2. Lecture outline:
Meaning of investment.
Financial and Economic meaning of
investment.
Characteristics of Investment.
Objectives of investment.
Investment vs. Speculation.
Types of Investment.
3. Meaning of Investment:
A commitment of funds made in the
expectation of some positive rate of return.
Cases:
If one person has advanced some money to
another, he may consider loan as investment, he
expects to get back the money along with
interest.
A person who purchase one kilogram of gold for the
purpose of price appreciation and may consider s
investment.
A person who purchase the insurance plan for the
various benefits its promises in the future
4. Financial and Economic meaning
of investment:
In finance, the investment is commitment of a
person’s funds to drive future income, like;
Interest
Dividend
Premium
Pension Benefits
Appreciation in their capital.(Financial Assets)
In Economics, Investment in net additions to the
economy’s capital stock which is consist of goods and
services that are used in the production of others
goods and services. Like;
New Construction.
Plant and Machinery.
Inventories. (Physical Assets)
5. Characteristics of Investment
Return:
The return may be received in the form of yield
plus capital appreciation.
Risk:
The longer the maturity period, the larger is the
risk.
The lower credit worthiness of the borrower, the
higher is the risk.
The risk varies with the nature of investment.
Equity shares carry high risk compared to the
investment in debt investment like debenture an
bonds.
6. Cont:
Safety:
Every investor want their return without delay and
loss.
Liquidity:
An investment which is easily saleable in market
without any loss of time. Some investment
instruments like company deposits, bank
deposits, are not marketable. Some investments
are marketable like preference shares,
debentures are marketable, but there is no any
buyer. But equity shares of companies listed on
stock exchange are easily marketable through the
stock exchange.
10. Investment Avenues
Corporate securities.
Deposits in banking and non banking
companies.
Mutual funds scheme.
Post office deposits and certificate.
Life insurance policies.
Government and semi government securities.
11. Investment Avenues
Corporate Securities: are the securities
issued by joint stock companies in the private
sectors. These include equity shares,
preference shares and debentures. Equity
share have variable dividend and hence
belong to the high risk, high return category,
while preference shares and debentures have
fixed return with lower risk.
12. Investment Avenues
Deposit: Among the non corporative
investments, the most popular are deposits
with banks such as savings accounts and fixed
accounts. Saving accounts has low interest
rates where as fixed account has high interest
rates.
Mutual Funds: Mutual funds offers various
schemes to investors, a number of commercial
banks and financial institutions have set up
mutual funds. Recently mutual funds have
been set up in the private sectors also.
13. Investment Avenues
Post office deposits and certificates: This
avenues are generally non marketable.
Moreover the major investments in post office
enjoy tax concession also. Post office accepts
saving deposits and fixed deposits from the
public, six year national saving certificates are
issued by post offices to investors. The interest
on amount invested is compounded half yearly
and is payable along with the principal at the
time of maturity.
14. Investment Avenues
Life insurance policy: The life insurance corporation
offers many investment schemes to investors. These
schemes have the additional facility of life insurance
cover.
Provident Funds scheme: provident fund scheme
are compulsory deposit scheme applicable to
employees of public and private sectors.
Government and non- government securities: the
government an semi government like the public
sectors undertaking borrow money from the public
through the issue of government securities and public
sectors bonds. These are less risky avenue of
investment because of government undertaking.
