1. Overview and Investments

8/4/2019 1. Overview and Investments

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SECURITY ANALYSIS

ANDINVESTMENT MANAGEMENT

HIMANSHU PURIFACULTYDIAS


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INVESTMENTS Traditional investments covers:

Security analysis

Involves estimating the merits of individual investments

Portfolio management

Deals with the construction and maintenance of acollection of investments


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SECURITY ANALYSISThe fundamental analysis process:

1) The analyst considers prospects for the economy

2) The analyst determines which industries arelikely to fare well in the forecasted economicconditions

3) The analyst chooses particular companies within

the favored industries

EIC analysis (a top-downapproach)

AND Technical Analysis: Past price and volume


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PORTFOLIO MANAGEMENT

A properly constructed portfolio achieves a givenlevel of expected return with the least possiblerisk

Portfolio managers have a duty to create the bestpossible collection of investments for eachcustomers unique needs and circumstances


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PURPOSE OF PORTFOLIO MANAGEMENT

Portfolio management primarily involvesreducing riskrather than increasing return

Consider two $10,000 investments:

1) Earns 10% per year for each of ten years (low risk)

2) Earns 9%, -11%, 10%, 8%, 12%, 46%, 8%, 20%, -

12%, and 10% in the ten years, respectively (highrisk)


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THE PORTFOLIO MANAGERS JOB Begins with a statement of investment

policy, which outlines:

Return requirements

Investors risk tolerance

Constraints under which the portfolio mustoperate


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THE SIX STEPS OF PORTFOLIO MANAGEMENT

1) Learn the basic principles of finance

2) Set portfolio objectives

3) Formulate an investment strategy4) Have a game plan for portfolio revision

5) Evaluate performance

6) Protect the portfolio


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DEFINITION OF INVESTMENT What is an investment?

Anything you buy with the expectation that it willincrease in value and will provide some return as

Interest, Dividend Capital Appreciation

Why is investing important?

Because you need to increase wealth so you are notdependent on anyone do the things you want to do inlife.


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WHAT IS INVESTMENT ?

Money we earn is partly spent and rest saved for meeting futureexpenses. Instead of keeping the savings idle we like to usesavings in order to get return on it in the future. This is calledInvestment.


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WHY INVEST ?

Earn Return on idle resources

Generate sum of money for specified goal in

life

Make provision for uncertain future

To meet the cost of inflation


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THE STRUCTURE OF THE INVESTMENT PROCESSAND THE CIRCULAR FLOW OF INCOME

Financial Institutions

Financial Markets

DemandersSuppliers


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PARTICIPANTS IN THE INVESTMENT PROCESS a. GovernmentMostly a demander of funds

b. BusinessDemander and Supplier of Funds

c. IndividualsMostly Supplier and Demanders of Funds also

d. BrokersDirect v/s Indirect investing


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PERSONAL INVESTMENT PROCESS a. Meeting Investment Prerequisites

b. Establishing Investment Goals

c. Evaluating Investment Vehicles d. Selecting Suitable Investments

e. Constructing a Portfolio

f. Managing the Portfolio


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THE INVESTMENT PROCESS A description of the process is:

1. Set investment policy Objectives

Amount

Choice of assets 2. Conduct security analysis

Examine securities (identify those which are mispriced?)

Use

a. Technical analysis the examination of past prices fortrends

b. Fundamental analysis true value based on futureexpected returns


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THE INVESTMENT PROCESS 3. Portfolio Construction

Identify assets

Choose extent of diversification

4. Portfolio EvaluationAssess the performance of portfolio

5. Portfolio Revision

Repeat previous three steps


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INVESTMENT V/S SPECULATION

Factors Investment Speculation

Degree of risk Less Relatively High

Return Income of the investee Change in Market Price

Basis of decision Analysis of fundamentals Rumors, Tips

Period of Investment Long Short


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Encompasses all types of investmentopportunities and market structure thatfacilitates buying and selling of these

investments

Components:

Types of securitiesInstitutional set up

Market Intermediaries

INVESTMENT ENVIRONMENT


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FINANCIAL MARKETS & INSTITUTIONS

Financial market is a market wherein financialinstruments such as financial claims, assets and

securities are traded.


