A Study On Investors' Expected Rate Of Return On Their Investments With Special Reference To The Judicial Department Employees Of Rajkot

Abstract

If we want a nice nest egg later on, we cannot spend all that we earn. We have to save a little and invest it wisely so that our "Golden Years" are truly golden. Everyone seems to understand this basic financial principle. Most people are investing some of their money for the future. Investment means the purchase by an individual of a financial or real asset that produces a return proportion to the risk assumed over some future investment period. For achieving this, the investor has to decide on how and where to deploy his/her savings so that his/her future requirements for money can be best met. Until the late 1990s, a high interest rate environment characterized India. Usually, investments were made in small savings schemes such as the Post Office Monthly Income Scheme (POMIS), the term deposits or in special Government schemes such as the RBI Relief Bonds. Interest rate on Post office monthly income schemes were as high as 13.25% percent in the mid-nineties. RBI Relief Bonds returned 10% until as recently as 7-8 years ago. Thus, on a corpus on I 0, 00,000, assuming an average interest earned on investments at 12% p.a.; one could earn t 1,20,000 p.a. or tl 0, 000 per month, which could afford the investor a modest lifestyle. All this started changing about 5-6 years ago, when the RBI started reducing interest rates to align them to globally realistic levels. As a result, the interest rate on POMIS is about 8% now, while that on the RBI relief bond, it is only 6.5%. As a result, the average interest earned may now only be about 7% per annum. Thus, on the same corpus on 10, 00,000, the interest income would only bet 70, 000 p.a. or less than t 6,000 per month. Clearly, this is not enough to maintain even a modest lifestyle. Such low returns have mandated a change in investment strategies required by the new low interest rate environment.