10 Things to do Before You Retire.....!!!

Retirement is an inseparable phase life, and this is the most crucial stage of human life cycle. People have different kinds of needs in different phases of life; it changes according to age, income, lifestyle, etc. Generally we can say that a person has five types of needs such as:

• Physiological 
• Safety and security 
• Social 
• Esteem 
• Self actualization

These needs differ from people to people, as we have already mentioned there are many factors that determine peoples need. For example; need of a teen ager is entirely different from that of an aged person. Aged people have social and security need. It does not mean that they had not felt this need before; they had felt it and had satisfied it too. But with the passage of time they spent the major portion of their earnings either in their children’s education, in building a home, for their parents’ health, etc. At the end of the day they forget to keep aside a part of their earning to fulfill their post retirement needs. This situation is common in most of the Indian homes.

As we reach our old age then we realize that the time and money that they have saved for themselves may not be sufficient for them to lead a tension free life after the retirement. In this case it becomes the duty of their children to look after their parents without facing any financial problems.

10 things to do before Retirement
There are some points that you need to know and follow before you reach the retirement age. This will help you to lead a comfortable post retirement life without facing any financial problems.

1. Prepare a Balance sheet of yourself 
2. Review your savings and borrowings 
3. Prepare a budget & review it 
4. Assess Your life insurance needs 
5. Eliminate unwanted expenses 
6. Consult a Planner to plan your investments 
7. Create a portfolio using the Right Financial Ingredients 
8. Have a review of your Investment Mix 
9. Invest for Income 
10. Set Aside Emergency Funds

1. Prepare a Balance sheet of yourself
We recommend you to prepare a balance sheet of yours, showing your assets and liabilities. The very objective of this is to determine your net worth. Assets include personal possessions of value, such as:

• Cash 
• Real estate 
• Investments

Liabilities are;

• Your debts 
• Legal obligations

You can prepare your balance sheet by using a spreadsheet, this will help you in determining your net worth and there on to plan your finance.

2. Review your Savings and BorrowingsIt is very important to have a close eye on your Savings and Borrowings. It's a fact of financial world that the cost of borrowings is always more than earnings from savings. For instance; if you take personal loan from a bank, they will make you to pay 20-30% annual interest. At the same time if you investing I bank they offer you 7-8% annual interest. So it is always better to clear off the debt if you have cash to spare.

3. Prepare a Budget & Review it
Retirement is the period during which you will not work. So it is necessary to prepare a paper budget or spending plan to update yourself about what your actual living expenses will be once you are not working.

Every person will have two kind of expenditure Fixed & Variable. In this variable expenditure is more, we mean to say that most of your expenditure can be controlled if you wish to do so. There are some expenses that go away once you are not working, like travel, food, dress, etc. Food costs may go down if you used to eat lunch at house. So think before taking any decision related to expenditure, a wise decision can save you from losing money unnecessarily. Avoid unnecessary expenditure and accumulate a portion of this towards your post retirement expenditure.

4. Assess Your life insurance needs
Every person should have life insurance cover so that their family will be in a safer side if anything wrong happens to you. Term and life insurance are two important types of insurance that can cove the risk of your life. If you are planning to go for a life insuranceonce you are 50 or more, it will cost you more so it is always better to have a life insurance cover you are young.

Most of the life insurance companies are offering Retirement Plans, if you are going for a retirement plan, it will help you to replace your salary once if you are retired. If the right decisions are made when electing your pension options, your spouse will be able to continue the pension. Term insurance is generally recommended for young people who have debt, dependents and few assets. However, a life insurance policy may be necessary for estate planning or other purposes.

There are so many types of insurance policies that fulfil your different needs. You have to think and choose the right one that can fulfill your needs.

5. Eliminate unwanted expenses
Expenditure heads should be identified and also given proper attention. Always make sure that you are eliminating unnecessary expenditure, including your children’s educational expenditure. The time to fund your children's college educations is when they're small and not when they are Graduating and you are counting down to retirement.

As we have discussed already, list out the expenditure according to priority and avoid all possible expenditures.

6. Consult a Planner to plan your InvestmentsMost of the times people feel difficulty in planning their finances. So it is better to consult a financial planner for guidance. An efficientfinancial expert can get a comprehensive perspective on your whole financial situation and determine if everything is in order and you are really prepared to face retirement. He can guide you from re-evaluating your portfolio to your investments structure.