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FINANCIAL MARKET

A financial market is a mechanism that allowspeople to easily buy & sell (trade) financial

securities ( such as stocks & bonds ),commodities ( such as precious metals oragricultural goods ).


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FINANCIAL MARKET

An FM may or may not have a particularphysical existence.

Location of NYSE,NSE, BSEmarket forstocks.


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ROLE

One of the important requisites for the accelerateddevelopment of an economy is the existence of adynamic and resilient financial market.

It helps the economy in the following manner:

Savings mobilization

Investment

National growth- productive purposes Entrepreneurship growth

Industrial development.


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FUNCTIONS

Provide borrowers with funds

Provide lenders with earning assets

Providing liquidity in the market


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CONSTITUENTS OF FINANCIAL MARKET

Primary Market Secondary Market

Money Market

Capital Market Domestic Market Forex Market

Debt Market Equity Market Derivative Market Insurance Market


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TYPES OF FINANCIAL MARKET

Financial Market

Capitalmarket

MoneyMarket

CommodityMarket

DerivativesMarket

InsuranceMarket

ForeignExchange

Market


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OPTIONS FOR RETAIL INVESTOR

Real Asset v/s Financial Asset Equity Debt Mutual Funds Fixed Deposits with Banks Post office schemes Insurance

Short term investments Gold Real Estate Antiques


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EQUITY SHARES

It commonly referred to as ordinary share

represents the form of fractional ownership in a

business venture.

Equity shareholders have the right to getdividends as declared.


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DEBT

This instrument represents contract whereby one

party lend money to another on pre-determined

terms with regards to rate and periodicity ofinterest, repayment of principle amount by the

borrower to the lender.


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CLASSIFICATION OF DEBT

BONDS: Issued by Govt.(Central andState),Public Sector Organisation

DEBENTURES: Issued by Private CorporateSector.


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MUTUAL FUND

A Mutual fund is a collective investment vehiclethat pools together investor money. Thiscollective pool of money is invested inaccordance to stated objective.

Mutual Funds are :A large pool of resources

Managed by professionalsDiversified investment for lower risk & better

return


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FIXED DEPOSITS WITH BANKS

It allows an investor to deposit a lump sum of

money for a fixed period ranging from a few

weeks to a few year and earn a pre-determined

rate of interest.

Guaranteed Returns depends upon term.

Safe and Secured Investments


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POST OFFICE SCHEMES

Offered by Govt. of India Safe, secure and risk-free Investment

Transferable to any post office in India

Attractive Rate of Interest Post office monthly income scheme

Kisan Vikas Patra

National Savings certificate Public Provident Fund


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GOLD

Physical Gold in the form of bars and coins

Gold accounts in banks where units in thegold a/c in the banks are backed up byphysical gold held in the bank and bankgives assurance that the investor canconvert the gold back to cash anytime.


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REAL ESTATE INVESTMENT

Financial instrument that invests primarily inthe real estate such as offices, apartments,shopping centres, hotels etc.

Tend to pay high returns

Attractive investment opportunity when thestock market is falling.


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INSURANCE

A promise of compensation for specificpotential future losses in exchange for aperiodic payment. Now it is considered as a

investment tool also:

ULIPs


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SHORT TERM INVESTMENT

Certificate of Deposits

Commercial papers

T bills

But this market is predominantly used by

institutional investors and corporate much


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CONCLUSION

Investors looks at superior returns and measured

risk therefore he has to select a dynamically

balanced asset allocation mix consisting of thedifferent investment options available in the

Financial Market.

Documents

1. Overview and Investments