Beruflich Dokumente
Kultur Dokumente
MANAGEMENT
Money
Market
Capital Market
Commodity
market
FOREX
Types of Investment
Investment Alternatives
representing financial
value.
Characteristics of Securities:
Help the economy for those with money to find those who need investment
capital.
What is Portfolio?
Security Analysis
Traditional Theory
Modern Theory
the
analysis.
Portfolio Management
Traditional Portfolio
Theory
Selection of securities
would fit in well with the
asset preferences, needs
and choices of investor.
INVESTMENT
What is Investment?
The money you earn is partly spent and the rest saved for meeting future
expenses. Instead of keeping the savings idle you may like to use savings
in order to get return on it in the future. This is called Investment.
Definitions:
Investment involves employment of funds on assets with the aim of
achieving additional income or growth in values.
Purchasing of shares/debentures
Insurance policies
Net addition to the economys capital stock which consists of goods and
services that are used in the production of other goods and services.
Formation of New and productive capital
New construction
Plant and machinery
Inventories
All these investments generate physical assets
Characteristics of Investment
Return
Risk
Safety
Liquidity
Marketability
Concealability
Capital growth
Purchasing power
Stability of income
Tax benefits
Return
Whereas,
Capital appreciation = sale price purchase price
Yield= Dividend or interest received from the investment
The return from the investment depends upon the nature of the investment,
the maturity period and other factors.
Ex:
Return = 30%
Risk
Risk refers to the loss of principal amount of an Investment. It is one of the major
characteristics of an investment.
The risk depends on the following factors:
A. The investment maturity period is longer, in this case,
investor will take larger risk.
B. Government or Semi Government bodies are issuing
securities which have less risk.
C. In the case of the debt instrument or fixed deposit, the risk
of above investment is less due to their secured and fixed
interest payable on them. For instance Debentures.
Safety
concealability
Concealability means investment to be safe from social disorders,
government confiscations or unacceptable levels of taxation, property must
be concealable and leave no record of income received from its use or sale.
Capital Growth
Investors and their advisers are constantly seeking growth stock in the
right industry and bought at the right time
Stability of Income
Objectives of Investment
Maximization of return
Minimization of risk
Investment Vs Speculation
Maximizes the return through buying and selling and delivery of securities
is least important in trade
Basis of
Distinction
Investor
Speculator
Planning Horizon
Relatively longer
Very Short
Holding Period
Risk Disposition
Not willing to
assume more than
moderate risk
Willing to assume
high risk
Return Expectation
Greater Significance
to fundamental
factors and Careful
evaluation
Market Psychology
and Hearsay
Leverage
Source of Income
Earnings from
enterprise
Change in market
price
Gambling:
Act of playing for stakes in the hope of winning including the payment of
a price for a chance to win a prize
Basis of
Distinction
Investment
Gambling
Duration
Purpose
Rational People
invest for income
not for fun.
Rational People
invest for fun not for
income.
Risk takers
Legal Aspect
It is regulated within
four corners of law
It is not regulated by
any law.
Choice of Investment:
2. Rates of Return
Types of Risk
Description
Market Risk
Types of Risk
Description
Other Risk
2. Rates of Return
B) Current Yield:
Current Yield = Annual investment Income /
Investments current price or value
A common stock selling at $50 per share
with an annual dividend rate of $1.00. What
is the Current Yield? = 2%
C) Yield to Maturity:
For a bond selling at a Discount:
YTM = (annual coupon interest +
( Discount / No. of yrs to maturity))/(Current
market price of bond + par value)/2
For a bond selling at a premium:
YTM = (annual coupon interest ( Premium / No. of yrs to maturity))/(Current
market price of bond + par value)/2
Evaluation of Investment;
1. Mutual Fund Net Asset Value
Net Asset Value = Current market price of
the funds net assets / no. of shares issued.
When he decides to buy, he has to pay the
current NAV per share, plus any sales
charge.
When the NAV appreciates, he decides to
sell the share, the fund will pay him NAV
minus any other sales load.
2. shares:
Earnings per share (EPS):
It helps in deciding shares investment and
also helps in comparing and evaluating
between companies X and Y.
Step: 1 Earnings after interest and tax
Step: 2 Deduct dividends on preferred stock
from step 1 that is called as amount
Step: 3 Divide the amount by the
outstanding number of shares
3. Debenture/Bonds:
The Current Yield refers to Yield of the bond
for a one year period (until maturity).
Step: 1 Note down the coupon rate of the
bond
Step:2 Divide the coupon rate by the bonds
current market price.
Investment Alternatives
Precious
Objects
Equity shares
Equity shares represent ownership capital.
The equity shareholder have ownership stake in the company.
This means they have a residual interest in income and wealth .
It is more risky than preference share and bonds.
Types:
Rights share:
These are the shares issued to the existing share holders of a company to protect
the ownership rights of the investors.
Bonus share:
These are the type of shares given by the company to its shareholders as a
dividend.
Sweat equity share:
These shares are issued to exceptional employees or directors of the company
for their exceptional job in terms of providing know-how or IPR to the company.
Preference share
Bonds
Bond is a long term debt instrument issued by government agencies as
well as large corporations that promises to pay a fixed annual sum as
interest for specified period of time.
Types:
Secured and unsecured bonds:
Secured bond is secured by real assets of the issuer. In case of insecure bonds
there is no such collateral.
Perpetual bonds and redeemable bonds:
Bonds that do not mature are called perpetual bonds. The interest alone
would be paid.
In irredeemable bond ,the bond is redeemed after a specific period of time.
Zero coupon bonds: These are issued at discount of the face value. There is
no interest paid for this bond. The return will be paid on maturity.
Debentures
Types:
Redeemable Debentures
Irredeemable Debentures
Secured Debentures
Unsecured Debentures
Debt instrument which have a maturity less than one year at the time of issue
is called money market instruments. Common money market instruments are:
Treasury bills
Commercial paper
Certificate of deposit
Treasury bills are short term money market instrument issued by government. .
Its maturity period is year or less than a year. It gives very low returns.
Commercial paper: It is a short term negotiable instrument with fixed maturity
period. It is an unsecured promissory note issued by corporations either
directly or indirectly through a bank. It s maturity period is maximum 9
months.
Certificates of deposits:
The certificates of deposit are basically time deposit that are issued by the
commercial banks with maturity period ranging from 3 months to 5 year.
The return is higher than treasury bills because it assumes higher level of
risk
Mutual funds