Here's how much money doctors actually make

Not all doctors take home the same amount of money. Orthopedists — doctors who treat bone and muscle problems — make the most on average. Pediatricians, or those who take care of children, earn the least. And white doctors take home significantly more than their equally qualified peers of color, regardless of specialty.

This data comes from the WebMD-owned medical resource Medscape, which crunches the numbers on self-reported annual income from more than 19,200 doctors across 27 specialties for its annual Physician Compensation Report. Here's the breakdown:

Mike Nudelman/Business Insider

Doctors are making more overall

Over the past seven years, the average physician's income has steadily risen. The reason? "Intense competition for doctors," said Travis Singleton, senior vice president of the national physician search firm Merritt Hawkins.

Competition for patients across hospitals, healthcare systems, and direct-care groups has been steadily increasing over the past decade. The result is that doctors' salaries have increased on average, Singleton says.

The biggest earnings increases went to plastic surgeons and allergists, who earned about 24% more and 16% more this year than they did last year, respectively. Other incomes have flatlined — salaries of pediatricians, oncologists, and cardiologists have basically remained unchanged over the last year.

Physicians of color earn less than their white colleagues

This year's survey was the first time Medscape asked respondents to identify their race.

On average, physicians who identified as white received the most money, according to the report. Despite having the same training and experience as their white peers, physicians who identified as Asian, Latino, or black received significantly less. Black doctors made the least, taking home about 15% less than white doctors.

• Erin Brodwin and Mike Nudelman

http://www.businessinsider.com

Sri Lanka growth to accelerate to 4.7-pct in 2017: World Bank

June 05, 2017 (LBO) – Sri Lanka’s growth is forecast to accelerate to a 4.7 percent rate in 2017 and 5 percent in 2018, a new World Bank report says.

According to the World Bank’s June 2017 Global Economic Prospects growth will happen as international financial institution programs support economic reforms and boost private sector competitiveness.

Growth in the South Asia region is forecast to advance to a 6.8 percent pace in 2017 and accelerate to 7.1 percent in 2018, reflecting a solid expansion of domestic demand and exports.

The report says excluding India, regional growth is anticipated to hold steady at 5.7 percent this year, rising to 5.8 percent in the next, with growth accelerating in Bhutan, Pakistan, and Sri Lanka, but easing in Bangladesh and Nepal.

India is expected to accelerate to 7.2 percent in fiscal 2017 (April 1, 2017 – March 31, 2018) and 7.5 percent in the following fiscal year. Domestic demand is expected to remain strong, supported by policy reforms.

Pakistan is expected to pick up to a 5.2 percent rate in fiscal 2017 (July 1, 2016 – June 30, 2017) and to 5.5 percent in the next fiscal year, reflecting an upturn in private investment, increased energy supply, and improved security.

The report forecasts that global economic growth will strengthen to 2.7 percent in 2017 as a pickup in manufacturing and trade, rising market confidence, and stabilizing commodity prices allow growth to resume in commodity-exporting emerging market and developing economies.

Growth in advanced economies is expected to accelerate to 1.9 percent in 2017, which will also benefit the trading partners of these countries.

Global financing conditions remain favorable and commodity prices have stabilized. Against this improving international backdrop, growth in emerging market and developing economies as a whole will pick up to 4.1 percent this year from 3.5 percent in 2016.

Growth among the world’s seven largest emerging market economies is forecast to increase and exceed its long-term average by 2018. Recovering activity in these economies should have significant positive effects for growth in other emerging and developing economies and globally.

Nevertheless, substantial risks cloud the outlook, the report said.

“New trade restrictions could derail the welcome rebound in global trade.  Persistent policy uncertainty could dampen confidence and investment.”

“Amid exceptionally low financial market volatility, a sudden market reassessment of policy-related risks or of the pace of advanced-economy monetary policy normalization could provoke financial turbulence.”

Over the longer term, persistently weak productivity and investment growth could erode long-term growth prospects in emerging market and developing economies that are key to poverty reduction, it added.

The report highlights concern about mounting debt and deficits among emerging market and developing economies, raising the prospect that an abrupt rise in interest rates or tougher borrowing conditions might be damaging.

