ASSINGMENT ON ALTERNATIVE INVESTMENT OPTION

SUB: INVESTMENT ANALYSIS & PORTFOLIO MANAGEMENT

SUBMITTED TO PROF. HARDIK GANDHI

SUBMITTED BY DARSHAN PATIL ID NO: (030301039)

INTRODUCTION :
There are a variety of different types of investments available today... there are short-term investments, long-term investments, and as many different investment strategies as there are investors. If you find yourself a bit overwhelmed by the prospect of investing and are unsure of whether you should invest in short-term or long-term plans, don't let yourself get bent out of shape. By simply taking the time to compare the benefits and drawbacks of both short-term and longterm investments, you can determine which type is best for you and your current financial needs. Remember, your first step should be defining your financial goals, and then you will be able to decide what investment strategies will better support your goals. In this module, in addition to providing you with the drawbacks and advantages of short- and long-term investments, we will provide you with pertinent information that can assist you in making decisions about your finances... both for now, and in the future. Obviously, there are differences between short-term and long-term investments. Short-term investments are designed to be made only for a little while, and hopefully show a significant yield, whereas long-term investments are designed to last for years, showing a slow but steady increase so that there is a significant yield at the end of the term. Advantages of Short-Term Investments : The main advantages to short-term investments are the potential for fast growth and the fact that the term may only last a few weeks to a few months. These short-term investments allow more control over your money and it usually isn't out of your possession for very long. Disadvantages of Short-Term Investments : As mentioned above, short-term investments sometimes tend to be a bit riskier and show a much higher rate of fluctuation than their long-term counterparts. While there is a good chance that you'll make money with a short-term investment, there is also a chance that you'll lose money. This is especially the case when dealing with the stock market, since many of the short-term investments made with stocks and bonds involve precision timing to sell when the stocks or bonds are at their peak just before they begin to drop. Advantages of Long-Term Investments : Just the opposite of short-term investments, long-term investments have the ability to gain small amounts of money over a longer period of time. The slow but steady pace of long-term investments allow for a much greater degree of stability and a much lower risk than short-term investments. They are also ideal for making your savings or retirement fund grow. The investments usually continue to grow over the years, maturing just as you need them.

Disadvantages of Long-Term Investments: Of course, the main disadvantage of long-term investments is that they increase in value slowly and can take years to mature. For those individuals who need a high yield in a short period of time, long-term investments are might not be the way to go... between the fees that are associated with some types of investment and the small fluctuations that any investment will experience, many long-term investments might actually go down in value before they begin to climb over time. Additionally, with many of the long-term investments that you'll find, you tend to have much less control over your money until the investment matures... there are usually penalties or fines for early withdrawal or selling stocks and bonds through long-term investment programs.

BONDS :

Bonds can be defined as debts, which a company or the government undertakes, by borrowing money from the public, when it is in need of funds. There are different types of bonds issued to the public today, such as U.S. Government bonds, municipal bonds, corporate bonds, and mortgage-backed bonds, to name a few. The funds that are raised through corporate bonds might be needed to invest in further growth of the company or to invest in new ventures. When the government issues bonds and raises money, it is usually used to finance various public works such as building roads, maintaining street lighting, keeping up the government buildings and parks, etc. In exchange for these borrowings, the company/government pays the investors a fixed rate of interest, which is paid at a stipulated time, for a fixed period. This makes bonds a reliable source of investment.

Advantages of investing in bonds:

Bonds are predictable. You know how much interest you can expect to receive, how often you'll receive it, and when your principal (the bond's face value) will be repaid (maturity date). Bonds are more steady then stocks (which can fluctuate wildly short-term). Nervous investors usually sleep better by buying bonds instead of equity investments. People on a fixed income and/or in retirement will receive a predictable amount of regular income from bonds. The interest rates paid by bonds typically exceed those paid by banks on savings accounts, especially short-term bonds.

Disadvantages of bonds:

Companies and municipalities can and do go bankrupt, and if they do, your bonds will lose value and possibly even become worthless. Long-term bonds will have your money tied up in low yielding bonds should interest rates go up. Unlike stocks, bonds don't offer the possibility of high long-term returns. Younger investors and those with several years to go until retirement would be better served by limiting their bond purchases and opting for equity buys instead.

