in before making an investment decision. The capital appreciation of the house can
favorably be used in the form of a mortgage loan for business purpose or in the form of a
reverse mortgage post retirement.
II. Risk
The risk with real estate is that it can go down sharply too. The current worldwide
economic turmoil is because of real estate prices dropping more than the expectation. The
other risk is related to its liquidity itself. Real estate prices in India do not have a
formal/scientific basis for quoting. Brokers are the key pins holding the structure
together.

8. III. Liquidity
Real estate is probably the most illiquid of all common investment avenues. If there is an
urgency to sell a property the value could drop drastically. Selling at 'Market Price' is
counted in number of months not days.
IV. Tax treatment
Real estate attracts capital gains tax. The advantage is that we can use indexation benefits
to our advantage. The indexation index is announced every year by the income tax
department. This is a number, which links the inflation to property values. By using
indexation, we can estimate the true appreciation of the real estate after adjusting for
inflation.
The tax on the sale of the only house or agricultural property can be brought down to zero
by reinvesting the sale proceeds in a new house or agricultural property. The capital gains
can also be invested in low interest yielding Capital Gains Bonds.
V. Convenience
Real estate has a low level of convenience. It requires a large corpus for investment
leading most of the investors to take up loans. There are a few marketing companies that
sell land in installments. However, the overall cost for such deals is very high compared
to one-time payments. The decision after buying a property cannot be reversed quickly or
economically. The cost for registration, brokerage charges and taxes prevent us from
getting rid of a wrong purchase quickly.
2. Antiques :
The market seeks the rare and one of a kind. Antiques offer a unique opportunity for
investors because they can perform double duty as an investment and a home decoration.
But when keeping investment grade antiques in the home, investors need to take some
precautions. Special care and cleaning is likely to be required, and there are many books
on these subjects that can be used for reference. Possibly the most important thing is
insurance. Valuable antiques must be specifically insured, rather than simply included as

9. part of a general home insurance policy, if investors want to receive the item’s full value
should the worst occur. Typically insurance companies will require appraisals of the
items in question to confirm the value. A certified appraiser can provide the necessary
legal documents.
Antiques have the potential to provide impressive returns for those who truly love them
and are willing to put in the time and effort required to learn the ins and outs of the
market. Ultimately, antiques are a lifestyle investment. Authorities agree that art and
antiques are vulnerable to fluctuations in public tastes and other factors. They can be
high-risk speculative investments, if buyers expect too much return.
3. Wine
Benefit to wine investment is there is less tax pay. Capital gains tax is not paid on wine,
as it is classed as a 'wasting' asset. Nor is income derived from selling wine taxed as
income.
Also, as with art and antiques, wine is not for the short term. Investments are over the
long term, with a very the minimum of three years,. Over the first seven years the wine
matures, from ten to 15 years it is drinkable.
However, wine investments are usually the last to suffer in recession and the first to
recover – despite fears a global economic downturn will sour the demand for wine right
around the world.
However, investors need to be aware the sector is not regulated by the financial services
industry, and there are "ethically challenged" operators out their cold-calling investors
selling wine at inflated prices, in some case double the true cost of the wine.

10. 4. Coins :
Apart from US, Canada and UK, where coin collecting is already matured, Coin
collecting is growing fast in Australia and Europe. In fact, Europe has a huge potential
with its fast growing economy and amazing history of coins.
How an Investment in Rare Collectible Coins Offers Both Diversity and Profits
It’s a clear fact that the coin market moves in cycles. Both internal and external forces
cause this cyclical behavior. Internal forces are constantly working within the rare coin
investing market.
Like all markets stocks, markets, commodities, currencies, commercial real estate and so
on the coin investing market reacts to the price-driven, internal forces of the
supply/demand equation. People buy coins until prices get way too high, and then they
sell coins until prices get way too cheap. The market builds momentum going each way.
The cycle repeats itself again and again.
There are four major external forces that can apply pressure to the prices of rare
collectible coins. In order of importance, they are:
1. Government coinage policies and promotions
The government’s coinage policies and promotions have a tremendous impact on
people’s desire and ability to collect coins.
2. What Inflation Means for Your Coin Investment
Rare coins are an excellent inflation hedge. In the past, the rare collectible coin market
has always done very well in periods of increasing inflation.