At the end of 2016, government debt exceeded its 2007 level by more than 10 percentage points of GDP in more than half of emerging market and developing economies and fiscal balances worsened from their 2007 levels by more than 5 percentage points of GDP in one-third of these countries.

The report can be downloaded here

Author LBO

Financial Planning: It's About More Than Money By Lisa Smith ( Investopedia )

Life planning is different than traditional financial planning because the focus is more about who you are and who you want to be than it is about money.

Unlike people engaged in the traditional planning process, people engaged in the life planning process don't look ahead to figure out how to maintain their current lifestyles in retirement. Instead, they look at how to change their current lifestyle to achieve the lifestyle of their dreams.

Read on to discover how you can use this approach to financial planning.

SEE: Starting Early With Financial Planning

The Ideal Lifestyle

Many people credit the baby boomers for this trend - former flower children who grew up and were absorbed by corporate America, but who never lost their ideals. Just as the boomers redefined their "golden years" as a time to be more active than their predecessors were, some want to go a step further and redefine themselves.

For these people, the concept of money is intertwined with the concepts of spirituality, creativity, family, service and other emotional aspects of personal satisfaction. Happiness is measured in more than just dollars and cents. It's not, "he who dies with most toys wins," it's, "he who gets the most out of life wins."

For many, it's more of a lifestyle change than anything resembling the retirement-planning process most of us are familiar with from 401(k) seminars at work or meetings with a financial advisor. The doctor who wants to be a painter, the law clerk who wants to be a poet and the city-dwelling office manager who longs for a cabin in the mountains are all increasingly turning to financial-service professionals for help in making those dreams come true.

Of course, the money plays a big role too.

SEE: Retirement Plans

Money and Sacrifice

There's just no escaping the money (or the lack thereof). The mailman who wants to become Bill Gates is probably out of luck. However, the attorney who wants to trade in her suit to pick up a hammer and open a repair shop might be able to do it in cash. The others have to make choices, so they work with a financial advisor in order to determine how to develop the financial plan that will allow them to realize their personal goals.

Rather than trying to earn more money or build a bigger nest egg, a significant number of people need to make do with less in order to achieve their goals. Giving up the big house, trading in the BMW and skipping the month-long trips to Europe can help decrease expenses and enable people to trade in their day jobs for lower paying, but personally-fulfilling, professions and past-times.

If living in a small apartment frees up enough cash to increase time spent on the golf course, some people are willing to make the trade. In order to exchange the stress of corporate management for the quiet bliss of a career grooming pets, some people are willing to take a significant cut in pay. When you don't like what you're doing and know how you'd rather spend your time, life planning can help you make the transition.

It's Your Life

If your goal is simply to retire, still be able to pay the bills and maybe a take a few trips each year, that's one thing. If your goal is to trade in your spot in cube city for a spot behind the counter at your own bakery, that's another thing entirely. Instead of asking yourself, "How much do I need to save," ask yourself, "How am I willing to change my lifestyle in order to achieve my goal?"

From there, it's more about the mechanics of orchestrating a transition than it is about saving a certain amount of money or earning a certain rate of return on your investments. Just as each person has his or her own definition of happiness, the decision to pursue a lifestyle change is highly personal. It can involve enormous upheaval, but it can also result in enormous satisfaction.

Prior to taking the leap, you should carefully examine your motivation and your financial resources. Then all you have to do is come up with the plan that will get you there.

SEE: Enjoy Life Now And Still Save For Later

Read more: Financial Planning: It's About More Than Money http://www.investopedia.com/articles/pf/06/lifeplanning.asp#ixzz4e6JIt25K

Home Travel and Tourism Competitiveness Report 2017 Travel and Tourism Competitiveness Report 2017

The World Economic Forum has, for the past 11 years, engaged leaders in travel and tourism to carry out an in-depth analysis of the Travel and Tourism competitiveness of 136 economies across the world. Travel and Tourism Competitiveness Index measures “the set of factors and policies that enable the sustainable development of the travel and tourism sector, which in turn, contributes to the development and competitiveness of a country”.

