A Study On Major Investment Avenues In India

by Muhammed Mishhab P (Author) Shabana Asmi M (Author)

Essay 2017 12 Pages

Business economics - Investment and Finance







There is no unanimous meaning among different scholars for the word ‘Investment’ in different period. Generally investment is the employment of funds with the purpose of earning additional income or capital appreciation. According to F.AMLING, “Investment is the purchase of a financial asset that produces a yield that is proportional to the risk assumed over some future investment period”.

Nowadays third world countries like India face great challenges for finding sufficient capital for its development. As far as Indian economy is concern, which characterized by low income, low savings, low investment, low employment, etc. In this context, Government faces great difficulties for collecting capital for its developmental purpose. For finding sufficient capital, Government of India takes somany measures in joining with banking institutions in our country. Moreover, Government take measures for improving the saving habits of people especially in rural area. In the present scenario, our Government takes a footstep for converting our economy into cashless economy by the way of informing the digital awareness and its position impact towards the society and to promote digital transactions instead of physical supply of money. As the result, Indian economy slowly shifted to digital economy by the way of creating various investment avenues.

In India, The word ‘Investment’ was first attested 1610s in connection with the ‘east indies trade’. Then later, The ‘Code of Hammurabi’ provided a legal frame work for investment.

Investment avenues refer to the different alternatives, through which a person can channelize his money at profitable manner. For a person, who can invest his money in real investment, gold/silver, bank deposits, share & securities, mutual funds, insurance, government securities, post office savings, provident funds etc. However, Investment avenues are not free from all defects. Each avenue carries its own merits and demerits. These results investors face so many problems while executing their investment such as; Misrepresentation about investment avenues, Delay in redemption request, High volatility, Political changes, High inflation, Untimely investment etc. Hence the study also covers the areas of problems faced by salaried group of people while making their investments.



Most of the people keep aside a part of their income as savings. On the other end, Investment is the act of investing the saved money in to financial products with a view to generate income from future. In short, when a person has more money than he requires for current consumption, he would be coined as a potential investor.

INVESTMENT is the employment of funds on assets with the aim of earning income or capital appreciation. In other words, Investment is the commitment of funds which have been saved from current consumption with the hope that some benefits will be received in the future. Thus it is a reward for waiting for money. Saving of the individuals are invested in assets depending on their risk and return demands, safety money, liquidity, the available avenue for investment, various financial institutions, etc. For the achievement of above goals appropriate decisions have to be taken.


Different thinkers interpret the word ‘Investment’ in their own ways in different periods. However, the ideology or concept of investment is same in between them.

Some famous definitions of Investment are;

- “Sacrifice of certain present value for some uncertain future value”


- “Purchase of a financial asset that produce a yield that is proportional to the risk assumed over some future investment period”



There are two concept relating to Investment.viz, Economic concept and financial concept of Investment.

The economic and financial concepts of investment are related to each other because investment is a part of the savings of individuals which flow into the capital market either directly or through institutions. Thus, investment decisions and financial decisions interact with each other. Financial decisions are primarily concerned with the sources of money where as investment decisions are traditionally concerned with uses or budgeting of money.


The concept of economic investment means net addition to the capital stock of the society. The capital stock of the society is the goods which are used in the production of other goods. The term investment implies the formation of new and productive capital in the form of new construction and produces durable instrument such as plant and machinery. Inventories and human capital are also included in this concept. Thus, an investment, in economic terms, means an increase in building, equipment, and inventory.


This is an allocation of monetary resources to assets that are expected to yield some gain or return over a given period of time. It means an exchange of financial claims such as shares and bonds, real estate, etc. Financial investment involves contrasts written on pieces of paper such as shares and debentures. People invest their funds in shares, debentures, fixed deposits, national saving certificates, life insurance policies, provident fund etc. in their view investment is a commitment of funds to derive future income in the form of interest, dividends, rent, premiums, pension benefits and the appreciation of the value of their principal capital. In primitive economies most investments are of the real variety whereas in a modern economy much investment is of the financial variety.


Investment scenario as a banyan tree which growing day by day, by the way of introducing new investment avenues with unique features to attract investors in to the world of investment.

