Professional Documents
Culture Documents
INTRODUCTION
1
INTRODUCTION
Human wants are unlimited and sometimes these wants even exceed one’s
resources. Money management is therefore, a complex task and involves
making important financial choices. It is better to make these choices after
rational consideration and planning rather than making them instinctively. The
real purpose of managing is to establishing an objective of providing financial
security and well-being for the future. In short personal financial planning
includes one’s savings and investment.
2
uncertain so is the future expected return. It is this uncertainty associated with
the returns from an investment that introduces risk in to an investment.
3
chance of maximizing returns and minimizing risk. The professional investors
and the unskilled investors combine to make the investment area dynamic.
4
This study aims to examine the investment pattern of government.
The survey is limited to 50 government employees in kottayam district.
Methodology
The study is based on the data collected from primary and secondary sources.
Primary data was collected through questionnaire method. The data have been
collected from 50 government employees working in various government
institutions in Kottayam District. Secondary data was collected from booklets,
journals and internet.
The period of the study is three months (1st January to 31st March).
5
3. Time constraint was a limiting factor.
Chapterisation
Chapter I - Introduction
6
CHAPTER 2
7
AN OVERVIEW OF INVESTMENT PATTERN
DEFINITION
8
Concepts of investments
1. Economic Investment
2. Commitment Investment
3. Financial Investment
ELEMENTS OF INVESTMENTS
1. Risk
The word risk is synonymous with the phrase variability of return. Investments
risk is just as important as measuring its expected rate of return because
minimizing risk and maximizing the rate of return are interrelated objectives in
the investment management. An investment whose rate of return varies widely
9
from period to period is risky than whose return that does not change much.
Every investor likes to reduce the risk of his investments by proper combination
of different securities.
2. Returns
Investors may buy and sell assets in order to earn returns on them; returns may
be simply defined as the difference between the purchase price and the selling
price. The return, better known as reward from investments include both current
income and capital gains or losses, which are by increase or decrease of the
security price.
3. Time
Time period depends on the attitude of the investor who follows a buy and hold
policy. A longer term fund allocation is termed as an investment. An investor is
interested in a reasonable rate of return over a period of time. A short term
holding is associated with trading for quick term and is called speculation.
OBJECTIVES OF INVESTMENT
1. Income
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companies. Certain investments like bank deposits, debentures, bonds etc. carry
fixed rate of return payable periodically. On investments made in shares of
companies, the periodic payments are not assured but it may ensure higher
return from fixed income securities; but these investments carry higher risk than
fixed income securities.
2. Capital appreciation
Investors who seek to achieve short term and long term capital gains opt for
aggressive growth in stocks. Current income from dividends is of a low priority
and the investors are risk seekers.
(c) Speculation
11
3. Forms of return
Cash dividends are payable as and when the board of directors of the company
decides to distribute the after tax earnings of the company to the shareholders.
In case of debentures ,bonds, bank deposits etc. the coupon rate is payable at the
end of each specified period.
The second component of return is the change in the price of investment called
the capital gain or loss. This element of return is the difference between the
purchase price and the price at which the asset can be or is hold.
The combination of periodic cash receipts and capital gain made on investments
constitute the total return on particular investment.
5. Risk
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6. Liquidity
7. Tax considerations
Before making the investments the investor should also take into consideration
the provisions of income tax, capital gains tax, wealth tax and tax Acts, to
minimize his tax burden and avail all tax exemptions available to him.
While investing their money,the investors must have some definite ideas
regarding the features their investments must possess. These features must be
consistent with the objectives, preferences and constraints of the investors.
These investments must also offer optimum facilities and advantages to
investors as far as the circumstances permit. The investors, generally, form their
investment policies on the basis of the following features:
1. Safety
The safety sought in investment is not absolute and complete. It rather implies
protection against loss under reasonably likely conditions or variations. The
investor should carefully review the economic and industry trends before
choosing the type of investment. To ensure safety of principal the investor
should consider diversification of assets. Adequate diversification involves
mixing investment commitments by industry, geographically by management,
by financial type and by maturities. A proper combination would reduce losses.
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Approval of law itself adds as flavour of safety to the investment to another.
Investments with the government assure more safety than with private party.
