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Investment meaning nature

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Investment meaning nature

  1. 1. Investment can be defined in different aspects. These are: Generally, investment is the application of money for earning more money. Investment also means savings or savings made through delayed consumption. In Finance, the purchase of a financial product or other item of value with an expectation of favorable future returns. the practice of investment refers to the buying of a financial product or any valued item with an anticipation that positive returns will be received in the future. In Business, the purchase by a producer of a physical good, such as durable equipment or inventory, in the hope of improving future business.
  2. 2.  According to economics, investment is the utilization of resources in order to increase income or production output in the future. An amount deposited into a bank or machinery that is purchased in anticipation of earning income in the long run are both examples of investments.
  3. 3.  Purchase of assets with the goal of increasing future income  Focuses on wealth accumulation  Appropriate for long-term goals
  4. 4.  Investment is defined as a sacrifice made now to obtain a return later. It is current consumption that is sacrificed.  Two forms of investment can be defined ◦ Real investment is the purchase of land, machinery, etc. ◦ Financial investment is the purchase of a "paper" contract
  5. 5.  Real investments and financial investments are linked ◦ The share issue of a firm finances the purchase of capital. ◦ The commitment to a mortgage finances the purchase of property.  Financial investment can provide finance for real investment decisions. Financial investment can guide real investment decisions. The most important feature of financial investments is that they carry high market liquidity. The method used for evaluating the value of a financial investment is known as valuation.
  6. 6. Physical investment Tangible in nature Some are useful for further production. Capital goods like plant and machinery. Some of them like ornaments are not useful. Financial investment Used for consumption or production of goods and services It can be used for further creation of assets e.g. shares and bonds.
  7. 7.  Marketable and Non marketable investment Investments listed on stock exchanges are easily marketable. Non marketable securities are not traded in market such as bank drafts.  Transferable and Non transferable investment Generally marketable securities are transferable and non- marketable securities are non transferable.
  8. 8.  It helps in making investment decisions.  Higher the risk, higher the expected return.  One can take decision only after analyzing entire process of investment that starts with fund contribution and ends with getting expectations fulfilled.  Higher the time period of investment, lesser the uncertainties of investment.
  9. 9.  Cash has an investment opportunity when you decide to invest it you are deprived of this opportunity to earn a return on that cash.  When the general price level rises the purchasing power of cash declines- larger the increase in inflation, the greater the depletion in the buying power of cash.  Some investors buy government securities or deposit their money in bank accounts that are adequately secured.  In contrast, some others prefer to buy, hold and sell equity shares even when they know that they get exposed to risk.
  10. 10.  Risk is the probability that the actual return on an investment will be different from its expected return.  Using this definition of risk, you may classify various investments into risk categories.  Government securities would be seen as risk free investments because the probability of actual return diverging from expected return is zero.
  11. 11.  Identification of Investors’ Requirements:- Investors differ from each other in terms of objectives , preferences and constraints. The foundation of investment management is thus, collection of data relating to investors’ requirements. The analysis of this data gives an idea about the assets and securities to be selected.  Formulation of Investment Policy and Strategy:- The policy will lay down the different asset classes of investment viz shares, debentures, bonds etc. and the proportion of funds to be invested in each class. After formulating the investment policy, the next stage is to prepare the investment strategy. Investment strategy will be formulated for income and capital appreciation and for a level of risk tolerance. The investment strategy will have to be correlated with the expectation of the capital market and the individual sectors of industry. On the basis of investment policies, strategy and investors’ expectations of the market, a particular combination of investments is selected.
  12. 12.  Execution of strategy:- Next strategy is the implementation and execution of investment process. This process requires a lot of research, analysis and judgment. The portfolio thus, constructed may relate to the needs of a given level of income, liquidity, safety, high yielding growth stocks etc. The success of the portfolio would depend upon the initiative, innovation and judgment of the person constructing the portfolio.  Monitoring of Portfolio:- The performance of the portfolio is evaluated and adjustments are made in the portfolio composition from time to time. Thus is called monitoring and risk structuring of the portfolios. This process is an adjustment of the components of the portfolio to improve the performance to make it optimal and efficient. The changes in investors conditions, market conditions and in industry performance are taken into account in the portfolio adjustments.
  13. 13. ◦ Set Investment policy:- Investment policy provides the raw material for the Investment management. In this stage various investment assets are identified and their features are connected. The goal of investment policy is to decide which stock to be held in an investment portfolio. The formulation of investment policy requires  Determination of amount invested.  Determination of investment objectives.  Identification of potential investment assets.  Consideration of attributes of various investment assets.  Allocation of investible funds to various investment categories. ◦ Conduct security analysis:-Its objective is to determine future risk and return in holding various blends of individual securities. It helps in generating efficient portfolio. To determine efficient portfolio expected return level is chosen and assets are substituted until portfolio combination with a smallest variance at that return level is found.
