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Unit 1
- 1.
- 2. Commitment ofmoney that is expected to generate additional money Investment is commitment of fund to one or more assets that is held over some future time period. Whatever be the perspective, investment is important to improve the future welfare. Investment can be made to intangible assets like marketable securities or to real assets like gold, real estate etc. More securities or to real assets like gold, real estate etc.
- 3. The professionalmanagement of assets, such as real estate, and securities, such as equities, bond and other debt instruments, is called investment management. Investment management services are sought by investors, which could be companies, banks, insurance firms or individuals, with the purpose of meeting stated financial goals.
- 4. It can begrouped into four major categories: Money market securities: Short term with maturities of one year or less. Debt securities: Fixed income with maturities greater than one year. Equity securities: Long term securities that do not mature. Derivative securities: Securities deriving value from other securities involving transactions completed at a future date.
- 5. 5 Investments incapital markets are in various financial instruments. These instruments may be of various category with different characteristics. It includes shares, bonds, debentures or any marketable securities of a like nature of any company, Govt.securities or semi- Government bodies.
- 6. 6 Security analysisin both traditional sense and modern sense involves the projection of future dividend, or earnings flows, forecast of the share price in the future and estimating the intrinsic value of a security based on the forecast of earnings or dividends. In addition to above, the modern approach includes risk and return analysis for the securities.
- 7. 7 A combinationof such securities with different risk-return characteristics will constitute the portfolio of the investors. A portfolio is a combination of various assets and/or instruments of investments.
- 8. 8 Portfolio analysisincludes portfolio construction, selection of securities, revision of portfolio, evaluation and monitoring of the performance of the portfolio. All these are part of the subject of portfolio management which is a dynamic concept ,subject to daily and hourly changes based on the information flows and a host of economic and non-economic forces operating in the country on the markets and securities.
- 9. 9 It isfor a longer time horizon. It requires moderate risk. It’s objective is to get a moderate return with a limited risk. It considers fundamental factors and evaluate the performance of the company regularly. Investor uses his own funds and avoid borrowed funds. It is for a short period of time. It requires higher risk. It’s objective is to get high returns along with higher risk. It considers inside information, hearsays and market behavior. Speculator uses borrowed funds to supplement his personal resources.
- 10. An investor isa person or entity who invests money in various asset classes for financial gain. Investors can be individuals or companies that purchase equity, debt securities, currency, real estate and commodity derivatives to generate income streams, capital appreciation or both.
- 11. Individuals Institutions(Mutual funds, Pension funds, Endowment funds, Insurance companies, Banks) Fund(Hedge funds &Mutual funds) Venture capital funds(Seed capital) Angel Investors
- 12. 12 Asset allocation refersto the strategy of dividing your total investment portfolio among various asset classes, such as stocks, bonds and money market securities. Essentially, asset allocation is an organized and effective method of diversification
- 13. 13 INVESTMENT ACTIVITY (ACQUISITION OFASSETS) CASH BANK DEPOSITS P.F./LIC PENSION POST OFFICE CERTIFICATES & DEPOSITS INVESTOR SAVER SHARES, BONDS, GOVT. SECURITIES, MUTUAL FUNDS, CURRENCIES 1. FINANCIAL ASSETS 2. PHYSICAL ASSETS NEW ISSUE MARKET 3. MARKETABLE ASSETS SECONDARY MARKET HOUSE LAND BUILDINGS FLATS GOLD SILVER OTHER METALS CONSUMER DURABLES
- 14. 14 Income AgeBirth & EducationEarning Years Retirement Phase I Phase II Phase III 22 yrs 60 yrs Marriage Child birth Child’s Education Child’s Marriage Housing 22 yrs 38 yrs Over 25 - 30 yrs Having a Financial Goal is primary to starting a Investment Plan.
