3. Investment
A process of sacrificing now for the
prospect of gaining something later.
Three points should be there for
investment:
Time
Today’s Sacrifice
Prospective gain
It is employment of funds with the
purpose of earning additional income
or growth in value.
4. Definition
“Sacrifice of certain present value for
some uncertain future”.
Sharpe/Alexander
Investment aims at multiplication of
money at higher or lower rates
depending upon whether it is a long
term or short term investment, and
whether it is risky or risk free rate of
return
6. Investment Vs. Speculation
Risk
Normally risk involved in investment is lower profits or loss
of profits.
Speculation may result in a very high profit or high losses.
So risk involved in speculation is very high as compared to
investments.
Capital Gain
The motive of investment is achievement of capital
appreciation.
The motive of speculation is to achieve profit through price
changes.
Time
If securities are purchased and investor does not expect an
immediate return on it and waits for long term benefit, it is
termed as investments
If a person expects fast return on his investment and
disposes of the assets in the short time, then it is termed as
speculation.
7. Objectives Of Investment In
Securities
Income
Capital Appreciation
Conservative Growth
Aggressive Growth
Speculation
Returns
Periodic cash receipts
Capital gain
Safety and security of funds
Risks
Liquidity
Tax Considerations
9. Classification of
Investments
Physical Investments
Tangible in nature
Some are useful for further production
(Capital goods)
Some are not useful for further production
Financial Investments
Used for consumption; or
Used for production of goods and services; or
For further creation of assets.
10. Marketable and Non Marketable
Investments
Investments listed at stock exchanges are
easily marketable
Non marketable securities which can not
be traded in market (Insurance Policy of a
person)
Transferable and Non Transferable
Investments
Generally marketable securities are
transferable whereas non marketable
securities are not transferable.
11. Mode of Investment
Direct Investment Alternatives:
Fixed Principal Investment
Variable principal investments
Non security investments
Indirect Investment Alternatives:
Mutual Funds.
Insurance
Investment Companies
Pension Funds
12. Features of an Ideal
Investment Programme
Safety and Security
Liquidity
Regularity and Stability of Income
Stability of Purchasing Power
Capital Appreciation
Tax Benefits
Legality
Convertibility
Tangibility
14. Portfolio Management
Emphasis is put on identifying the collective
importance of investor’s holdings.
Portfolio should meet the needs of an
investor/
Need for careful evaluation of risk and return
from securities.
15. Process of Investment Analysis
Investment Policy
It provides the raw material for the portfolio in
choosing various securities as per the needs of
investor.
Investment Analysis
To determine the future risk and return in
holding various types of individual securities.
16. Valuation of Securities
Valuation of securities should be done on the
basis of its present worth.
Portfolio Construction
Portfolio should be constructed by keeping risk
and return profile of an investor.
Portfolio Evaluation and Revision
Evaluation of portfolio is necessary time to time
depending upon the market conditions.
18. RISK
DIVERSIFIABLE/ NON –
unique risk DIVERSIFIABLE
or systematic risk
Strikes
Changes in government policies –
Increase in competition
monetary policy, fiscal policy,
Technical breakdown or foreign policy, corporate taxes
obsolescence
War
Inadequate raw material
Earthquake, floods, rains,
Change in management. tsunamis etc.
Loss of a big contract etc.
19. RETURNS
Change in
Dividend the value of
regular cash stock over t
flow -time
Value of stock in
beginning