OVERVIEW

INVESTMENT ALTERNATIVES &

DECISION MAKING
OUTLINE
Investment Alternatives
Investment Attributes
Investment versus Speculation
Financial Markets
Portfolio Management Process
Approaches to Investment Decision Making
INVESTMENT VS. SPECULATION

INVESTOR SPECULATOR

PLANNING LONG SHORT
HORIZON
RISK MODERATE HIGH
DISPOSITION
RETURN MODEST HIGH
EXPECTATION
BASIS FOR FUNDAMENTAL TECHNICAL
DECISIONS

LEVERAGE NO HIGH














INVESTMENT ALTERNATIVES























Investment
Avenues
Equity
Shares
Money Market
Instruments
Life Insurance
Policies
Precious
Objects
Non-
marketable
Financial
Assets
Bonds
Mutual Fund
Schemes
Real Estate
Financial
Derivatives



NON - MARKETABLE FINANCIAL ASSETS
BANK DEPOSITS
POST OFFICE TIME DEPOSITS (POTDs)
MONTHLY INCOME SCHEME OF THE POST
OFFICE (MISPO)
KISAN VIKAS PATRA (KVP)
NATIONAL SAVINGS CERTIFICATE
COMPANY DEPOSITS
EMPLOYEES PROVIDENT FUND SCHEME
PUBLIC PROVIDENT FUND SCHEME
Financial market is a market for the creation and
exchange of financial assets. This market facilitates
price discovery and liquidity to the financial
instruments.
CLASSIFICATI ON OF FINANCIAL MARKETS


DEBT MARKET
NATURE OF CLAIM
EQUITY MARKET

MONEY MARKET
MATURITY OF CLAIM
CAPITAL MARKET

PRIMARY MARKET
SEASONING OF CLAIM
SECONDARY MARKET

CASH OR SPOT MARKET
TIMING OF DELIVERY
FORWARD OR FUTURES MARKET

EXCHANGE-TRADED MARKET
ORGANISATIONAL
STRUCTURE OVER-THE-COUNTER MARKET


Stock markets, which provide financing
through the issuance of shares or common
stock, and enable the subsequent trading
thereof.
Bond markets, which provide financing
through the issuance of bonds, and enable the
subsequent trading thereof.
Commodity markets, which facilitate the
trading of commodities.

Money markets, which provide short term debt
financing and investment
Treasury Bills,Federal Funds,Repurchase
Agreements,Negotiable Certificates of Deposit
Derivatives markets, which provide
instruments for the management
of financial risk.
Foreign exchange markets, which facilitate the
trading of foreign exchange.
MONEY MARKET
INSTRUMENTS

TREASURY BILLS
CERTIFICATES OF DEPOSITS
COMMERCIAL PAPER
REPOS
BONDS OR FIXED INCOME
SECURITIES
Government Securities
Private Sector Debentures
Saving bonds
PSU Bonds
Preference Shares (Hybrid securities)
EQUITY SHARES
Equity shares represent the ownership capital. It also
means sharing the risk and return of a particular
company.
CLASSIFICATION OF EQUITY SHARES
BLUE-CHIP SHARES
GROWTH SHARES
INCOME SHARES
CYCLICAL SHARES
DEFENSIVE SHARES
SPECULATIVE SHARES

MUTUAL FUND SCHEMES
Equity Schemes
Balanced Schemes
Debt Schemes
INSURANCE POLICIES
These are also non marketable securities. Various types of
insurance policies are:
Endowment Assurance
Money Back Plan
Whole Life Assurance
Unit Linked Plan
Term Assurance
Immediate Annuity
Deferred Annuity
REAL ESTATE
Residential House
Commercial Property
Agricultural Land
Urban and Suburban Land
Time Share in a Holiday Resort
PRECIOUS OBJECTS
Gold and Silver
Precious Stones
Art Objects
FINANCIAL DERIVATIVES

A derivative is an instruments whose value depends on
the value of some underlying asset. The various types of
derivatives are
Forwards
Futures
Options
swaps

INVESTMENT ATTRIBUTES
RETURN
RISK
LIQUIDITY
TAX SHELTER
CONVENIENCE



Current yield

Capital
appreciation
Risk
Marketability/
Liquidity
Tax Shelter Convenience
Equity
Shares
Low High High Fairly high High High
Non-
convertible
Debentures
High Negligible Low Average Nil High
Equity
Schemes
Low High High High High Very high
Debt
Schemes
Moderate Low Low High
No tax on
dividends
Very high
Bank
Deposits
Moderate Nil Negligible High Nil Very high
Public
Provident
Fund
Nil
Moderate
Nil
Average
Section 80 C
benefit
Very high
Life
Insurance
Policies
Nil Moderate
Nil
Average
Section 80 C
benefit
Very High
Residential
House
Moderate Moderate Negligible Low High Fair
Gold and
Silver
Nil Moderate Average Average Nil Average

Return
EVALUATION OF VARIOUS INVESTMENT AVENUES
PORTFOLIO MANAGEMENT PROCCESS

























SPECIFICATION OF
INVESTMENT OBJECTIVES
AND CONSTRAINTS
CHOICE OF ASSET MIX
FORMULATION OF
PORTFOLIO STRATEGY
SELECTION OF SECURITIES
PORTFOLIO EXECUTION
PORTFOLIO EVALUATION

PORTFOLIO REVISION
APPROACHES TO INVESTMENT
DECISION MAKING

FUNDAMENTAL APPROACH
TECHNICAL ANALYSIS
ACADEMIC APPROACH
MP IV
RANDOM WALK
POSITIVE LINK..RISK & RETURN