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INVESTMENT
Investment is the sacrifice of certainpresent value for the
uncertain future reward.
Employment of funds with the aim of earning income or capital
appreciation.
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B y Investing, an investor commits thepresent funds to one or
more assets to be
held for some time in expectation of somefuture return in terms
of interest (revenue)or capital gain
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BA SIC FE A TURES OF
INVESTMENTCommitment of present fundsExpectation of some return
or benefits
from such commitment in futureRisk and return
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Elements of Investment
Return Risk and Return
Time
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Features of Investment
Increase in Investing PopulationA vailability of Tax
incentives
Tendency of people for investment Investment Opportunities
Increase in Investment related
information
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Need for Investment
Increase in life expectancy Interest rates
Increasing rate of Taxation Income Inflation
Investment Channels
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Investment Media
Direct Investment:1. Fixed Principal Investment
2. Variable Principal Investment3. Non-Security Investment
Indirect Investment
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INVESTMENT PROCESS
Investment process is a involves aseries of activities leading
to the purchaseof securities or other investmentalternatives.The
investment process can be divided
into five stages
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1. Framing of investment policy
2. Investment analysis3. Valuation4. Portfolio construction
5. Portfolio evaluation
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Investment process
InvestmentPolicy
AnalysisValuation
Portfolioconstruction
PortfolioEvaluation
- InvestibleFund
- Obj- Knowledge
- Market- Industry- Company
- Intrinsicvalue
- Futurevalue
- Diversification- Selection& allocation
- Appraisal- Revision
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STEPS IN INVESTMENT
Setting investor objectives A nalysis of different assets
securitiesIdentifying which are suitable for investment
Constructing a portfolio of investmentsPeriodic repetition of
the above three steps torevise and improve the portfolio in view of
changing situations.
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INVESTMENT ENVIORNMENT
It refers to all types of investment opportunitiesand the market
structure that facilitates buyingand selling these investments.
Different types of securities, institutional set upand the
market intermediaries are thecomponents of investment
enviornment.
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DIFFERENT TYPES OF
INVESTING1. DIRECT INVESTING: B uying and sellingof Securities
by the investor themselves.
2. INDIRECT INVESTING: The investor letthe investment company to
do all thework and make all the decisions for himfor fee.
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Investment Principles
Safety Liquidity Profit Taxation Inflation Government Control
Legality * Trasferability Tangibility
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SPECUL A TION
Investment and Speculation are different.Speculation is a short
term investment.
Speculation is an investment of funds withan expectation of some
return of capitalprofit resulting from the price change andsale of
investment.
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F A CTORS OF SOUNDINVESTMENT
1. Liquidity : It refers to speed and ease with which
aninvestment can be sold for a fair price.
Different types of investments offer varyingdegree of
liquidity.
A n investor has to build a portfoliocontaining a good
proportion of investments whichhave relatively higher degree of
liquidity.
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2. Risk of an investment: Risk of an investmentis analyzed from
two different angles
(A) Safety of principal: A n investor should takecare that the
amount of investment is safe.
The safety of investment dependsupon several factors such as the
economicconditions, Organization where investment ismade, earning
stability etc.
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(B) Stability of return: A n investment is considered as
good investment if it offers stable returns.( C) Capital
appreciation:
Land, B uildings, Equity Sharesprovide capital appreciation. A n
investor will select those investments where thereis capital
appreciation.
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(D) Tax aspects of investmentsThe performance of any
investment decision should bemeasured by its after tax rate of
return.
(E) Investment HorizonIt refers to planned liquidation
date of investment
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Gambling and Investment
A gamble is usually a very short terminvestment in a game or
chance.
It is different from speculation andinvestment.Risk is different
from gambling and
investment.
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Contd..
Gambling employs artificial risks whereascommercial risks are
present in theinvestment activity.There is no risk and return trade
off in thegambling and the negative outcomes areexpected.
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Investment Objectives
Return: Investors always expect a goodrate of return from their
investments.Risk: Risk varies according to the returnLiquidity: The
liquidity depends upon themarketing and trading facility.
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Contd..
Hedge against inflation:Safety