The Travel and Tourism Competitiveness Index enables all stakeholders to work together to improve the industry’s competitiveness in their national economies. The theme of this edition Paving the Way for a More Sustainable and Inclusive Future, reflects the increasing focus on ensuring the industry’s sustained growth in an uncertain security environment while preserving the natural environment and local communities on which it so richly depends

(weforum.org)

New Year Planning For Business Owners

By Glenn Curtis

Every new year, business owners should take the time to sit down and do a little planning, just to make sure that they'll be able to keep their company afloat and on the right track. To check that the business will have the necessary tools to ensure it's financial and operational goals will be met, and that the firm's employees will be happy with their working environment. Read on for some tips to help make the planning process run smoothly for you and your business.

Vendors

It should go without saying that every business owner should periodically review vendors and suppliers to make certain that they are giving competitive prices and delivering quality service. The beginning of the year may be the best time of year to review vendors.

In many cases, suppliers may have just completed their budgets for the current fiscal year, and they are looking to pin down business and cut deals to ensure that they achieve their annual financial objectives.

With that in mind, owners should ask themselves the following questions:

• Are current vendors charging competitive rates?
• Are current vendors providing good service and adapting to the business's changing needs?
• Are there any new vendors or suppliers who deserve a chance or from whom the business might obtain a quote?
• Does it make sense to try out a new vendor, even if it means giving him or her a small order?
• Might trying out a new vendor provide the business with leverage over an existing vendor?

Again, business owners will need to answer these questions in order to know whether they are getting good deals. Getting the best deals enables the business to keep its costs low, which improves the bottom line. Again, the first few months of the year are an opportune time to do this.

Equipment

Manufacturing companies and many service-related businesses depend on machinery, supplies and a variety of other equipment (from vehicles to assembly devices) to operate. However, many business owners are so caught up in the day-to-day activities that go along with running the business that they sometimes forget to do periodic equipment checks and make sure that they have what they need to grow the enterprise.

The first quarter is a good time to evaluate a company's equipment needs and to determine whether any capital investments need to be made. That's because identifying the business's equipment needs early on in the year can help the enterprise make its annual numbers. It can also help the business owner plan for future cash needs.

The following are questions that all business owners should ask themselves regarding equipment needs:

• Does the business have the equipment necessary to succeed and profit over the long haul?
• If not, can the equipment last another year, and can the business sustain itself using the existing equipment?
• What will new equipment cost, and where can quotes for the equipment be obtained?
• Does the company have the cash on hand or the ability to finance such purchases, or will the money need to come from future operational cash flow?
• Are there any expenses that could be cut in order to offset and help justify such expenditures?

Employees

Staffing needs should also be considered. It's good to recognize any deficiencies early on in the fiscal year so that appropriate adjustments can be made. Also, keep in mind that finding, hiring and training the "right person" can take a lot of time, so it's a good idea good to get on the ball as early as possible.

Furthermore, it's important to realize that many workers tend to ponder their own futures at the end of a year. They start thinking about whether they intend on sticking with the company or moving on.

Insurance

While the old adage says that the best defense is a good offense, sometimes the best offense is a good defense, and insurance coverage is a business necessity.

At the beginning of the year, new rates for health insurance, business liability insurance, automobile insurance, umbrella policies and other insurances tend to come into effect and it's a great time to go quote shopping.

All business owners should ask themselves the following questions regarding insurance:

• Is the company adequately covered in terms of liability and/or does it have adequate fire and health insurance?
• Are insurance companies running multi-policy deals at the beginning of the year in order to garner your business?
• Are there any new insurance carriers that might be able to provide a competitive quote?
• Has the company taken on any new assets or business interests that haven't been accounted for and protected by existing policies?

Retirement Plans

Businesses looking to set up 401(k), simplified employee pension (SEP) or other retirement plans should do so as early as possible during the year. Setting up a plan early on can permit employees to take full advantage of their annual allowed pretax contributions. Theoretically, the more time the money is growing on a tax-deferred basis, the larger the nest egg they may accumulate.

Reviewing the plans, selecting an investment firm, and actually setting up a plan doesn't happen overnight. Again, getting an early jump on these efforts makes sense.

