V.N.V.SASTRYKRUPANIDHI School of ManagementInvestment analysis and management.Real assets and financial assets: The material wealth of a society is determined by the productive capacity of the economy. Ex: Investment in the form of land, building, knowledge and machines. Financial assets represent various financial instruments such as shares, bonds, debentures.---Meaning of InvestmentInvestment is the employment of funds on assets with the aim of earning income or capitalappreciation. Investment has two attributes namely time and risk.Present consumption is sacrificed to get a return in the future. The sacrifice that has to be borneis certain but the return in the future may be uncertain. Investment is commitment of Funds made for a time period that will compensate the investorfor-The time the funds are committed;The expected rate of inflation; andThe uncertainty of future paymentsDEFINITION OF INVESTMENT: Investment refers to the “purchase of a financial asset that produces a yield that is proportionate to the risk assumed over some investment period. ---- F.Fleming Investment is a sacrifice of certain present value for some uncertain future value. Examples --- Sharpe X purchased a bungalow for Rs 10 lakhs in Delhi. Y buys 100 shares of Infosys technologies ltd at Rs 1800 per share in expectation of good return.
V.N.V.SASTRY Z invested Rs 10000 in mutual funds of SBI.CONCEPTS RELATING TO INVESTMENTSThe following are the three concepts of management.1.Economic Environment.2.Business investment.3.Financial investment. In economics ,investment refers to the net additions to the capital stock of an economy, production of other goods such as buildings,railroads,factories etc. Business investment implies money to be held or to be put in a private business. Financial investment refers to putting money into various securities ( shares, debentures)real estate,mutual funds,insurance,precious metals. ---Objectives of investment: Return: Risk: Liquidity: Hedge against inflation: Safety: Tax advantage: Marketability: Diversification.Meaning of speculation Speculation is a short term investment,Speculation involves buying and selling of securities or other asset,in the hope of making profit from anticipated changes in the profit.Meaning of Gambling:
V.N.V.SASTRYGambling is a game of chance or a roll of dice.The outcome of gambling is known immediately. It is done for entertainment. It involves luck. It is unplanned and unscientific activity with the knowledge of risk involved.Difference between Investment and speculation Investment SpeculationInvestment is long term in nature. Speculation is a short term activityInvestment has less or moderate degree of risk. It involves a high degree of risk.A person who invests for long term is called investor. A person indulges in short term activity is called speculator.Marketable asset is not necessary for investment Marketable asset is not necessary for speculationModerate or low return are expected. High returns are expected. Low brokerage fees. High brokerage fees.Leverage benefit is not available Leverage benefit is available.Investors uses fundamental analysis Speculators uses technical analysis .INVESTMENT PROCESS DEFINE INVESTMENT GOALS AND CONSTRAINTS IDENTIFY INVESTMENT ALTERNATIVES CHOOSING THE BEST ALTERNATIVE OR ALTERNATIVES PORTFOLIO CONSTRUCTION PORTFOLIO EXECUTION PORTFOLIO EVALUATION
V.N.V.SASTRYPORTFOLIO REVISION PORTFOLIO HEDGING---Investment constraints Constraints are prevalent in almost all the investment decision. They are the hindrances or obstacles which has an impact on investment action. The constraints reduce the chance of achieving the investment objectives. The following are the constraints 1.Liquidity 2.Tax shelter 3.Time horizon 4.Portfolio risk level 5.Allowed securities 6.Diversification ---Investment strategies. Formulation of investment strategy is one of the important steps in portfolio management. An investor has to hammer out his portfolio strategy as soon as he decides about the choice of asset mix. Two types of investment strategies --- Active portfolio strategy --- Passive portfolio strategy ---Active portfolio strategy Active portfolio strategy strives to earn superior risk adjusted returns. There are five dimensions of active portfolio strategy. 1.Market timing. 2. Sector rotation. 3. Security selection. 4. use of specialized concepts.