11. 4. Gold and silver prices
The fluctuations in gold and silver prices have had a clear impact on the rare collectible
coin market. Investing in coins can also bode well even without huge moves in gold and
silver.
Five Important Advantages of Rare Collectible Coin Investments
1. Liquidity
Rare coins are the most liquid of all collectibles. When the time comes to sell your coins,
you can expect and receive immediate payment
2. Diminishing Supply
This is a subtle yet very important coin investment advantage. The supply of rare coins is
diminishing daily. This is a sharp contrast to other investments First, any increase in
demand makes price increases inevitable. The supply of coins cannot be increased to
meet the new demand. The only way new demand can be satisfied is with higher prices.
Second, a limited supply reduces the downside risk. As prices come down, production
gluts (as in the oil market) do not depress prices further and hinder a price recovery. In
fact, in the rare coin investment market, low prices tend to drive coins off the market.
3. Affordability
A painting can cost lakhs of rupees or more. But rare collectible coins seldom cost more
than a few lakhs.
4. Favorable Tax Treatment
This is a seldom talked about (but significant) advantage of coin investing, offered by the
rare collectible coin market. You do not have to pay taxes on your rare coin profits until
you actually sell the coins

12. 5. Gold :
Of all the precious metals, gold is the most popular as an investment. Investors generally
buy gold as a hedge or safe haven against any economic, political, social or currency-
based crises. These crises include investment market declines, burgeoning national debt,
currency failure, inflation, war and social unrest. Investors also buy gold early in a bull
market and sell it before a bear market begins, in an attempt to gain financially.
Commodities like gold are a hedge against inflation. This is mainly because the factors
that affect the prices of gold are different from those that impact the prices of other assets
like equities for instance. Gold is a storehouse of value. When uncertainty afflicts global
markets, investors prefer to take refuge in gold because in times of inflation (i.e. fall in
purchasing power), gold prevents erosion in the value of the purchasing power.
Forms of Gold investments
1. Biscuits and Bars
2. Exchange-traded funds
3. Certificates
A certificate of ownership can be held by gold investors, instead of storing the actual gold
bullion.
4. Accounts
Most Swiss banks offer gold accounts where gold can be instantly bought or sold just like
any foreign currency.
5. Derivatives
Derivatives, such as gold forwards, futures and options, currently trade on various
exchanges around the world and over-the-counter (OTC) directly in the private market.
6. Jewellery: The most traditional and the dominant form of buying gold in India
Polished and rough diamonds lack some of the desirable attributes of investment
vehicles, including liquidity, homogeneity and fungibility. Grading and certification by
recognised laboratories goes some way to redressing this.

13. However diamonds can never be commoditized sufficiently to allow efficient and
sufficiently liquid markets. This does not mean, however, that diamonds can never be
used or considered as investments. The very lack of liquidity itself could be used by a
speculator who was prepared to make a market in diamonds. Any such investor would
need to ensure that he maintained sufficient personal liquidity to avoid distress selling,
except by others. Such an investor would need to expend effort to market his stock, and
to advertise his readiness to buy and would effectively become a trader rather than
investor.
6. Arts & Paintings :
There is a long history of individuals and retailers actively trading old master paintings,
classical sculptures, ceramics, coins, drawings, antique furniture and other upmarket
collectibles. Traditionally, however, there has been little interest in operation of a
commercial fund that invested in art works rather than in shares, bonds or real estate and
that provided superior financial rewards for investors by trading those works.
Provident Fund :
This is covered under the Employees Provident Fund and Miscellaneous Provisions
Act of 1952.
Types of Provident Fund :
• Statutory provident fund
• Recognized provident fund
• Unrecognized provident fund
• Public provident fund

14. Applicability
All the establishments employing 20 or more persons (5 or more incase of
Cinema Theatres) have to provide for contributions to the above mentioned Provident
Funds or one can opt for it voluntarily also.
Provident fund –as an investment option
It is an investment option that can be very useful in the long run.
Benefits :
• Since the amount is automatically deducted from salary, it is a sort of forced
saving imposed on employees. The employees automatically save money which
will come in handy for them in times of need.
• It is a simple and sturdy investment. Many people use this money to set up a life
after retirement. The EPF scheme also takes care of housing, education of
children, financing of insurance policies and medical care.
• Decent return of 8 to 12% on investment is another advantage and also the risk
involved is quite minimum.
• EPF & PPF schemes offer the highest risk-adjusted returns among all fixed-
income instruments.
• It is gilt-edged, meaning it is backed by the government, hence the money
invested is safe.