Questions business owners should ask when setting up retirement plans:

• What will the cost be to administer the plan?
• How many employees might benefit and want to take advantage of the plan?
• How much will the company need to contribute to the plan?
• Are there any advantages to setting up one type of plan over another based on costs, the firm's size and employees' retirement needs?

The Bottom Line

By definition, business owners should continually evaluate their businesses and make adjustments accordingly. However, from a number of perspectives - such as insurance, retirement planning, staffing, vendor and equipment needs - the New Year is a particularly opportune time to sit down and plan.

Financial Steps to Take for a Prosperous New Year

James Di Virgilio, CIMA®, CFP® 

Hoping to enjoy a prosperous New Year? Before you splurge on the champagne, or even if you've already done so, follow these six steps.

1. Save at least 10% of your gross income in retirement accounts

This is a simple rule, with one caveat: if you are retired, spend no more than 4% of your total portfolio value.

2. Utilize the proper retirement accounts given your situation

This will give you the best tax and investment advantage. Generally speaking, if you make more than $35,000 but less than $500,000, choose to invest in the Traditional 401(k) or IRA; otherwise, choose a Roth IRA. If you are an employee of a private company that offers a 401(k), save in your company plan. If you work for a public entity, save in a 403(b), but also check to see if you can contribute to a 457, which will allow you to contribute an additional $18,000 in 2017. If you are an independent contractor or 1099 employee, you have several options––generally, an Individual 401(k) will be best. In all of the above cases, if you are over 50 years of age, you can contribute an additional $6,000 in 2017, giving you a max of $24,000. 

If you are retired, spend from the correct retirement accounts. How you are taxed on your retirement income will make a significant difference during your lifetime. Generally speaking, take income from your Roth accounts first, then your taxable accounts, and finally your IRAs. (For related reading, see: Is the 401(k) the Right Retirement Plan to Use?)

3. View all of your assets as one portfolio, and invest them in multiple asset classes

This rule applies whether you are retired or still working. Modern Portfolio Theory, first created at the University of Chicago and extensively refined over the past 60 years, provides the fundamental basis for creating a sound portfolio––and a sound portfolio will maximize your wealth. Diversify globally and have a variety of asset classes, including real estate and natural resources. *This advice does not apply to short-term investing goals. (Less than 5 years.)

4. Be careful purchasing a home

Homes are not good long-term investments. As a whole, residential real estate has averaged a 0.4% return per year over the past 100 years when you account for inflation. Generally speaking, the less house you the buy, the more money you have to invest in assets that produce a better long-term return. If you are retired, downsizing is an excellent way to increase your liquid portfolio value, thus increasing the amount you can safely withdraw each year. (For related reading, see: REITS: An Alternative to Investing in Real Estate.)

5. Create a will and a living will 

If you already have one, make sure it’s been updated recently. Also, update the beneficiaries on all of your accounts.

6. Stay away from whole life insurance and variable annuities

Unless you have more than the estate tax exclusion amount––$5.49 million per person, or $10.98 million per couple––whole life insurance is generally not worth the money. Insurance and investments are best kept separately, so use term insurance to cover any gaps that you might have, and then use the premium savings to invest in your portfolio. If you are retired and you have whole life insurance or variable annuities, carefully analyze them to ensure that they will provide what you need, without carrying a high annual cost. (For related reading, see: How to Keep Life Insurance Costs Down.)

Six Important Insurance Decisions You Should Take in 2017

Adhil Shetty

CEO at BankBazaar.com

Insurance has come such a long way in India. Earlier, insurance seekers were also investors who would be awarded with a risk cover along with a saving and investment avenue. Now, insurance and investment products have evolved with time to fit in with the economic environment. However we Indians are wary of market risks and are still tempted to invest in traditional insurance plans. Stated below are six important insurance decisions that you should take in 2017.

1.        Separate your insurance from investment:

The simple way to imply this is to detach your investment goals from your insurance goals. Let us take a simple example of a man, aged 35 having 2 children and a dependent spouse. His investment goals would be to provide for his children’s higher education and marriage, purchase a housing property for his family, and plan his retirement. This is different from his insurance goals which would be to protect his family, his home, his vehicle etc. from any emergencies. If you purchase a single financial product to achieve both your insurance and investment goals, then there is high probability that either one of them is not achieved.

