Beruflich Dokumente
Kultur Dokumente
PORTFOLIO MANAGEMENT
Books Recommended
INVESTMENT S - ANALYSIS AND MANAGEMENT
by
Charles P. Jones
9th Edition
FUNDAMENTALS OF INVESTMENTS
by
Sharpe, Alexander, and Bailey
3rd Edition
INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT
by
M. Ranganatham and R. Madhumathi
2nd Edition
Chapter One
INTRODUCTION OF THE
SUBJECT
SOME DEFINITIONS
INVESTMENT
The commitment of funds to one or more assets that will
be held over some future time period for some return.
INVESTMENTS
Although, it is plural form of investment but from the
point of view of this subject, it is the study of investment
process.
It is not an act but a process, involves lot of thinking. So,
we have to act like an investment analyst to investigate
about an investment opportunity.
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Where to invest?
Diversification in securities.
Sectors and countries
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Why to invest?
Financial needs.
The advantages on e can enjoy by
making investment.
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WHY WE INVEST IN
STOCK EXCHANGE?
Dividend/ Bonus shares
It is the distribution of profit by a company among its
shareholders.
If the profit position of a company is good but not the
cash position, then instead of cash dividend, a
company issues shares, called bonus shares.
Capital gain
Selling price of the shares is more than its purchase
price, (due to market fluctuations) then it results in the
form of capital gain.
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WHY WE INVEST IN
STOCK EXCHANGE?
Right Issue
Liquidity
These securities, also called financial assets are very liquid form
of assets. In case of need these can be easily sold out in stock
exchange market to fulfill the need.
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Continue
Tax concession
Dividend and Capital gains are taxed at lower rates.
The normal rate of tax for companies in Pakistan is
35% flat rate. Whereas, dividend , interest and capital
gains are taxed @ 10% (approximately).
Moreover, total investment is also considered for
rebate, if these are new shares and retain for whole the
year.
Continue
Secured market.
Its a secured market (operating under the supervision
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THE SECURITIES
What are Securities?
A legal representation of the right to received
prospective future benefits under stated
conditions.
It includes both bonds and shares.
Traditionally, a security was a physical
document, such as stock or bond certificate, that
represented your investment in that stock or
bond.
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Security Analysis
The first part of the investment decision process,
involving the valuation and analysis of individual
securities.
Portfolio Management
The second step in the investment decision process,
involving the management of group of assets.
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INVESTMENT vs SPECULATION
Investment
Speculation
Dividend
Capital gain
Purchase of Derivatives
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GAMBLING
It is a game of chance like the tossing of a coin.
It can be on the either side i.e. winning or
loosing.
The risk involved is the highest and requires
least or no analysis. It is , therefore, excluded
from the scope of this subject.
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THE INVESTMENT
ENVIRONMENT
Security Markets
The basic function of Security Markets is that it
is a meeting place for Buyers and Sellers.
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THE INVESTMENT
ENVIRONMENT
Secondary Market.
The market where sale and purchase of
bonds and shares takes place for second hand
securities. Stock exchange market is the
example of it.
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BONDS
COMMON SHARES
Status
Return
Rate Of
Return
Duration
Nature Of
Payment
Risk Factor
More risky for company but less Less risky for company but highly
risky for bondholders
risky for shareholders
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BONDS
Fixed interest , strictly
prohibited.
COMMON SHARES
Profit & loss sharing schemes,
admissible in Islam.
Voting Right
Tax Factor
Dividend is Taxable
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COMMON
SHARES
PREFERNCE
SHARES
Status
Hybrid equity
Return
Fluctuating dividend
Duration
Risk Factor
Islamic
Perspective
Controversial, so not
admissible
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COMMON SHARES
PREFERNCE
SHARES
Payment At The
Time Of
Liquidation
Role In Decision
Making
Voting Right
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A research in America
Data was collected from different age and
income groups, ranging from 20 years to
onward .
20-27 years
70% fluctuating and 30% fixed
28-35 years
60% fluctuating and 40% fixed
36-43years
50% fluctuating and 50% fixed
44-51years
40% fluctuating and 60% fixed
52-59 years 30% fluctuating and 70% fixed
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What to purchase?
When to buy Common Shares
If your financial position is good, enjoying good health, having
low responsibility level and willing to take risk, then go for more
of common shares than bonds. It means you can invest in three
types of securities simultaneously but make adjustment according
to your requirements. The Preference shares can be treated as fixed
income securities.
When Bonds
On the contrary, due to advanced age, poor health condition and
more responsibilities, one should play safe and need fixed income
at the end of specified period, then go for more bonds and
preference shares than common shares.
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Remember
These are not the hard and fast rules. Generally, It is better to have
a mixture of both equity and debt, to have effective control over
risk and return. Try to make a good portfolio.
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