New Investment

Avenues In India
Wealth Insight
Investment:
Meaning:

The purchase of a financial product or other

item of value with an expectation of
favorable future returns.
Investment alternatives
Equity Shares

Commodities

Bonds

Insurance

Real Estate

Mutual funds

Non Marketable Financial instruments

Precious Objects

Financial Derivatives
 Reasons why one should
consider New Investment
1. New Market Avenues?
2. A good Investment option during Inflation
3. High Returns
4. Lower Risk
5. Future Prospects
6. Diversification of the portfolio
7. Tax shield
New Investment Avenues

 Carbon Credit
 Hedge Funds
 Art fund
 Film Fund
 Wine Fund
 Reality Fund
 Foreign Exchange Market
 Carbon Credit
 Meaning: Carbon credits are a part of international emission trading
norms. They incentivize companies or countries that emit less carbon.
 Traded: In Tones
 Background: To reduce the emission of harmful gases that contributes
to the greenhouse effect that causes global warming. So, countries
came together and signed an agreement named the Kyoto Protocol.
 Carbon Credits

 Who can trade: Companies who signed Kyoto Protocol, and

environment loving Individuals
 How buying carbon credits can reduce the emissions?
 Price Influencing factors:
1. Supply-demand mismatch
2. Crude oil prices
3. Coal prices
4. CO2 emissions
5. European Union Allowances (EUAs) prices
6. Foreign exchange fluctuations
• Risk Associated:
• Process
• Technology
• Creditworthiness and competence of the project developers
• Country
• Currency risk
• Natural Calamities

• India as a potential supplier : Exempted from strict norms of Kyoto

Protocol
• Various industries that have scope of generation of CERs
• Agriculture
• Energy ( renewable & non-renewable sources)
• Manufacturing
• Fugitive emissions from fuels (solid, oil and gas)
• Metal production
• Mining and mineral production
• Chemicals
• Afforestation & reforestation
Courtesy: Chicago Climate exchange
 CC Credits

 India Current scenario:

 Current trade is been 15 Million

 Expected annual CERs in India is hovering around 28 million
 considering that each of these Credits is sold for around 15
Euros, on an average, the expected value is going to be around
Rs 2,500 crore In next year
 Analysts forecast that its trading in carbon credits would touch
US$ 100 billion by 2010.
 Real Estate fund
 Structured in a way similar to a mutual fund.
 The sponsor company need to set up a Real Estate Investment
Management Co. which will report to a Real Estate Investment Trust
(REIT), in whose hands your money will be entrusted.
 Not be allowed more than 15 % in a single real estate project and
more than 25 % in real estate projects developed and marketed by a
single group of companies

 Scheme: Close ended and for 6 months

 Invest in Real Estates Directly.
 Return Philosophy: 90% Gains as dividends.
• 3 to 5 Years is the blocking period
• Independent property valuer For Property Valuation.
• Remaining 30-35% Investments in Stocks

• Risks: As stock Investments are possible

• Threat of not disclosing NAV

• Minimum Investment: 5000

• Future predictions:
• Too early to make predictions
• Inflation More than 7.5
• Urbanization
• Expected return of around 10-15% returns p.a. Due to Lower Interest
Rates
• 70% new construction for IT and Retail Sector
 Investments in Future

 Kshitij Domestic Fund $430 Million.

 AIG Borgman 500 Crores
 Reliance Urba Infrastructure Fund 1500 Crores
 Religare Infrastructure fund
Art Fund
 Trust is formed similar to MF Trusts
 People invest money in them and the fund manager buys art
with this money.
 Only art Pieces Of registered art persons are taken into account
for purchasing

 Why To Invest?
 Minimum volatility
 Portfolio Diversifier
 Lower Risk
 New Investment opportunity
Examples of ART Fund In India:
1.Copal art fund
2.Crayon capital Art fund
3. RR Fine Arts fund
4. Religare Art Fund (RAI Foundation)

Leading Players
The Osian’s Art Fund raised Rs 102 Cr.
The Indian Fine Arts Fund Valued Rs 2.5 Cr.
Edelweiss’s Yatra Art Funds I & II at Rs 12 Cr. and Rs 22 Cr.
respectively
Kotak Art Fund worth Rs 25 Cr.