7. Create a portfolio using the Right Financial Ingredients
Most of the studies done on retirement planning had proved that a large percent of people allocate their money to just one single fund. Another major percent of people allocate their money to only two funds. Only a small percentage of the people understand the importance of diversifying their funds. Use of diverse mix of funds or multiple ingredients will help you to achieve your investmentgoals.

8. Have a review of your Investment Mix
We will understand this point with the help of an example; if your music player is too loud, do you throw it out the window? Of course not! You simply adjust the volume and get it back to an tolerable listening level. The same applies to your retirement plan. Instead of dropping your plan into the garbage, get an acceptable mix of investments that match your risk tolerance and financial goals.

9. Invest for Income
You may have built up a sum of money in the bank, from the sale of a property or by investing wisely, yet at some point, it will be important for you to actually see the benefit of your hard work. You may then need to consider changing your investment strategy from 'growth' to 'income'. In order to achieve better returns you may have been happy taking a risk with some of your money. But can you now afford to lose what has been taking you years to build up? Investing for income generally means taking a lower risk and seeing the benefit each month or each year in the form of an income payment. Ultimately, it's your money and you should enjoy it!

10. Set Aside Emergency Funds
Before reaching your retirement age you need to make sure that you have set aside sufficient funds for unexpected costs. This buffer will ensure that you avoid using assets allocated for income or growth purposes. As a general rule of thumb, we suggest saving about three to six months worth of expenses for your emergency fund.

Emergency can be anything like your car repairs, dental work, or travel expenses for a family member's illness or death. Make sure your emergency fund is liquid. Remember to replace emergency funds as you use them.

Sensex to touch 50,000 by 2015!!!!

So are golden days at Indian stock exchanges back again? If we trust industry experts we have reasons to believe them! Flashback to January 8, 2008 when Sensex reached its historical high of 21,073- Investors were betting on 25,000 high by the end of 2008. However, we all know what happened to Sensex within a year- it went down to 10,000!! Did industry experts got it wrong in 2008 but will get it right in 2010? That’s what most of you would be wondering while reading this article!

I believe it is extremely unfair to blame experts or investors to blame for the fiasco because everybody including you and I were busy enjoying see our investment portfolio swell and Sensex going up every day. We chose to ignore all the warnings coming from market, institutions and experts as we were happy in our own fantasy world. We knew that western economies were lending at very low interest rates and thus creating asset bubble which was waiting to bust. Anyway let us move on.

So what has changed now?
I believe world economy and more so financial markets are less risky due to cleansing of high risk derivative products such as Mortgage Backed Securities. Fundamentals of most of economies are strong or getting stronger after the crash. Let’s look at Indian economy- It has grown by over 7.5% in the last financial year and is expected to grow by 8% this year. So if the Indian economy continues to grow at an average of 8.5 per cent per year until December 2015, if there is no double-dip recession in developed countries, if the Indian rupee continues to trade around Rs 46 to the US dollar, then the Sensex should be comfortably placed at 15,622 on March 31, 2010, and around 50,130 in December 2015.

Also, Indian stock market is not overvalued as it was in 2007-08. If a country's market capitalisation as a proportion of global market capitalisation mirrors its share of world GDP, India's stock market seems to be within 15-20 per cent of where it should be. In 2007-08 it was almost 25% overvalued, which was also a sign of pending crash that we chose to ignore.

Even though the Indian stock markets will continue to be fairly volatile for the next few years, an investor who takes a long-term -- a five- to six-year -- view is likely to be rewarded very well, especially after taking dividends into account.

Future of Stock Market
The future of Indian stock market is heavily dependent on the following three parameters:
Future growth of the Indian economy, annual inflation, and productivity related improvements;
The inflow and outflow of foreign institutional investment; and any movement of price-earnings ratios.

Future growth of Indian economy
India' economy grew at an annual rate of 9.4 per cent during the three years -- 2005 to 2008 -- with agriculture averaging around 5 per cent per year. India also survived the global meltdown of 2008-09 due to minimal exposure of the financial sector to the sub-primelending, and domestic demand driven growth. India's average annual growth rate during the two years, 2008-2010, was likely to be around 7 per cent (in real terms), with the current fiscal year outperforming the last one by over one per cent.

Favourable demographics, high savings rate, rising middle class, and underleveraged households suggest that domestic demand, and the economy, will continue to grow strongly.