When should you buy bonds?

Bonds are a good option for those who need a steady and relatively dependable source of income, including the elderly and disabled. After retirement, bonds will provide a regular interest check to live on. As you progress from middle age and get within a few years of retirement, you should start gradually switching your assets from equity holdings (stocks) into bonds. As you get closer to retirement you want to reduce your investment risk. Many people buy bonds for reasons other than the investment potential. For example, the alumni of a university might buy the school's bonds to help out the old alma mater. And many people consider buying US Savings Bonds to be a patriotic duty.

Characteristics
Principal Nominal, principal, par or face amount the amount on which the issuer pays interest, and which, most commonly, has to be repaid at the end of the term. Some structured bonds can have a redemption amount which is different from the face amount and can be linked to performance of particular assets such as a stock or commodity index, foreign exchange rate or a fund. This can result in an investor receiving less or more than his original investment at maturity.

Maturity The issuer has to repay the nominal amount on the Maturity date. As long as all payments have been made, the issuer has no more obligations to the bond holders after the maturity date. The length of time until the maturity date is often referred to as the term or tenor or maturity of a bond. The maturity can be any length of time, although debt securities with a term of less than one year are generally designated money market instruments rather than bonds. Most bonds have a term of up to thirty years. Some bonds have been issued with maturities of up to one hundred years, and some do not mature at all. In the market for U.S. Treasury securities, there are three groups of bond maturities: short term (bills): maturities between one to five year; (instruments with maturities less than one year are called Money Market Instruments) medium term (notes): maturities between six to twelve years; long term (bonds): maturities greater than twelve years. Coupon The coupon is the interest rate that the issuer pays to the bond holders. Usually this rate is fixed throughout the life of the bond. It can also vary with a money market index, such as LIBOR, or it can be even more exotic. The name coupon originates from the fact that in the past, physical bonds were issued which had coupons attached to them. On coupon dates the bond holder would give the coupon to a bank in exchange for the interest payment. Coupons can be paid at different frequencies. These coupon dates are generally semi-annual, i.e. every 6 months, or annual. Yield The yield is the rate of return received from investing in the bond. There are various means of measuring it. The most simple example is the current yield, which is (annual interest payment / clean price). Closer to reality is to use the yield to maturity (YTM), which takes into account:

all remaining coupon payments the time value of money capital gains until maturity

Credit Quality The "quality" of the issue refers to the probability that the bondholders will receive the amounts promised at the due dates. This will depend on a wide range of factors. High yield bonds are bonds that are rated below investment grade by the credit rating agencies. As these bonds are more risky than investment grade bonds, investors expect to earn a higher yield. These bonds are also called junk bonds Price The price of a bond is influenced amongst others by the above mentioned factors like maturity, quality, but as well as interest rates, demand for the bond. The price can be stated clean or dirty. The issue price at which investors buy the bonds when they are first issued, which will typically be approximately equal to the nominal amount. The net proceeds that the issuer receives are thus the issue price, less issuance fees. Later on bonds often trade at a premium.

Investment in life insurance

Life Insurance is one of the most widely available and used financial products being used by people. But before buying various types of life insurance such as variable ,term life insurance not many people do a pros and cons analysis. This is quite sad since it is one of the biggest yearly expenses and is one of the most important security assets for our family in case of death or serious injury. Life Insurance has different meanings in different countries as well. In India Life Insurance is mostly looked upon as an investment product. Most people buy insurance as an investment product leading to the wide prevalence of hybrid insurance investment products like ULIPs ,Child Plans etc.It is easily found that these hybrid products are wasteful since it would be cheaper to buy separate investment and insurance products.The main reason for the misselling is the financial illiteracy and ignorance about the advantages and disadvantages of life insurance and its products.Life Insurance Companies also dont do a very good job in educating people about the right type of product as it is more profitable for them to sell the products which are disadvantageous to the customers.So we have a case where Life Insurance products advantages and disadvantages are not known and understood by most people around the world.

