2. Meaning of Investment
• Sacrifice of certain present value for uncertain
future reward is known as investment.
• To invest is to allocate money (or sometimes
another resource, such as time) in the
expectation of some benefit in the future.
• In finance, the expected future benefit from
investment is a return. The return may consist
of capital gain and/or investment income,
including dividends, interest, rental income
etc.
3. Continued…
• Most of the people earn the money. The
income that a people receive may be used for
purchasing goods and services. It is rare that
people's current income exactly imbalances
with their consumption. The imbalances will
lead them either borrow or to save money.
• When current income exceeds current
consumption desired, people tend to save the
excess money. They can do any of several
things with these savings. This result ,is
investment.
4. Investment Environment
• The investment environment refers to
various marketable securities available
for purchase or sale and how and where
these securities are traded. Investment
environment mostly includes securities,
security markets, and financial
intermediaries.
5. 1. The securities: piece of papers represent investors claim for future
benefits and assets.
2. security markets: mechanism or where securities are
traded.
– primary market: A market where newly issued securities are traded.
– secondary market : a market where previously issued securities are
traded
– Money market: The short term security market.
– Capital Market: In which long term securities are traded.
3. Financial Intermediaries: Institutions that connect
borrowers and lenders by accepting funds from lenders and lending
funds to borrowers. Investments are often made indirectly through
intermediary financial institutions. These intermediaries include
pension funds, banks, brokers, and insurance companies. They may
pool money received from a number of individual end investors into
funds such as investment trusts, unit trusts, etc. to make large scale
investments. Each individual investor holds an indirect or direct
claim on the assets purchased, subject to charges levied by the
intermediary, which may be large and varied.
6. Reasons For Investment
(why Investor Invest)
• Income: Regular Income, Capital gain
• Appreciation: Value Increment
• Safety And Liquidity : safety of assets and liquid
purpose.
• Hedge Against Inflation: safety from Inflation.
• Methods of tax planning: saving of tax like
provided fund, citizen saving fund, insurance
policy.
• Excitement : self interest, enjoyment.
7. 2. Investment alternatives
• A wide range of investment alternatives
available for both individual and institutional
investors. Similarly domestic and international
instruments are available for investor as
investment alternatives. The investment
alternative first we divide into two categories:
1. Financial Assets
2. Real Assets
8. 1. Financial Assets
i-Money Market Instruments
a) T-bill:
b) CD's
c) Commercial Paper
d) Eurodollars
e) Euro Deposits:
f) Repo
ii) Capital Market Instruments
a) Common Stock
b) Preferred Stock
c) Long-term Debt Security
d) Government Securities
e) Corporate Bonds
9. 2 Derivative Securities
a. Option
b. A future Contract
c. Forward Contract
d. Warrant
e. Convertibles
3. Real Assets
a. Precious Metal : Gold, Silver, Copper
b. Real Estate: Land Building, Housing.
c. Collectives: Diamond, old Stamp, Old Coins,
celebrity's used goods, fine arts, prints etc.
4. Other Investment Alternatives
a. Mutual Funds
b. Employees' Provident fund
c. Pension Funds
d. Insurance Policy
10. i-Money Market Instruments
• a) T-bill: Treasury Bills are an obligation issued by
government, sold at discount from the face value. T-bill
is the most marketable of all money market
instrument. T-bills represent the simplest form of
borrowing. The main aim of issuing t-bill is to satisfy
short term financial need and regulate money market
or balances the liquidity in the market. The NRB issues
T-bill maturity period of 7,28, 45, 91, 182,364 days
from the date of issue. Face Value of t-bill is in the US is
10000$ & in Nepal Rs.25000. Generally every week T-
bills and its periferals issues in Nepal.
• b) CD's: Certificate of Deposit is fixed maturity
instrument sold by a bank to a depositors , it pays
principle and interest at maturity. Fixed deposits of
banks is known as CD's. before 1961, CDs were liquid
because they were negotiable.
11. c) Commercial Paper:- commercial papers are
issued by the corporation at their credit
worthy basis. It is short term liquid security
issued at discount basis; some time at interest
basis as well. The interest rate is generally
higher than of T-bill.
d) Eurodollars : The commercial paper issued
outside the US market but the denomination
is in US $. Initially the Commercial Paper is
issued in the Europe denomination in US $
and called EURO – DOLLAR. It is issued by a
blue chip corporation or renowned
organization because it is issued without any
collateral.
