Comparative study of Investment with special reference to Gold and Mutual Fund

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1 Comparative study of Investment with special reference to Gold and Mutual Fund Prof. Sarika Pansare ASM S IPS id: Pansare.sd@gmail.com Prof. Harshvardhan Bhavsar ASM s IPS -id: harshvardhanbhavsar@yahoo.co.in ABSTRACT: Investment is time, energy, or matter spent in the hope of future benefits actualized within a specified date or time frame. In early days Indian people used to invest in typical financial instrument like, FD, RD, PF, LIC, etc. but in today s time s people have started investing in various new instruments such as e-gold, mutual fund, share market, bonds and equity etc. which are comparatively high risk instruments with higher returns. But still many people lack trust factor in this modern investment instruments. This paper focuses on this particular issue with main focus on investment in gold and mutual fund. This paper would does help people to understand these modern instruments in a better way and thus start investing. Key words: Financial Instruments, Gold, Investment, Mutual Fund. Introduction- Investment is an asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price. In economics, investment is the accumulation of newly produced physical entities, such as factories, machinery, houses, and goods inventories. In finance, investment is putting money into an asset with the expectation of capital appreciation, dividends, and/or interest earnings. This may or may not be backed by research and analysis. Most or all forms of investment involve some form of risk, such as investment in equities, property, and even fixed interest securities which are subject, among other things, to inflation risk. It is indispensable for project investors to identify and manage the risks related to the investment. There are two types of Investment, alternative investment and traditional investment An alternative investment is an investment in asset classes other than stocks, bonds, and cash. The term is a relatively loose one and includes tangible such as precious metals, [1] art, wine, antiques, coins, or stamps and some financial assets such as a Fund, commodities, private equity, distressed securities, hedge funds, carbon credits, venture capital, film production [4] and financial derivatives. Investments in real estate and forestry are also often termed alternative despite the ancient use of such real assets to enhance and INCON X

2 preserve wealth. Alternative investments are to be contrasted with traditional investments. a traditional investment refers to putting money into well-known assets (such as bonds, cash, real estate, and shares) with the expectation of capital appreciation, dividends, and interest earnings. Traditional investments are to be contrasted with alternative. Review of literature- Raja Rajan (1997) underlined segmentation of investors and mutual fund products to increase popularity of mutual funds Swapan Sarkar (2012) in his article concluded that Gold has always been considered as a haven investment with least risk Sanjay Matai (2011)2 in his article mentioned the different avenues available to investors to Invest in gold like Physical gold from jewellers/banks, Gold ETFs, Equity-based Gold Funds, e-gold and ) Gold Futures. Jalpa Thakkar, Sheenam Gogia andvatsala Manjunathan (2013)8 in their article gives better understanding of investor s attitude and awareness regarding gold investment decisions and shows where currently physical gold s position among the other gold investment instruments is. Sondhi and Jain (2010) examined the market risk and investment performance of equity mutual funds in India. Objectives- 1. To study investment preferences of people 2. To study investment pattern of gold 3. To study investment pattern of mutual fund Scope: The paper focuses on an important issue of investment, with main focus on investment in gold and mutual fund. This paper would does help people to understand these modern instruments in a better way and thus start investing. Research Methodology- 1. Research design- The research design used for the study is exploratory research design. 2. Type of data used- Both primary and secondary data were used for the research 3. Research Instrument Being a survey method, questionnaire was used as a research instrument. 4. Sample Size The sample size for the present study is Sampling Technique INCON X

3 The sampling method used is convenience sampling method and all the possible items are considered for the research. Data analysis & interpretation- Table No 1: Demographic profile of the respondents Sr. No. Status Number of respondents Postal Savings FD/RD Insurance PPF Gold Mutual Fund Gender 1 Male Female Age 1 <25 Years Years Years >45 Years Qualification 1 SSC HSC UG PG Marital status 1 Single Married Divorced Widow Annual Income 1 < Rs ,00,000 2 Rs. 1,00, Rs. 2,00,000 3 Rs. 2,00, Rs. 3,00,000 4 >Rs ,00,000 Interpretation: As per the above table it is clear that most of the respondent invest in more than one financial instrument. Out of the 100 respondents, 51 were male and 49 female. Male usually prefer FD/RD and insurance while female prefer FD and postal services. According to gender INCON X