Advantages and Disadvantages of Investing in Life Insurance

Advantages
Provides financial security Used for retirement purposes Tax advantages

Disadvantages
Difficult to decide what to do with the money received Long period of time taken to accumulate savings Inflation effect
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Investment in Real Estate :

Real estate that generates income or is otherwise intended for investment purposes rather than as a primary residence. It is common for investors to own multiple pieces of real estate, one of which serves as a primary residence, while the others are used to generate rental income and profits through price appreciation. The tax implications for investment real estate are often different than those for residential real estate.

Involves land and structures built on the land Types of land: Residential Properties dwelling for personal living or rental purposes Agricultural land for crop planting, dairy farming, animal farming and orchards Commercial properties made up of shop houses, banks and other financial services, hotels, urban centers and shopping complexes Industrial properties used for manufacturing and warehousing of industrial and consumer products, include factories, warehouses, industrial parks estates Recreational properties used for leisure activities like golf courses, amusement parks, resorts Investment Management (FIN 310) 17 Physical Characteristics of Real Properties Immobility can never be changed from its geographic location Long Life may contain considerable varying age at any time Indestructibility durable and stable investment since it does not depreciate in value Investment Management (FIN 310) 18 Economic Characteristics of Real Properties Scarcity Appreciation in value in good economic conditions real properties are sought after Fixed investment investing involve large sums of money and long period of time

Characteristics
NO FIXED MATURITY: Unlike a bond which has a fixed maturity date, an equity real estate investment does not normally mature. In Europe, it is not uncommon for investors to hold property for over 100 years. This attribute of real estate allows an owner to buy a property, execute a business plan, then dispose of the property whenever appropriate. An exception to this characteristic is an investment in fixed-term debt; by definition a mortgage would have a fixed maturity. Tangible Real estate is, well, real! You can visit your investment, speak with your tenants, and show it off to your family and friends. You can see it and touch it. A result of this attribute is that you have a certain degree of physical control over the investment - if something is wrong with it, you can try fixing it. You can't do that with a stock or bond. Requires Management Because real estate is tangible, it needs to be managed in a hands-on manner. Tenant complaints must be addressed. Landscaping must be handled. And, when the building starts to age, it needs to be renovated. Inefficient Markets An inefficient market is not necessarily a bad thing. It just means that information asymmetry exists among participants in the market, allowing greater profits to be made by those with special information, expertise or resources. In contrast, public stock markets are much more efficient - information is efficiently disseminated among market participants, and those with material non-public information are not permitted to trade upon the information. In the real estate markets, information is king, and can allow an investor to see profit opportunities that might otherwise not have presented themselves. High Transaction Costs Private market real estate has high purchase costs and sale costs. On purchases, there are real-estate-agent-related commissions, lawyers' fees, engineers' fees and many other costs that can raise the effective purchase price well beyond the price the seller will actually receive. On sales, a substantial brokerage fee is usually required for the property to be properly exposed to the market. Because of the high costs of trading real estate, longer holding periods are common and speculative trading is rarer than for stocks. Lower Liquidity With the exception of real estate securities, no public exchange exists for the trading of real estate. This makes real estate more difficult to sell because deals must be privately brokered. There can be a substantial lag between the time you decide to sell a property and when it actually is sold - usually a couple months at least.

 Underlying Tenant Quality When assessing an income-producing property, an important consideration is the quality of the underlying tenancy. This is important because when you purchase the property, you're buying two things: the physical real estate, and the income stream from the tenants. If the tenants are likely to default on their monthly obligation, the risk of the investment is greater. Variability among Regions While it sounds clich, location is one of the important aspects of real estate investments; a piece of real estate can perform very differently among countries, regions, cities and even within the same city. These regional differences need to be considered when making an investment, because your selection of which market to invest in has as large an impact on your eventual returns as your choice of property within the market.

