This document discusses types of investments in Uganda, including financial investments, induced investments, real investments, autonomous investments, and planned investments. It also defines gross investment and net investment. Investment banking is described as assisting individuals, corporations, and governments in raising capital through underwriting and securities issuance. Fixed income securities like bonds are then explained in detail, including the components of a bond like principal, bid price, interest, and market price. How market interest rates can affect existing bond prices is also summarized.
This document discusses mutual funds, pension funds, and mortgage financing. It defines mutual funds as investments that pool money from many investors to purchase securities. The main benefits of mutual funds are diversification and professional management. Pension funds accumulate over a worker's career through contributions and investment returns. They can be defined-benefit plans where employers guarantee payments, or defined-contribution plans where benefits depend on accumulated contributions. Mortgages are loans used to purchase property, secured by the property. Financial institutions originate mortgages and may retain or sell them in mortgage markets.
Investment Analysis and Portfolio ManagementBabasab Patil
This document summarizes key points about investment analysis and portfolio management. It discusses the module website resources, gains and losses from past investments, markets and security types, brokers, returns and risks, and the investment process. The essential topics covered are types of markets and securities, factors that influence investment returns and risks, and the basic steps in analyzing investments and constructing a portfolio.
This document provides an overview of various investment avenues in India including securities, fixed income securities, government securities, money market instruments, deposits, postal schemes, insurance, real estate, and precious metals. It describes the key characteristics of stocks, bonds, mutual funds, bank deposits, post office savings schemes, life insurance policies, real estate, and other assets. The document aims to educate investors on their options for investment, savings, and risk management.
The document defines investment and discusses it from several perspectives. It is generally defined as applying money to earn more money in the future. In finance, investment refers to purchasing a financial product or asset to earn future returns. In business, it means purchasing physical goods like equipment to improve future operations. Economics views investment as utilizing resources today to increase income or output tomorrow. Real investments purchase physical capital while financial investments purchase contracts. The key aspects of investment discussed are risk, return, time horizon, liquidity, and types of financial assets.
The document discusses various investment alternatives available to investors. It covers financial investments such as mutual funds, bonds, stocks, deposits etc. It also discusses non-financial investments such as real estate and precious metals. Specific government saving schemes like post office deposits, public provident fund etc. are explained. Money market instruments and their types including treasury bills, commercial paper and repos are defined. Key features of bonds, stocks and mutual funds are highlighted. Insurance products and retirement plans are also summarized.
18 years
Wife: 25 years
3. Expected income growth rate: 10%
4. Inflation rate: 7%
5. Life expectancy: 80 years
Calculation:
1. Current annual income: Rs. 6,00,000
2. Income after 18 years (when child becomes independent): Rs. 16,00,000 (considering 10% annual growth)
3. Income needed after 18 years adjusted for inflation: Rs. 35,00,000 (considering 7% annual inflation)
4. Number of years of income needed after child becomes independent: 62 years (80 years - 18 years)
5. Total income needed: Rs. 35,00,000
This document discusses mutual funds, pension funds, and mortgage financing. It defines mutual funds as investments that pool money from many investors to purchase securities. The main benefits of mutual funds are diversification and professional management. Pension funds accumulate over a worker's career through contributions and investment returns. They can be defined-benefit plans where employers guarantee payments, or defined-contribution plans where benefits depend on accumulated contributions. Mortgages are loans used to purchase property, secured by the property. Financial institutions originate mortgages and may retain or sell them in mortgage markets.
Investment Analysis and Portfolio ManagementBabasab Patil
This document summarizes key points about investment analysis and portfolio management. It discusses the module website resources, gains and losses from past investments, markets and security types, brokers, returns and risks, and the investment process. The essential topics covered are types of markets and securities, factors that influence investment returns and risks, and the basic steps in analyzing investments and constructing a portfolio.
This document provides an overview of various investment avenues in India including securities, fixed income securities, government securities, money market instruments, deposits, postal schemes, insurance, real estate, and precious metals. It describes the key characteristics of stocks, bonds, mutual funds, bank deposits, post office savings schemes, life insurance policies, real estate, and other assets. The document aims to educate investors on their options for investment, savings, and risk management.
The document defines investment and discusses it from several perspectives. It is generally defined as applying money to earn more money in the future. In finance, investment refers to purchasing a financial product or asset to earn future returns. In business, it means purchasing physical goods like equipment to improve future operations. Economics views investment as utilizing resources today to increase income or output tomorrow. Real investments purchase physical capital while financial investments purchase contracts. The key aspects of investment discussed are risk, return, time horizon, liquidity, and types of financial assets.
The document discusses various investment alternatives available to investors. It covers financial investments such as mutual funds, bonds, stocks, deposits etc. It also discusses non-financial investments such as real estate and precious metals. Specific government saving schemes like post office deposits, public provident fund etc. are explained. Money market instruments and their types including treasury bills, commercial paper and repos are defined. Key features of bonds, stocks and mutual funds are highlighted. Insurance products and retirement plans are also summarized.
18 years
Wife: 25 years
3. Expected income growth rate: 10%
4. Inflation rate: 7%
5. Life expectancy: 80 years
Calculation:
1. Current annual income: Rs. 6,00,000
2. Income after 18 years (when child becomes independent): Rs. 16,00,000 (considering 10% annual growth)
3. Income needed after 18 years adjusted for inflation: Rs. 35,00,000 (considering 7% annual inflation)
4. Number of years of income needed after child becomes independent: 62 years (80 years - 18 years)
5. Total income needed: Rs. 35,00,000
Government securities are a type of investment issued by central, state, and semi-government authorities. There are two main types: promissory notes and stock certificates. Promissory notes are registered promises of the government that pay half-yearly interest and are highly liquid. Stock certificates cannot be transferred and investors keep them until maturity, with major purchasers being insurance and provident funds. Government securities have characteristics like low interest rates but are very safe investments with no risk of default. The Reserve Bank of India plays a key role in purchasing, selling, and maintaining price stability of these securities in the narrow government securities market.
The document discusses various topics related to investment including the meaning of investment, characteristics of investment like return, risk and safety, types of investments like securities, real property and tangible assets. It also discusses the difference between investment, speculation and gambling. Other topics covered include factors affecting investment, investment avenues in India like equity shares, bonds, money market instruments, mutual funds and life insurance. It also discusses the meaning of tax planning, objectives and essentials of tax planning.