2. Liquidity
If a portion of the investment can be converted into cash without much loss of
time, it will help the investor to meet emergencies. This depends upon the
marketability and trading facility. Liquidity will be ensured if the investor buys
a proportion of readily saleable securities out of his total portfolio. Investments
like stocks and property or real estate cannot ensure liquidity whereas cash,
fixed deposits and units ensure liquidity. An investment is highly liquid if it can
be transacted quickly (without much loss of time), transaction cost is low and
the price change between the two transactions is negligible.
3. Income stability
Investors should balance their portfolios to fight against any purchasing power
instability. Investors should judge price level inflation, explore the possibility of
gain and loss in the investments available to them, limitations of personal and
family considerations. The investors should also try and forecast which
securities will possibly appreciate. A purchase of property at the right time will
lead to appreciation in time. Growth stock will also appreciate over time. These,
however, should be done thoughtfully and not in a manner of speculation or
gamble.
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5. Legality and Freedom from Care
6. Tangibility
Intangible securities have many times lost their value due to price level
inflation, confiscatory laws or social collapse. Some investors prefer to keep a
part of their wealth invested in tangible properties like building, machinery and
land. It may, however, be considered that tangible property does not yield an
income apart from the direct satisfaction of possession.
7. Profitability
When safety of the principal is assured the next aspect of the investment are
expected returns. The higher rate of interest leads to increased savings.
Regularity and periodicity of these returns should be taken into consideration. A
prudent investment policy should be enableto enjoy the fruits of higher returns
and at the same time ensure the desired liquidity. High interest yielding
securities generally carry greater risk. The safety of the principle and rate of
return usually move in opposite directions. Some investments such as equity
shares may appreciate in value over time while some may depreciate. Such
change in capital values should also be considered in evaluating the profitability
of an investment.
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8. Tax benefits
Tax saving investment schemes help to reduce tax liability. People reluctant to
pay tax from their earnings can invest in tax saving schemes. The Income Tax
Act provides deductions, exemptions and rebates to invest in certain funds.
1. Amount of investment
The amount of funds available for investment will influence the form of
investment. In case of an individual investor the amount may be small. There
are a number of avenues for making such investments like bank deposits,
mutual funds, etc. If the investible funds are more than transferable financial
securities like shares, debentures etc. may be purchased. Investment in real
estate can be thought of if the amount is large.
2. Purpose of investment
The purpose of investment must be very clear before making it. The purpose
makes one think in the same way. The object of an individual investor may be
to save tax, fixed return, appreciation in value of securities etc. If the purpose is
to save tax then master equity linked schemes, public provident fund, general
provident fund etc. may be the avenues of investment. Similarly other factors
will be taken into account while making an investment.
3. Type of investment
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objective should be taken up. Varied securities may be taken up to suit different
needs. If provident fund of employees is to be invested then fixed return
securities will be preferred, treasury bills may be the priority if idle funds are to
be employed for a short period.
4. 1Timing of purchase
This stage involves personal financial affairs and objectives. It may also be
called preparation of the investment policy stage. The investor has to see that he
should be able to create an emergency fund, an element of liquidity and quick
17
convertibility of securities into cash. This stage may, therefore, be considered as
appropriate for identifying investment assets and considering the various
features of investments.
Investible funds
Objectives
The objectives are framed on the premises of the required rate of return , need
for liquidity. The risk taker’s objective is to earn high rate of return in the form
of capital appreciation, whereas the primary objective of the risk averse is the
safety of the principal.
Knowledge
The knowledge about the investment alternatives and markets plays a key role
in the policy formulation. The investment alternatives range from security to
real estate. The risk and return associated with investment alternatives differ
from each other. Investment in equity is high yielding but has more risk than the
fixed income securities. The tax sheltered schemes offer tax benefits to the
investors.