Advantages and Disadvantages of Investing in Real Estates Advantages

Financing is fairly easy to obtain Normally appreciates in value Provides direct rental income Value tends to increase with general price level Safe investment, secured return

Disadvantages
Involves great sums of capital Time and energy consuming to manage real properties Involves large sum of money to maintain Changes in loan arrangements may be time consuming a Renting risks

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Fixed Deposits
A Fixed Deposit (also known as FD) is a financial instrument provided by Indian banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date . It may or may not require the creation of a separate account. It is known as a Term Deposit in the Canada, Australia, New Zealand and the US and as Bond in United Kingdom they are considered to be very safe investments. Term Deposits in India is used to denote a larger class of investments with varying levels of liquidity. The defining criteria for a Fixed Deposit is that the money cannot be withdrawn for the FD as against Recurring deposit or Demand deposit before maturity. Some banks may offer additional services to FD holders such as loans against FD certificates at competent interest rates. Its important to note that banks may offer lesser interest rates under uncertain economic conditions. The interest rate varies between 4 and 11 percent.The tenure of an FD can vary from 10, 15 or 45 days to 1.5 years and can be as high as 10 years. These investments are safer than Post Office Schemes as they are covered under Deposit Insurance & Credit Guarantee Scheme of India. They also offer Income tax and Wealth tax benefits Types of FDs There are mainly two kinds of FDs, but generally when an individual mentions about FDs we consider it to be a fixed deposit issued by a bank. The other kind of fixed deposit is provided by the corporates. Bank FDs are offered by banks or non-banking finance companies. Both these institutions are regulated by the RBI, and the deposits up to INR 1 lakh per account are guaranteed by RBI. Corporate FDs are offered by corporates who are looking to raise money from the open market. Corporate FDs pay a higher rate of interest because they carry a higher risk than bank FDs, since they are not guaranteed.

Advantages and Disadvantages of Investing in Fixed Deposits :

Advantages
Interest earned on fixed deposits is higher than savings account Safe Low risk

Disadvantages
Need to be withdrawn after the maturity period, if not, no interest is earned
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FIXED MATURITY PLAN

This is a relatively new concept as an instrument of investment about which the awareness is restricted. These primarily debt mutual funds which are close ended and have typical maturity periods of one to five years. These plans are created by fund managers who purchase debt instruments that are oriented with the maturity period of the plans. By this method the investment is kept secured while market expectations are also met simultaneously. Key Benefits of FMPs There are several benefits of the FMPs which make them a lucrative option available in the market. The most important advantage of the FMPs is that for tax purpose they are treated at par with fixed deposits. Since they are basically debt funds they also enjoy all the benefits of the debt funds in terms of short terms capital gains as well as long term capital gains. For the short term capital gains, the income from FMDs as in the case of any debt oriented fund is added to the annual income and the taxation is done as income tax. In case of the long term capital gains, the income from FMPs, as in the case of all debt oriented funds, is taxed as the higher among the two 10% without indexation and 20 per cent with indexation. Comparing the FMPs with Bank Fixed Deposits In order to understand the basic advantages of investing in fixed maturity plans as against conventional bank fixed deposits we will have to compare the returns from both these instruments both pre tax as well as post tax. Assuming an initial investment of Rs. 10000/-, let us study the variations in returns in different options. Instrument Bank Fixed FMP FMP (Growth FMP (Growth FMP (Growth Deposit (Dividend) < 1 year) > 1 year non > 1 year indexed) indexed) Returns 10% 10% 10% 10% 10% Tax 33% 14.2% 33% 10% 20% Pre Tax Rs.1000 Rs.1000 Rs.1000 Rs.1000 Rs.1000 returns Indexed Pre Rs.1000 Rs.1000 Rs.1000 Rs.1000 Rs.1000 Tax returns Tax Rs.330 Rs.142.40 Rs.330 Rs.100 Rs.87.48 Rs.857.60 Rs. 670 Rs.900 Rs.912.52 Net Returns Rs.670

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In this table the various tax implications in different schemes of FMPs as compared to the tax implication in a bank fixed deposit is illustrated on an initial investment of Rs. 10000/- with a interest rate of 10%. Important derivations from the above table of comparison are as follows:

The net returns from FMPs far exceed that by any bank fixed deposit. The dividend option is better when buying FMPs for less than a year. The growth option is better when buying FMP for more than a year. Maximum double indexation benefit can be achieved by buying a FMP towards the very end of a financial year which is eligible for redemption at the commencement of a future financial year.