This document provides an overview and learning goals for a lecture on interest rates and bonds. It discusses key concepts like the term structure of interest rates, bond yields, prices, and types. It also covers bond valuation basics, factors that influence interest rates, and theories of the term structure. Examples are provided to illustrate expectations theory and the impact of inflation on interest rates. The document reviews corporate bond features, costs, and ratings. Tables present bond characteristics, issuer risks, and rating scales.
1. The document discusses various investment avenues available to investors, including stocks, bonds, mutual funds, real estate, and more. It notes that investors have different objectives like safety, liquidity, and returns.
2. High net worth individuals are described as proactive in managing their investments and using diversification strategies. They look to new investment options and shift between asset classes like equities and fixed income based on market trends.
3. Emerging investment avenues for wealthy investors include managed funds, real estate, collectibles, precious metals, commodities, and alternative investments. Financial advisors must understand clients' special needs around tax planning, estate planning, education, and risk appetite.
Mutual funds allow investors to pool their money together for investment in stocks, bonds, and other assets. The document discusses various types of mutual funds like equity funds, debt funds, and hybrid funds. It explains how Systematic Investment Plans (SIPs) enable regular small investments and benefit from rupee cost averaging. Equity Linked Savings Schemes (ELSS) are highlighted as a tax-efficient investment option that provides tax benefits under Section 80C while also offering potential for capital appreciation over the long run. Well-planned investments through mutual funds and SIPs can help create wealth and meet financial goals.
The document discusses what investment is, why one should invest, when to start investing, and where to invest. It outlines various financial assets for short-term and long-term investment options such as stocks, mutual funds, bonds, debentures, and more. It also discusses stock exchanges, equity shares, debt instruments, securities, primary and secondary markets, and types of share issues.
This document defines and provides examples of different types of investments including stocks, bonds, mutual funds, real estate, and precious metals and stones. It discusses initial public offerings (IPO) which allow private companies to offer stock to the public. It also defines shares, bonds, debentures, fixed deposits, mutual funds, provident funds, and insurance as examples of financial instruments. Real estate investments can include residential homes, agricultural land, and commercial property. Precious objects for investment purposes include gold, silver, and precious stones. The document also presents the basic formula for personal finance that income minus expenditure equals savings.
The document discusses various investment alternatives and the investment process. It begins by defining investment and differentiating investment from speculation. It then discusses factors that make investments important like retirement planning, taxation, and inflation. The document outlines popular investment avenues in India like shares, bonds, mutual funds, insurance policies, and real estate. It also describes the stages of the investment process as developing an investment policy, analyzing investments, valuing securities, and constructing an investment portfolio. Key features of investment programs discussed include safety, liquidity, income stability, and appreciation.
Investment involves using money to purchase financial assets with the goal of earning a return in the future. It can include ownership of physical assets like property or machinery as well as financial assets such as stocks, bonds, and notes. Returns on investments come from dividends, capital gains, or interest payments and represent the profits or increased future value from the current monetary value. The document introduces the topic of investment management and defines key investment concepts.
1. The document provides an introduction to investments, discussing key concepts like primary and secondary markets, securities, and the objectives and process of investment.
2. It defines investment as the commitment of money or resources with the goal of earning future benefits. Individuals invest by saving money instead of spending it currently to gain larger consumption later.
3. The main objectives of investment are increasing returns, reducing risk, and providing liquidity, protection against inflation, and safety of capital. The investment process involves formulating a policy, analyzing opportunities, valuing assets, constructing a diversified portfolio, and regularly evaluating performance.
Investment avenues in India include savings bank accounts, fixed deposits, post office savings schemes, public provident funds, gold investments, and real estate. It is important for investors to diversify their investments across multiple avenues to achieve their financial goals and create a secondary source of income. Popular long-term options are public provident funds, which offer tax-free returns and interest over a 15-year period, and real estate, though investors should carefully consider the property's location when investing.
Investment management is a generic term that most commonly refers to the buying and selling of investments within a portfolio. Investment management can also include banking and budgeting duties, as well as taxes. The term most often refers to portfolio management and the trading of securities to achieve a specific investment objective.
Investment management – also referred to as money management, portfolio management or private banking – covers the professional management of different securities and assets, such as bonds, shares, real estate and other securities. Proper investment management aims to meet particular investment goals for the benefit of the investors. These investors may be individual investors – referred to as private investors – who have built investment contracts with fund managers, or institutional investors who may be pension fund corporations, governments, educational establishments or insurance companies.
Investment management services provide asset allocation, financial statement analysis, stock selection, monitoring of existing investments and plan implementation.
This document outlines the course Securities Analysis and Portfolio Management. The objectives of the course are to provide students with frameworks for evaluating investment avenues and managing funds. It will cover various financial instruments, markets, regulations, and portfolio management techniques. The course is divided into 6 units that will cover topics such as fixed income securities, security analysis methods, modern portfolio theories, and portfolio strategies. Students will learn to analyze investments and manage portfolios effectively.
Many alternative investments have limited regulations and complex natures, so they can be unsuitable for novice investors. High net worth or institutional investors are most likely to hold interests in alternative investments.
The document discusses various investment options including bonds, CDs, stocks, and mutual funds. It explains that people invest to earn money from their savings and promote economic growth. It also outlines the risks and returns associated with different investment types and advises diversifying investments to reduce risk.
The document describes various types of financial assets including money market securities like treasury bills, commercial paper, repurchase agreements, and bankers' acceptances. It also discusses fixed income securities like bonds and their characteristics. Additionally, it covers equity securities such as preferred stock, income trusts, and common stock. The document also briefly outlines derivative securities including options and futures.
investment options for retail investor when inflation s expected to isesowmya Sowmya
When inflation is expected to rise, retail investors should consider investments that protect the value of their money. Short-term options include savings accounts, money market funds, and bank fixed deposits of 6-12 months. Long-term options that provide tax benefits include post office savings schemes, the Public Provident Fund (PPF), and company fixed deposits. These investment options help retain purchasing power as inflation rises by providing stable returns and preserving capital value.
This document discusses various investment avenues available in India. It outlines essential features of investments such as safety, liquidity, income, growth, legality and tax implications. Some key investment alternatives mentioned include bank deposits, post office schemes, company fixed deposits, public provident fund, equity shares, bonds, money market instruments, financial derivatives, mutual funds, life insurance and real estate. The document provides brief descriptions of these different investment types.
A bank is an establishment authorized by the government to accept deposits, pay interest, make loans, act as an intermediary in financial transactions, and provide other financial services. Banks play an important role in a country's economic development by facilitating capital formation, supporting agricultural, trade, and industrial development, developing foreign trade, transferring liquidity, monetizing the economy, providing finance and credit, implementing monetary policy, and providing security for individual and organizational savings. People benefit from banking services like deposits, investments, loans, and other financial products.
