Definition• It is the employment of funds on assets with the aim of earning income or capital appreciation.• And it is the net additions to the capital stock of society.• Financial investment is the allocation of money to assets that are expected to yield some gain over a period of time.
Speculation• It means taking up a business risk in the hope of getting short term gain.• Speculation essentially involves buying and selling activities with the expectation of getting profit from the price fluctuations.
Investment objectives.1 Return : Always expect a good rate of return from the investment.• R = End period value-Beginning period value + Dividend/ Beginning period value* 1002 Risk : Risk of holding securities is related with the probability of actual return becoming less than the expected return.
3 Liquidity : Marketability of the investment provides liquidity to the investment.• It depends up on the marketing and trading facility.4 Hedge against inflation : The return rate should be higher than the rate of inflation.
5 Safety : The selected investment avenue should be under the legal and regulatory frame work.
Investment processInvestment policy Analysis Valuation Portfolio construction Portfolio evaluationInvestible fund Market Intrinsic value Diversification Appraisal Objectives Industry Future value Selection and allocation RevisionKnowledge Company
B Non marketable• Bank deposits• LIC policies• Provident fundII Other Investments• Real estate• Precious objects
• Equity shares: Units of the share capital of a company which are divided in to smaller denominations for enabling the public to participate in the venture.• Bonds : Debt instruments which represents the long term borrowing of the company . Issuer of the bond promises to pay an interest payment for a stipulated time period.• Money market instruments : Debt instruments, Which have a maturity less than one year period are called MMI.• Mutual funds : Individual investors instead of trading securities directly, entrust the funds to the investment companies that purchase securities on their behalf.
• Financial derivatives : It is an instrument which derives its value from an underlying asset.