Investmen

t
Manageme
nt
-Sharath Harady

Assistant Professor
Indian Academy Degree College

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UNIT I: Introduction to Investment

Management

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Meaning
Sacrifice of certain present value for some
uncertain future value - Sharpe
Investment is the process of sacrificing
something now for the prospect of gaining
something later.
Investment may be defined as a commitment
of funds made in the expectations of some
positive rate of return , expectation of returns is
an essential element of an investment.
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Objectives of Investments

Income
Capital Appreciation
Speculation
Liquidity
Risk
Safety of Funds
Tax Considerations

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Nature and Scope

The business of investment has several facets,

the employment of professional fund managers,
research (of individual assets and asset classes),
dealing, settlement, marketing,
internal auditing, and the preparation of reports for clients.
The largest financial fund managers are firms that exhibit all the
complexity their size demands.
Apart from the people who bring in the money (marketers) and
the people who direct investment (the fund managers), there are
compliance staff (to ensure accord with legislative and regulatory
constraints), internal auditors of various kinds (to examine
internal systems and controls), financial controllers (to account
for the institutions' own money and costs), computer experts, and
"back office" employees (to track and record transactions and
fund valuations for up to thousands of clients per institution).

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Scope of Investment

Financial meaning of investment

Economic meaning of investment:

Basic investment objectives

Secondary objectives of investment

Characteristics of good investment

Different types of investors:

Types of investment: or various investment alternatives /avenues

Investment risk and return characteristics

Risk and return trade off:

Determining risk preference

Risk and return

Types of risks

Investors and speculators

Differences between speculation and gambling

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Different concepts of
Investment
Economic Investment Net additions to the capital stock of the society
Investment in General Sense- Monetary commitment of some
sort.
Business Investment- Starting a New business
Financial investment- Investment in assets with a view of
earning more.
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Investment Vs Speculation
Basis

Investment

Speculation

Time Horizon

Long term beyond 12

months

Short term holding

assets from one day up
to one year

Risk

Limited

High

Source of income

Earnings of enterprise

Change in market price

Stability of income

Very Stable

Uncertain and

Use of funds

Own funds

Own Funds , borrowed

funds

Psychological attitude
of participants

Cautious and
conservative

Aggressive and daring

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Investment Vs Gambling

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Investment Alternatives
Financial Assets and Real Assets
Financial Assets are paper claims on
some issuer.(Govt. or Corp body)
Real Assets are tangible assets

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1.Non- Marketable Financial

Assets
Good portion of financial assets
Bank
deposits,
post
office
deposits,
company
deposits,
National
saving
scheme
and
Provident Fund Deposits.
They represent personal transactions
between the investor and the issuer.
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Bank Deposits:
Simplest of investment avenues
Opening and depositing money
Savings, current and fixed deposits
High liquidity
Loans can be raised against the deposits
Post office Deposits
Similar to bank deposits
Qualifies for IncomeTax
section 80C of IT Act.

Rebateunder

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National Saving scheme

Issued at post office
Comes in denomination of Rs100,
500,1000 and 10,000
Generally 6 yrs term, Compound rate
of return
Section 80C Deduction available

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Company Deposits
Companies Solicit fixed deposits from
the public
Regulated by the company law board
Issued by Manufacturing and Nonbanking finance companies
Term of deposits can be 1 to3 years
Not more than 25% of its networth
from th
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Employee Provident Fund Scheme

A Provident Fund is created with a purpose

of providing financial security and stability
to elderly people.
Generally one contributes in these funds
when one joins as employee, the
contributions are made on a regular basis.
Used in the event of temporarily ill or no
longer fit to work or at the time of
retirement. The funds are pooled together
and invested by trust.
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2. Money Market
Instruments
Treasury Bills
Represent obligation of Govt. of India
Sold by RBI, is a bearer instrument
Do not carry any interest
Maturity of 3 months to 1 year
Issued at discount and redeemed at par
Difference between purchase and face
value is the profit
Eg: 91 days T-bill,364 days T-bill
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Commercial Paper:
Short tem unsecured promissory
note issued by a company that are
financially strong
Maturity 90 to 180 days
Sold at discount and redeemed at
par.

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3. Shares
Shares are units of ownership interest in
acorporationorfinancial asset. While owning
shares in a business does not mean that the
shareholder has direct control over the business's
day-to-day operations, being a shareholder does
entitle the possessor to an equal distribution in
any profits, if any are declared in the form
ofdividends. The two main types of shares are
common shares (Equity) andpreferred shares.

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4.Bonds
Abondis a debt investment in
which an investor loans money to an
entity
(typically
corporate
or
governmental) which borrows the
funds for a defined period of time at
a fixed interest rate.
-Principal Amount at the maturity
-Interest paid yearly
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5. Mutual Funds
It is a mechanism for pooling the resources by issuing
units to the investors and investing funds in securities
in accordance with objectives as disclosed in offer
document.
Investments in securities are spread across a wide
cross-section of industries and sectors and thus the
risk is reduced. Diversification reduces the risk
because all stocks may not move in the same direction
in the same proportion at the same time.Mutual
fundissues units to the investors in accordance with
quantum of money invested by them. Investors of
mutual funds are known asunit holders.
The profits or losses are shared by the investors in
proportion to their investments.
Monitored by SEBI
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6. Life Insurance
Life

insurance(orlife

theCommonwealth),
policyholder

and

is

aninsurer

assurance, especially in

contract
or

between

assurer,

where

aninsurance
the

insurer

promises to pay a designatedbeneficiarya sum of money (the

benefit) in exchange for a premium, upon the death of an insured
person (often the policy holder). Depending on the contract, other
events such asterminal illnessorcritical illnesscan also trigger
payment. The policy holder typically pays a premium, either
regularly or as one lump sum. Other expenses (such as funeral
expenses) can also be included in the benefits.

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 ULIPis a life insurance product, which

provides risk cover for the policy holder
along with investment options to invest in
any number of qualified investments such as
stocks, bonds or mutual funds.
In a Unit Linked Plan (ULIP), the premiums
you pay are invested in the funds chosen by
you after deducting allocation charges and
charges including those for managing funds,
policy administration and for providing
insurance cover are deducted from the funds
by cancelling certain units
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7. Real Estate
Investment real estate is real estate that generates
income or is otherwise intended for investment
purposes rather than as a primary residence. It is
common for investors to own multiple pieces of real
estate, one of which serves as a primary residence,
while the others are used to generate rental income
and profits through price appreciation.
Important asset for individual investors
Involves purchase, ownership, rental and sale of
property.
Psychological satisfaction
Capital gain and appreciation
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8. Precious Objects

Gold as an investment
Highly liquid
Convenience
Aesthetic Value
Diamonds, Ruby, Emeralds, Sapphire
Aesthetic value

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