This document provides an overview of various investment alternatives available to investors in India, grouped into negotiable instruments like equity shares, preference shares, debentures, bonds, and money market securities; fixed income securities like government securities and bank deposits; tax shelter saving schemes like PPF, NSS, and NSC; life insurance which provides protection, easy payments, liquidity, and tax relief; mutual funds which are open-ended or closed-ended and focused on growth, income, or balancing; and real assets like gold, silver, real estate, art, and antiques.
This document provides an overview of bonds as an investment option. It discusses the different types of bonds, including government bonds, corporate bonds, and municipal bonds. It also explains credit ratings and how they assess the risk of default. The document is aimed at educating investors about bonds and when they may be suitable to include in an investment portfolio across different life stages, from those just starting to invest to those in retirement. It promotes including bonds to provide diversification, security, and reliable income.
This document introduces some key concepts about investments including:
1) The reasons for investing include earning returns on idle resources, generating funds for specific goals, and providing for an uncertain future.
2) There are three main types of investments - economic, financial, and general investments.
3) Some important characteristics of investments are potential returns, risk level, safety, and liquidity.
4) There are several important reasons for individuals to invest, such as retirement planning, tax benefits, inflation protection, and income generation.
Government securities are a type of investment issued by central, state, and semi-government authorities. There are two main types: promissory notes and stock certificates. Promissory notes are registered promises of the government that pay half-yearly interest and are highly liquid. Stock certificates cannot be transferred and investors keep them until maturity, with major purchasers being insurance and provident funds. Government securities have characteristics like low interest rates but are very safe investments with no risk of default. The Reserve Bank of India plays a key role in purchasing, selling, and maintaining price stability of these securities in the narrow government securities market.
The document discusses various topics related to investment including the meaning of investment, characteristics of investment like return, risk and safety, types of investments like securities, real property and tangible assets. It also discusses the difference between investment, speculation and gambling. Other topics covered include factors affecting investment, investment avenues in India like equity shares, bonds, money market instruments, mutual funds and life insurance. It also discusses the meaning of tax planning, objectives and essentials of tax planning.
This document provides an overview and learning goals for a lecture on interest rates and bonds. It discusses key concepts like the term structure of interest rates, bond yields, prices, and types. It also covers bond valuation basics, factors that influence interest rates, and theories of the term structure. Examples are provided to illustrate expectations theory and the impact of inflation on interest rates. The document reviews corporate bond features, costs, and ratings. Tables present bond characteristics, issuer risks, and rating scales.
1. The document discusses various investment avenues available to investors, including stocks, bonds, mutual funds, real estate, and more. It notes that investors have different objectives like safety, liquidity, and returns.
2. High net worth individuals are described as proactive in managing their investments and using diversification strategies. They look to new investment options and shift between asset classes like equities and fixed income based on market trends.
3. Emerging investment avenues for wealthy investors include managed funds, real estate, collectibles, precious metals, commodities, and alternative investments. Financial advisors must understand clients' special needs around tax planning, estate planning, education, and risk appetite.
Mutual funds allow investors to pool their money together for investment in stocks, bonds, and other assets. The document discusses various types of mutual funds like equity funds, debt funds, and hybrid funds. It explains how Systematic Investment Plans (SIPs) enable regular small investments and benefit from rupee cost averaging. Equity Linked Savings Schemes (ELSS) are highlighted as a tax-efficient investment option that provides tax benefits under Section 80C while also offering potential for capital appreciation over the long run. Well-planned investments through mutual funds and SIPs can help create wealth and meet financial goals.
The document discusses what investment is, why one should invest, when to start investing, and where to invest. It outlines various financial assets for short-term and long-term investment options such as stocks, mutual funds, bonds, debentures, and more. It also discusses stock exchanges, equity shares, debt instruments, securities, primary and secondary markets, and types of share issues.
This document defines and provides examples of different types of investments including stocks, bonds, mutual funds, real estate, and precious metals and stones. It discusses initial public offerings (IPO) which allow private companies to offer stock to the public. It also defines shares, bonds, debentures, fixed deposits, mutual funds, provident funds, and insurance as examples of financial instruments. Real estate investments can include residential homes, agricultural land, and commercial property. Precious objects for investment purposes include gold, silver, and precious stones. The document also presents the basic formula for personal finance that income minus expenditure equals savings.
The document discusses various investment alternatives and the investment process. It begins by defining investment and differentiating investment from speculation. It then discusses factors that make investments important like retirement planning, taxation, and inflation. The document outlines popular investment avenues in India like shares, bonds, mutual funds, insurance policies, and real estate. It also describes the stages of the investment process as developing an investment policy, analyzing investments, valuing securities, and constructing an investment portfolio. Key features of investment programs discussed include safety, liquidity, income stability, and appreciation.
Investment involves using money to purchase financial assets with the goal of earning a return in the future. It can include ownership of physical assets like property or machinery as well as financial assets such as stocks, bonds, and notes. Returns on investments come from dividends, capital gains, or interest payments and represent the profits or increased future value from the current monetary value. The document introduces the topic of investment management and defines key investment concepts.
1. The document provides an introduction to investments, discussing key concepts like primary and secondary markets, securities, and the objectives and process of investment.
2. It defines investment as the commitment of money or resources with the goal of earning future benefits. Individuals invest by saving money instead of spending it currently to gain larger consumption later.
3. The main objectives of investment are increasing returns, reducing risk, and providing liquidity, protection against inflation, and safety of capital. The investment process involves formulating a policy, analyzing opportunities, valuing assets, constructing a diversified portfolio, and regularly evaluating performance.
Investment avenues in India include savings bank accounts, fixed deposits, post office savings schemes, public provident funds, gold investments, and real estate. It is important for investors to diversify their investments across multiple avenues to achieve their financial goals and create a secondary source of income. Popular long-term options are public provident funds, which offer tax-free returns and interest over a 15-year period, and real estate, though investors should carefully consider the property's location when investing.
Investment management is a generic term that most commonly refers to the buying and selling of investments within a portfolio. Investment management can also include banking and budgeting duties, as well as taxes. The term most often refers to portfolio management and the trading of securities to achieve a specific investment objective.
Investment management – also referred to as money management, portfolio management or private banking – covers the professional management of different securities and assets, such as bonds, shares, real estate and other securities. Proper investment management aims to meet particular investment goals for the benefit of the investors. These investors may be individual investors – referred to as private investors – who have built investment contracts with fund managers, or institutional investors who may be pension fund corporations, governments, educational establishments or insurance companies.
