Chapter i&ii


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Chapter i&ii

  1. 1. Introduction to SAPM 1. Objectives of Financial Investment 2. Investment Alternatives --Arti Pradhan
  2. 2. Investment • Employment of funds on assets with aim of earning income or capital appreciation. • Two attributes- time and risk • Economist definition- net addition made to nation’s capital stock • Financial Manager’s definition- allocation of money to assets that are expected to yield some gains over a period
  3. 3. Difference between investment, speculation and gambling Basis Investment Speculation Basis of acquisition Usually by outright purchase Often- on- margin Length of commitment Comparatively long term For a short time only Source of income Earnings of enterprise Change in market price Quantity of risk Small Large Stability of income Very stable Uncertain and erratic Psychological attitude of Participants Cautious and conservative Daring and careless
  4. 4. Investment Objectives • Return • Risk • Liquidity/Marketability/Tradability • Hedge against inflation • Safety
  5. 5. Investment Process • Investment Policy – investible funds, objectives, knowledge • Analysis – market, industry and company • Valuation- intrinsic value, future value • Portfolio Construction – diversification, selection and allocation • Portfolio Evaluation- appraisal and revision
  6. 6. Investment Alternatives • On the basis of return- fixed income securities and variable income securities • On the basis of Source- corporate, Semi- government and government • On the basis of tangibility- Real, financial
  7. 7. Broad classification of investment avenues • Corporate securities . Equity shares. Preference shares . Debentures/Bonds . GDRs /ADRs . Warrants . Derivatives • Deposits in banks and non-banking companies • Post office deposits and certificates • Life insurance policies • Provident fund schemes • Government and semi government securities • Mutual fund schemes • Real assets
  8. 8. What is Security? Term ‘securities’ used in the broadest sense consists of those papers, which are quoted and are transferable. Under section 2 (h) of the Securities Contract (Regulation) Act, 1956 (SCRA) ‘securities’ include: i) Shares., scrip’s, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate. ii) Government securities. iii) Such other instruments as may be declared by the central Government as securities, and, iv) Rights of interests in securities.
  9. 9. Corporate Securities Equity Shares – buying of ownership right in the company. Based on investor’s terminology, can be named as • Blue Chips (also called Stalwarts) • Growth Stocks (Glamour stocks and high flyers) • Income Stocks (defensive stocks) • Cyclical Stocks • Discount Stocks • Under Valued Stock • Turn Around Stocks
  10. 10. • Preference Shares • Debentures and Bonds • Depository Receipts (GDRs/ADRs) • Warrants • Derivatives • Non-Voting Shares
  11. 11. Deposits • Savings Bank Account with Commercial Banks • Company Fixed Deposits • Post Office Deposits and Certificates • Life Insurance Policies • Provident Fund Scheme • Equity Linked Savings Schemes (ELSSs ) • Pension Plan • Government and Semi-Government Securities • Mutual Fund Schemes
  12. 12. REAL ASSETS • Real Estate • Bullion Investment
  13. 13.   MONEY MARKET  INSTRUMENTS  • Treasury Bills (T-Bills) • Repurchase Agreements • Commercial Papers • Certificate of Deposit • Banker’s Acceptance
  14. 14. Money Market Funds • Invests in low risk and low return bucket of securities viz. money market instruments • Similar to mutual funds but invest in money market instruments • Money Market Account • Money Market Index -Smart Money Market Index -Salomon Smith Barney’s World Money Market  Index -Banker’s Acceptance Rate -LIBOR/MIBOR