15. Disadvantages
• The rate of return is not as high as what you would get from high-risk investments
such as shares and mutual funds
• Withdrawals in PPF are allowed only after the completion of four years of the
account. However, liquidity in this instrument is poor as it is difficult to get the
withdrawals done
• The biggest drawback is that individuals get the option of withdrawing the whole
amount in EPF account on termination of or resignation from a job.
• In an era when highly-skilled employees like to hop, this can turn out to be a
disaster. Withdrawals at each job switch may not allow a corpus to be built and
the power of compounding to work.
Taxability
The withdrawals are exempt from tax if the concerned employee has rendered
continuous service of more than 5 years. Otherwise, it would be taxable at the applicable
slab rates.
Mutual Funds :
• Investors purchase mutual fund shares from the fund itself.
• The price that investors pay for mutual fund shares is the fund's per share net asset
value (NAV).
• Mutual fund shares are “redeemable”
• There is an opportunity to create and sell new shares to accommodate new
investors.

16. • mutual funds typically are managed by separate entities known as "investment
advisers"
Advantages :
• Diversification : There is an opportunity to invest in a number of blue chip
comoanies which would ensure a fairy good and dependable rate of return.
• Cost advantages : The risk is split between all. Hence it works out advantageous
for the investors.
• Managerial expertise : The presence of expertise in deciding which fund to
invest in is another very useful aspect of the same as an investment avenue.
Types :
• Open end funds - purchase and sell any time
• Close ended funds - no repurchase by funds
• Exchange traded funds – mimic indexes
• Hedge funds – large investment outlay
Returns to investors is in the form of :
1. Dividends/ coupon payments
2. Capital gains from sale of securities within the fund.
3. Mutual Fund share price appreciation.

17. Post Office Savings Account
This scheme helps individuals, house-wives, minors and others in inculcating a habit of
thrift in themselves. The salient features of Post Offices Savings accounts are as under:
Who can open?
Any resident adult individual singly or jointly with one or two other adults. Minor's
accounts can be opened through guardians. A minor, who has attained 10 years age, can
also open the account.
Minimum amount
Rs. 50/- in case of account without cheque book facility.
Rs. 500/- in case of account with cheque book facility.
Maximum amount
Rs. 1,00,000/- in case of a single account. Rs. 2,00,000/- in case of joint accounts
Interest Rate
Current Interest Rate for the Post Office Savings Bank Account is 3.5 per cent.
The interest for a month is calculated on the lowest balance at credit of an account
between the close of the tenth day and end of the month. Such interest is calculated and
credited in the account at the end of each year.
Nomination facility
There is nomination facility available.
Transferability
Transferablity is possible.
Interest Taxability
The interest earned is exempt under section 10(15)(i).
Other Features :
Only one single and one joint account can be opened at one post office.
No interest is payable for the balance less than Rs.50 in any particular month and for the
balance more than Rs.1,00,000/- in a single account and Rs.200,000 in a joint account in
a year.

18. Post Office Recurring Deposit Scheme
Post Office Recurring Deposit Scheme provides the facility of saving small sums of
money every month to meet future financial goals and earn relatively higher risk free
returns.
The salient features of the scheme are :
Who can open?
Any resident adult individual singly or jointly with one or two other adults. Minor's
accounts can be opened through guardians. A minor, who has attained 10 years age, can
also open the account.
Minimum amount
Monthly Rs. 10/-
Maximum amount
Any amount in multiples of Rs. 5/-
Interest Rate:
The interest paid varies as declared by the Directorate, Small Savings from time to time.
Interest Taxability
The interest received is taxable.
Other Features :
The amount of deposit made at the time of opening of the account cannot be varied.
The Recurring Deposit Account matures on the date on which it is opened after the end of
the term. In case the date of maturity falls on Sunday or postal holiday, the payment
becomes due on the business day immediately preceding the date of maturity.
The holder of an account may prematurely close the account after 3 years of date of
opening of the account. Interest at the rate applicable from time to time to Post Office
Savings Account shall be payable on such premature closure of account.