Investment management services provide asset allocation, financial statement analysis, stock selection, monitoring of existing investments and plan implementation.
This document outlines the course Securities Analysis and Portfolio Management. The objectives of the course are to provide students with frameworks for evaluating investment avenues and managing funds. It will cover various financial instruments, markets, regulations, and portfolio management techniques. The course is divided into 6 units that will cover topics such as fixed income securities, security analysis methods, modern portfolio theories, and portfolio strategies. Students will learn to analyze investments and manage portfolios effectively.
Many alternative investments have limited regulations and complex natures, so they can be unsuitable for novice investors. High net worth or institutional investors are most likely to hold interests in alternative investments.
The document discusses various investment options including bonds, CDs, stocks, and mutual funds. It explains that people invest to earn money from their savings and promote economic growth. It also outlines the risks and returns associated with different investment types and advises diversifying investments to reduce risk.
The document describes various types of financial assets including money market securities like treasury bills, commercial paper, repurchase agreements, and bankers' acceptances. It also discusses fixed income securities like bonds and their characteristics. Additionally, it covers equity securities such as preferred stock, income trusts, and common stock. The document also briefly outlines derivative securities including options and futures.
investment options for retail investor when inflation s expected to isesowmya Sowmya
When inflation is expected to rise, retail investors should consider investments that protect the value of their money. Short-term options include savings accounts, money market funds, and bank fixed deposits of 6-12 months. Long-term options that provide tax benefits include post office savings schemes, the Public Provident Fund (PPF), and company fixed deposits. These investment options help retain purchasing power as inflation rises by providing stable returns and preserving capital value.
This document discusses various investment avenues available in India. It outlines essential features of investments such as safety, liquidity, income, growth, legality and tax implications. Some key investment alternatives mentioned include bank deposits, post office schemes, company fixed deposits, public provident fund, equity shares, bonds, money market instruments, financial derivatives, mutual funds, life insurance and real estate. The document provides brief descriptions of these different investment types.
A bank is an establishment authorized by the government to accept deposits, pay interest, make loans, act as an intermediary in financial transactions, and provide other financial services. Banks play an important role in a country's economic development by facilitating capital formation, supporting agricultural, trade, and industrial development, developing foreign trade, transferring liquidity, monetizing the economy, providing finance and credit, implementing monetary policy, and providing security for individual and organizational savings. People benefit from banking services like deposits, investments, loans, and other financial products.
This document provides an overview of various investment alternatives available to investors in India, grouped into negotiable instruments like equity shares, preference shares, debentures, bonds, and money market securities; fixed income securities like government securities and bank deposits; tax shelter saving schemes like PPF, NSS, and NSC; life insurance which provides protection, easy payments, liquidity, and tax relief; mutual funds which are open-ended or closed-ended and focused on growth, income, or balancing; and real assets like gold, silver, real estate, art, and antiques.
This document provides an overview of bonds as an investment option. It discusses the different types of bonds, including government bonds, corporate bonds, and municipal bonds. It also explains credit ratings and how they assess the risk of default. The document is aimed at educating investors about bonds and when they may be suitable to include in an investment portfolio across different life stages, from those just starting to invest to those in retirement. It promotes including bonds to provide diversification, security, and reliable income.
This document introduces some key concepts about investments including:
1) The reasons for investing include earning returns on idle resources, generating funds for specific goals, and providing for an uncertain future.
2) There are three main types of investments - economic, financial, and general investments.
3) Some important characteristics of investments are potential returns, risk level, safety, and liquidity.
4) There are several important reasons for individuals to invest, such as retirement planning, tax benefits, inflation protection, and income generation.
This document discusses different types of investments and provides an overview of mutual funds. It defines mutual funds as a trust that pools savings from investors with a common financial goal and invests it in stocks, bonds, and other securities. The document then discusses different types of mutual funds categorized by maturity period (open-ended or close-ended), investment objective (growth, income, balanced, etc.), and sector focus. It also outlines key terms related to mutual funds like NAV, load, portfolio, and expense ratio. Finally, it discusses the growth of the mutual fund industry in India and options for investing in mutual funds online or offline.
This document discusses mutual funds and different types of investments. It begins by defining mutual funds and their structure in India. It then discusses different types of mutual funds categorized by maturity period (open-ended or close-ended) and investment objective (growth, income, balanced, etc.). The document also covers basic terms related to mutual funds, trends in the Indian mutual fund industry, and how to invest in mutual funds online or offline.
Investment is defined as committing funds for a period of time in order to derive future payments that compensate for the time committed, expected inflation, and uncertainty. An investor has several investment alternatives including shares, bonds, bank deposits, mutual funds, life insurance, real estate, gold/silver, commodities, and derivatives. Shares represent ownership in a company and offer higher returns but also higher risk since prices fluctuate daily. Bonds are lower risk as they represent loans that pay fixed interest, but returns are also typically lower. Bank deposits provide liquidity but generally the lowest returns of the options.
This document discusses intermediate term financing. It defines intermediate term as between 1-7 years. It notes the characteristics of intermediate term financing include maturity of 1-5 years, typically for machinery or expansion. Sources include commercial banks, insurance companies, and leasing firms. Cost is higher than short term but lower than long term financing. Types of intermediate financing discussed include bank term loans, revolving credit, and equipment financing. Methods of repayment include the balloon method, where the principal is due at the end of the term, and the capital recovery method, where installments include principal and interest payments. An example problem calculates the costs and effective interest rates of revolving credit and a term loan.
BONDS GUIDE
Considered by many to be a vital element in any financial plan, bonds can be used to help you grow your wealth.
In this bonds guide we take a look at financial bonds: explaining how bonds work; the vital factors you should consider before making bonds investments; and strategies to consider when making bond investments.
Investment is the deployment of funds with the goal of generating income or capital gains in the future. There are several types of investment including financial investment in securities, real investment in capital goods, autonomous investment that remains constant, and induced investment that changes with income levels. The marginal efficiency of capital determines the expected return on investment projects and is influenced by interest rates - lower rates make investment more attractive by reducing borrowing costs. Factors that can shift the marginal efficiency of capital schedule include changes in demand, costs, technology, business confidence, and the supply of finance.
The document discusses several topics related to finance and investing, including:
1) It provides an overview of recent developments in the Indian stock market and new financial products approved by SEBI.
