SECURITY

ANALYSIS AND
INVESTMENT
MANAGEMENT

INVESTMENT ENVIRONMENT
Investment is the employment of funds
on assets with the aim of earning income
or capital appreciation
When a person has more money than he requires for
current consumption,he would be coined as a
potential investor.

Investor would invest in securities,gold,real

estates,LIC,bank deposits,mutual funds,real assets
etc
Company invest in extension of the existing
firm or undertaking new venture

MAIN AIM
EARNING

INCOME

CAPITAL

APPRECIATION

ATTRIBUTES AFFECTING
TIME
RISK

CHARACTERISTICS OF
INVESTMENT
Return
Risk
Safety
Liquidity

CONCEPTS
1.
2.
3.

Economic investment
General investment
Financial investment

OBJECTIVES
Increasing the rate of return
Reducing risk
Liquidity
Hedge against inflation
Safety

INVESTMENT PROCESS

1.Framing the policy

Investment Funds
Objectives
Knowledge
2.Analysis
Market analysis
Industry analysis
Company analysis
3.Valuation
Intrinsic value
Future value

4.Construction of portfolio
Diversification
Industry diversification
Company Diversification
Debt and equity diversification
o Selection

5.Evaluation
Appraisal
Revision

INVESTMENT ALTERNATIVES

Real estates
Real assets
Securities
LIC
Deposits
Mutual funds
Post office deposits
Provident fund schemes
Derivatives

INVESTMENT
ALTERNATIVES

Fixed Income Securities

Life Insurance

PREFERENCE SHARES
Claims

on the companys income are

limited
Receive fixed dividend
On liquidation, claims on the assets of the
firm are fixed
Payment of dividend is the discretion of
the Board of Directors
Do not enjoy any of the voting powers
except when any resolution affects their
rights

Preference shares are of 6 types. They are:

Cumulative
Non-cumulative
Convertible
Redeemable
Irredeemable
Cumulative convertible

CUMULATIVE PREFERENCE
SHARES
Cumulative

total of all unpaid preferred

dividends must be paid before dividends
are paid on the common equity
Unpaid dividends are known as arrears
Arrears accrue only for a limited number
of years and not indefinitely

NON CUMULATIVE SHARES

If

there is no profit or inadequate profit in

the company in a particular year , the
company does not pay it.

During

winding up, if the preference and

equity shares are fully paid, they have no
further rights to have claim in the surplus.

CONVERTIBLE PREFERENCE
SHARES
It

can be converted into equity shares at

the end of specified period

Gives

additional privilege of sharing the

potential increase in the equity value,
along with the security and stability of
income

REDEEMABLE PREFERENCE
SHARES
These

shares can be issued only if there is a

provision in the Articles of Association
Redemption of shares can be done only when:
1.
2.
3.

4.

Partly paid shares are fully paid up

Fund for redemption is created from profits
If any premium has to be paid on redemption, it
should be paid out of the profits or out of companys
share premium account
When redemption is made out of profits, sum equal to
nominal value of redeemed shares should be
transferred to the capital redemption reserve account

IRREDEEMABLE PREFERENCE
SHARES
These

shares are not redeemable except

on occasions like winding up of the
business.

CUMULATIVE CONVERTIBLE
PREFERENCE SHARES
Introduced

by government in 1984

This

share gives a regular return of 10%

during the gestation period from 3 to 5
years and then converted into equity

Issued

for purposes like setting up of new

projects, expansion or diversification of
existing projects, working capital
requirements etc

BOND
A

long term debt instrument that

promises to pay a fixed annual sum as
interest for specified period of time.

Issued

at par or discount.

Traded

in stock market.

TYPES OF BONDS
Secured and unsecured
Secured bond is secured by the real assets
of the issuer
In unsecure bond, the name and fame of
issuer may be the only security
Perpectual and redeemable
Bonds that do not mature are perpectual
bonds
Redeemable bonds can be redeemed after
a specific period of time

Fixed interest rate and floating interest rate

In fixed interest rate, the interest rate is fixed at
the time of the issue
In floating interest rate, the interest rates change
according to prefixed norms
Zero coupon bonds
These bonds sell at a discount and the face value
is repaid at maturity
The company does not have the burden of
servicing the debt during execution of project

Deep discount bonds

Bonds are sold at large discount on their
nominal value, interest is not paid for them and
they mature at par value
Capital indexed bonds
In this bond, the principal amount of the bond is
adjusted for inflation for every year.
It gives the investor an increase in return by
taking inflation into account.

LIFE INSURANCE

It is a contract for payment of a sum of

money to the person assured on the
happening of event insured against.