19. Post Office Senior Citizens Savings Scheme
Post Office Senior Citizens Savings Scheme has been notified with effect from August 2,
2004. The Scheme is for the benefit of senior citizens. The salient features of the scheme
are as under:
Who can open?
Any citizen, whose age is 60 years or above. A depositor may open the account in his
individual capacity or jointly with spouse.Citizens who have retired under a voluntary or
a special voluntary retirement scheme and have attained the age of 55 years are also
eligible, subject to specified conditions.Non-residents and HUFs are ineligible to open
the account under the scheme.
Minimum amount
Rs. 1,000/-
Maximum amount
Rs. 15,00,000/- (Rs. fifteen lacs)
Interest Rate:
9% per annum.
Interest is payable quarterly on 31st March, 30th June, 30th September and 31st
December
If the interest payable every quarter is not claimed by a depositor, such interest do not
earn additional interest.
Premature withdrawal
In case the account is closed after expiry of one year but before expiry of two years from
the date of opening of the account, an amount equal to 1.5% of the deposit shall be
deducted and the balance paid to the depositor.
In case the account is closed on or after the expiry of two years from the date of opening
of the account, an amount equal to 1% of the deposit shall be deducted and the balance
paid to the depositor.
No deduction shall be made in case of premature closure of an account at any time due to
death of a depositor.

20. Deduction u/s 80C
Available w.e.f. Financial Year 2007-08 i.e. Assessment Year 2008-09
Post Office Time Deposit Scheme
Post Office Time Deposit Scheme offers the facility of investing surplus funds at
relatively higher rates of interest. The deposits made under this scheme for a period of 5
years are also eligible for tax bebefits under section 80C of Income Tax Act.
The salient features of the scheme are as under:
Who can open?
Any individual singly or jointly with another adult. An adult individual on behalf of a
minor.
Maximum amount
In multiples of Rs. 50/-. No upper limit.
Minimum amount
Rs. 200/-
Interest Rate:
One Year 6.25%
Two years 6.5%
Three years 7.25%
Five Years 7.5%
The interest on deposits is calculated on quarterly compounding basis and is payable
annually.
Premature withdrawal
No interest is paid for the deposit withdrawn prematurely after six months but before the
expiry of one year.
In case of deposits for two, three or five years withdrawn prematurely after the expiry of
one year from the date of deposit, interest is payable for the completed years and months
at 2% lower rate than specified for the completed period.

21. Post Office Monthly Income Scheme
Post Office Monthly Income Scheme (MIS) is meant for investors who want to invest a
sum amount initially and earn interest on a monthly basis for their livelihood. The
scheme is, therefore, more beneficial for retired persons. The salient features of the
scheme are as under:
Who can open?
Any individual singly or jointly with other one or two adults. A guardian on behalf of
minor or a person of unsound mind.A minor who has attained the age of 10 years.
Interest Rate: 8 per cent per annum payable monthly. Additionally bonus of 10 per cent
of the deposit amount on maturity after six years.
Premature withdrawal
An amount equal to 5 per cent of the initial investment amount is deducted from the
payment, if the account is closed before three years from the date of the opening of the
account.
No amount is deducted for the withdrawal after three years. However, no bonus is
applicable to any premature closure of the Account
Other features
Deposits are exempt from Wealth Tax. Non-Resident Indians and HUFs are ineligible to
open the account.Facility of automatic credit of monthly interest to saving account if
accounts are at the same post office.Interest not withdrawn do not earn any interest.
Minors have a separate limit of investment of Rs. 3 lakhs and the same is not clubbed
with the limit of guardian.
National Savings Certificate (NSC) (VIII Issue)
National Savings Certificates (NSCs) are popular as Tax Saving instruments. NSCs are a
long term tax saving option for investors. The salient features of NSCs are as under:
Who can purchase
Any individual singly or jointly with other adult. A guardian on behalf of a minor.
Minimum amount
Rs. 100/

22. Maximum amount
No maximum limit
Interest Rate
8 per cent per annum compounded half yearly.
Transferability
Transferable from one Post Office to another.
The certificate can also be transferred from one person to another with the previous
consent of the Postmaster or the Head Postmaster. The transfer can be made after expiry
of a period of at least one year from the date of the certificate.
Encashment
The Certificates can be encashed after Six years.
The Certificate can be encashed at the Post Office at which it stands registered or it at any
other Post Office subject to satisfactory verification of the identity of the presenter.
Interest Taxability
Taxable. Interest accruing annually is automatically reinvested, and such re-invested
interest qualify for tax rebate under section 80C of the Income Tax Act.
No tax deduction at source.
Deduction u/s 80C
Available