2. Investment analysis
After arranging a logical order of the types of investments in the portfolio, the
next step is to analyse the securities available for investment. It involves
probing a number of individual securities or group of securities within the broad
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categories of financial assets formerly identified in first phase. A comparative
analysis of the type of industry and type of security should be made. The
securities bought have to be scrutinised through the analysis of market,
industries and companies.
o Market analysis
The stock market mirrors general economic scenario. The growth in gross
domestic product and inflation are reflected in the stock prices. The recession in
the economy results in a bear market. The stock prices may be fluctuating in the
short run but in the long run they move in trends i.e. either upwards or
downwards. The investor can fix his entry and exit points through technical
analysis.
o Industry analysis
The industries that contribute to the output of the major segments of the
economy vary in their growth rates and their overall contribution to economic
activity. Some industries grow faster than the GDP and are expected to continue
in their growth.
o Company analysis
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3. Valuation
Investment value, in general, is the present worth of future benefits from the
investments. The valuation helps the investor to determine the return and risk
expected from an investment in the common stock. The intrinsic value of the
share is measured through the book value of the share and price earningratio.
Simple discounting models also can be adopted to value the shares. The stock
market analysts have developed many advanced models to value the shares. The
real worth of the share is compared with the market price and then the
investment decisions are made.
o Future value
4. Construction of portfolio
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o Diversification
o Industry diversification
Industries’ growth and their reaction to government policies differ from each
other. Banking industry shares may provide regular returns but with limited
capital appreciation. Thus, industry diversification is needed and it reduces risk.
o Company diversification
o Selection
Based on the diversification level, industry and company analyses the securities
have to be selected. Funds are allocated for the selected securities. Selection of
securities and the allocation of funds and seals the construction of portfolio.
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5. Portfolio evaluation and revision
Investments are made under conditions of uncertainty. The return and risk of the
security vary from time to time. The investor should constantly evaluate the
performance of his investments. The developments of the economy, industry
and the relevant companies have to be appraised. Non performing securities or
securities with low rate of return are to be replaced with high yielding securities
with low risk.
o Appraisal
The return and risk performance of the security vary from time to time. The
variability in returns of the securities is measured and compared. The
developments in the economy, industry and relevant companies from which the
stocks are bought have to be appraised. The appraisal warns the loss and steps
can be taken to avoid such losses.
o Revision
Revision depends on the results of the appraisal. The low yielding securities
with high risk are replaced with high yielding securities with low risk factor. To
keep the return at a particular level necessitates the investor to revise the
components of the portfolio periodically.
Many channels or modes of making investment are available with the investors.
Different investments confer different sets of rights on the investors and
different set of conditions under which these rights can be exercised. Some
investments are very simple and direct, whereas some are quite complex and
require a lot of analysis and investigation. The ultimate objective of every
investor is to have a variety of investments that meet his priorities of risk and
return. Various investment alternatives are as follows:
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(A)Direct investment alternatives:
Direct investments are those where the individual makes his own choice and
takes his own investment decisions. The direct investments may be fixed
principal investments, variable principal investments and non-security
investments:
Equity shares have no fixed return or maturity data. Preference shares have a
fixed return but their market price is determined by demand and supply
forces.Convertible securities viz-debentures and preference shares themselves
into equity shares according to some prescribed conditions. These are fixed
principal securities supplemented by the possibility of a variable maturity value.
Real estate is less liquid than security form of investments. Mortgages represent
financing of real estate. It is characterized by periodic fixed income and
repayment of principal on a stated maturity date.
Commodities are bought and sold in spot markets. Contracts to buy and sell
commodities at a future data are traded in future markets. Business ventures are
direct ownership investments in new or growing businesses. Art, antiques,
jewellary and other valuables are specialized investments which offer aesthetic
qualities also to the investors.
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3. Debentures
4. Saving certificates
5. Government securities
6. Money market securities
1. Equity shares
The holders of equity shares are the real owners of the company. They have
voting rights in the meeting of the company. They have a control over the
working of the company. Equity shareholders get dividend after paying it to the
preference shareholders.The rate of dividend depends upon the profits of the
company. The equity shares have certain advantages. The main advantages are:
Capital appreciation
Limited liability
Free tradeability
Tax advantages (in certain cases) and
Hedge against inflation
2. Preference shares
Preference shareholders do not have voting rights but they are paid a fixed rate
of dividend. The investors who want a regular income even though the rate may
be less will prefer such shares. The dividend to shareholders is paid only when a
company has surplus profits
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3. Debentures
The Central Government has introduced new schemes for issue of bonds by
public sector undertakings. The bonds mature in 7-10 years in these schemes
and carry interest between 9 to 13 percent per year. The investor gets benefits of
tax too while investing in these securities.