  14. 14. ◦ Valuation of Securities:- Investment value is generally taken to be the present worth to the owners of future benefits from investments. An appropriate stet of weights have to be applied with the use of forecasted benefits to estimate the value of investment assets. Comparison of the value with the current market price of the asset allows the determination of the relative attractiveness of the assets. ◦ Portfolio Construction:-It involves the following step : (1)Deciding the diversification level. (2)Considering the investment timing. (3)Selection of Investment timing. (4)Allocation of investible funds to investment assets. (5)Acquisition of assets.
  15. 15. o Portfolio Evaluation and Revision:- It is continuous process. After selection of portfolio the next step is that of evaluation from time to time depending on market conditions. The primary motive of evaluation is to improve performance. Effective portfolio evaluation requires an investor to balance what he has against available alternatives.
  16. 16. The primary objective of investment is to increase the rate of return and to reduce the risk. The other objectives are:  Income:- Main objective is to earn income in form of dividend yield or interest. Investment should earn reasonable and expected return on the investment.  Capital appreciation:-The other important objective of investment is appreciation in the capital invested over a period of time. Capital appreciation can be achieved by following:-  Conservative Growth  Aggressive Growth  Speculation
  17. 17.  Forms Of Return :- The returns expected from securities may be of two types :-  Periodical Cash Receipts  Capital Gain  Safety and Security Of Funds:- Another important consideration in making investment is that fund so invested should be safe and secure . The investment should be capable for redemption as and when due.  Liquidity:- Before making the investment, the investor should consider the degree of liquidity require. Certain securities are capable of being sold in the readily available market and some securities may not be so liquid.  Tax considerations:- Before making the investment, investors should also take into consideration the provisions of income tax, capital gain tax and wealth tax to minimize his tax burden and avail all tax exemptions available to him.
  18. 18. Total return on investment expressed as a percentage of the amount of money invested Total Return Amount of Money Invested Rate of Return Investments usually earn higher rates of return than savings tools Return is the profit or income generated by savings and investing.
  19. 19. Once an appropriate amount of liquid assets are reached Recommend refocusing goals from saving to investing
  20. 20. POTENTIAL RETURN RISK Risk- uncertainty regarding the outcome of a situation or event. Investment Risk- possibility that an investment will fail to pay the expected return or fail to pay a return at all All investment tools carry some level of risk
  21. 21.  Risk Normally risk involved in investments either loss of profit or lower profit than expected. Speculation is a baseless guess and may result in a very high profits or high loss. The risk in case of speculation is very high.  Capital gain The motive of investment is achievement of appreciation. The motive of speculation is achievement of profits through price changes.  Time If securities are purchased and investor does not expect an immediate return on it and waits for long term benefit, it is termed as investment. If a person expects immediate returns on his investment and dispose of the in a short period, it is known as speculation.
  22. 22.  Money market securities  Stocks ◦ Primary and secondary stock markets ◦ Primary market: a market where newly issued securities are traded Initial public offering (IPO): the first offering of a firm’s stock to the public ◦ Secondary market: a market where existing stocks are traded.  Types of stock investors ◦ Institutional investors: professionals who are responsible for investing the money of a financial institution on behalf of their clients ◦ Portfolio managers: employees of financial institutions who make investment decisions
  23. 23. ◦ Individual investors: individuals who invest a portion of their own money. ◦ Day traders: investors who buy stocks and then sell them on the same day.  Bonds  Return from investing in bonds is in the form of coupon payments and price appreciation.  Mutual Funds  Return from investing in mutual funds comes from coupon or dividend payments generated by the portfolio of the fund.  Publicly traded indexes: Securities whose values move in tandem with a particular stock index representing a set of stocks.  One of the most popular is the Standard & Poor’s Depository Receipt (S.P.D.R, also called Spider)
  24. 24.  Real estate ◦ Buying a home or purchasing rental property or land ◦ Return from investing in real estate comes in the form of rent payments and selling the property for a higher price than paid for it
  25. 25. Safety: Every investor wants to be insured of the safety of principle amount which he is investing. An ideal investment programme must be consistent with the objectives preferences and constraints of the investor. To minimize risk and to ensure safety , the investor should diversify his investment Liquidity: Investor must insure a minimum liquidity in his investment to meet contingencies. The investor should keep a part of his total investment in the form of readily saleable securities. Regularity and stability of income: Regularity of income at a stable and consistent rate is essential in investment programme.
  26. 26. Stability of purchasing power: Investors should balance their investment programmes to fight against any purchasing power instability. Any rational investor knows that money is losing its value by the extent of rise in prices. Capital appreciation: The ideal growth stock is the right issue in the right industry bought at the right time. The investor should try and forecast which securities will appreciate in future. Tax benefits: The investor should plan their investment in such a way that the tax liability is minimum. Investor should concerned about the return on investment as well as the burden of taxes on such investment.
  27. 27.  Legality: Investor should aware of the various legal provisions relating to the purchase of investment. The safest way to invest in securities issued by UTI, NSC etc.  Tangibility: Most of investor prefer to keep a part of their money invested in tangible securities such as building machinery etc. Tangible property does not yield income, the only satisfaction is the pride of possession.
  28. 28. Thank You

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