It describes the concept of investment

1. Portfolio Management
Dr Aloysius Edward J
Dean, Faculty of Commerce and
Management
Kristu Jayanti College, Autonomous
Bangalore

2. Portfolio Management
Course Outcomes
1. Attributes of Investment and its
different avenues
2. Calculation of return and measurement of risk
of individual stocks and portfolio
3. Optimisation of return and risk
4. Examine the best portfolio (mutual funds)

3. Session Outcome
 Introduction to Concept of investment
 investment Vs. speculation
 investment attributes/investment objectives
 investment process
 Market Indices
 Credit rating agencies

4. INTRODUCTION
 Investing in various types of assets is an
interesting activity that attracts people from all
walks of life.
 Potential investor is one who has more money
than he requires for consumption. The investor
who is having extra cash could invest it in
securities or in any other assets like gold or real
estate or could simply deposit in his bank account.
All of these activities in a broader sense mean
investment.

5. INVESTMENT
 It is the employment of funds on assets with the
aim of earning income or capital appreciation.
 An investment is a sacrifice of current money or
other resource for future benefits. Present
consumption is sacrificed to get a return in the
future.
 Investment has two attributes : TIME AND RISK
 Risk means possibility of incurring a loss in a
financial transaction. In other words, the
SACRIFICE takes place now and is CERTAIN.
The BENEFIT is expected in the future and tends
to be UNCERTAIN. It indicates RISK.

6. Investment
 The risk undertaken with a view to reap some
return from the investment.
 TIME : the essential quality of investment is that
it involves WAITING for a REWARD.
 Ex: Is flat or house purchasing an investment ?
 In short, investment is the employment of funds
with the aim of achieving additional income or
growth in value.

7. Concepts of Investment
 1. Economic investment
 2. investment in general which is meant by ‘the
man on the street’
 3. Financial investment.
 1. To the economist, investment is the net addition
made to the nation’s capital stock that consist of
goods and services that are used in the production
process.
 A net addition to capital stock means an increase
in the buildings, equipment or inventories. These
capital stocks are used to produce other goods and
services.

8. Concepts of Investment
 2. For layman, it means money commitment of
some sort. Ex. A commitment of money to buy a
new car. It does not involve financial return and
nor capital growth.
 3. ( what we are concerned with ) Financial
investment is the allocation of money to assets that
are expected to yield some GAIN over a period of
time.
 They are expected to yield returns and experience
capital growth over the years.

9. Concepts of Investment
 It ranges from safe investments to risky
investments.
 Bank deposits - safety investments ( return is low)
 Govt. bonds - moderate risky investments (
moderate return)
 Equity share and mutual funds – highly risky
investments ( high returns)

10. PORTFOLIO and Portfolio
Management
 Portfolio is a combination of securities. It is likely
to comprise financial assets ( bank deposits, bonds,
stocks and so on) and real assets ( motor cycle,
house etc)
 Portfolio is constructed in such a manner to meet
the investor’s goals and objectives. The investor
tries to attain MAXIMUM RETURN with
MINIMUM RISK.
 Towards this end he diversifies this portfolio and
allocates funds among the securities –
diversification of risk. ( 2 eggs each in 5 baskets
instead of 10 eggs in one basket)

11. Portfolio Management
 Portfolio analysis : takes the ingredient of RISK
and RETURN for individual securities and
considers blending effect of combining securities.
 Portfolio management is the dynamic function of
evaluating and revising the portfolio in terms of
investor objectives.

12. Investment Attributes
 Return
 Risk
 Marketability – ( Depth, Breadth and
Resilience)
 Tax shelter
 Convenience

13. INVESTMENT VS SPECULATION
 Speculation means taking up the business risk in
the hope of getting short term gain.
 It essentially involves buying and selling financial
assets with the expectation of getting profit from
the price fluctuations.
 The dividing line between speculation and
investment is very thin because people buy stocks
for dividends and capital appreciation.

14. Point of
difference
Investment Speculation
RISK It involves
limited risk
and is
confined to
those
avenues
where the
principal is
safe.
It involves
high risk.
Ordinarily a
speculator
assumes
high risk.

15. Capital
gain/principal
appreciation
If the purchase
of securities is
preceded by
proper
investigation
and analysis
and review to
receive a stable
returns over a
period of time
it is investment
If the motive is
primarily to
achieve profits
through price
changes it is
speculation.
Thus buying low
and selling high
makes capital
gain associated
with speculation

16. TIME It has a
relatively longer
planning
horizon. Its
holding period is
usually at least
one year.
It has a very
short planning
horizon. A short
term holding is
associated with
trading for the
quick return is
called
speculation.
BASIS FOR
DECISIONS
It relates to
careful
evaluation of
the prospects of
the firm.,
It relies more
on hearsay and
market
behaviour.

17. LEVERAGE Investment is
made from
investor’s own
funds and
investor usually
avoids borrowed
funds
Speculator uses
borrowed funds
to supplement
his personal
resources.

18.  Investment and speculation are a planning
of existing risk. Investment is a ‘well
grounded and carefully planned
speculation.’