Contract provides for the payment of an

amount on the date of maturity or at
specified dates at periodic intervals or if
unfortunate death occurs.

It eliminates risk.

ADVANTAGES

Protection

Easy payments

Liquidity

Tax relief

LIC SCHEMES

Basic life insurance plans

Term assurance plans

Plans for children

Pension plans

Jeevan Sarita

BASIC LIFE INSURANCE PLANS

Whole life assurance plan
Low cost insurance plan where the sum
assured is payable on the death of the life
assured and premiums are payable
throughout life.
Endowment assurance plan
The sum assured is payable on the date of
maturity or on the death of the life
assured, if earlier.

TERM ASSURANCE PLANS

Two-year temporary assurance plan
Term assurance for 2 years is available
Sum assured is payable only on the death
of the life assured during the term
Convertible term assurance plan
Provides term assurance for 5 to 7 years
with an option to purchase new, limited
payment whole life policy or an
endowment assurance policy at the end of
the term.

Bima sandesh
A term assurance plan with the provision
for return of premiums paid, on the life
assured surviving the term
Bima kiran
Improved version of Bima Sandesh with
added attraction of loyalty addition, inbuilt accident cover and free term cover
after maturity.

PLANS FOR CHILDREN

Jeevan Sukanya is plan for girls.

The Childrens Money Back Assurance Plan

is specially designed to provide for
childrens higher educational expenses.

It added attractions of guaranteed

additions, loyalty additions and optional
family benefit.

PENSION PLANS

Provide for either immediate or deferred

pension for life

Pension payments are made till the death

of the annuitant

JEEVAN SARITA

A joint life last survivor annuity cum

assurance plan.

Claim amount is payable partly in

lumpsum and partly in the form of an
annuity.

Balance sum is assured on the death of

the survivor.

FINANCIAL ALTERNATIVES

1. VARIABLE INCOME
SECURITIES
EQUITY SHARES

Referred as common stock or ordinary shares.

Share capital of a company is divided into a
number of small units of equal value called
shares.
Stock is a set of shares put together in a
bundle.
A certificate under the common seal of
company specifying the number of shares
held by a member is share certificate.

SWEAT EQUITY
Introduced in the Companies (Amendment)
Ordinance, 1998.
Form a part of equity share capital
Definition has 2 different dimensions:
1. Shares issued at a discount to employees
and directors
2. Shares issued for consideration other than
cash for providing know-how or making
available rights in the nature of intellectual
property rights

In the first form, issue of sweat equity may

be priced at a discount to the preferential
pricing or at a discount to face value
In the second form, the sweat equity can be
issued against know-how, intellectual
property rights or in recognition of value
additions.
It is at the normal preferential price.

REASONS FOR ISSUING SWEAT

EQUITY

Directors and employees contribute

intellectual property rights to the company

It is in the form of research, strategy,

software developed for the company or
adding profit

NON- VOTING SHARES

Carry no voting rights

Carry additional dividends instead of the
voting rights
Have right to participate in the bonus issue
If these shares are not paid dividend for two
years, the shares would automatically get
voting rights

RIGHT SHARES

Shares offered to the existing shareholders at

a price by the company
Such shares should be offered to the existing
shareholders at first, in proportion to the
capital paid upon the shares held by them
In the event of company failing to receive
90% subscription, the company have to
return the entire money received.

BONUS SHARES

Distribution of shares in addition to the cash

dividends to the existing shareholders
Issued to the existing shareholders without
any payment of cash
Bonus issue could be made only when all the
partly paid shares, are made fully paid up
Bonus shares are declared by the directors
only when they expect a rise in the
profitability of the concern.

SHARE CLASSIFICATION AS PER

STOCK MARKET
Growth shares
The stocks that have higher rate of growth
than the industrial growth rate in
profitability
Income shares
Stock of companies that have comparatively
stable operations and limited growth
opportunities.
Eg: bank shares

Defensive shares
Stocks unaffected by market movements
Eg: pharmaceutical stocks
Cyclical shares
Upward and downward movements of
business cycle affect the business of certain
companies and their stock price.
Eg: automobile sector

Speculative shares
Shares that have lot of speculative trading in
them.