To ease inflation pressure and to boost economic growth, the RBI over the last couple of years has cut the benchmark interest rates by 175 basis points (1.75%). This has reduced the returns from fixed income investments. Insurance companies, by offering guaranteed return products, lure the conservative investors. The investors don’t often realize that their return on investment for such products barely match the inflation rate. Investors purchasing such products would neither be able to meet his investment goals nor his insurance goals.

2.        When buying life insurance, pick a term plan:

There are 3 basic ways to calculate your insurance requirement:

a)        Income replacement method – In this technique one assumes that his / her present gross annual income for the no. of years left for retirement would be enough to meet ones family requirement in case of his / her sudden death

Income replacement method = Gross annual income * No. of years left for retirement

b)       Human Life Value method - In this approach, one’s insurance needs will be met by the present value of all future income that the insured is expected to earn for his families benefit.

c)        Need Analysis – As the name suggest it is the present value of all future financial goals that you except to achieve for your family example children’s education and marriage, providing for your dependent family members, repayment of outstanding loan amount etc.

However be the method with today’s rate of inflation, lifestyle etc. one’s dependents may easily need a minimum risk cover of Rs. 1 crore to take care of long-term financial needs. To achieve this cover through traditional, endowment plans, you would have to pay a very high premium. So the best and the cheapest way to choose is by comparing online term plans. A 30-year-old earning Rs. 500,000 can buy a basic 30-year term insurance with annual premiums ranging between Rs. 7000 and Rs. 11,000.

3.        Do not go without health insurance:

Average hospitalisation costs grew around 10% year-on-year between 2004 and 2014 in India – at a rate much higher than the average cost inflation of 7% per annum. A single visit to the hospital has the capability to erode all your savings in one go.

If you are salaried, there is a high probability that you would be covered by your employer under the group insurance policy. However, with this spiraling rate of healthcare inflation and no job security, one has to have a top-up plan in place. A top-up plan provides additional coverage once you exhaust your existing cover. As these plans cushion your existing cover, they are cheaper in contrast to regular plans.

If you are a self employed professional or a businessman, then it’s absolutely important that you have health insurance for your whole family, either through individual policies or under a family floater plan to cover the whole family. Please note that a floater plan takes the age of the eldest member of the family to calculate the premium. Therefore it is advisable to take a separate plan for your elderly parents.

4.        Consider buying critical illnesses insurance

Thanks to high stress lifestyles, exposure to pollution, rich diets, and lack of exercise, critical illnesses are becoming prevalent. The long-term treatment of any critical illness can take several months or years, and this has the potential to drain any family’s savings. To protect your family against such risks, consider having a critical illness insurance plan that will provide you a lump sum upon the diagnosis of listed illness such as kidney failure, cancer, paralysis, coma, sclerosis, cancer etc. A separate plan can be taken for critical illness or it could be a rider on either a general health insurance cover or a life cover. This cover can give you a financial cushion making it easy for you to manage funds while dealing with a possibly difficult hospitalisation and treatment. 

5.        Always have comprehensive insurance for your vehicle

Third party or liability insurance is compulsory on your vehicles. It covers the legal liability for the damage caused to a third party only; this would include bodily injury, death or incapacitation of the aggrieved. A third party would be anyone who is not the insurer or the insured. It could be a pedestrian, a passenger in your vehicle, or the driver of another vehicle. However, such an insurance plan will not cover damages caused to you. Hence it is important to have a comprehensive insurance plan where you get protection for your vehicle, self, and also against accidental fires, theft, or natural calamities. 

6.        Protect your home:

Natural calamities like earthquakes, cyclones and floods are on the rise, guided by the hand of human activity. A home insurance product can cover you from such threats. A typical home insurance plan covers damages by fire, and natural calamities, or man-made damages such as riots, terror attacks, strikes, etc. You also have the option of insuring the contents of your home by having a home contents cover.

