2. CONTENTS-
Introduction to portfolio management.
Investment.
Speculation.
Gambling.
Investment decision.
Factors affecting investment decision making.
Investors classification.
Financing decision- Key points while making financing
decision.
Investment avenues- Bond, Preference share, equity share,
government securities and post office deposit.
References.
3. What is portfolio management?
Portfolio management comprises all the processes involved
in the creation and maintenance of an investment
portfolio.
Mainly it deals with security analysis,
portfolio analysis, portfolio selection, portfolio revision and
portfolio evaluation. In other words we can say that
portfolio management helps in analysis of individual
securities as well as in the analysis of portfolios.
4. Define Investment.
Investment may be defined as “ a commitment of funds made
in the expectation of some positive rate of return”. Expectation
of return is an essential element of investment.
These are the main features of investment-
Return.
Risk.
Safety.
Liquidity.
5. Return-All investments are characterized by the
expectation of a return. In fact, investments are made with
the primary objective of deriving a return. The return may
be received in the form of yield plus capital appreciation.
The difference between the sale price & the
purchase price is capital appreciation.
Risk- Risk is inherent in any investment. The risk may
relate to loss of capital, delay in repayment of capital,
nonpayment of interest, or variability of returns. While
some investments like government securities & bank
deposits are almost risk less, others are more risky. The risk
of an investment depends on the following factors.
6. 1.The longer the maturity period, the longer is the risk.
2. The lower the credit worthiness of the borrower, the
higher is the risk .The risk varies with the nature of
investment.
Safety-The safety of an investment implies the certainty of
return of capital without loss of money or time. Safety is
another features which an investors desire for his
investments. Every investor expects to get back his capital
on maturity without loss & without delay.
Liquidity- An investment, which is easily saleable, or
marketable without loss of money & without loss of time is
said to possess liquidity. Some investments like company
deposits, bank
deposits, P.O. deposits, NSC, NSS etc. are not marketable.
7. Speculation-
Sometimes it is very difficult to make a differentiation
between speculation and investment. “ Speculation is
a financial action that does not guarantee safety of
initial investment along with the return on principal
sum.” Normally it is a short run phenomenon.
Speculator always try to earn capital gain rather
income from investment. That is why speculator is
always associated with buying the securities at lower
rate and selling at higher rate.
8. Difference between investment
and speculation
INVESTMENT
Marketable assests are not
necessary.
It is a long run
phenomenon.
Income is very stable.
Quantity of risk is small.
SPECULATION
Marketable assests are
necessary.
It is a short run
phenomenon.
Income is very uncertain
and erratic.
Quantity of risk is large.
9. Gambling-
Gambling is an economic process of taking high risks
not only for high returns, but also for thrill and
excitement. It is surrounded by uncertainty and is
based on tips and rumors. Horse races, card games and
lotteries etc are good examples of gambling.
Gambling is quite opposite of investment as
investment is well planned action whereas it is
unplanned action taken without considering the
nature of risk.
10. Investment Decision-
One of the most important long term decisions for any
business relates to investment. Investment is the purchase
or creation of assets with the objective of making gains in
the future. Typically investment involves using financial
resources to purchase a machine/ building or other asset,
which will then yield returns to an organization over a
period of time.
11. Factors affecting investment
decision making-
The main factors which affects the decision related to
investment are as follows-i.
Availability of capital.
ii. Return on investment.
iii. Safety.
iv. Government Policies.
v. International trend.
12. Classification of investors-
As we all know that investor is a person who allocates
capital with the expectation of a financial return. These are
of two types-Individual investors and institutional
investors.
Individual investors- Individual investors are large in
number but their investable resources are comparatively
smaller. Generally they do not have skill to carry out
extensive evaluation and analysis before investment. These
investors are often classified based on risk tolerance.
13. On the basis of risk tolerance,
individual investors are of four
types-
Individual
investors
Conservative
Moderately
Conservative
Moderately
Aggressive
Aggressive
14. Conservative-They seek to preserve their principal
investment by avoiding risky investments. Therefore
investments such as government securities and bonds that
promise a constant income stream is preferred over
stocks .
Moderately Conservative- These investors may invest in
stocks but also seek a constant income stream by investing
in government securities, real estate and bonds.
Moderately Aggressive-Moderately aggressive investors
usually have similar investment objectives as aggressive
investors. But they have lower risk tolerance .For them
mutual funds is better option.
Aggressive-Aggressive investors tend to be risk lovers.
They are willing to embrace risky investments as their
objective is to maximize returns in the long run.
15. Institutional investors-
Institutional investors are those organization which
have surplus fund to make an investment. These are
fewer in numbers. Mutual funds, investment
companies, Banking and non banking companies etc
are example of institutional investors.
Institutional investors keep huge amount of fund for
investment .They appoint professional fund managers
to carry out extensive analysis and evaluation of
different investment opportunities.
16. Financial Decision-
Decisions that involve determining the proper amount of
funds to employ in a firm , selecting projects and capital
expenditure analysis, raising funds on the most favorable
terms possible, and managing working capital such as
inventory and accounts receivable, are known as financial
decision.
(http://www.answers.com/topic/financial-decisions#
ixzz38pgFFCQe)
17. Difference between investment
decision and financing decision
Investment decision.
It involves investment of
companies capital in
current and fixed assests.
Investment decision
results in outflows of
cash.
Financing decision
It involves finding the
sources of funds
required to invest in
business i.e. bonds,
equity shares etc.
Financing decision
results in inflow of cash.
18. Investment Avenues-
Investment avenues means investor will invest the
income in various types of securities. Different investment
avenues are available to investors. Like all investments,
they also carry certain risks.
Some important investment avenues are Bonds ,
Preference Shares , Equity Shares, Government Securities ,
Post Office Deposits, Real Estates, Venture Capital , Mutual
Fund ,Exchange Traded Funds, Life Insurance.
19. Bonds-
A debt instrument issued for a period of more than one
year with the purpose of raising capital by borrowing.
Generally, a bond is a promise
to repay the principal along with interest (coupons) on a
specified date (maturity). Some bonds do not pay interest,
but all bonds require a repayment of principal.
( http://www.investorwords.com/521/bond.html#ixzz38pw
gZzDs)
20. Preference Shares- Preference shares are those shares
which carry a following preferential right over other classes
of shares-
Preferential shareholders get fixed amount of dividend at
a fixed rate every year.
Preferential shareholders have the right to repayment of
capital in the event of company’s winding up.
Equity Shares- Shares which are not preference share are
termed as equity share. These shares do not carry any
preferential right .
21. Government Securities-
A bond (or debt obligation) issued by a government
authority, with a promise of repayment upon maturity that
is backed by said government. A government security may
be issued by the government itself or by one of the
government agencies. These securities are considered low-risk,
since they are backed by the taxing power of the
government. Examples of government securities include
Dated securities, Zero coupon and treasury bills .
These securities are usually used to raise
funds that pay for the government's various expenses,
including those related to infrastructure development
projects.
(http://www.investopedia.com/terms/g/governmentsec
urity.asp)
22. Post Office Deposit-
Like Banks , Post office also accepts deposit from normal
people of the country. It rewards interest on those deposit.
Different types of schemes are offered by Post office to
attract those who earn moderate income. Recurring
deposits, NSC, Time deposit, Mothly saving scheme etc are
example of it.
Indira Vikash Patra and Kissan Vikash Patra are saving
certificates issued by post offices.