Investment avenues are the different ways that a person can invest his money. It also called investment alternatives or investment schemes.

There are different methods are available to classify the investment avenues. Some of the methods are as follows.


Physical investment is the investment in physical or capital goods such as plant and machinery, motor cars, ships, buildings, etc.

The major physical investments are as follows;


Real estate is basically defined as immovable property such as land and everything permanently attached to it like buildings. Real property as opposed to personal or movable property is characterized by the right to transfer the title to the land whereas title to personal property can be retained. It is true to say that real estate offer a rate of return which is superior to avenues such as company deposits on a long term basis. The investment in real estate essentially depends on the risks associated with it, and the alternative investment opportunities.


For ages, gold and silver have been considered as a form of investment. They are considered as best hedge against inflation. This is a form of investment amongst the rural and semi-urban population. Besides, investors tend to invest in jewelry instead of pure gold. Gold has been used throughout history as money and has been a relative standard for currency equivalents specific to economic regions or countries, until recent times.

- ART:

Paintings are the most sought after form of art. The prices in the art market are rise is expected to continue. The trend in the art market today is to invest in young upcoming painters whose prices will soar over the years.

Here some of the physical assets like machinery, equipment etc. are useful for further production whereas some like gold and silver ornaments, motor cars etc. are not useful for further production


It means employment of funds in the form of assets with the object of earning additional income or appreciation in the value of investment in the future. Assets which are the subject matter of investment may be varying between safe and risky ones.


These financial securities that are easily marketable and converted into cash in short time. Such investments are also known as transferable investments.

It includes two kinds of securities, such as: VARIABLE INCOME SECURITIES:

Some marketable securities yield income which is varying time to time. Such securities are called as variable income securities. It includes;


These securities carry more risk than investing in debt instruments. There is no assured return but when we invest in a share of company, we become an owner of the company to the extent of the capital invested. FIXED INCOME SECURITIES:

These are the securities which yield certain fixed income to a regular interval of time. Securities which comes under this category as follows;


These are the shares which has some preferential rights. The charactors of the preference share are hybrid in nature. Some of its features resemble the bond and others the equity shares. Like bonds, their claims on the company’s incomes are limited and they receive fixed dividend. At the same time like the equity, it is a perpetual liability of the corporate.

These holders do not enjoy any of the voting powers except when any dissolution affects their right. Preference share also called ‘non-voting shares’.


It is a document issued by the company under its common seal for acknowledgment of debt. There are somany types of debenture viz, Registered debenture, unsecured debenture, convertible debenture, redeemable debenture etc. An investment in debentures fetches a fixed and regular rate of interest.


Bond is a long term debt instrument that promises to pay a fixed annual sum as interest for a specified period of time. Generally, Debentures and bonds are one and the same. Americans called ‘bond’, Europeans called ‘debenture’. In India, generally debt issued by government known as bond, if it issued by private, known as debenture.


The securities issued by central, state and quasi government agencies are known as government securities or gilt edged securities. As government guaranteed security is a claim on the government, it is a secured financial instrument, which guarantees the income and capital. The rate of interest on these securities is relatively lower because of their high liquidity and safety.


These securities have very short term maturity say less than a year.The common money market instruments are as under;

*Treasury Bill (T-bill):

It is basically an instrument of short term borrowing by the government of India. T-Bill used by government to raise the fund to fill the deficit between the receipt and expenditure. In India, RBI issued T-Bill on behalf of government. Generally its maturity period is 91 days. Since the interest rates offered on the T-bill are very low, individuals very rarely invest in them.

* Certificate of Deposit (CD):

Certificate of deposits represent a type of interest-bearing deposit at commercial banks or savings and loan associations. CDs are next lower risk item after T-bill. These are negotiable instrument which have maturity of 7 days 1 year. It is mainly preferred by investors and companies rather than individuals. The minimum size of the certificate is Rs 10 lakh. The additional amount is issued in multiples of Rs 5 lakh.

* Commercial Papers (CP):

These are the unsecured short term debt instruments issued by credit worthy companies for meeting their short term liabilities. CP is the promissory note with a fixed maturity period. They are negotiable and transferable by endorsement and delivery. Its maturity period ranges between 7 days to 1 year.