- 15. 15 Wealth Accumulation WealthConsumption AGE ACCUMULATEDWEALTH RISK TAKING CAPACITY EARNING CAPACITY Retirement COMPLEXITYOFINVESTMENTS LIQUIDITY MANAGEMENT SURPLUS MANAGEMENT WEALTH MANAGEMENT
- 16. 16 Mid Twenties 10% 5% 20% 65% REAL ESTATE CASH BONDS STOCKS LateThirties to Early Forties 10% 5% 30% 55% REA L ESTA TE CA SH B ONDS STOCKS Mid Fifties 13% 5% 38% 44% REAL ESTATE CASH BONDS STOCKS Late Sixties and beyond 15% 10% 50% 25% REAL ESTATE CASH BONDS STOCKS
- 17. Equity& Preferenceshares Bonds & Debentures Bank Deposits Post office Deposits Employees Provident fund Public Provident fund Company Deposits Currencies (FOREX) Money Market Securities Mutual funds Real Estate Gold Insurance
- 18. Total equity capitalof a company is divided into equal units of small denominations, each called a share. For example, in a company the total equity capital of Rs 2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each such unit of Rs 10 is called a Share.
- 19. Primary Marketis a place where new offerings by Companies are made either as an Initial Public Offering (IPO) &Following Public Offering(FPO). Secondary Market is a market where securities are traded after being initially offered to the public in the Primary Market and/or listed on the Stock Exchange.
- 20. Stock exchangeis that place where trading of shares is done in terms of sale and purchase. There are 25 stock exchanges in the India . BSE is oldest stock Exchange in Asia. It was started at 1875.Parameter is SENSEX. NSE is the first online stock exchange in India. It was started at 1992.Parameter is NIFTY. MCX-SX is New stock Exchange in India. It was started at Feb 2013.Parameter is SX-40.
- 22. An investmentcompany that pools money from its unit holders and invests that money into a variety of securities, including stocks, bonds, and money-market instruments. This represents a way of investing money into a professionally managed and diversified pool of securities that hopefully will provide a good return on unit holders' money. More than 25 Mutual funds Companies(AMC) in India Best Schemes(Equity, ElSS, Growth,Liquidity,Gold ETF) Best Plan (SIP,STP)
- 23. Type of Mutual Fund Schemes Structure Investment Objective Special Schemes OpenEnded Funds Close Ended Funds Interval Funds Growth Funds Income Funds Balanced Funds Money Market Funds Industry Specific Schemes Index Schemes Sectoral Schemes
- 24. Formula = NetValue of Assets / Number of Units Outstanding.
- 25. A derivative isa financial instrument whose return is derived from the return on another instrument. Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. Derivatives can be in the form of futures, options Froward and swaps. Derivatives are used to minimize the risk of loss resulting from fluctuations in the value of the underlying assets (hedging).
- 26. Commodities Derivatives Ex:Gold Futures, Silver Futures, Crude oil Futures Equity Derivatives Ex:Stock Future,Stock Options, Index Future, Index Options Currency Derivatives Ex:Currency Futures& Currency Options • Interest Rate Derivatives Ex: T.Bills Futures
- 27. Stock Futures- 225 Companies Stock Options - 225 Companies Index Futures - 9 Index’s Index Options - 9 Index’s
- 28. Index name CompositionIndex futures available CNX Nifty 50 stocks Yes CNX IT 20 stocks Yes BANK Nifty 12 stocks Yes Nifty Midcap 50 50 stocks Yes CNX Nifty Junior 50 stocks No CNX Defty 50 stocks No CNX 100 100 stocks No CNX Midcap 100 stocks No CNX 500 500 stocks No
- 29. Commodity marketsare markets where the raw or primary products are exchanged. Commodities are traded on regulated commodity exchanges They are bought and sold in standardized contracts
- 30. Forward MarketCommission(FMC) is the chief regulator of forwards and futures markets in India Headquartered at Mumbai Monitored under The Ministry of Consumer Affairs, Food and Public Distribution (India) Forward Contract Regulation Act 1952
- 31. Multi commodityExchange, Mumbai National commodities and derivatives exchange, Mumbai National Spot Exchange, Mumbai National Multi commodity Exchange of India, Ahmedabad
- 32. NSE wasthe first exchange to have received an in-principle approval from SEBI for setting up currency derivative segment. The exchange launched its currency futures trading platform on 29th August, 2008. Currency Options was introduced on October 29, 2010.
