INVESTMENT ANALYSIS AND

MANAGEMENT

)

Live rates as of Friday, August 23, 2013

Convert this amount:

From this currency:

To this currency: Click to convert:

                                                                                                         

                                                                                                         

 

1.00 USDUS Dollar

 = 64.69 INR

Indian Rupee

1US DollarIndian RupeeSubmit

Chief economic advisor Raghuram G Rajan has been

appointed as the next governor of the Reserve Bank of India

.

Rajan will replace D Subbarao, who completes his five-year

term on September 4, and will be the 23rd governor of the

central bank. As 

the new RBI chief, Rajan will have a challenging time  as he

will have to battle the declining rupee, sliding growth and

rising retail inflation, amid global economic uncertainty.

Rajan was acclaimed for predicting the 2008 global

financial crisis. In 2005, Rajan had delivered a lecture

severely critical of the financial sector and argued that a

financial disaster might be looming.

INVESTMENT ANALYSIS AND

MANAGEMENT

Why Do Individuals Invest ? By saving money (instead of spending it), individuals forego consumption today in return for a larger consumption tomorrow.

The final decisions to be made in investmentsWhat securities to be heldHow much should be allocated to each

Estimates are prepared of the risk and return associated with available securities

over a forward holding period - Security analysis

Security analysis is the process of analysing the individual security and the market as a whole and estimating the risk and return expected from each of the securities with a view to identifying under valued securities for buying and overvalued securities for selling.

Return-risk estimates must be compared in

order to decide how to allocate available funds among these securities on a continuing basis – portfolio analysis, selection and management

Portfolio

A combination of securities with different risk-return

characteristics constitute the portfolio of the investor.

Portfolio management is a process

encompassing activities aimed at optimising the

investment of one’s funds

Securities analysis

Portfolio analysis

Portfolio selection

Portfolio revision

Portfolio evaluation

INVESTMENT - INTRODUCTION

An investment is a commitment of

funds made in the expectation of some

positive rate of return.

INVESTMENT – INTRODUCTION Contd.

Investment is the process of

sacrificing something now for the

prospect of gaining something

later.

An investment is the current commitment of the rupees for a period of time in order to derive future payments that will compensate the investor for

1. The time the funds are committed2. The expected rate of inflation3. The uncertainty of future payments

MODULE:1 INVESTMENT – INTRODUCTION Contd.

ECONOMICS: Investment is the net addition made

to the nation’s capital stock comprising of goods & services used in the production process.

MODULE:1 INVESTMENT – INTRODUCTION Contd.

Finance: Investment is the allocation of money

to assets that are expected to yield gain

over a period of time.

-yield returns & capital growth.

MODULE:1 INVESTMENT – INTRODUCTION Contd.

Return commensurate with the risk the

investor assumes.

ARBITRAGESimultaneous purchase and sale of securitie/ assets in two different markets to take advantage of price differentials

SPECULATION Speculation involves buying and

selling securities in the hope of making profits from potential short term price changes

purchase of securities is motivated by greed and a fast buck

But, a speculator contributes to the vibrancy of the market due to his frequent trading

Adds to the markets liquidity and depth and frequently turning over-changing his portfolio

His presence provides market for securities—DEPTH and a wider distribution of ownership of securities ---BREADTH

Investment – Characteristics

Return Return = Capital appreciation+Dividend Purchase priceRiskSafetyLiquidity

Investment – Characteristics

Return

Return = Capital appreciation+Dividend Purchase price

Risk Inherent in any businessMay beLoss of capitalDelay in repayment of capitalNon – payment of interestVariability in returns

Depends onNature of the investment Equity DebenturesMaturity period longer the maturity period, higher the riskCredit worthiness of the borrower lower the creditworthiness, higher the risk vice

versaRelation with return higher the risk higher would be the return

Investment – Objectives Investors objectives are his investment goals

expressed in terms of both risk and returns. The relationship between risk and returns requires that goals not be expressed only on terms of returns.

Investment – ObjectivesMaximisation of Return A careful analysis of investors risk tolerance

should precede any discussion of return objectives.

- Capital preservation - Capital appreciation - Current incomeMinimisation of Risk probability that the actual returns realised

from an investment may vary from the expected return

Safety

Liquidity

Hedge against inflationRate of return to be higher than rate of inflation

INVESTMENT CONSTRAINTS

Constraints reduces the possibility of realizing the

investment objectives

INVESTMENT CONSTRAINTS

LiquidityTime horizonTax considerationsRiskLegal and regulatory factors may include

limits on the allocation to specific assets, the ability to access certain funds and even prohibitions on certain investments.

Unique circumstances may include social concerns and specific family needs.

SPECULATION

Speculation involves buying and selling activities with the expectation of getting profit from the price fluctuations.

Taking up risk in the hope of making short term gains.

Investment Vs. speculationTime horizonRiskReturn / Capital gainDecisionFunds

MODULE:1 INVESTMENT PROCESS …………………………………………Contd.

• Determining the investment objectives & policy

• Undertaking security analysis

• Constructing a portfolio

• Reviewing the portfolio

• Evaluating the performance of the portfolio

MODULE:1 INVESTMENT PROCESS……….. …………………………………………..Contd.

1. Determining the investment objective & policy

Investible funds Objectives Knowledge about investment alternatives Knowledge about the stock market

MODULE:1 INVESTMENT PROCESS……………. ……………………………………………Contd.

2. Undertaking security analysisEconomic / Market analysisIndustry analysisCompany analysis

3. Valuation

MODULE:1 INVESTMENT PROCESS…………… …………………………………………..Contd.

4. Portfolio Construction Addresses major aspectsSelectivityTimingDiversification Debt & equity diversification Industry diversification Company diversificationFinal selection

MODULE:1 INVESTMENT PROCESS…………… …………………………………………..Contd.

5 . Portfolio Performance EvaluationAppraisal

6 . Portfolio Revision

Security forms of InvestmentCorporate Bonds / Debentures -Convertible -Non-convertiblePublic sector Bonds - Taxable - Non Taxable

Preference sharesEquity shares - New issue - Right issue - Bonus issue

Non security forms of InvestmentNational Savings schemeNational Saving CertificatesProvident fundsCorporate Fixed DepositsInsuranceUnit SchemesPost Office savings