Purchase of saving certificate is another investment avenue popular in today. The rate of interest and the maturity period are mentioned on the certificates. There are tax benefits also in some certificates. The important saving certificates are;

* Indra vikas patra & Kisan vikas patra (IVP & KVP)

These are the saving certificate issued by the post office with the name IVP & KVP. INDRA VIKAS PATRA is a bearing certificate bearing no names of the purchasers and can simply be transferred by delivery. There is no tax benefit on it. These certificates were introduced in 1986 and were sold through post offices. It assured the doubling of the amount in 5 years time.

KISAN VIKAS PATRA is another type of post office investment. The investor can make investment in any head office or sub post office in cash, DD. An individual, two or more individuals in joint names, a guardian on behalf of minor, and a trust can make investment. There is no limit for maximum investment. NON MARKETABLE INVESTMENTS (NON NEGOTIABLE SECURITIES):

These are the financial securities which can’t easily marketable and converted into cash in short time.

It includes following:


Deposits earn fixed rate of return. Even though, these are non-negotiable instruments. Popular types of deposits are;

* Bank Deposits:

It is the simplest avenue open for the investors. Investor has to open an account and deposit money. Banks maintain different type of accounts for receiving deposits from every class of people. They are;

- Fixed Deposit account
- Current Deposit account
- Saving Deposit account
- Recurring Deposit account
- Home safe Deposit account

* Post office Deposits:

Like the commercial bank, post office also offers fixed deposit facilities and monthly income scheme. The deposit has to be in multiples of Rs 50. The rate of interest varies from 8.20 per cent for one year deposit to 8.50 per cent for five year deposit. No withdrawal is allowed before six months. Interest is credited half yearly but paid annually. These deposits can be pledged as security.


These are the schemes where tax benefits also offered on savings. Such schemes are;

* Employee Provident Fund Scheme:

This is the popular saving scheme for salaried employees. Under this scheme, a separate account opened for every employee and amount is credited by deducting it from salary of the employee. The employee having pensionable posts, both employee and employer contribute to this fund. An employee can contribute more amounts to this fund, subject to certain provision, but employer’s share is base as some percentage on basic pay.

* Public Provident Fund Scheme:

It is a savings-cum-tax-saving instrument in India. It also serves as a retirement planning tool for many of those do not have any structured pension plan covering them. A PPF account can be opened at any branch of State Bank of India or its subsidiary banks or designed branches of other nationalized banks. It is a five year saving scheme.PPF earns an interest rate of 12 percent per year, which is exempted from the income tax under sec 88. The individuals and Hindu Undivided Families can participate in this scheme.

* National saving certificate (NSC):

This scheme is offered by the post office where certificates comes in denominations of Rs 500, 1000, 5000 and 10000. This is a saving scheme to benefit income tax payers. The investment in the certificate s qualifies for tax deduction under sec 80c of the Income Tax Act. No withdrawal is permitted under this scheme and there is no deduction at maturity.

* National Savings Scheme (NSS):

NSS is a scheme has duration of 4 years to be matured offers tax rebate under sec 88 of the Income Tax Act, 1961. It does not offer any premature withdrawal facility except in case of the scheme holder’s death. Individuals and Hindu Undivided Families are eligible to open NSS account in the designed post office.


It is a contract for payment of a sum of money to the person assured on the happening of event insured against. Usually the contract provides for the payment of an amount on the date of maturity or at specified dates at periodic intervals or if unfortunate death occurs.LIC has introduced various schemes to suite the requirements of different people. At present, the policies offered are; whole life policy, convertible whole life policy, endowment assurance policy etc.


Recently, mutual funds have become popular all over the world, mutual funds carry benefits in the form of safety of principal, capital appreciation and interest or dividend. Under mutual fund scheme an investor even with a little money can be a participant in investing in big companies, which are otherwise inaccessible to him because of his small investment. Mutual funds collect the savings of small investors, invest them in Government and other corporate securities and earn income in the form of interest and dividend. The income and capital appreciation arising out of investment are shared among the investors by careful selection of securities over a diversified portfolio, covering large number of companies and industries. Mutual funds are able to perform better than an individual investor.



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Title: A Study On Major Investment Avenues In India