- 33.
- 34. US DOLLAR EURO POUND STERLING JAPANESE YEN
- 35. 1.Financial securities: These investmentinstruments are freely tradable and negotiable. These would include equity shares, preference shares, convertible debentures, non-convertible debentures, public sector bonds, savings certificates, gilt-edged securities and money market securities. 2.Non-securitized financial securities: These investment instruments are not tradable, transferable nor negotiable. And would include bank deposits, post office deposits, company fixed deposits, provident fund schemes, national savings schemes and life insurance.
- 36. 3. Real assets: Realassets are physical investments, which would include real estate, gold & silver, precious stones, rare coins & stamps and art objects. 4.Mutual fund schemes: These schemes are mainly growth (or equity) oriented, income (or debt) oriented or balanced (i.e. both growth and debt) schemes.
- 37. The most commoninstruments in which people invest are stocks, bonds and forex. Portfolio diversification can be achieved through alternative investments. Investments made into assets that do not fall under one of the three traditional asset types (cash, stocks and bonds) are called alternative investments.
- 38. Futures: Futuresare standardized contracts for the sale and purchase of a commodity on a specified date and at a predetermined price. Futures can be used to trade currencies and commodities (such as oil and agro products). Options: Options are similar to futures. The only difference is that the holder of an options contract is under no obligation to buy or sell the underlying asset. ETFs: Exchange traded funds (ETFs) hold assets such as stocks, bonds, commodities and precious metals. These ETFs are traded on the stock exchange. The most common ETFs used as alternative investments are gold and oil.
- 39. Hedged funds:Hedge funds invest in a broad range of investment options, including stocks, debt and commodities. They often aim at offsetting potential losses in the markets they invest in. They use methods, such as short selling, to hedge their investments. Real Estate: This investment option involves buying and selling immovable property, such as land and buildings. This investment yields rental income as well as capital appreciation. Gold: Gold is a defensive investment and becomes more popular during periods of prolonged economic and political upheavals.
- 40. Diversify aninvestor’s portfolio. Reduce risks. Offer good profit generating opportunities.
- 41. 41 RISK :Risk is inherent in any investment. This risk may relate to loss or delay in repayment of the principal capital or loss or non- payment of interest or variability of returns. While some investments are almost risk less like Govt.securities or bank deposits, others are more risky. RETURN: Return differs amongst different instruments. The most important factor influencing return is risk. Normally, the higher the risk ,the higher is the return.
- 42. ASSET RISK RETURN CashInvestments ( Bank accounts) Low Low Debt Investments (Bonds, Debenture) Moderate Moderate Equities (stocks) High High Mutual Funds Low to High Low to High Real Estate High High Derivatives Very High Very High
- 43. Return Deposits(FD,PPF,PO)(Low Risk) Mutual Funds EquityShares Bonds , Debentures Derivatives Venture Capital (High Risk) Risk Real Estate
- 44. wealthperiod-of-beginning wealthperiod-of-beginningwealthperiod-of-end Return -- 0V 1V Initial value ofinvestment Final value of investment 0 01 V VV r Return is Or as a percentage 100 0 01 V VV r
- 45. Example 1 ◦An initial investment of Rs10,000 is made. One year later, the value of the investment has risen to Rs12,500. The return on the investment is Example 2 ◦ An investment initially costs RS 5,000. Three months later, the investment is sold for Rs 6,000. The return on the investment per three months is %25100 10000 1000012500 r %20100 5000 50006000 r
- 46. Systematic Risk MarketRisk Interest rate Risk Inflation or Purchasing power risk Unsystematic Risk Business Risk Credit Risk Political Risk Exchange Rate Risk