2. REAL ASSETS (GOLD &

SILVER)

Considered as best hedge against inflation

Favorite form of investment among rural and
semi-urban population
Investors tend to invest in jewellery instead
of pure gold
When they buy jewellery, the price
realisation is usually less than the total
purchase price

3. ART
Paintings are the most sought after form of art
New trend in the art market is to invest in
young upcoming painters whose prices will soar
over the years
If an investor likes to buy paintings as a form of
investment, he has to consider following
points:
1. Paintings of young painters
2. Should possess the basic idea of the painting
3. Investor should have aesthetic sense

INVESTMENT
ALTERNATIVES

REAL ESTATE
MUTUAL FUNDS
MONEY MARKET SECURITIES
TAX SHELTERED SAVINGS SCHEME

REAL ESTATE
Offers a high return to the investors
It means land and buildings
Prices has gone up by more than 12% over the past ten
years
Population growth has propelled demand in real estate
business

Include business of residential properties

generally sold either by a relator or directly by the
individual who owns the property

ADVANTAGES OF REAL
ESTATE BUSINESS
Significant profits
Additional income
Access to credit

DISADVANTAGES OF REAL ESTATE

BUSINESS
Debt
Additional expenses

MUTUAL FUNDS
Investment companies obtain funds through sale of
units
Funds are placed under professional management
Many schemes are available

A) OPEN ENDED SCHEME

Offers units and accepts funds on a continuous basis
Investment can be withdrawn at any time
No maturity period
Not listed in the Stock exchange

B) CLOSED ENDED FUNDS

Fixed maturity period
Kept open for a limited period
Once closed, the units are listed on a Stock exchange
Buying and Selling through Stock exchange

OTHER SCHEMES..
Growth scheme
Income scheme
Balanced scheme
Money market scheme
Tax saving scheme

MONEY MARKET SECURITIES

Market where short term securities are traded

A) TREASURY BILL
Instrument of short term maturity
Issued by Govt. of India
91 days maturity period
Low interest rates

B) COMMERCIAL PAPER
Short term negotiable instrument issued by
company
Fixed maturity period
3-6 months
Sold at discount and redeemed at face value

C) CERTIFICATE OF DEPOSIT
Marketable receipt of funds deposited in a bank for a
fixed period
Specified rate of interest
Negotiable
Denominations and interest rate are high
Minimum size of Rs10 lakh
Additional CDs are issued in the multiples of Rs5
lakh

TAX SHELTERED SAVINGS SCHEME

Aims at providing tax relief
Income will not be taxable
Schemes like PPF, NSS, NSC are available

A) PUBLIC PROVIDENT FUND SCHEME

Interest rate of 12.5% per year
Exempted from income tax under sec88
Maximum limit of deposit per annum is Rs60000
Interest is accumulated with deposit
Investor can withdraw 50% of the balance from the 7th
year onwards
Life of 15 years

B) NATIONAL SAVINGS SCHEME

Any one can invest in this scheme
100% income tax rebate
Interest and capital are fully taxable if withdrawn
during their lifetime
4 years lock in period
Maximum tax rebate of Rs12000

C) NATIONAL SAVINGS CERTIFICATE

Offered by post office
Come in denominations of 500, 1000, 5000, and
10000
5 years life period
12% interest

Deposits
Warrants
Antiques

DEPOSITS
Earn fixed rate of return
They are not negotiable instruments

TYPES OF DEPOSITS
a)

Bank Deposits:

b)

Current Account
Savings Account
Fixed Deposite Account

Post Office Deposits:

Offering fixed deposit and monthly income scheme.

Monthly income scheme is a popular for retired.
13% interest paid monthly.
Term of Scheme is 6 Year, at the end of which a bonus of
10% is paid.

TYPES OF DEPOSITS CNTD.

c)

NBFC Deposits:

NBFC comes under the purview of the RBI.

Amendment of RBI act in 1997, made registration
compulsory for NBFCs.

NBFC Nature
i.
Period
ii.
Maximum Limit:- Limit for acceptance of deposits based
on credit rating of the company.

Interest:-

iii.

Higher interest
Vary with Maturity period

NBFC Nature Cntd

iv.

Security:

Comparatively security is much lower than

the deposits with Banks.

WARRANTS

A warrant is a bearer document of title to by

specified no of equity shares at a specified
price.
Warrants can be exercised over a no of year.
Life period of a warrants are long.
Warrants are detachable.
Investors cancel the warrants separately and
they are traded in the market.

WARRANTS CNTD

The person who is holding the warrant cannot enjoy

the benefits of equity holder before the conversion
of the warrant.
Price at which the warrants are converted is called
exercise price.
Exercise price is always greater than the current
market price of the respective equity at the time of
issue of warrant

WARRANTS CNTD
Three types of Warrants:
A.
B.
C.

Detachable
Putted
Naked

ANTIQUES

Is an object of historical interest

It may be a coin, sculpture, manuscript or
any other object of olden days.
The owner of the antique has to register
himself with Archeological Society of India.
Society issues a Certificate of Registration
Purchase and Sale of antiques should be
informed to the society

THANK YOU