Taking a long-term view and assuming an exchange rate of Rs 46 to 1 US dollar, an annual growth rate of 7 per cent in 2009-10 and 8.5 per cent during 2010-16, the market sentiment being overly buoyant, an inflation of 6 per cent per year, the size of the Indian economy in nominal terms is likely to be:

• $1.250 trillion in 2009-10, 
• $2.400 trillion in 2014-15, 
• and $4.640 trillion in 2019-20. 

This implies a cumulative nominal annual growth of 14 per cent and an approximate four-fold increase in the coming decade.

During 2009-10:The services sector would account for approximately 56 per cent of the Indian economy;
The manufacturing and industries sector would contribute about 29 per cent; and Agriculture about 15 per cent.

Between 2005 and 2008, both, the services and the industries sectors grew at approximately 14-15 per cent on a nominal basis and 9-11 per cent in real terms. These sectors are likely to grow between 15-16 per cent in the next six years.

ConclusionAll these macro as well as micro economic factors, if sustained for the next five years, may push our growth to over 10.1%. With increasing EPS and revenue of major Indian companies, Sensex is expected to continue its upward rally and touch 50,000 by the end of 2015.

FIVE YEARS DOWN THE LINE: A NEW BRIDGE OVER TROUBLED WATERS

BLOOD IS THICKER THAN GAS

Mukesh and Anil Ambani will also negotiate a new gas supply agreement

Non-compete pact buried by Mukesh, Anil in Truce II

MUKESH and Anil Ambani took a giant step towards ending their bitter feud by agreeing to scrap a set of agreements that had stirred up trouble between them. The apparent end of the soap-opera style fight between the brothers, which had captivated the country but had delayed vital infrastructure projects, was greeted with relief by government ministers.

The two billionaire brothers said in a joint statement on Sunday afternoon that they had decided to end agreements preventing them from investing in industries where the other was present and pledged to work together in an atmosphere of harmony.
The second Ambani truce, which comes almost five years to the day after the original family settlement brokered by Kokilaben, the mother of the two brothers, scraps a no-compete pact that had barred Mukesh, 53, from sectors such as power, telecom and financial services and had kept Anil, 50, away from refining and petrochemicals. The only vestige of the earlier agreement left over is RIL's pledge not to set up gas-fired plants till March 31, 2022.
In the joint statement, Reliance Industries, headed by Mukesh and four companies of the Anil Dhirubhai Ambani Group (ADAG) said they had signed a new and simpler non-compete agreement that "will eliminate any room for further disputes between the two groups... on the scope and interpretation of the noncompete obligations".
The two sides also said they would soon negotiate a new gas supply agreement in keeping with aMay 7 ruling by the Supreme Court.
Finance minister Pranab Mukherjee, the government's favoured interlocutor for resolving tricky problems, including fixing the price of gas, told ET the truce would lead to healthy competition and boost investor confidence.
"It is a very positive development. It is good that the two companies and the Ambani brothers have reached an agreement as it would lead to healthy competition. They are corporate giants in themselves and this kind of an agreement will have a real positive impact on the larger corporate world. Other companies will draw confidence from them as this would mean an end of the rivalry."
The two brothers also said they were hopeful that Sunday's developments would create an atmosphere of "harmony and collaboration between these two groups".
Sunday's development, while sudden, was not entirely unexpected. Both sides, according to persons familiar with the situation, had become increasingly exhausted over the seemingly interminable dispute. "Neither side is dying to get into each other's sectors. That's not primarily what this is about. What the agreement really does is that it will stop both sides from spending their energy blocking each other," said a person close to ADAG.
Sources familiar with the developments of the past week said Kokilaben had once again played a key role in the latest truce. According to these sources, Anand Jain, a close friend of Mukesh, and Atul Dayal, one of RIL's top lawyers, were key players in the last-lap negotiations. Last week, in an indication of the impending truce, Mukesh had met the PM requesting a change of rules to help new gas-fired plants obtain supply of the fuel for a period longer than the five years currently fixed by the government. If implemented, this will help ADAG attract financing for its power projects.
A new gas supply agreement remains the only matter that still needs to be resolved.

Non-compete pact escalated tussle

ONCE that happens, a clause in the family MoU—which said Anil could sue Mukesh in case a suitable gas supply agreement was not reached—was likely to be scrapped, according to the sources.
The existence of the non-compete pact had escalated the estrangement. Anil had objected to Mukesh's move to enter the financial services sector to support RIL's retail operations.
In 2008, a possible deal between Reliance Communications and South African telecom company ran into trouble after RIL said it had a so-called right of first refusal (ROFR) to buy the telecom business of ADAG. Sunday's reworked agreements scraps all ROFRs between the two groups.
The Supreme Court ruling in favour of RIL in the prolonged legal dispute over the price of gas appears to have galvanised moves towards a settlement.
The court said ADAG companies would have to buy gas at a price of $4.20 per million British thermal units (mBtu) compared with $2.34 per mBtu contained in the family settlement in 2005 when RIL was divided between Mukesh and Anil. The SC also asked the two brothers to sign a new gas supply agreement.

