INVESTMENT

 Investment is the sacrifice of certain

present value for the uncertain future reward.
 Employment of funds with the aim of
earning income or capital appreciation.
 By Investing, an investor commits the
present funds to one or more assets to be
held for some time in expectation of some
future return in terms of interest (revenue)
or capital gain
 BASIC FEATURES OF
INVESTMENT
 Commitment of present funds
 Expectation of some return or benefits
from such commitment in future
 Risk and return
 Elements of Investment
• Return
• Risk and Return
• Time
 Features of Investment
• Increase in Investing Population
• Availability of Tax incentives
• Tendency of people for investment
• Investment Opportunities
• Increase in Investment – related
information
 Need for Investment
• Increase in life expectancy
• Interest rates
• Increasing rate of Taxation
• Income
• Inflation
• Investment Channels
 Investment Media
• Direct Investment:
1. Fixed Principal Investment
2. Variable Principal Investment
3. Non-Security Investment
• Indirect Investment
 INVESTMENT PROCESS

 Investment process is a involves a

series of activities leading to the purchase
of securities or other investment
alternatives.
 The investment process can be divided
into five stages
1. Framing of investment policy
2. Investment analysis
3. Valuation
4. Portfolio construction
5. Portfolio evaluation
 Investment process

Analysis Portfolio Portfolio

Investment
Valuation construction Evaluation
Policy

- Investible - Intrinsic
- Market value - Diversification - Appraisal
Fund
- Industry - Future - Selection - Revision
- Obj
- Company value & allocation
- Knowledge
 STEPS IN INVESTMENT
 Setting investor objectives
 Analysis of different assets securities
 Identifying which are suitable for investment
 Constructing a portfolio of investments
 Periodic repetition of the above three steps to
revise and improve the portfolio in view of
changing situations.
 INVESTMENT ENVIORNMENT

It refers to all types of investment opportunities

and the market structure that facilitates buying
and selling these investments.
• Different types of securities, institutional set up
and the market intermediaries are the
components of investment enviornment.
 DIFFERENT TYPES OF
INVESTING
1. DIRECT INVESTING: Buying and selling
of Securities by the investor themselves.
2. INDIRECT INVESTING: The investor let
the investment company to do all the
work and make all the decisions for him
for fee.
 Investment Principles
• Safety
• Liquidity
• Profit
• Taxation
• Inflation
• Government Control
• Legality * Trasferability
• Tangibility
 SPECULATION
 Investment and Speculation are different.
 Speculation is a short term investment.
 Speculation is an investment of funds with
an expectation of some return of capital
profit resulting from the price change and
sale of investment.
 DIFFERENCE BETWEEN
INVESTMENT AND SPECULATION
Investment Speculation
Less Risk High Risk

Interest/Revenue/Capital Change in the Market Price

Gain are Income
Fundamental Analysis is the Rumours, tips are basis of
basis of decision in decision in speculation
investment
Investors position is Speculator is party to an
ownership agreement
Long term period Short term period
 FACTORS OF SOUND
INVESTMENT

1. Liquidity : It refers to speed and ease with which an

investment can be sold for a fair price.
Different types of investments offer varying
degree of liquidity.
An investor has to build a portfolio containing
a good proportion of investments which have relatively
higher degree of liquidity.
2. Risk of an investment: Risk of an investment
is analyzed from two different angles
(A) Safety of principal: An investor should take
care that the amount of investment is safe.
The safety of investment depends
upon several factors such as the economic
conditions, Organization where investment is
made, earning stability etc.
(B) Stability of return:
An investment is considered as
good investment if it offers stable returns.
( C) Capital appreciation:
Land, Buildings, Equity Shares
provide capital appreciation. An investor
will select those investments where there
is capital appreciation.
(D) Tax aspects of investments
The performance of any
investment decision should be
measured by its after tax rate of return.
(E) Investment Horizon
It refers to planned liquidation
date of investment
 Gambling and Investment

 A gamble is usually a very short term

investment in a game or chance.
 It is different from speculation and
investment.
 Risk is different from gambling and
investment.
 Contd..
 Gambling employs artificial risks whereas
commercial risks are present in the
investment activity.
 There is no risk and return trade off in the
gambling and the negative outcomes are
expected.
 Contd..
 But in the investment there is an analysis
of risk and return.
 Positive returns are expected by the
investors.
 Finally, the financial analysis does not
reduce the risk proportion involved in the
gambling.
 Investment Objectives
 Return: Investors always expect a good
rate of return from their investments.
 Risk: Risk varies according to the return
 Liquidity: The liquidity depends upon the
marketing and trading facility.
 Contd..
 Hedge against inflation:
 Safety