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Mutual funds can be defined as the money-managing systems that are introduced to professionally invest money collected from the public. The Asset Management Companies (AMCs) manage different types of mutual fund schemes. The AMCs are supported by various financial institutions or companies. Investment in mutual funds in India means pooling money in bonds, short-term money market, financial institutions, stocks and securities and dishing out returns as dividends. In India, Fund Managers manage the mutual funds. They are also referred to as portfolio managers. The mutual funds in India are regulated by the Securities Exchange Board of India. Types of Mutual Funds

Closed-end mutual funds Open end funds Equity mutual funds Mid cap funds Large cap funds Growth funds Balanced funds Exchange Traded Funds (ETFs) Load mutual funds and No-Load mutual funds Value funds International mutual funds Money market funds Sector mutual funds Fund of funds (FoF) Index funds Regional mutual funds

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What are the advantages and disadvantages of mutual funds?

Advantages What are the key advantages of mutual fund investing? Diversification Using mutual funds can help an investor diversify their portfolio with a minimum investment. When investing in a single fund, an investor is actually investing in numerous securities. Spreading your investment across a range of securities can help to reduce risk. A stock mutual fund, for example, invests in many stocks - hundreds or even thousands. This minimizes the risk attributed to a concentrated position. If a few securities in the mutual fund lose value or become worthless, the loss maybe offset by other securities that appreciate in value. Further diversification can be achieved by investing in multiple funds which invest in different sectors or categories. This helps to reduce the risk associated with a specific industry or category. Diversification may help to reduce risk but will never completely eliminate it. It is possible to lose all or part of your investment. Professional Management: Mutual funds are managed and supervised by investment professionals. As per the stated objectives set forth in the prospectus, along with prevailing market conditions and other factors, the mutual fund manager will decide when to buy or sell securities. This eliminates the investor of the difficult task of trying to time the market. Furthermore, mutual funds can eliminate the cost an investor would incur when proper due diligence is given to researching securities. This cost of managing numerous securities is dispersed among all the investors according to the amount of shares they own with a fraction of each dollar invested used to cover the expenses of the fund. What does this mean? Fund managers have more money to research more securities more in depth than the average investor. Convenience: With most mutual funds, buying and selling shares, changing distribution options, and obtaining information can be accomplished conveniently by telephone, by mail, or online. Although a fund's shareholder is relieved of the day-to-day tasks involved in researching, buying, and selling securities, an investor will still need to evaluate a mutual fund based on investment goals and risk tolerance before making a purchase decision. Investors should always read the prospectus carefully before investing in any mutual fund.
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Liquidity: Mutual fund shares are liquid and orders to buy or sell are placed during market hours. However, orders are not executed until the close of business when the NAV (Net Average Value) of the fund can be determined. Fees or commissions may or may not be applicable. Fees and commissions are determined by the specific fund and the institution that executes the order. Minimum Initial Investment: Most funds have a minimum initial purchase of $2,500 but some are as low as $1,000. If you purchase a mutual fund in an IRA, the minimum initial purchase requirement tends to be lower. You can buy some funds for as little as $50 per month if you agree to dollar-cost average, or invest a certain dollar amount each month or quarter.

Disadvantages Risks and Costs: Changing market conditions can create fluctuations in the value of a mutual fund investment. There are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly. As with any type of investment, there are drawbacks associated with mutual funds.

No Guarantees. The value of your mutual fund investment, unlike a bank deposit, could fall and be worth less than the principle initially invested. And, while a money market fund seeks a stable share price, its yield fluctuates, unlike a certificate of deposit. In addition, mutual funds are not insured or guaranteed by an agency of the U.S. government. Bond funds, unlike purchasing a bond directly, will not re-pay the principle at a set point in time. The Diversification "Penalty." Diversification can help to reduce your risk of loss from holding a single security, but it limits your potential for a "home run" if a single security increases dramatically in value. Remember, too, that diversification does not protect you from an overall decline in the market. Costs. In some cases, the efficiencies of fund ownership are offset by a combination of sales commissions, 12b-1 fees, redemption fees, and operating expenses. If the fund is purchased in a taxable account, taxes may have to be paid on capital gains. Keep track of the cost basis of your initial purchase and new shares that are acquired by reinvesting distributions. It's important to compare the costs of funds you are considering. Always look at "net" returns when comparing fund performances. Net return is the bottom line; an investment's true return after all costs are deducted.