12. e) Euro Deposits: The deposit in the US $ but ou side the
US market. Eurodeposit is the fixed deposit account in
the US $. For Eg. Nepalese investors opens a fixed
dollar account at Nepal Bank Ltd.
f) Repo: Repurchase agreement is a sale of a security in
which the seller agrees to buy back (repurchase) the
security at a specified price at a specific price at
specified sate. Repos are usually executed using
government securities, and the repurchase price is
higher than the initial sale price. The difference
between the sale price and purchase price is the source
of return to the holder of the security. By entering into
the repurchase agreement, the investor ( the buyers
)knows exactly how much will be made on the
investment and the funds will be returned.
13. ii) Capital Market Instruments:
• Money market securities are purchased primarily
to earn interest on temporary cash balances.
These investments are of short duration and offer
a high degree of safety for their principle amount,
because the issuers generally have the highest
credit ratings. Capital market instruments,
however, include debt instruments with longer
maturities as well as equities, which theoretically
have no maturity. In the capital market,
therefore, investor can commit funds for longer
periods of time and purchase securities with a
greater degree of risk in exception of higher
returns. Capital market investment alternatives
include various kinds of bonds and stocks. These
securities will be further analyzed.
14. a) Common Stock:- common stock holders simply have an
equity in the corporation, therefore the common stock
holders are the true owners of the corporation. Each share
of common stock represent fractional ownership interest
in the firm. Generally it is issued at Rs. 100 par value in
Nepal. Common stock investment alternatives is a popular
investment alternative in Nepal. Common stock are traded
in Nepal Stock Exchange (NEPSE). Only the listed
companies' common stocks are traded in NEPSE.
b) Preferred Stock A hybrid form of security that has feature
of both of common stock and bonds owner of preferred
stock generally receive fixed income as a dividend. They
have prior claim on income and other assets .
c) Long-term Debt Security: Long-term debt securities include
various kinds of bonds. Investors can commit funds for
longer periods of time and purchase long-term securities
with a greater degree of risk in expectation of higher
return.
15. d) Government Securities : govt. securities are the fixed
income securities issued by governments. These securities
are among the safest of all investments, as the
government is unlikely to default on interest or on
principal repayments. They are as follows:
Treasury Notes : Life 1-10 Years
Treasury Bonds Over 10 Years
Saving Bonds: Non negotiable saving
instruments issued by Govt.
Development Bonds
National Saving Bonds
Citizen Saving Bonds
Special Bonds
Local Govt. Bonds: Issued By Local Govt. for
special purpose.
16. e) Corporate Bonds:
A corporate bond is long term promissory
notes issued by a corporation. A corporate
bond has more risk and return than that of
government bonds. Bondholders receive a
fixed return and the principle amount at the
maturity date and have priority before
common stock and preferred stock in the
event of liquidation.
17. 2 Derivative Securities: Derivative Securities are
financial contract that derives its value from
some other security or assets, such as stock,
bonds, commodities or interest rates. Derivatives
securities allow an investor to speculate on
movements in the value of the underlying assets
without having to purchase those assets.
Derivative securities can be used to reduce a
firms risk.
• Option
• A future Contract
• Forward Contract
• Warrant
• Convertibles
18. Real Assets
• Precious Metal : Gold, Silver, Copper
• Real Estate: Land Building, Housing.
• Collectives: Diamond, old Stamp, Old Coins,
celebrity's used goods, fine arts, prints etc.
22. Career Opportunities in Investment
• Security Analyst: financial professional who analyses
and makes recommendations regarding stocks and
other financial assets
• Portfolio manager: financial professional in charge of
making buy, sell and hold decision for a portfolio.
• Financial planner: Financial professional who helps
individual identify and meet financial needs
• Investment banker: Financial professional who helps
companies and govt. organization acquire capital
through the issuance of financial assets.
• Stock broker: Financial agent who assists investors
with buying and selling financial assets.
• Investment researcher: A professional that studies
different phenomena associated in the securities.