4. Saving certificates
Another avenue for investment is the purchase of saving certificates. The rate of
interest and the maturity period are mentioned on the certificates. In some
certificates there are tax benefits also. The important saving certificates are:
26
Chapter 3
Analysis of data
27
This chapter intends to analyze the investment practices of college teachers. For
this purpose, primary data was collected from fifty college teachers in
Pathanamthitta district. The aim of this analysis is to understand the different
savings pattern selected by the college teachers for the purpose of investment.
Table 3.1
Sex-wise classification of respondents
sex Number of respondents Percentage of
respondents
Male 22 44
Female 28 56
Total 50 100
Table 3.1 reveals that out of the fifty respondents, 28(56 percentage) are female
and 22(44 percentage) are male. It shows that majority of the respondents
belong to the female segment.
28
Figure 3.1
female
56%
male
44%
29
2. Nature of post
Table 3.2 shows the classification of college teachers on the basis of
nature of post.
Table 3.2
Percentage
Percentage
Number
Number
Number
Permanent 16 73 19 68 35 70
Temporary 4 18 3 11 7 14
Guest/FIP 2 9 6 21 8 16
Vacancy
Table 3.2 shows that 70 percentof the teachers taken for the study are
permanent, 14 percent are on temporary and the remaining 16 percent are
guest/FIP vacancy. The sex wise analysis discloses that out of the total
respondents, 73 percentof male and 68 percentage of female are permanent, 18
percentof male and 11 percent of female are temporary and the remaining 9
percent of male and 21 percent of female are guest/FIP vacancy.
30
Figure 3.2
Nature of post-wise classification of respondents
80%
70%
60%
50%
percentage
40%
male
female
30%
20%
10%
0%
permanent temporary Guest/FIP Vacancy
post
31
3. Age
Table 3.3 displays the age-wise classification of the sample respondents.
Table 3.3
Age-wise classification of respondents
Percentage
percentage
percentage
Number
Number
Number
Below 30 5 23 5 18 10 20
31-40 11 50 7 25 18 36
41-50 1 4 9 32 10 20
Above 50 5 23 7 25 12 24
32
Figure 3.3
Age-wise classification of respondents
60
50
40
percentage
30
male
female
20
10
0
below 30 31-40 41-50 above50
Age
33
4. Marital status
Table 3.4 indicates the classification of respondents on the basis of
marital status.
Table 3.4
Classification of respondents on the basis of marital status
Marital Male Female Total
Status
Percentage
Percentage
Percentage
Number
Number
Single 5 23 5 18 Number
10 20
Married 17 77 23 82 40 80
Table 3.4 indicates that majority of the respondents (80 percentage) are
married. Among the male respondents, 5 (23 percentage) are single and
17 (77 percentage) are married. Among the female respondents, 5 (18
percentage) are single and the remaining 23 (82 percentage) are married.
34
5. Years of service
Table 3.5 shows the classification of respondents on the basis of years of
service.
Table3.5
Classification of respondents on the basis of years of service
Years Male Female Total
of Number Percentage Number Percentage Number Percentage
service
Below 14 64 14 50 28 56
10
years
10-15 3 14 2 7 5 10
years
15-20 - - 3 11 3 6
years
20-25 - - 5 18 5 10
years
Above 5 22 4 14 9 18
25
years
total 22 100 28 100 50 100
Table 3.5 reveals that 56 percentof the respondents have less than 10
years of service, 10 percenthave 10-15 years of service, 6 percent have 15-20
years of service, 10percent have 20-25 years of service and the remaining 18
percent have above 25 years of service.
35
Table 3.5
Classification of respondents on the basis of years of service
70
60
50
percentage
40
male
30
female
20
10
0
below 10 years 10-15 years 15-20 years 20-25 years above 25 years
years of service
36
6. Sources of income
Table 3.6 intends to show the sources of income of the respondents
Table 3.6
Sources of income
Sources Male Female Total
percentage
percentage
percentage
Number
Number
Number
Salary 18 82 27 96 45 90
Salary,house property - - - - - -
and other sources
37
Table 3.6
Sources of income
120
100
80
percentage
60
male
female
40
20
0
salary salary&house salary and other salary ,house
property sources property and other
sources
sources
38
7. Monthly salary
Table 3.7 reveals the monthly salary of the respondents
Table 3.7
Monthly salary of respondents
Monthly Male Female Total
salary(Rs.)