2) It discusses securitization and how it allows the conversion of existing or future cash flows into marketable securities.
3) It defines what a hedge fund is and how they charge various fees including management and incentive fees.
The document discusses several topics related to finance and banking including:
1) SEBI approved new derivatives products in India to attract more domestic investors. BSE and NSE indices rose and the dollar and gold prices were stable.
2) Securitization is the process of converting existing assets or future cash flows into marketable securities like bonds. This allows companies to raise funds.
3) Hedge funds charge management and incentive fees and seek returns with low correlation to stocks and bonds. They have more flexible regulations than mutual funds.
This document provides an introduction to investments, including definitions, objectives of investment, types of investments, and characteristics of investments. It defines investment as committing funds with the goal of deriving future income or appreciation. The main objectives are future consumption, hedging against inflation, and compensation for sacrifice, inflation, and risk. Investments are categorized as growth investments like shares and property, which aim for capital appreciation, and defensive investments like cash and fixed interest, which prioritize income stability and safety of principal.
This document provides an introduction to investments, including the concepts of investment, financial instruments like stocks, bonds, mutual funds, and non-financial instruments. It defines key terms like common stock, preferred stock, callable bonds, convertible bonds, and bond valuation. Examples are given to illustrate calculating discount on bonds when market price is lower than face value and premium on bonds when market price is higher.
This document discusses accounting for non-current liabilities, specifically bonds payable. It defines bonds and their key features, such as secured vs unsecured bonds, term vs serial bonds, and convertible vs callable bonds. It explains how bonds are issued, including authorization by the board of directors, setting the face value and interest rate in an indenture. It discusses how bond prices are determined based on present value calculations using future cash flows, maturity date, and market interest rates. Journal entries are made when bonds are originally issued, to record periodic interest payments, and when bonds are repurchased.
The document provides an overview of various investment avenues available in the current financial year. It discusses key concepts like inflation, risk profiling of investors, and strategies for robust investment and financial planning. The objectives are to understand different asset classes and products, and elicit an in-depth coverage of major investment avenues and their performance over the past couple of years to arrive at an optimal asset allocation keeping in mind risk appetite and investment goals. Key investment avenues discussed include equity, debt, mutual funds, real estate, commodities, and more.
The document provides an overview of financial markets and investment options. It defines key terms like investment, interest, stocks, bonds, mutual funds, and stock exchanges. It explains why investing is important to earn returns and beat inflation. It also outlines various short-term and long-term financial investment options and factors to consider when selecting investments.
This document provides an overview of investments. It defines an investment as a commitment of funds made with the expectation of a positive return. The document discusses the financial and economic meanings of investment. It also outlines the key characteristics of investments such as return, risk, safety, and liquidity. The objectives of investment are described as maximizing return while minimizing risk and hedging against inflation. The differences between investments and speculations are explained in terms of risk, capital gains, and time period. Various types and avenues of investments are also presented, including corporate securities, deposits, mutual funds, government securities, life insurance policies, and provident funds.
The document discusses stocks and bonds as the two main types of marketable securities, noting that while they have some similarities as financial instruments that enable investment, they differ significantly in aspects such as ownership structure, cash flow predictability, and risk level. Stocks represent ownership in a company and have uncertain dividends and capital appreciation, while bonds are essentially loans that guarantee periodic interest payments and return of principal, making them generally less risky than stocks.
Mutual funds provide a way for investors to achieve diversification and professional management of their investments. They pool money from individual investors and invest it in a variety of securities like stocks, bonds and money market instruments. This allows even small investors to hold a diversified portfolio. Mutual funds offer various advantages like liquidity, convenience and transparency. However, they also charge fees and expenses and do not allow as much control over investments as direct investing. There are different types of mutual funds categorized by whether they invest in stocks, bonds or money market instruments as well as by their investment objectives like growth, income or capital preservation.
How Wealthy People Use Professional Money Managementfreddysaamy
http://ekinsurance.com/financial/money-management/
Just as surgeons don't operate on themselves, wealthy people usually do not invest their own money. They have investment professionals manage their money for them.
The document discusses Uganda's financial services sector. It describes the four tiers of financial institutions in Uganda: (1) commercial banks that take deposits and make loans; (2) credit institutions that also take deposits and make loans; (3) microdeposit-taking institutions (MDIs) that accept small deposits and make small loans; and (4) unregulated institutions like SACCOs that make loans but do not accept deposits. It then provides examples of institutions that fall into each tier and describes their distinguishing characteristics and regulations.
The document discusses Uganda's financial services sector. It begins with a historical overview of banking in Uganda, from the initial four commercial banks at independence to periods of economic breakdown and reforms. It then describes the structure of Uganda's financial sector, including the roles of various institutions such as commercial banks, development banks, microfinance organizations, and the Bank of Uganda as regulator. The informal financial sector is also briefly outlined.
This document provides an overview of key Ugandan laws that regulate banking and financial services. It discusses the Financial Institutions Act of 2004, which guides the operation of banks and non-banks and aims to maintain confidence in the financial system. It also covers the Bank of Uganda Act of 2000, which gives the central bank authority to supervise financial institutions. Additional acts discussed include the Bills of Exchange Act regarding negotiable instruments, and the Micro Finance Deposit-Taking Institutions Act of 2003 concerning the regulation of microfinance institutions. The conclusion emphasizes that bankers must understand and conform to relevant legislation in order to properly perform their daily tasks.
This document discusses contract law and its importance in banking. It covers the following key points:
- Contract law is central to banking as banks enter into many contracts with customers for services like opening accounts and providing loans.
- The essential elements of a valid contract are an agreement between parties involving an offer, acceptance, and consideration.
- For a contract to be enforceable it must also meet additional requirements around legality, capacity, consent, and formalities.
- Breach of contract occurs when one party fails to perform according to the terms and the injured party can sue for damages. This is important in banking when mistakes are made processing items like checks.
This document provides an overview of the legal environment module for the Uganda Institute of Banking & Financial Services. It discusses the sources of law relating to financial institutions, including acts of parliament, statutes, and legal principles. It also covers specific topics like contract law, negotiable instruments, and the relationship between banks and their customers. The role of legislation in regulating the banking sector is explained, along with key concepts like the definition of law, the classification of law into public and civil components, and the "Code of Banking" which comprises established practice rules for the industry.
The document discusses the banker-customer relationship under contract law. It defines key terms like banker, customer, and bank. A banker is defined as someone who carries out the business of banking like accepting deposits and honoring checks. A customer is anyone who uses a bank's services, including those without an account. The relationship is a contractual one, with implied rights and duties. Rights of bankers include charging fees and interest, while duties include keeping information confidential and honoring valid checks. The contract can end through termination by either party, by operation of law like death, or after reasonable notice from the bank.
