10-03-2011, 10:00 AM
Presented By
Asst Prof. Arvind Gajakosh
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INTRODUCTION TO INVESTMENTS
Investment is the employment of funds with aim of achieving additional income or growth in value.
It is the allocation of monetary resources to assets that are expected to yield some gain over a period of time.
Investment is a commitment of a person’s funds to derive future income in the form of interest, dividends, rent etc.
The three key aspects of any investment are time, risk & return.
Investing in a house Vs investing in a car
Financial Assets
Cash
Bank deposits
Provident Fund schemes Non Marketable Assets
LIC Schemes
Post office Deposits
Shares
Bonds Marketable Assets
G-Secs
Physical Asset
House
Land
Building
Gold
Silver
Consumer durables
Investment Alternatives
Non marketable Financial Assets
Bank depo, Post office depo
Comp depo, Provident depo
Money Market Instruments
T-bills, Com-paper, CD (Certificates of Deposits)
Equity shares
Blue chip shares, Growth shares
Income shares, Cyclical shares, Speculative shares
Bonds
G-secs, Saving bonds, PSU bonds
Debentures, Preference shares
Investment Alternatives
Mutual Fund
Equity schemes, Debt schemes, Balanced schemes
Life Insurance
Endowment assurance policy, Whole life policy
ULIP policy, Term assurance policy
Real Estate
Agri-land, Semi-urban land, Commercial property
Precious objects/Metals
Gold & Silvers, Precious stones etc
Financial Derivatives
Futures, Options
Investment contributes to required demand of capital goods
It enlarges the production base (installed capital) increases production capacity
It modernizes production processes and improve the cost effectiveness
It allows for the production of new and improved products increasing value added in production
It brings world class innovations & quality standards.
Rate of return = Annual Income + (Ending Price-Beginning Price)
Beginning Price Beginning Price
(Current Yield + Capital Gain/Loss)
Example: AI = 2.40 EP = 66 BP = 60
then ROR=14% , CY=4%, CG=10%
u Investment Objectives
u A good rate of return in the future
u Reducing risk to get a good return
u Liquidity in time of emergencies
u Safety of funds by selecting the right avenues of investments
Specification of Investment Objectives & Constraints
Current Income
Capital appreciation Objectives
Safety of Principal
Liquidity
Time horizon Constraints
Tax
Choice of the Asset mix
Concern with the proportions of stocks & bonds
It depends on the risk tolerance & investment horizon