BankBazaar is your one-stop shop for your personal finance needs! Visit our website to search, compare and apply for financial products in your city. 

(This article originally appeared in the Financial Express.)

Stock market or real estate? Here’s what we think is a better choice!

Making an investment can be a tricky affair. After all, how do we decide whether we should go for a long term investment or a short-term that will give us easy liquidity?

A long term generally means investment in the real estate while a short term could mean pumping in money in the stock market. But if you are contemplating between the two, here's a little help!

Stocks are any day a better option, if you want liquidity and ease in operating your investments. Stocks also offer great growth rates and are flexible over real estate investment. However, if you intend to make a long term investment, fixed assets work best.

"A crucial point to note here is that while stock prices can rise and fall, real estate investment almost always brings in more profits. In fact, the allocation towards real estate in most investors' portfolios has steadily risen since the global financial crisis. This is because investors seek to take advantage of the low correlation between the asset class and equity market," said Kishore Pate, chairman and managing director of Amit Enterprises Housing Ltd.

He added that real estate investment offer more stability when compared to stock market, which is volatile to the happenings of across the globe. On the other hand, real estate investments are also a stable income stream, which is one of its USPs. "The slow but steady correlation between the stock markets and real estate markets provides the important advantage of diversification in an investor's portfolio," said Pate.

Besides, increased inflation while adversely hampers the rupee value and often puts the stock market on a downslide. While property prices often go up, thus resulting in asset appreciation, unlike in stock market wherein an investor is confused whether to buy or sell a stock.

"Both assets offer long-term appreciation of value. However, if one is looking to create a strong portfolio and has the right kind of funds to invest, real estate will always be a safer and less stressful platform. After all, the demand for homes will never cease as long as we continue populating the planet - what can be a better source of assurance for an investor?" notes Pate.

Image Credit: www.mfxcenter.net

Chapter:1 Financial Markets, Instruments and Investment Basics

What is an Investment

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An investment is the current commitment of money and other resources in the expectation of reaping future benefits. For example, an individual might purchase shares of stock anticipating that the future proceeds from the shares would be high enough to justify the time that the money is tied up as well as the risk of the investment. In short, making an investment is to sacrifice something of value now, expecting to benefit from that sacrifice later.

Section :2 Real vs. Financial Assets At the broadest level, investments can be classified into two categories: I) Investments in Real Assets            Real assets are tangible assets that determine the productive capacity of an economy, that is, the goods and services its members can create. These include land, buildings, machines, and knowledge that can be used to produce goods and services. Other common examples of investments in Real Assets are paintings, antiques, precious metals and stones, classic cars etc. II) Investments in Financial Assets Financial Assets, or more commonly known as Securities, include stocks, bonds, unit trusts etc. In essence, financial assets or securities represent legal claim on future financial benefits. These are no more than sheets of paper and do not contribute directly to the productive capacity of the economy. Instead, these financial assets are the means by which individuals hold their claims on real assets and the income generated by these real assets. While both real and financial assets represent important avenues for investments, in this Tutorial investments in financial assets or securities would primarily be focused on. However, most of the concepts and tools discussed here can also be used for analyzing investments in real assets. Section :3 Financial Markets Complete No. Name 1 Marketable Securities 2 Non-Marketable Securities Financial Markets are categorized into: 1- Money Market 2- Capital Market 3- Securities Market. Here we will discuss Securities Market, which can be divided into markets for Marketable and Non-Marketable Securities. Section :4 Money Market Securities Money market securities sometimes are called cash equivalents, or just cash for short. The money market is a sub-sector of the fixed-income market. It consists of very short-term debt securities that are highly marketable. Many of these securities trade in large denominations and are out of the reach of individual investors. Money Market Mutual Funds, however, are easily accessible to small investors. These mutual funds pool the resources of many investors and purchase a wide variety of money market securities on their behalf. Most commonly traded money-market instruments include: Treasury Bills: Government debt security with a maturity that is less than one year. Treasury bills are issued through a competitive bidding process at a discount from par. This means they do not pay fixed interest payments like most bonds do. Certificates of Deposits (CDs): A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified interest rate, and can be issued in any denomination. CDs are generally issued by commercial banks. Commercial Paper: An unsecured, short-term loan issued by a corporation, typically for financing accounts receivable and inventories. It is usually issued at a discount reflecting prevailing market interest rates. Bankers’ Acceptances: A short-term credit investment created by a non-financial firm and guaranteed by a bank. Acceptances are traded at discounts from face value in the secondary market. Bankers' acceptances are very similar to T-bills and are often used in money market funds. Eurodollars: U.S. dollar-denominated deposits at foreign banks or foreign branches of American banks. By locating outside of the United States, Eurodollars escape regulation by the Federal Reserve Board. Repurchase Agreement (Repos): A form of short term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day. For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement. Federal Funds: Funds deposited to regional Federal Reserve Banks by commercial banks, including funds in excess of reserve requirements. These non-interest bearing deposits are lent out at the Fed funds rate to other banks unable to meet overnight reserve requirements. Brokers’ Call: The interest rate relative to which margin loans are quoted. Also known as the call loan rate. An important measure that differentiates money market securities from capital market securities is the time to maturity. Money market securities, essentially, have maturity period of one year or less.