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DERIVATIVES
Derivatives are nothing but a kind of security whose price or value is determined by the value of the underlying variables. It is more like a contract of future date in which two or more parties are involved to alleviate future risk. Usually, derivatives enjoy high leverage. Its value is affected by the volatility in the rates of the underlying asset. Some of the widely known underlying assets are:

Indexes (consumer price index (CPI), stock market index, weather conditions or inflation) Bonds Currencies Interest rates Exchange rates Commodities Stocks (equities)

Types of Derivatives The range of derivatives is really wide. But some of the most commonly known derivatives are: Forwards-This is a tailor-made contract between two parties. In case of this contract, a settlement is done on a scheduled future date at today's pre-decided rate. Futures-When two entities decide to purchase or sell an asset at a given time in the future at a given price, it is called futures contract. Futures contracts can be said to be a special kind of forward contracts, as they are customized exchange-traded agreements. Options-It is of two different kinds such as calls and puts. Those who take calls option, they are not obligated to purchase given quantity of the underlying variable, at a mentioned price on or prior to a scheduled future date. On the other hand, buyers in case of puts option may not necessarily sell a mentioned quantity of the underlying variable at a mentioned price on

Swaps-These are private contracts between two entities to deal in cash flows in the future following a pre-decided formula. They are somewhat like forward contracts' portfolios. Swaps are also of two types such as interest rate swaps and currency swaps. Interest rate swaps-in this case, only interest related cash flows can be exchanged between the entities in one currency.

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Currency swaps-in this case of swapping, principal and interest can be exchanged in one currency for the same in other form of currency. Importance of Derivatives

Financial transactions are fraught with several risk factors. Derivatives are instrumental in alienating those risk factors from traditional instruments and shifting risks to those entities that are ready to take them. Some of the basic risk components in derivatives business are:

Credit Risk: When one of the two parties fails to perform its role as per the agreement, this is called the credit risk. It can also be referred to as default or counterparty risk. It varies with different sources.

Market Risk: This is a kind of financial loss that takes place due to the adverse price movements of the underlying variable or instrument.

Liquidity Risk: When a firm is unable to devise a transaction at current market rates, it can be referred to as liquidity risk. There are two kinds of liquidity risks involved in the scenario. First is concerned with the liquidity of separate items and second is related to supporting the activities of the organization with funds comprising derivatives.

Legal Risk:Legal issues related with the agreement need to be scrutinized well, as one can deal in derivatives across the different judicial boundaries.

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Public Provident Fund :

Public Provident Fund (PPF) is a savings-cum-tax-saving instrument in India. It also serves as a retirement-planning tool for many of those who do not have any structured pension plan covering them. The account can be opened in designated post offices, State Bank of India branches and branches of some nationalised banks. ICICI Bank was the first private sector bank which was authorized to open PPF accounts

Investment and Returns A minimum yearly deposit of Rs. 500 is required to open and maintain a PPF account, and a maximum deposit of Rs. 100,000 can be made in a PPF account in any given financial year. The investments can be made in multiples of Rs. 5, either as a whole sum, or in installments (not exceeding 12 in a year, though more than one deposit can be made in a month). The credit to the PPF account is made on the date of the presentation of the cheque, not on the date of its clearance. Every subscription should be made in cash or through a crossed check or draft or postal order, in favor of the accounts office, at the place at which that office is situated. In case of any cheque, draft or postal order should be drawn at a bank or post office at that place. It is also possible to transfer funds online using net banking in a PPF account opened with SBI.[1] Rate of Return on PPF is 8.8 % p.a. (Compounded annually). Interest is calculated on the lowest balance between the close of the fifth day and the last day of every month. Till March 2010, cheques deposited for clearing, up to 5th of the month were eligible for that month's interest. Since 29 March 2010, only the amounts which are actually cleared on or before the 5th of the month are eligible for that month's interest. The minimum tenure of the PPF account is 15 years, which can be further extended in blocks of 5 years each for any number of blocks. The extension can be with or without contribution. An account holder, continuing with fresh subscription, can withdraw up to 60% of the balance to his credit at the commencement of each extended period in one or more installments but only once in a year. Nomination facility is available. In the case of joint nominees, it is possible to allocate the percentage of benefits to each nominee.