Expected Return 40%

 Some of the facts

 The Indian art market is up 485 percent

 Last month Indian Paintings were worth $7.15-million in sales at US
Art gallery.
 Ram Kumar. A 6-foot-by-4-foot oil that sold for $32,000 in 2003 ,
again sold for $500,000 previous month ie. 1,462% Returns
 Raqib Shaw, work of his sold for 2.49 million pounds last October

 Artists who join the Artist Pension Trust pool their pieces with those
of other artists and then receive a stream of income down the road
as the trust sells their pieces—and those of other artists
 Film Fund
 Investing in films Directly
 Very risky Investment type.
 Film sector is poised to record an annual growth rate of 13%
 Expected to be Rs 17,600 crore through 2012.
 India releases 1000 Movies per year.
 Religare along with Vistaar entertainment said it would fetch 13 to
15%returns .
 Mahindra and Mahindra to Invest 50 million in Films
Hedge funds

 Meaning: Any unregistered, privately-offered,

managed pool of capital for wealthy,
financially sophisticated investors

 Different strategies :
1. Short-selling
2. Arbitrage
3. Hedging
4. Leverage etc.

 Suitability: High Risk Investors

 Minimum Investment: 1 Million
 Small group manages the total Investments.
India Scenario:
Today investing primarily in Indian markets were at $13.97
India focused hedge funds are yielding 15.10% returns.
2006 it was 13.60%
20-30% of total participants ;unregulated hedge funds
Hedge funds investing in India now trail only China

Risks:
Invested in Equity market faces risk
Secrecy in Investments.

Hedge Funds in India Registered:

Avatar Investment Management               www.avatarim.com
HFG India Continuum Fund                       www.hudsonfairfax.com
India Deep Value Fund                                 
www.indiadeepvaluefund.com
Fair value                                                  www.fairvalueforum.com
Indea Capital Ltd                                www.indeacapital.com
 Foreign Exchange
 Meaning:
Foreign Exchange market deals with
currencies. The trader exchange his foreign
currency for the other.
 Market is very huge that $3.21 trillion are exchangeperanged every
day.
 Who can invest in Forex
 Individuals
 Retailers
 Fund managers etc.
 Most traded currencies
Currency distribution of reported FX market turnover 2007
ISO 4217 code  % daily share
Rank Currency
(Symbol)
1  United States dollar USD ($) 44.35%
2  Euro EUR (€) 18.51%
3  Japanese yen JPY (¥) 10.15%
 British pound
4 GBP (£) 8.45%
sterling
5  Swiss franc CHF (Fr) 3.05%
 Factors affecting Forex trading:

 Economic factors
 Government budget deficits or surpluses
 Inflation levels and trends
 Economic growth and health
 Political conditions
 Market psychology
 Financial instruments:
 Spot
 Forward
 Futures
 Swap

 India scenario:
 Annual turnover of the market is more than $450 billion
 Market turnover has grown to 0.9% in 2007, marking a three-fold
jump from just 0.3% in 2005
 Conclusion
 Carbon Credits:
 Analysts forecast that its trading in carbon credits would touch US$ 100 billion by
2010.

 Future is good after that, Market is going to be Stagnant

 As December gets closer, it is possible that some government might tinker with
these norms a little if the targets could not be met. If these norms are changed,
prices can go through a correction

 Hedge Funds:
 Slowdown seen in early 2008 due to norms of SEBI to register Hedge funds, still the
market is expected to grow further.

 Art funds and Reality funds: Market will saturate

 Foreign exchange market: Euro is a promising Investment.

 • Age range Investing Guide

18- 35 36-55 56-65 65+

• Speculative • Speculative 25% • Speculative10% • Speculative 0%

50% • Growth 60% • Growth70% • Growth 20%
• Growth 40% • Income 15% • Income 20% • Income 80%
• Income 10%

Courtesy : Economic Times

 Wine Funds

 Wine is less volatile than the stock market, and is backed by a real
non speculative market to be sold onto which helps keep the prices
from massive fluctuations.

 It is good as both a short term investment (one year) and long term
investment (5 years) and is hedged by the fact that it is always in demand
with an ever diminishing supply.

 It can give fantastic yields of up to 30% a year, and has also out
performed the stock market for three decades.
 There are now 270 wholesalers from 22 countries connected to Liv-ex
and they trade anonymously.
 The mid-price between the members' bid and ask prices is used for
calculating the Liv-ex 100 index, which has risen to 237.17 in
December 2009 from 93.12 in July 2001.
 The index is almost entirely based on Bordeaux wines.
 Red Bordeaux wines make up 91.33 percent of the index,
 Burgundy red at 3.49 percent,
 Champagne at 3.32 percent,
 Italian wines at 0.63 percent and
 Rhone wines 0.19 percent.
 Top Ten Wines Traded in the
World

 Dom. Romane Conti 

 Petrus Pomerol
 Chteau Le Pin Pomerol 
 Chteau Latour Pauillac
 Chteau Valandraud Saint-Emilion 
Contd…..
 Chteau La Mondotte Saint-Emilion
 Chteau Mouton Rothschild Pauillac 
 Chteau Haut Brion Pessac-Lognan
 Chteau Margaux
 Chteau Lafite Rothschild Pauillac 
 China's wine industry development trend

 
In the last three years, the average premium wine sales
growth reached 50% per year, and chateau wine sales
exceeded 100% growth annually.