This document discusses the banker-customer relationship under contract law in Uganda. It begins by defining key terms like "banker", "customer", and "banking". A banker is defined as someone who carries out the business of banking, such as accepting deposits and honoring withdrawals. A customer is anyone who enters an agreement with a bank for services.
The relationship between a banker and customer is described as contractual, with implied rights and duties. General contract law principles apply. When opening an account, banks must verify a customer's identity and obtain signatures or mandates authorizing transactions. Both bankers and customers have legal rights and duties in the contract, such as bankers having the right to charge fees and customers having the duty to
This document discusses negotiable instruments and bank cheques. It defines negotiable instruments as documents used in commerce to secure payment of money. Cheques are specifically defined as written promises by the drawer for the bank to pay the payee on demand. The key parties to a cheque are the drawer, drawee (bank) and payee. Features of a cheque include the cheque number, sort code, account number and crossing lines instructing the bank to deposit funds in the payee's account rather than paying in cash. Negotiable instruments must bear the maker's signature, include an unconditional promise to pay a fixed sum, specify a payment on demand or at a definite time, and be payable to order or to bear
This document discusses pricing mechanisms and concepts from an economics perspective. It defines pricing as the process of determining the cost for goods and services based on factors like production costs, competition and demand. It then describes price mechanisms as how buyers and sellers negotiate prices based on supply and demand through mutual exchanges. Finally, it outlines three key functions of price mechanisms: 1) they act as signals to producers about supply and demand, 2) they transmit consumer preferences to producers, and 3) they provide incentives for producers and consumers to change their behavior in response to price changes.
Banks play an important role in the economy by serving as financial intermediaries. They accept deposits from savers and pool those funds to provide credit to borrowers, either directly through lending or indirectly by investing in capital markets. This transfers funds from those with surplus money to invest to those who need to borrow funds. Commercial banks also facilitate national and international trade by transferring funds, which is key to the functioning of the economy. Banks include central banks that implement monetary policy, commercial banks that accept deposits and provide credit, savings banks for lower income savers, and development banks that lend to new businesses.
This document discusses environmental conservation and its relationship to economics. It begins by defining economics and the environment. It then outlines global trends in increasing priority given to environmental protection, including frameworks like the UNFCC and Kyoto Protocol. For Uganda specifically, the document notes that environmental sustainability is a strategic objective in development plans but the country has not performed well on related MDG measures. It emphasizes that Uganda's prosperity relies on biodiversity that faces threats. Finally, it describes the interrelationship between the environment and economics, noting the environment supplies resources and economic prosperity relies on it.
The document discusses international trade and regional economic integration in Africa. It provides details on several major regional economic communities in Africa, including COMESA and the East African Community (EAC). COMESA aims to promote economic development and trade by removing barriers between member states. Its goals include establishing a free trade area and eventually a common market and monetary union. The EAC also seeks to deepen economic and political integration between its members through cooperation in areas like trade, infrastructure, and security. Both organizations aim to boost intra-regional trade and investment through gradual economic harmonization and coordination between states.
The document discusses the role of government in regulating economic activity and maintaining stable market conditions. It describes how governments establish legal frameworks, regulate industries like banking, implement fiscal and monetary policies to influence economic growth and inflation, redistribute resources, and address externalities. Specifically, it outlines the government's role in regulating general business interactions and specific industries, using policies like taxation and money supply management to guide economic stabilization, and providing services that markets do not.
The document discusses different types of business organizations including sole proprietorships, partnerships, limited liability companies, and cooperatives. It provides details on the key advantages and disadvantages of each type. Sole proprietorships are easy to establish but the owner bears all financial risks, while partnerships allow for more capital but partners have unlimited liability. Limited liability companies provide protection of personal assets but involve more legal formalities. Cooperatives make it easier to raise capital from members but with less personal control over business decisions.
This document discusses inflation, including its definition, causes, effects, and methods of control. Inflation is defined as a rise in the general level of prices for goods and services in an economy over time, which causes a loss of purchasing power. Common causes of inflation include increases in production costs, demand, money supply, and imported goods prices. Effects can be both positive, like encouraging investment, and negative, like uncertainty reducing investment. Controlling inflation involves monetary policy through central banks targeting low interest and inflation rates.
This document provides an overview of key economic concepts and the economic environment. It begins by explaining the objectives of the module which are to explain the economic environment, basic economic concepts, micro and macroeconomics, and different economic situations and their causes. It then defines several important economic terms and concepts such as scarcity, resources, supply, demand, market equilibrium, production, cost, efficiency, and opportunity cost. It also distinguishes between microeconomics and macroeconomics and explains economic indicators like economic growth, inflation, employment, and unemployment.
The document discusses lending, insolvency, receivership, and bankruptcy from the perspective of banks and lenders. It covers the typical lending cycle and key issues at each stage. Acts of bankruptcy under Ugandan law are outlined, including conveyance of property to trustees or fraudulent transfers. The implications of receivership are summarized, such as the receiver taking charge of the borrower's affairs and replacing management. Finally, the duties of a receiver and effects of bankruptcy are briefly explained, such as proof of debts by creditors and priority of certain debt types in distribution of the bankrupt's property.
The document discusses lending in the banking business and concepts related to insolvency. It begins by outlining the learning outcomes which are to articulate the role of lending, discuss the bank lending cycle, and explain insolvency, bankruptcy, and receivership. It then provides definitions of key terms like insolvency, receivership, and bankruptcy. Finally, it lists 11 signs that can indicate a business or individual is insolvent, such as continuing losses, current liabilities exceeding assets, unpaid taxes, and suppliers requiring cash-on-delivery or special payments. The document aims to explain these lending and insolvency concepts to banking and financial services students.
This document discusses lending in the banking business. It covers general principles of good lending, the typical lending cycle, and remedies for defaulting borrowers. Delinquency or default refers to a borrower failing to pay installments on time. Causes of delinquency include inability to pay, business failure, adverse economic conditions, willful default, death, inappropriate loan terms, and bankruptcy. Managing delinquency involves preventing late payments through proper underwriting and tailoring loans to borrowers' needs. It also involves solving existing delinquencies through measures ranging from contact and rescheduling to seizing and selling collateral.