New Pension Scheme (NPS) to Secure Your Future.....!!!

Everyone has to get retired from the work no matter what is your work profile either you are Govt. employee, or a businessman or a private firm employee. Each of us makes plans for the retirement. The planning of retirement is not always easy as you have to look in various aspects of financial plan like tax benefits, returns and risk. The task becomes more confusing when you have many options to invest.

Here in this article we have tried to give details about one of the Retirement/Pension plan available in country and to compare it with some of the other schemes.

What is NPS?
This a pension scheme introduced by Govt. of India where you can regularly invest in this scheme and get a lump-sum at your retirement and it gives fixed monthly income for the lifetime.

Before the introduction of the NPS pensions schemes were available to Govt. employees and employees of big companies who had provident fund facility. But with NPS now its a common person gateway to Pension Schemes.

Who can Join New Pension Scheme?
All citizens of India can avail and be part of this scheme on voluntary basis and its mandatory for the Central Govt. Employees. All Indian citizens between the age of 18 to 55 can join this scheme.

How can one enroll for NPS?
To enroll for NPS one have to visit Point of Presence( PoP) and fill up the prescribed form with the required documents.

Once Applicant is registered with, the Central Recordkeeping Agency ( CRA) will send a Permanent Retirement Account Number(PRAN).

What is Investment Limit?

• No upper limit of investment. 
• Minimum limit of 6000 per year ( Rs. 500 per month) 
• Minimum number of contribution : 4 in an year ( at least 1 in each quarter) 
• Minimum Annual contribution: Rs. 6000 in each subscriber account. 

These are some of the investment limits for New Pension Scheme and one have to follow the above limits and restrictions. If the subscriber fails to contribute the minimum annual contribution a default penalty of Rs. 100 per year will be enforced and account will be dormant. A dormant account will be closed when its value will comes to zero.

Who are the Bodies related to New Pension Scheme

Regulator: The one who will regulate the NPS System.
Fund Managers: Who will invest the money?
Point of Presence: Responsible for Sales and Marketing.
Central Record Keeping Agency: Responsible for all the document Keeping work (Record Keeper)

Who regulates NPS?
The regulator for New Pension Scheme in India is Pension Fund Regulatory and Development Authority (PFRDA). It monitors and regulates all activities under NPS. It functions same like SEBI in Stock Market and its checks how money is invested and it keep track on the working of fund managers.

Who are fund managers?
Fund managers for NPS are appointed by Govt. of India to manage funds of investors. They are one who will take decisions regarding where the money received under NPS should be invested in the best possible way considering all the rules and regulations set by PFRDA. Some of the fund managers are as SBI Pension Funds Private Limited, UTI Retirement Solutions Limited and ICICI Prudential Pension Funds Management Company Limited etc.

Point of Presence
These are the Banks and Financials institutes approved by Govt. Of India as Point of Presence under the NPS for all Indian citizens other than Government employees under NPS. These Point of Presence facilitated to get registered with NPS.

Central Record Keeping Agency (CRA)
It is the body who maintains and records all the transactions and contributions of the subscribers. It will also have the mandate to effect client instructions regarding switching from one fund to another or from one scheme to another of the same fund.

What are the Investment Options in NPS?
This question is very much on the top of the mind of the Investor while making an investment in NPS. So the answer to this question is here

There are 3 separated schemes each investing in different asset class which are managed by Fund Managers under the investment guidance finalized for NPS. The asset classes to be invest are equity, risk bearing financial instruments and government securities. It’s the decision of investor about the proportions of investment in these three assets classes

G Class: Investment would be in Government securities like GOI bonds and State Govt. bonds
C Class: Investment would be in fixed income securities other than Government Securities
E Class: Investment would primarily in Equity market instruments. It would invest in Index funds that replicate the portfolio of either BSE Sensitive index or NSE Nifty 50 index.

If no choice is exercised by the subscriber the contribution will be invested in accordance with Auto choice in which investment will be determined by a predefined portfolio.

