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8/4/2019 1. Overview and Investments
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SECURITY ANALYSIS
ANDINVESTMENT MANAGEMENT
HIMANSHU PURIFACULTYDIAS
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INVESTMENTS Traditional investments covers:
Security analysis
Involves estimating the merits of individual investments
Portfolio management
Deals with the construction and maintenance of acollection of investments
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SECURITY ANALYSISThe fundamental analysis process:
1) The analyst considers prospects for the economy
2) The analyst determines which industries arelikely to fare well in the forecasted economicconditions
3) The analyst chooses particular companies within
the favored industries
EIC analysis (a top-downapproach)
AND Technical Analysis: Past price and volume
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PORTFOLIO MANAGEMENT
A properly constructed portfolio achieves a givenlevel of expected return with the least possiblerisk
Portfolio managers have a duty to create the bestpossible collection of investments for eachcustomers unique needs and circumstances
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PURPOSE OF PORTFOLIO MANAGEMENT
Portfolio management primarily involvesreducing riskrather than increasing return
Consider two $10,000 investments:
1) Earns 10% per year for each of ten years (low risk)
2) Earns 9%, -11%, 10%, 8%, 12%, 46%, 8%, 20%, -
12%, and 10% in the ten years, respectively (highrisk)
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THE PORTFOLIO MANAGERS JOB Begins with a statement of investment
policy, which outlines:
Return requirements
Investors risk tolerance
Constraints under which the portfolio mustoperate
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THE SIX STEPS OF PORTFOLIO MANAGEMENT
1) Learn the basic principles of finance
2) Set portfolio objectives
3) Formulate an investment strategy4) Have a game plan for portfolio revision
5) Evaluate performance
6) Protect the portfolio
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DEFINITION OF INVESTMENT What is an investment?
Anything you buy with the expectation that it willincrease in value and will provide some return as
Interest, Dividend Capital Appreciation
Why is investing important?
Because you need to increase wealth so you are notdependent on anyone do the things you want to do inlife.
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WHAT IS INVESTMENT ?
Money we earn is partly spent and rest saved for meeting futureexpenses. Instead of keeping the savings idle we like to usesavings in order to get return on it in the future. This is calledInvestment.
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WHY INVEST ?
Earn Return on idle resources
Generate sum of money for specified goal in
life
Make provision for uncertain future
To meet the cost of inflation
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THE STRUCTURE OF THE INVESTMENT PROCESSAND THE CIRCULAR FLOW OF INCOME
Financial Institutions
Financial Markets
DemandersSuppliers
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PARTICIPANTS IN THE INVESTMENT PROCESS a. GovernmentMostly a demander of funds
b. BusinessDemander and Supplier of Funds
c. IndividualsMostly Supplier and Demanders of Funds also
d. BrokersDirect v/s Indirect investing
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PERSONAL INVESTMENT PROCESS a. Meeting Investment Prerequisites
b. Establishing Investment Goals
c. Evaluating Investment Vehicles d. Selecting Suitable Investments
e. Constructing a Portfolio
f. Managing the Portfolio
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THE INVESTMENT PROCESS A description of the process is:
1. Set investment policy Objectives
Amount
Choice of assets 2. Conduct security analysis
Examine securities (identify those which are mispriced?)
Use
a. Technical analysis the examination of past prices fortrends
b. Fundamental analysis true value based on futureexpected returns
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THE INVESTMENT PROCESS 3. Portfolio Construction
Identify assets
Choose extent of diversification
4. Portfolio EvaluationAssess the performance of portfolio
5. Portfolio Revision
Repeat previous three steps
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INVESTMENT V/S SPECULATION
Factors Investment Speculation
Degree of risk Less Relatively High
Return Income of the investee Change in Market Price
Basis of decision Analysis of fundamentals Rumors, Tips
Period of Investment Long Short
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Encompasses all types of investmentopportunities and market structure thatfacilitates buying and selling of these
investments
Components:
Types of securitiesInstitutional set up
Market Intermediaries
INVESTMENT ENVIRONMENT
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FINANCIAL MARKETS & INSTITUTIONS
Financial market is a market wherein financialinstruments such as financial claims, assets and
securities are traded.
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FINANCIAL MARKET
A financial market is a mechanism that allowspeople to easily buy & sell (trade) financial
securities ( such as stocks & bonds ),commodities ( such as precious metals oragricultural goods ).
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FINANCIAL MARKET
An FM may or may not have a particularphysical existence.
Location of NYSE,NSE, BSEmarket forstocks.
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ROLE
One of the important requisites for the accelerateddevelopment of an economy is the existence of adynamic and resilient financial market.
It helps the economy in the following manner:
Savings mobilization
Investment
National growth- productive purposes Entrepreneurship growth
Industrial development.
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FUNCTIONS
Provide borrowers with funds
Provide lenders with earning assets
Providing liquidity in the market
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CONSTITUENTS OF FINANCIAL MARKET
Primary Market Secondary Market
Money Market
Capital Market Domestic Market Forex Market
Debt Market Equity Market Derivative Market Insurance Market
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TYPES OF FINANCIAL MARKET
Financial Market
Capitalmarket
MoneyMarket
CommodityMarket
DerivativesMarket
InsuranceMarket
ForeignExchange
Market
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OPTIONS FOR RETAIL INVESTOR
Real Asset v/s Financial Asset Equity Debt Mutual Funds Fixed Deposits with Banks Post office schemes Insurance
Short term investments Gold Real Estate Antiques
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EQUITY SHARES
It commonly referred to as ordinary share
represents the form of fractional ownership in a
business venture.
Equity shareholders have the right to getdividends as declared.
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DEBT
This instrument represents contract whereby one
party lend money to another on pre-determined
terms with regards to rate and periodicity ofinterest, repayment of principle amount by the
borrower to the lender.
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CLASSIFICATION OF DEBT
BONDS: Issued by Govt.(Central andState),Public Sector Organisation
DEBENTURES: Issued by Private CorporateSector.
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MUTUAL FUND
A Mutual fund is a collective investment vehiclethat pools together investor money. Thiscollective pool of money is invested inaccordance to stated objective.
Mutual Funds are :A large pool of resources
Managed by professionalsDiversified investment for lower risk & better
return
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FIXED DEPOSITS WITH BANKS
It allows an investor to deposit a lump sum of
money for a fixed period ranging from a few
weeks to a few year and earn a pre-determined
rate of interest.
Guaranteed Returns depends upon term.
Safe and Secured Investments
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POST OFFICE SCHEMES
Offered by Govt. of India Safe, secure and risk-free Investment
Transferable to any post office in India
Attractive Rate of Interest Post office monthly income scheme
Kisan Vikas Patra
National Savings certificate Public Provident Fund
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GOLD
Physical Gold in the form of bars and coins
Gold accounts in banks where units in thegold a/c in the banks are backed up byphysical gold held in the bank and bankgives assurance that the investor canconvert the gold back to cash anytime.
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REAL ESTATE INVESTMENT
Financial instrument that invests primarily inthe real estate such as offices, apartments,shopping centres, hotels etc.
Tend to pay high returns
Attractive investment opportunity when thestock market is falling.
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INSURANCE
A promise of compensation for specificpotential future losses in exchange for aperiodic payment. Now it is considered as a
investment tool also:
ULIPs
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SHORT TERM INVESTMENT
Certificate of Deposits
Commercial papers
T bills
But this market is predominantly used by
institutional investors and corporate much
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CONCLUSION
Investors looks at superior returns and measured
risk therefore he has to select a dynamically
balanced asset allocation mix consisting of thedifferent investment options available in the
Financial Market.