Investment Management 1

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In this presentation we will deal with “Types and Classification of Shares”, profits, growth and safety factors of investing in Shares.
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Investment Management 1

  1. 1. Part 01 Chapters 01 - 04 Learning Objectives : 1. Understand different types of shares that one can invest. 2. How are shares classified. 3. Why everyone can invest in shares. 4. Why should one invest in shares. Structure : 1.1 Ordinary & Preference shares 1.2 Cumulative Convertible Preference Shares 2.1 Eight classes of shares 3.1 Objectives of purchasing shares 4.1 Profits or growth 4.2 Liquidity & Safety 4.3 Collateral facility
  2. 2. Part 01 Chapter 01 What is a share : A share represents ownership in the assets of the company. A share holder is entitled to a portion of company’s profits [or losses]. This portion can be increased [decreased] by buying [selling] shares. Companies are required to keep share holders informed about company’s progress. Company’s memorandum & articles of association determine total authorized share capital. From this company can issue a part or total capital, called Issued Capital. From issued capital, company can call a part or full value of share for payment. This value is its Paid up Capital.
  3. 3. Part 01 Chapter 01 Ordinary or Equity Shares : Ordinary or equity shares are issued, normally, with face value of Rs. 10/- To make their market price affordable companies like Unilever have reduced face value to Re One each Equity share holders are real owners of the company in ratio of their share holding to the total paid up capital. They have right to vote on resolutions placed by the board of directors and receive their share in profits through dividends declared. In case the company is liquidated, they share the remains of proceeds, after all creditors are paid off. They stand to lose, if all proceeds are spent in meeting claims of creditors & there is no balance left.
  4. 4. Part 01 Chapter 01 Preference Shares : These shares are not frequently used these days. They carry a fixed rate of dividends and preferential treatment at the time of distribution of assets on liquidation of their company. They do not have right to vote on resolutions placed by the board of directors and decide the company policy.
  5. 5. Part 01 Chapter 01 Cumulative Convertible Preference Shares : These shares are relatively new & were introduced in 1985-86. They carry a fixed rate of dividends and if the company fails to make profits in a particular year their right to dividend continues and dividend due is accumulated for payment later. Additionally they are converted into equity shares at maturity. They are issued to finance new projects expansions or diversification modernization additional working capital.
  6. 6. Part 01 Chapter 02 Share Classification – Blue Chips : These shares are issued by established, profitable dividend paying companies. They are safe investments with reasonable certainty of regular dividends and long term growth. They have these features shares are widely held have earned dividend of over 15% for > last five years increase in market price at minimum 15% cumulatively each year profitability in excess of industry average.
  7. 7. Part 01 Chapter 02 Share Classification – Widow’s Shares : These are shares of fundamentally strong companies which can be bought & forgotten as they are a safe investment. They are shares that can be bought by widows who have no knowledge of the markets secure in their belief that their capital is safe & will earn them regular income.. They have these features shares are pay moderate but regular dividends their prices neither soar nor plummet bear A quality category are listed in the forward trading section A lot of such shares have gone through difficult times, it is always necessary to keep an eye on your investments
  8. 8. Part 01 Chapter 02 Share Classification – Wishful Shares : These are shares of those companies which are not doing particularly well; but investors & speculators hope fortunes of these companies would soon change for good. It may happen, it may not. But there are cases where after buying such shares, market prices have trebled. Share Classification – In Style Shares : These are shares of those companies that people purchase as it is in vogue to buy them as one wishes to be “one of the gang”.
  9. 9. Part 01 Chapter 02 Share Classification – Optimistic Shares : These are those shares that are expected to rise substantially in the short term. They are bought with expectations of thumping profits [ or losses!]. Share Classification – Low High Shares : These are low priced shares which investors believe will rise in future at which time they would be sold at a profit.
  10. 10. Part 01 Chapter 02 Share Classification – Trading Shares : These are shares bought for selling in a short term at the first opportunity to make profit . The investor does not wish to hold these shares. Share Classification – Sensitivity Shares : These are shares which are considered for calculation of share market price index. These are normally A group shares with maximum market capitalization.
  11. 11. Part 01 Chapter 03 Share are for everyone : objectives of purchasing shares Safety of funds . Low risk of loss. Returns on capital. Liquidity of funds. Blue chip shares meet all these objectives. While choosing shares for investment, one should consider one’s personal needs. Investor who is a family man with kids, who is unmarried & on his first job, who has retired; each would have a different needs
  12. 12. Part 01 Chapter 04 Why invest in Shares : Investor receives regular dividends to earn income. Share prices rise & offer capital growth. Minimum outlay is required for investment. With de- materialization investor can buy [sell] even one share. Liquidity of funds. Shares can be sold anytime. Decision to buy [sell] can be corrected at minimum [ nil] loss .
  13. 13. Part 01 Chapter 04 Why invest in Shares : Decision to buy [sell] can be corrected at minimum [ nil] loss . Shares offer hedge against inflation. If invested prudently, shares offer safety in the form of steady income, capital appreciation and protection against loss of capital. There is a wide choice of shares. They can be offered as security or collateral for loans. Investor gets a chance to own a company. Offers thrills of stock market operations.
  14. 14. Part 01 Chapters 01 - 04The end ! Next , Part 02, Chapters 05 & 06 “Investing in shares , share selection” Good Luck !
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