What are the benefits of NPS?
New Pension Scheme is beneficial to the Private Firm employees as before NPS there were restrictions in investing in Pensions Schemes. At the same time its gives various benefits to the subscribers/investors as

The money charged by fund managers is very less then compared to charges levied by mutual funds or other investment options. 

• Investment in NPS is highly safe and it contains very less amount of risk. 
• New Pension Scheme provides high returns compare to other investment options. 
• It provides tax benefits under 80c section of income tax. 

Other Traditional Plans
Now you are very much aware of NPS tell me explain you some of the traditional retirement plans like

• Public Provident Funds 
• National Savings Certificate- 

Public Provident Funds
All of us have come across the term Public Provident Fund.PPF is a long term small savings scheme backed by Govt. of Indiastarted with the objective of providing old age income security to the workers in the unorganized sector and self-employed individuals.The minimum deposit in 500/- and maximum is Rs. 70,000/- in a financial year and the scheme is for 15 years.

National Savings Certificate
National Savings Certificates are long- term savings instruments which provides adequate returns with high safety. These NSC not only saves tax but at the same time make an investment which provides good and safe returns. You can get NSC from any Post Office nearby you and NSC are available in the denominations of Rs. 100 Rs 500, Rs. 1000, Rs. 5000, & Rs. 10,000. There is no maximum limit on the purchase of the certificates. And the maturity period for NSC is 6 years.

Comparison between NPS and other traditional Retirement Plans

Basis	New Pension Scheme(NPS)	Public Provident Fund (PPF)	National Savings Certificate (NSE)
Minimum Investment	500/- per month	500/- per year	100/- per month
Maximum Investment	No upper limit	70000 per year	No upper limit
Entry Age	18-55 years	No age prescription	Min. 18 years
Maturity period	Till the age of retirement(60)	15 years	6 years
Rate of return	12-14% p.a.(approx)	8% p.a.(approx)	8%p.a(approx)
Prematurity withdrawal	Permissible with certain terms	Permissible in the case of death only	Permissible in certain circumstance such as death.
Nomination facility	Available	Available	Available
Tax benefits	Contributions and returns to the NPS are exempt up to a limit, withdrawals are taxed as normal income	Deposits in PPF qualify for rebate under section 80-C of Income Tax Act.	It is quality as investment under 80C section of Income tax

Stock Investment with Diversified Portfolio.....!!!

If you are a budding investor, got some spare money and thinking of investing in stock markets and for the first time you walk into broker’s office, tell your broker about your interest. The first thing that broker would be telling is “diversification or portfolio construction”. If you know the word its well and good, but if you don’t have any idea about it then you will be puzzled. You would have read that shares of your favorite company (e.g.: Infosys, Reliance or TCS) are trading well, so you tell your broker that you want to put all your money into stocks of that company. For a moment your stock broker will look at you as if you have fallen from sky, it’s because people living at the stock markets believe that if you don’t diversify then there are very less chances of you surviving in the market. Now, is it always necessary to have a diversified portfolio…..??? If yes then how much should an investordiversify? Are there any side effects of this so called diversification?

Being an investor you must have heard this particular word more than thousand times and I’m also sure that you would have read a lot on this topic, but most of the times the investors do not get the full meaning of portfoliodiversification. If you ask what’s diversification most of the answers would be “having shares of many companies” or if he is an investor with bit of knowledge he would say “not putting all your eggs in one basket”. I would agree with the second person to some extent, but if asked to elaborate he will switch over to the first definition, which is incomplete. Diversification does not only refer to holding shares of different companies but holding the securities of many companies, fixed income securities, money market instruments etc, in what proportion we allocate or invest in these avenues depends on our risk taking ability, knowledge to analyze the economic conditions, companies etc.

Advantages of diversifying the Portfolio

Let’s have a look at some of the advantages of diversifying your portfolio

By diversifying you will be able to hedge (evade) the risk (systematic and unsystematic).
Even though there are fluctuations in the prices of the stocks in the market, you will have fixed returns.
Diversification is very helpful for an investor who is looking out for investing in the companies for a long term. The reason is that he will be having a variety of securities in his portfolio and even if one company is going through a lean patch, other securities will be doing well.
Diversification of portfolio helps during the worst times of the market, when the market has crashed.

