Module 1
Module 1
INTRODUCTION TO INVESTMENT
What is Investment?
Investment is the employment of funds with the aim of
achieving additional income or growth in value.
Investment is the action or process of investing money for
profit.
Investment is putting money into something with the
expectation that will generate income or the value will
appreciate in future or profit.
Definition of Investment
“ Commitment of funds made in the expectation of some
positive rate of return”.
“Investment is the employment of funds wit the aim of
achieving additional income or growth in value”.
“Expectation of return is an essential elements of
investment”.
Investment management
Investment management refers to the handling of financial
assets and other investments—not only buying and selling them.
Management includes devising a short- or long-term strategy for
acquiring and disposing of portfolio holdings. It can also include
banking, budgeting, and tax services and duties, as well.
The professional management of financial assets. Investment
managers make investments on behalf of people, institutions, or
pension funds.
Investment management refers to the professional management
of different securities and assets so as to meet specified
investment goals for the investors’ benefits. Investors may
include private investors as well as institutions.
Characteristics of Investment
Risk
Return
Safety
Liquidity
Marketability
Stability of income
Characteristics of Investment
Risk: Every investment contains certain portion of risk. It
is a key feature of investment which refers to loss of
principal, delay in payment of interest and capital etc.
Most investors prefer to invest in less riskier securities.
Return: Return expectation is the main objective of
investment. Investors expect regularity of high and
consistent income for their capital.
Characteristics of Investment
Safety: Investors expect safety for their capital. They
desire certainty of return and protection of their
investment or principal amount.
Liquidity: Liquidity means easily sale or convert the
capital or investment into cash without any loss. So, most
investors prefer liquid investment.
Characteristics of Investment
Marketability: It is another features of investment that
they are marketable. It means buying and selling or
transferability of securities in the market.
Stability of income: Investors invest their capital with
high expectation of income. So, return on their investment
should be adequate and stable.
Objectives of investment
Maximization of return
Minimization of risk
Maintaining liquidity
Hedge against inflation
Increasing safety
Saving tax
Investment process
Investment policy
Investment Analysis
Valuation of securities
Portfolio construction
Investment process
Investment policy: The first stage determines and
involves personal financial affairs and objectives
before making investments. It may also be called
preparation of the investment policy.
The investor has to see that he should be able to
create an emergency fund, element of liquidity and
quick convertibility of securities into cash. This stage
may, therefore; be considered appropriate for
identifying investment assets and considering the
various features of investment.
Investment process
Investment Analysis:
When an individual has arranged a logical order of the
types of investments that he requires on his portfolio,
the next step is to analyze the securities available for
investment. He must make a comparative analysis of
the type of industry, kind of security and fixed vs.
variable securities.
Investment process
Valuation of Securities:
The third step is perhaps the most important
consideration of the valuation of investments.
Investment value, in general, is taken to be the present
worth to the owners of future benefits from
investments. The investor has to bear in mind the
value of these investment.
Investment process
Portfolio Construction:
Under features of investment programme, portfolio
construction requires a knowledge of the different
aspects of securities. This is an important step as it
measures the performance of the investment with
respect to a benchmark, in both absolute and relative
terms.
Investment Vs Gambling
Investment is an attempt to carefully plan, evaluate
and allocate funds in various investment outlets which
offers safety of principal, moderate and continuous
returns and long term commitment.
Gambling is quite the opposite of investment. It
consist of uncertainty and high stakes for thrill and
excitement. E.g., horse racing, game of cards, lottery
etc.
Investment Vs Gambling
Points of difference Investment Gambling