4 mutual fund is least preferred followed by gold. Gold and mutual fund is more preferred between the age group of 35-45, awareness of mutual fund is least below the age group of 25 while it is moderate between 25-45, people above the 45 age group still play safe between postal savings, FD/RD and insurance. Also as the educational qualification increases the awareness towards modern investment instrument increases. Respondent who were married prefer insurance the most while people those who are single were ready to take more risk by investing in Mutual funds. Respondent with low annual income prefer postal services whereas people having income above 3 lacs P.A. were preferring gold and mutual fund. Gold as an investment option- There are 2 primary reasons why you need to invest in gold. Investing money in gold is worth because it is a hedge against inflation. Over a period of time, the return on gold investment is in line with the rate of inflation. It is worth investing in gold for a one more very valid reason. That is gold is negatively correlated to equity investments. Say for example 2007 onwards, the equity markets started performing poorly whereas the gold has performed well. So having gold as an investment option in your portfolio mix will help you reduce the overall volatility of your portfolio. Return on gold investment This investment proved remarkable from 2006 to 2011.During that time span Gold has given average return of 29% per annum which was any day better than other investment options. However, the long term average return on gold investment is less than 10% p.a. As one can say technically or ironically but history always repeats itself. Therefore, we may once again observe the similar less than 10% appreciation pattern in gold prices in near future. The blue line in the chart below shows the price of gold in Mumbai per 10 gm from to The red line is Inflation (IW). IW stands for industrial workers. The green line is the investment returns on fixed deposits (FD) assuming that every year a person invests in a FD which matures in 1 year and then re-invests it in a fixed deposit of 1 year and so on. The interest rates are taken as per Reserve Bank of India (RBI) data. The three data series are all indexed to 100 in the initial year. Graph No 1: comparison of gold inflation and FD INCON X

5 Source: RBI Data, Capital Orbit (Retrieved from: Mutual Fund as an investment option- Mutual funds allow investors to pool in their money for a diversified selection of securities, managed by a professional fund manager. It offers an array of innovative products like fund of funds, exchange-traded funds, Fixed Maturity Plans, Sectoral Funds and many more. Whether the objective is financial gains or convenience, mutual funds offer many benefits to its investors. Beat Inflation- Mutual Funds help investors generate better inflation-adjusted returns, without spending a lot of time and energy on it. While most people consider letting their savings 'grow' in a bank, they don't consider that inflation may be nibbling away its value. Expert Managers- Backed by a dedicated research team, investors are provided with the services of an experienced fund manager who handles the financial decisions based on the performance and prospects available in the market to achieve the objectives of the mutual fund scheme. Convenience- Mutual funds are an ideal investment option when you are looking at convenience and timesaving opportunity. With low investment amount alternatives, the ability to buy or sell them on any business day and a multitude of choices based on an individual's goal and investment need, investors are free to pursue their course of life while their investments earn for them. Low Cost- Probably the biggest advantage for any investor is the low cost of investment that mutual funds offer, as compared to investing directly in capital markets. Most stock options require significant capital, which may not be possible for young investors who are just starting out. INCON X

6 Mutual funds, on the other hand, are relatively less expensive. The benefit of scale in brokerage and fees translates to lower costs for investors. One can start with as low as Rs. 500 and get the advantage of long term equity investment. Diversification- Going by the adage, 'Do not put all your eggs in one basket', mutual funds help mitigate risks to a large extent by distributing your investment across a diverse range of assets. Mutual funds offer a great investment opportunity to investors who have a limited investment capital. Liquidity- Investors have the advantage of getting their money back promptly, in case of ended schemes based on the Net Asset Value (NAV) at that time. In case your investment is closeended, it can be traded in the stock exchange, as offered by some schemes. Higher Return Potential- Based on medium or long-term investment, mutual funds have the potential to generate a higher return, as you can invest on a diverse range of sectors and industries. Safety &Transparency- Fund managers provide regular information about the current value of the investment, along with their strategy and outlook, to give a clear picture of how your investments are doing. Moreover, since every mutual fund is regulated by SEBI, you can be assured that your investments are managed in a disciplined and regulated manner and are in safe hands. Every form of investment involves risk. However, skilful management, selection of fundamentally sound securities and diversification can help reduce the risk, while increasing the chances of higher returns over time. Conclusion- From the investment pattern observed of different respondents according to their gender age, qualification, marital status and annual income it is observed that most of the respondent are unaware or do not want to invest in modern financial instruments like gold and mutual funds. Few were found to be investing in gold and mutual fund but their number was negligible. Although the data provided clearly shows that gold and mutual fund outperformed the traditional financial instruments. So it is concluded that people should also consider gold and mutual fund as investment option. Reference- 1. Raja Rajan (1998), Stages in life cycle and investment pattern, The Indian Journal of Commerce, 51( 2 and 3), pp Swapan Sarkar, The Glittering. Gold ETFs, The Management Accountant, Volume 47 No. 1 January 2012, pp65-69 INCON X

7 3. Sanjay Matai, Many ways to invest in Gold - Which is best option?, html, Jalpa Thakkar, Sheenam Gogia andvatsala Manjunathan, An Empirical study on Gold Investment Rage among the Professionals - A comparative analysis of Gold ETF, E-gold and Gold Funds, 5. Sondhi, H.J and Jain, P.K (2010). Market Risk and Investment Performance of Equity Mutual Funds in India: Some Empirical Evidence. Finance India, XXIV (2), no= Funds/articleshowhsbc/ cms 9. ****** INCON X