Disadvantages of diversification

The first and the most important thing is that by diversifying you will be losing an opportunity to make most of your investment. It’s just a matter of chance that one of companies in which you had invested gave a return of 15% and your portfolio return was 12%.
Investing in too many securities means you will have to spend a lot of time to study the company, performance of its stocks. Not only this, you will have to spend a lot of time in order to manage theportfolio

Over-diversification and under-diversification
Overdoing something is bad and under doing is not an exemption. This holds good in case of diversification. Over diversifying and under diversifying can harm your portfolio. Some of the reasons why investors go for over diversification are;


They have lot of disposable income
They think, more the diversification more will be their earnings
Interpreting market conditions in a wrong way
It is a reason for them to be proud of themselves.
Their relative or friend has shares of more companies

Reasons for under diversification

They are mostly risk averse investors
They want to play safe in the stock market
Wrongly interpreting the market conditions

Portfolio Re-balancing

This is also called as portfolio evaluation and portfolio revision. Most of the investors must be wondering as to why there is a need for revising the portfolio. For example last year you had invested 75% in shares and 25% in bonds and your portfolio had given you returns of 15%. These figures look good but is it good to continue with the sameportfolio…..??? experts say that investor must revise his portfolio. Some of the reasons that are given in support of their view are;

• The economic conditions are changing continuously, so the securities that had done well during previous year may or may not do well this year

• The changes in the monetary policies, fiscal policies which are revised every now and then have their own implications on the market and which in turn have an effect on earnings of the investor.

• The changes that have taken place in the companies can also have an effect on the earning capacity of the company, hence affect earnings.

• The phase (Bullish or Bearish) of the markets have an implications on the earnings of a portfolio.

• Prices of shares keep changing and there are some phases when the share prices are very low. So to encash on this situation an investor needs to revise his portfolio. For example you are holding 100 shares (price of each share is rupees 90) of company XYZ. Your total investment in this case would be 9000 rupees. Now due to some news or changes in some policies which are not in favor of markets prices of all the stocks fall so is the case with these shares. Suppose the prices of this share falls to 75 rupees. Now same investor with same 9000 rupees can buy more number of shares if he had sold some of shares or thought of revising his portfolio.

Does market phase indicate portfolio revision?

Stock markets go through phases such as Bullish or Bearish, and as the phase change there are changes in the earnings and stock prices. An investor can capitalize on these phases to revise his portfolio, so that changes that occur in stock markets do not have a greater affect on his earnings. Experts have said that only way to protect yourself is to tilt your portfolio towards shares when there is a bullish trend and towards fixed income securities such as bonds, debentures etc during bearish phase.

After all this discussion the question is how much to diversify? The answer for this question depends on certain variables which must be decided by the investor.

• Do decide on whether you are a high risk taking or risk averse or a moderate risk taking investor. It depends on many of the situational and personal factors such as your age, your earnings, status (married or unmarried), disposable income, expertise to analyze the situation etc.

• You must not spread your investments too thin over many securities in the market. If you do this, you expose yourself to risk of losses. Averse

Let’s see what will be the effect on your earnings if you falter in diversifying your portfolio. Let’s take an example of three investor friends Ajith, Ramesh and Randev who have invested an amount Rs. 10,000 in stock market and have diversified their portfolio. Ajith is a risk averse investor, Ramesh is an investor with good analytical reasons and moderate risk taker and lastly Randev is an aggressive investor.

Investments	Ajith	Ramesh	Randev
Total investment	10,000	10,000	10,000
Bonds	7000	4000	1000
Shares	3000	6000	9000
Shares of Company. L	3000	4000	3000
Shares of Company. M	0	1000	1000
Shares of Company. N	0	1000	1000
Shares of Company. O	0	0	1000
Shares of Company. P	0	0	1000
Shares of Company. Q	0	0	1000
Shares of Company. R	0	0	1000

Returns from different avenues

• Bonds-10%,
• Company L-16%,
• Company M-10%,
• Company N-14%,
• Company O-4%,
• Company P & Q-Nil,
• Company R-8%.

The dividends that are paid to shareholders depends on the profits made by the company. In case company doesn’t make profits then it doesn’t pay any dividends as is the case of companies P & Q in this case

Returns of Ajith will be

Returns=3000(16%) + 7000(10%)

=1180 rupees

Returns for Ramesh

Returns=4000(16%)+1000(10%)+1000(14%)+4000(10%)

= 1280 rupees

Returns for Randev

Returns=3000(16%) +1000(10%) +1000(14%) +1000(4%) +1000(0%) +1000(0%) +1000(8%)

=840 rupees

From the above given example it is clear that over diversification and under diversification of investments is harmful. It is always better to diversify your portfolio after the proper analysis of investment avenues.