Percentage
Percentage
Percentage
Number
Number
Number
Below 3 14 8 29 11 22
25000
25001- 3 14 8 29 11 22
40000
40001- 10 45 7 25 17 34
55000
55000 and 6 27 5 17 11 22
above
39
Table 3.7
Monthly salary of respondents
50
45
40
35
30
percentage
25
male
20 female
15
10
0
below 2500 25001-40000 40001-55000 55000and above
monthly salary
40
8. Gross monthly income
Table 3.8
Monthly income of respondents
Monthly Male Female Total
income(RS.)
Percentage
Percentage
Percentage
Number
Number
Number
Below 4 18 6 21 10 20
25000
25001- 9 41 13 47 22 44
50000
50001- 4 18 6 21 10 20
75000
75001- 4 18 2 7 6 12
100000
Above 1 5 1 4 2 4
100000
41
female respondents, 47 percent receive an income in between RS. 25001-
rs 50000.
Table 3.8
Monthly income of respondents
50
45
40
35
30
percentage
25
male
20 female
15
10
0
below 25000 25001-50000 50001-75000 75001-100000 above 100000
monthly income(Rs)
42
9. Monthly expenditure
Table 3.9 exhibits the monthly expenditure of the respondents
Table 3.9
Percentage
Percentage
Percentage
Number
Number
Number
Below 10000 2 9 6 20 8 16
10001-20000 7 32 7 25 14 28
20001-30000 7 32 6 20 13 26
Above 30000 6 27 10 35 16 30
Total 22 100 28 100 50 100
43
Table 3.9
40
35
30
25
percentage
20
male
female
15
10
0
below10000 10001-20000 20001-30000 above 30000
monthly expenditure(Rs)
44
10.Distribution of monthly expenditure
Table 3.10
Distribution of monthly expenditure
Male female
Food 6705 8000
Table 3.10 shows that major portion of the expenditure has been incurred
for food and the remaining amount have been spent for expenses such as
transportation, education and so on.
45
Chart 3.9 (a) monthly expenditure of male respondents
8000
7000
6000
5000
AMOUNT
4000
3000
2000 male
1000
0
Expenses
9000
8000
7000
6000
Amount
5000
4000
3000
female
2000
1000
0
Expenses
46
11.Rate of savings
Table 3.11
Percentage
Percentage
Percentage
Number
Number
Number
Below 10 8 36 13 46 21 42
11-20 4 18 8 29 12 24
21-30 4 18 2 7 6 12
31-40 2 9 2 7 4 8
Above 40 4 18 3 11 7 14
Total 22 100 28 100 50 100
(source primary data)
Table 3.11 reveals that out of the total respondents , 42 percentage save below
10 percentage of their income . 24 percentage save between 11-20percentage,
12 percentage save between 21-30 percentage , 8 percentage save between 31-
40 percentage and the remaining 14 percentage save above 40 percentage of
their income. It is seen that majority of respondents save below 10 percentage of
their income.
47
Table 3.11
50
45
40
35
30 male
Percentage
25 female
20
15
10
0
below 10 11 to 20 21 to 30 31 to 40 above 40
Rate of savings (percentage
48
12.Classification of respondents on the basis of attitude towards investment
Table 3.12
Percentage
percentage
Number
Number
Number
No - - - - - -
Table 3.12 shows that all the respondents make their investments from
their savings.
49
13.Classification of respondents on the basis of factors affecting their
investment decisions
Table 3.13 ranks the various factors affecting the investment decisions taken by
the respondents.