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Complete	No.	Name
	1	Fixed-Income Capital Market
	2	Equity Market
	3	Derivatives Market

Capital markets, in contrast, include longer term and riskier securities. Their maturity is typically more than one year or, in some cases, indefinite. Securities in the capital market are much more diverse than those found within the money market. Examples include stocks, long-term bonds etc. Capital Market can be further divided into three sub-categories:

I) Fixed-Income Capital Market      

II) Equity Market      

III) Derivatives Market

Section :6

Financial Markets & Instruments at a Glance

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The following diagram outlines the various categories of financial markets and instruments:

Section :7

The Investment Process

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An investor’s portfolio is simply a collection of investment assets. For example, an investor’s portfolio might comprise of a collection of stocks, bonds, mutual fund shares, commodities and some real estate. Once the portfolio is established, it is updated or “re-balanced” by selling existing securities and using the proceeds to buy new securities, or by selling/buying securities to decrease/increase the size of the portfolio. As mentioned, investment assets can be categorized into broad asset classes, such as stocks, bonds, real estate, commodities, and so on. The investment process can broadly be divided into the following three steps:

Asset Allocation: Allocation of an investment portfolio across broad asset classes such as stocks, bonds shares of mutual funds, real estate, etc.

Security Selection: Choice of specific securities within each asset class.

Trade Execution: Actual purchase (or sale at some later stage) of the security through a broker or dealer.

The steps will be discussed in greater detail in later chapters.

Section :8

The Risk-Return Trade-Off

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Investors invest for anticipated future returns that can not be predicted precisely. There will almost always be risk associated with investments and actual or realized return will almost always deviate from the expected return anticipated at the start of the investment period. If two securities with similar returns have varying degree of risk, all investors will obviously go for the low risk security and the high demand would increase the price of security, thus decreasing the expected return. Hence, based on market demand dynamics, the security with low risk will offer a lower return while the security with higher risk will offer higher return. This is the fundamental truth in financial markets: securities with high risk will have to offer a high expected return to be attractive for investment while securities with low risk will still have demand even if they offer a lower return. Hence we see that government bonds have a very low expected return while the expected return of stocks (which are supposed to be more risky) is much higher in comparison. Therefore, the return is directly proportional to the risk and in order to earn higher return, investors will have to accept higher risk.

Section :9

Types of Investors

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While there are many types of investors, they can broadly be classified into two categories:

I) Individual Investors: These include individuals who want to invest their savings into stocks, bonds, etc. Any one of us, who calls up a broker and places an order for a stock or bond, is an individual investor. In most cases, the portfolio of individual investors is not very large and comprises of only a few securities.

II) Institutional Investors: Institutional investors are organizations that pool investor funds for making investments and capitalize on their superior research and portfolio management capabilities. Examples of institutional investors include mutual funds, pension funds, insurance companies, endowment funds, commercial banks, etc. In addition to the accumulation of superior analytical and information resources, institutional investors also benefit from economies of scale.