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Investment management

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An introduction to investment management

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Investment management

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

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