Table 3.13
Tax benefits 9 18 12 24 5 10 12 24 6 12 6 12
Capital - - - - - - 11 22 15 30 24 48
appreciation
Others - - - - - - 7 14 25 50 18 36
Total 50 100 50 100 50 100 50 100 20 100 50 100
(source: primary data)
Table 3.13 indicates that majority of the respondents, i.e. 52 percentage give
utmost importance to the safety of their investments. Of the entire respondents,
18 percentage give prime importance for tax benefits, 16 percentage give
highest preference for return and the remaining 14 percentage give their first
importance for liquidity while carrying out their investment decisions.
While ranking second, the respondents have given the highest preference for
safety. Capital appreciation has been given fourth rank and above. 48 percent of
50
the respondents have given last rank for capital appreciation. None of the
respondents gave their last preference for safety and liquidity.
Table 3.14
51
Figure 3.11
35
31
30
25
23
20 19 19
15
10
7
5
3
2
1
0 0
0
52
15. Distribution of respondents on the basis of preferences of more than one
investment opportunity
Table 3.15
Distribution of respondents on the basis of preferences of more than
one investment opportunity
No 4 18 9 32 13 26
Table 3.15 shows that 82 percentage of the male respondents prefer more
than one investment opportunity and 68 percentage of the female
respondents prefer more than one investment opportunity.
53
16. Investment preference based on priority
Table 3.16
of
of
of
responden
responden
responden
responden
Percentag
Percentag
Percentag
percentag
avenues
No
No
No
eNo
ts
ts
ts
ts
e
e
Shares - - 8 16 7 14 35 70
Debentures - - 3 6 9 18 38 76
Bonds - - 3 6 9 18 38 76
Mutual Funds 5 10 2 4 8 16 35 70
Post Office
8 16 14 28 3 6 25 50
Savings
Bank Deposit 30 60 7 14 1 2 12 24
LIC 12 24 15 30 2 4 21 42
PF 26 52 5 10 3 6 16 32
Real Estate 3 6 6 12 4 8 37 74
Gold/Jewelry 3 6 10 20 3 6 34 68
Source: Primary Data
Table 3.16 indicates that 60 percentage of the respondents are highly preferred
bank deposit. 52 percentage give high preference to provident fund, 24
percentage highly preferred LIC and 16 percentage of the respondents selected
post office savings as their highly preferred investment avenue. None of the
respondents give high preference to shares, debentures and bonds. Only 4
percentage of the respondents moderately preferred mutual funds. 76 percentage
not preferred debentures and bonds.
54
Figure 3.12
40 38 38
37
35 35
35 34
30
30
26
25
25
21
20
16
15
15 14
12 12
10
10 9 9
8 8 8
7 7
6
5 5
5 4
3 3 3 3 3 3 3
2 2
1
0 0 0
0
55
17. Tenure of investment
Table 3.17
Tenure of investment
Table 3.17 shows that out of the total respondents, majority of the
respondents (i.e. 38percentage) have an investment period in between 1-3
years, 22 percentage between 3-5 years, 12 percentage have an
investment period of less than one year and the remaining 6 percentage
have an investment period in between 5-7 years.
56
Figure 3.13
Tenure of investment
45
40
35
30
Percentage
25
20 male
female
15
10
0
less than 1 year 1-3 years 3-5 years 5-7 years 7 years and
above
Tenure
57
Chapter 4
58
Findings of the study
59
Suggestions of the study
1. The college teachers should acquire greater awareness about the dynamic
changes in the investment avenues available.
2. The college teachers should try more to invest more into high yielding areas
such as mutual funds and share market.
3. The college teachers should try to utilize the services provided by the
financial consultants also for taking wise investment decisions.
4. The college teachers should select the fixed income instruments judiciously.
5. The college teachers should adopt a suitable strategy for making investment.
6. Proper diversification should be made by the college teachers in their
investment portfolio.
7. The college teachers should make a periodical review and revision of their
portfolio.
8. If the investment is in the shares of the company, college teachers should
acquire greater knowledge about the recent changes in the stock market
such as futures and options.
9. Since the cost of living of the college teachers is very high, efforts should be
taken to reduce or minimize the monthly expenditure thereby increasing
savings and making investments.
10. A large number of tax saving investment schemes are available and college
teachers can wisely invest in it in order to reduce their tax liability.
60
Conclusion
Thus, investment is not a game but a serious subject that can have an impact on
the wellbeing of the investor as well as the society.
61
Bibliography
62