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Investment management

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  • 1. www.finerva.com | support@finerva.com | +91-9787-11-11-66 Investment Management Session 4
  • 2. www.finerva.com | support@finerva.com | +91-9787-11-11-66 Bond Valuation • Terms – Par Value (Face value) – Coupon rate – Maturity Date
  • 3. www.finerva.com | support@finerva.com | +91-9787-11-11-66 Bond Types • Types – Government Bonds – Corporate Bonds • Straight Bonds • Zero Coupon Bonds (Deep Discount Bonds) • Floating Rate Bonds • Bonds with Embedded Options – Convertible Bonds – Callable Bonds – Puttable Bonds • Commodity Linked Bonds
  • 4. www.finerva.com | support@finerva.com | +91-9787-11-11-66 Bond Pricing • Price of a bond • Current Yield
  • 5. www.finerva.com | support@finerva.com | +91-9787-11-11-66 Bond Pricing • Yield to Maturity – Ideal Way is to solve for ‘r’ – Short cut approximation: • Holding Period Return
  • 6. www.finerva.com | support@finerva.com | +91-9787-11-11-66 Risks in Bonds • Interest Rate Risk • Inflation Risk • Real Interest Rate Risk • Default Risk • Call Risk • Liquidity Risk • Reinvestment Risk • Foreign Exchange Risk
  • 7. www.finerva.com | support@finerva.com | +91-9787-11-11-66 Duration & Immunisation • Duration - Weighted Average life of bond which considers the size and timing of each cash flow. • Immunisation – Matching Price risk & Reinvestment risk – Match the investment period with the duration
  • 8. www.finerva.com | support@finerva.com | +91-9787-11-11-66 Mutual Funds • Organisation Structure – Sponsor – Mutual Fund Trust – Trustee – AMC – Custodian – Registrars & Transfer Agents
  • 9. www.finerva.com | support@finerva.com | +91-9787-11-11-66 Scheme Types Equity  Diversified  Index  Sectoral  Tax Planning Debt  Gilt  Mixed Debt  Floating Rate  Cash Hybrid  Equity Oriented  Debt Oriented  Variable Asset Allocation
  • 10. www.finerva.com | support@finerva.com | +91-9787-11-11-66 Types • Open Ended • Closed Ended – Exchange traded • Real Estate Investment Trusts (REIT) • Regulations
  • 11. www.finerva.com | support@finerva.com | +91-9787-11-11-66 Calculating NAV • NAV = (Market value of investment + Receivables + Accrued Income – Liabilities – Accrued Expenses) / Number of units outstanding
  • 12. www.finerva.com | support@finerva.com | +91-9787-11-11-66 Derivatives – Forwards & Futures • An Agreement to buy or sell at a predetermined price at a future date. • Forward Vs Future • Futures – Clearing House – Margins – Mark-to-market – Price limits
  • 13. www.finerva.com | support@finerva.com | +91-9787-11-11-66 Futures • Equity • Index • Interest rate • Foreign Exchange • Commodities
  • 14. www.finerva.com | support@finerva.com | +91-9787-11-11-66 Derivatives – Options Right to buy or sell something without the obligation. Call (option to buy) or Put (option to sell) Exercise Price or Strike price or Striking price Expiration or Maturity Date European Option and American Option Exchange traded or Over-The-Counter
  • 15. www.finerva.com | support@finerva.com | +91-9787-11-11-66 • State of the Option – In the money – At the money – Out of the money • Intrinsic Value = (Value of the option if it were to expire immediately) • Time Value of the Option = (Market price of the option [premium] – Intrinsic value)
  • 16. www.finerva.com | support@finerva.com | +91-9787-11-11-66