The world famous The Wine Report forecast that the

wine consumption structure in China by 2010 consist of
50% premium wine, 40% middle market and 10%
cheap market. The profit margin in the premium market
of China could be as high as 30-50%.   
 
Wine consumption, traditional producers, 1961 to 2002,
5‑year averages (litres per capita)
Wine Industry In India
 Global market for wine is estimated at well over 25 billion liters.
Compared to other countries, wine manufacture and consumption in
India is insignificant.

 The real challenge for winemakers in India is to develop a domestic

market.

 The per capita consumption of wine in India is only 9 ml, compared

with 400 ml in China. 
Contd…..
 During the year 2007-08, the total annual production of wine in India
was 6.214 million litres, out of this 5.4 million litres was produced in
Maharashtra alone.

 This is a very small fraction as compared to world’s annual production

of 32,000 million litres.

 The country also imports 72,000 wine cases (9 litres/case) in a year

where 32,000 cases are bottled in origin and remaining 0.36 million
litres are imported in bulk flexi bags and subsequently bottled by
Indian wineries.
 Weather Funds
A weather derivative is a financial instrument that seems
like an insurance policy but is more like an option. Most
weather derivatives are based on how much the
temperature goes above or below 65 degrees.
But weather derivatives can be based
on anything measurable.
Reference Weather Station
 All weather contracts are based on the actual observations of weather at one or
more specific weather stations.

 Most transactions are based on a single station.

 Some contracts are based on a weighted combination of readings from

multiple stations and others on the difference in observations at two stations.
Index
 The most common indexes in the market are Heating Degree Days
(HDDs) and Cooling Degree Days (CDDs).

 These measure the cumulative variation of the average daily

temperature from 65 Deg F or 18 Deg C over a season and are
standard indices in the energy industry that correlate well with energy
consumption.

 Average temperature is another common index for non-energy

applications.
Term
 The most common terms in the market
are:
 November 1 through March 31 for winter
season contracts.
 May 1 through September 30 for summer
contracts,
Structure
Weather derivatives are based on standard derivative structures of
puts, calls, swaps, collars, straddles, and strangles.

The key attributes of structures being:

 The Strike.
 Tick Size.
 The limit.
Premium

The buyer of a weather option pays a premium to the seller that is

typically between 10 and 20% of the notional amount of the contract,
however this can vary significantly depending on the risk profile of
the contract.  There is typically no upfront premium associated with
swaps.
 Early pioneers in the market – energy traders Aquila, Enron, and Koch
Industries – conceived of and executed the first weather derivative
transactions in 1997.
 The first deals were all arranged as privately-negotiated over-the-
counter transactions and were structured as protection against warmer
or cooler than average weather in specific regions for the winter or
summer seasons.
 Weather derivatives differ from insurance, which generally provide
protection for low probability, highly catastrophic events like
hurricanes and tornadoes.
 Weather derivatives can cover more mundane weather-
events like a heating oil company hedging against having a
winter, warmer-than-expected.
Energy and weather transactions can be structured to cover
other types of variables including temperature, rainfall,
snow, wind speed, humidity and others. Payouts for risk
range from a few thousand dollars to tens of millions.
Few Facts
 Worldwide, about 730,000 weather
derivative contracts were traded last
year, according to the Weather Risk
Management Association in
Washington, D.C.
The total value of contracts traded on
the Chicago Mercantile Exchange was
$19.2 billion last year, down from
2006's record of $45.2 billion, but
significantly higher than the $8.4
billion traded in 2005 and the $4.6
billion traded in 2004, according to the
WRMA.
Global Implication
 The weather derivatives market has grown internationally.
 Weather transactions have been completed in Countries such as the
United States, United Kingdom, Australia France, Germany, Norway,
Sweden, Mexico and Japan.
 Exchange traded contracts in weather derivatives markets are currently
listed on :
 the Chicago Mercantile Exchange {CME},
 the Inter Continental Exchange (ICE),
 the London International Financial Future and Option Exchange
(LIFFE)
 Coming soon in Japan.
Other Asset Classes
 Rare Coin Asset Class
 Postage Stamp Asset Class
 Gemstone Asset Class
 Venture Capital Asset Class
Thanks

Rohan Bhate
Director Wealth Insight