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FOREIGN EXCHANGE MARKET

The foreign exchange market (forex, FX, or currency market) is a form of exchange for the global decentralized trading of international currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies

Advantages of Forex markets:

1. Minimal or no commissions - There are no clearing fees, no exchange fees, no government fees and no brokerage fees. 2. Easy access if you compare the money you need on the market in comparison with the amount needed for entering the stock, options or futures market, its a huge difference. The amount of capital is very low and it allows numerous types of people to easily enter the foreign exchange market. 3. No middlemen spot currency trading is decentralized and eliminates middlemen, allowing you to trade directly. 4. Lots of free courses and demo possibilities On the internet you can find huge opportunities for learning how the Forex market works and what you need to become a good trader. Also, most online Forex brokers offer demo accounts to practice trading and build your skills, using realtime charts and news feeds. They are more valuable than you could even imagine and, before starting your real money on the market, try to see if you are built and ready for it by practicing with these types of software. 5. Time and location flexibility the market is open 24 hours each day, so you dont have to match your schedule with the one of the market. It doesnt require a full -time engagement and you can choose the hours that suit your best. Also, you can operate from any corner of the world, as long as you have an Internet connection. 6. Low transaction costs the transaction cost, determined by the bid/ask spread, is usually less than 0.1%, and it can go even lower in the case of large dealers.
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7. A high liquidity market the market is huge, so is extremely liquid. Around 4 trillion dollars are exchanged every day, according to the latest figures released by the Bank of International Settlements (BIS). That becomes an advantage, as you dont have to struggle so much until you will find someone who wants to buy your currency or sell you one. You cant get stuck and, by using features like stop lose, you will close your position automatically, while not even being in front of the computer. 8. Leverage with a little investment you can move large amounts of money. Leverage gives the trader the ability to make nice profits and keep risk capital to a minimum. 9. No forced deadlines no one and no rule is forcing you to close a position. You can stay open as long as you consider necessary. 10. No fixed lot size requirements your contract size its your decision and you are the only one who determines your own lot. 11. Transparency - due to multi-day market movement, its size and the high number of participants, it is virtually impossible to market manipulation. These are all huge advantages, which you wont encounter on other markets, like the stock or futures. But it doesnt mean that Forex trading doesnt carry risks and doesnt have disadvantages. To create a broad picture of what it means, check its disadvantages also: 1. Differences between retail and wholesale pricing around two-thirds of the trades are made between dealers and large organizations such as hedge funds and banks. They trade at wholesale prices, while the investor trades at a retail price. Like this it can become a challenge to compete against bigger organization that start with a lower entry point and sell more profitably. 2. Risk of choosing an inexperienced broker you can find on the internet many people who are targeting fraud so be careful when choosing the broker. 3. Where there is a winner, there is also a looser dont expect necessarily to win lots of money. Remember that for someone to get rich, another has to lose money on the Forex market. 4. Requires knowledge and time Without completely knowing the markets rules and without having patience, your investment might very well soon vanish. When you enter Forex market, you have to be fully aware of its advantages, but also disadvantages. Dont count only on the benefits of this investment to think that you will succeed. Study, practice, improve your skills, keep an eye on all the news and factors that influence the market, and always stick to your established system.

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Investment in Securities Treasury Bills

A money market instrument issued by the Government To raise short term funds to finance the government Usually at denominations and multiples of RM10,000, with maturity of between 91 to 270 days

Advantages & Disadvantages of T-Bills Advantages

Low risk as it is issued by the government Secured income in the form of interest payment

Disadvantages
Significant amount of money required to invest as it is in large denominations

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Investment in Savings Savings Account

A form of deposit account Money kept in account earn interest or bonus Interest rate depends on the discretion of individual bank

Advantages and Disadvantages of Investing in Savings Account

Advantages
Money saved in kept in custody of banks Income earning interest Easily withdrawn Convenience

Disadvantages
Earn low income Savers need to be disciplined

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