This document discusses different types of lending in the banking business. It defines corporate lending as lending to companies and institutions that are separate legal entities, while retail lending refers to lending to individuals and small businesses. The key differences between corporate and retail lending are loan amounts, who signs contracts and bears liability, and complexity. Requirements for corporate lending include the company being incorporated and having authority to borrow, while requirements for retail lending include the borrower being an adult of sound mind and having debt repayment capacity. Mortgage lending is also discussed as a specialized type of lending secured by property.
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Introduction to investment unit2
1. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
The nature and principles of investment
Types of Investments In Uganda
Capital Markets Operations
MODULE COVERAGE
1
2. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Financial Investment is an investment where the purchases of financial assets are
carried out with the objective of earning a better return in the future.
• These financial assets are new in the investment market such as new shares,
bonds debentures etc and not already existing financial (instruments) assets such
as old bonds, old shares.
• The money used to purchase already existing financial assets is not regarded an
investment but a mere transfer of financial asset from the old holder of the asset
to a new holder of the asset. The investment in financial asset is related to the
primary purchase of the asset and the secondary purchase of the asset.
Induced Investment. This is an investment which changes with level of income
changes. This type of investment is positively related to the income levels of the
prospect investors. For example at high levels of income, entrepreneurs are
induced to invest more in their business and the converse holds.
• At high levels of income, consumption expenditure increases which positively drive
the investment in capital goods to produce more consumer goods to meet the
increased demand.
Real Investment. This is an investment where an actual purchase of new plant,
equipment, and; the construction of factories and public utilities (schools, roads,
hospitals etc) takes place takes place
2
3. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Autonomous Investment. This type of investment is not positively related to income
levels. The investor’s aim objective is not financial gain or return in the future but
rather to stimulate the production in other sectors of the economy with the main
objective of boosting the production and economic growth of the country. This
type of investment is mainly carried out by the governments such as in
infrastructural development
Planned investment. This investment where carried out with a concrete investment
plan outlining the specific objectives and activities, implementation and review
plan, budget etc. This type of investment is carried out by governments and
corporations.
Gross Investment and Net Investment Gross investment is the total amount of money
used to create new capital assets such plant and machinery, factory buildings. This
is the total expenditure in acquiring a new capital asset in a period. The Net
investment on the other hand is the value of the gross investment less the capital
consumption during a period. The consumption capital referred to is termed
depreciation
From above, we can confirm John Keynes concept that an Investment refers to real
investment and not financial investment, which implies that investment is the
production of new capital goods, plants and equipment to further production.
3
4. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Investment banking
An investment bank is a financial institution that assists individuals, corporations and
governments in raising capital by underwriting and/or acting as the client's agent
in the issuance of securities.
An investment bank may also assist companies involved in mergers and acquisitions
and provide ancillary services such as market making trading of derivatives, fixed
income instruments, foreign exchange commodities, and equity securities.
Unlike commercial banks and retail banks, investment banks do not take deposits.
There are two main lines of business in investment banking.
Trading securities for cash or for other securities (i.e., facilitating transactions, market-
making), or the promotion of securities i.e., underwriting, research, etc. which is
the "sell side “.
Dealing with pension funds, mutual funds hedge funds , and the investing public (who
consume the products and services of the sell-side in order to maximize their
return on investment) which constitutes the " buy side ". Many firms have buy and
sell side components.
4
5. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Fixed Income Securities
There are two basic securities that most people invest that is equity and debt (known
as stocks and bonds), many investments however fall into one of these two
categories. However there are also alternative investments vehicles such as
options, futures, forex, gold etc.
These alternative investments are more speculative than the plain stocks and bonds.
They are high rewarding or pay high returns.
For the purposes of this course will discuss the most common types of investment
Bonds
A bond is a promise by a borrower to pay a lender a certain amount called the
principal at a specified date called the maturity date of the bond and in the mean
time to pay a given amount of money to the lender called interest per year. A bond
is a fixed income security issued by many types of borrowers i.e. government,
municipalities, public corporations and companies.
Bonds are issued by governments, municipalities and companies to provide needed
capital to fund short- and long-term operations or specific projects. When
investors purchase bonds, they are essentially loaning money to the borrowing
entity, and receive periodic interest in the form of coupons in return.
5
6. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Components of a Bond
A bond issue is generally advertised, offered to the public and actually sold off to
many different investors through the normal floatation procedure on the Stock
Exchange.
The primary components of a bond are; the Principal, Bid price, Interest and Market
price
• The Principal - This is the amount invested in a bond. When one invests Ugx.1,
000,000/= in a bond, she/he will receive coupon income throughout the term of
the bond and thenUgx.1,000,000/= upon maturity. Ugx.1,000, 000 is the principal
or the bond’s face value also known as par value.
• The “Bid” Price – This is the price offered for every unit of face value of a bond
(e.g. UGX 100,000). The bid price can be at ‘par’, ‘discount’ or ‘premium’. When
the bond issuer offers a bond at Ugx. 98.751, it means that for every Ugx.100 of
face value Ugx.98.751 should be paid. The implication is that a bond whose value
at maturity is Ugx.1,000,000 will have a current value of 987,510/=
(1,000,000 ×98.751)/100=987,510
• The Interest - Also known as the coupon, it is the ongoing income realized until the
bond matures. Interest rates can be fixed or floating.
6
7. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
The Market Price - If you want to sell your bond before maturity, the price will depend
on market conditions. If the general interest rates are falling, the bond prices rise
and investors make money and vice versa.
Once a bond is issued the issuing corporation must pay to the bondholders the bond’s
stated interest for the life of the bond. While the bond’s stated interest rate will
not change, the market interest rate will be constantly changing due to global
events, perceptions about inflation, and many other factors which occur both
inside and outside of the corporation.
The following terms are often used to mean market interest rate: Effective interest
rate , Yield to maturity , Discount rate , Desired rate
Market Interest Rates
Market interest rates are likely to increase when bond investors believe that inflation
will occur. As a result, bond investors will demand to earn higher interest rates.
The investors fear that when their bond investment matures, they will be repaid
with dollars of significantly less purchasing power.
Let’s examine the effects of higher market interest rates on an existing bond by first
assuming that a corporation issued a 9% $100,000 bond when the market interest
rate was also 9%. Since the bond's stated interest rate of 9% was the same as the
market interest rate of 9%, the bond should have sold for $100,000.
7
8. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Next, let’s assume that after the bond had been sold to investors, the market interest
rate increased to 10%. The issuing corporation is required to pay only $4,500 of
interest every six months as promised in its bond agreement ($100,000 x 9% x
6/12) and the bondholder is required to accept $4,500 every six months.
However, the market will demand that new bonds of $100,000 pay $5,000 every six
months (market interest rate of 10% x $100,000 x 6/12 of a year). The existing
bond’s semi-annual interest of $4,500 is $500 less than the interest required from
a new bond. Obviously the existing bond paying 9% interest in a market that
requires 10% will see its value decline.
An existing bond’s market value will decrease when the market interest rates increase.
The reason is that an existing bond’s fixed interest payments are smaller than the
interest payments now demanded by the market.
Market interest rates are likely to decrease when there is a slowdown in economic
activity. In other words, the loss of purchasing power due to inflation is reduced
and therefore the risk of owning a bond is reduced.
Let’s examine the effect of a decrease in the market interest rates. First, let’s assume
that a corporation issued a 9% $100,000 bond when the market interest rate was
also 9% and therefore the bond sold for its face value of $100,000.
8
9. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Next, let’s assume that after the bond had been sold to investors, the market interest
rate decreased to 8%. The corporation must continue to pay $4,500 of interest
every six months as promised in its bond agreement ($100,000 x 9% x 6/12) and
the bondholder will receive $4,500 every six months.
Since the market is now demanding only $4,000 every six months (market interest rate
of 8% x $100,000 x 6/12 of a year) and the existing bond is paying $4,500, the
existing bond will become more valuable.
In other words, the additional $500 every six months for the life of the 9% bond will
mean the bond will have a market value that is greater than $100,000.
The yield on the bond is the return per UGX that the holder of the bond receives
periodically. The yield on say savings accounts paying 5% interest p.a is just
obviously 5%. Someone paying say UGX 2.5 million for bond that has a coupon of
UGX 250,000,000 obtains a yield of 10%:
Yield= 250,000/2,500,000%=10%
9
10. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
• The yield on a bond and its price
are related in a way. Let the price
of the bond be denoted by p, the
coupon by C. As illustrated from
above the yield (the effective rate
of interest) y is given by the
formula; y=C/p.
• This equation denotes that yield
on a bond is the coupon divided
by the price of the bond. So if you
are given the coupon and the
yield you can derive the price and
so on. The face value of the bond
at the time of issue represents its
market price, while the yield is
equal to the market price rate of
interest at the date of issue.
10
11. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Market Interest Rates Vs a Bond’s Market Value
• The market value of an existing bond will move in the opposite direction of the
change in market interest rates. When market interest rates increase, the market
value of an existing bond decreases and when the market interest rates decrease,
the market value of an existing bond increases.
• The relationship between market interest rates and the market value of a bond is
referred to as an inverse relationship. Perhaps you have heard or read financial
news that stated “Bond prices and bond yields move in opposite directions” or
“Bond prices rallied, lowering their yield...” or “The rise in interest rates caused the
price of bonds to fall.”
• If you were the treasurer of a large corporation and could predict interest rates,
you would Issue bonds prior to market interest rates increasing in order to lock-in
smaller interest payments.
• If you were an investor and could predict interest rates, you would purchase bonds
prior to market interest rates dropping. You would do this in order to receive the
relatively high current interest amounts for the life of the bonds. (However, be
aware that bonds are often callable by the issuer.). Sell bonds that you own before
market interest rates rise.
• You would do this because you don’t want to be locked-in to your bond’s current
interest amounts when higher rates and amounts will be available soon.
11
12. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
The main advantage of bonds is their safety and provide steady stream of return
(income). For example when buy a bond from a stable government, your
investment is guaranteed and risk free. This risk free and safety comes with a cost
that is low return to this type of investment
Some of the primary risks associated with purchasing a bond are;
Market Risks - The market value of bonds will raise and fall as a function of interest
rate fluctuations. This matters if you have to sell your bond before maturity. The
shorter the life of the bond the safer it is because it will fluctuate less in price.
Holding period risk -
The longer the term of the bonds, the greater the risk that you’ll have to sell them
before maturity and possibly at a loss.
Inflation risk – In times of rapid or substantive inflation, both the bond interest and
principal lose purchasing power.
Default risk – This is the likelihood that the issuer might not pay on time or at all, in
case the company’s loans need to be restructured or it goes bankrupt. Although
debt instruments are normally paid in preference to equity instruments in cases of
liquidation, the law prescribes many other preferential debts that rank before
bonds in case the investee company is being wound up.
Credit Risk – This refers to the stability, earnings quality and therefore the suitability of
the bond issuer as an investee for the public.
12
13. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Relevance to the economy
There is certainly a connection between an active bond market and a developing
economy such as Uganda.
Issuance of long-term debt security is relevant to the Ugandan economy because it
helps raise funds for projects that require long-term financing. This could be in the
public sector infrastructure such as roads, bridges, low income housing, building
hospitals, schools or providing other local services.
It could also be in the private sector for acquisitions, expansion, new ventures,
equipment leasing/ purchasing or upgrade materials utilized in their
manufacturing processes.
Bonds can also be used as part of fiscal and monetary policy.
Why issue bonds?
i. It is sometimes more cost effective to issue bonds than to contract large, long
term debt in the market.
ii. Generally has easier processes and less stringent requirements than a share/
stock floatation
iii. Does not result into ownership dilution or change of governance/ control
structure
iv. There are certain tax benefits to bond holders
13
14. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Why invest in bonds?
• Income from bonds can supplement one’s income while attempting to ‘hedge’ the
risks on the market.
• Long term bonds are not always very liquid and thus they are a good form of
savings.
• Bonds are not subject to market volatilities and swings that are common with
shares or stocks. Generally, bond interest and yields are higher than the interest
that banks offer on savings.
Stocks or equities
When you purchase stocks or equities you become part of the owner of the business.
This entitles you to vote at the shareholders’ meetings and allows you to receive
any profits that the company allocates to its owners.
These profits referred to are known as dividends.
Stocks provide relatively high return and this comes with a price of assuming the risk
of losing some or all of your investment.
14
15. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Collective Investments Schemes
This is an investment that involves collecting money from different investors and
pooling the money to fund the investments. This also sometimes called mutual
fund and comprises of two types in Uganda:
The Money Fund (MF). The investor invests in money market instruments with a
maturity of less thirteen months i.e. 12 months
The Balanced Investment Fund (BIF). This is an investment in securities such as equity
and corporate bonds listed in the Uganda securities Exchange as well as
government bonds
Mutual funds
A mutual fund is a collection of stocks and bonds. When you buy a mutual fund, you
are pooling your money with a number of other investors, which enables you as
part of the group of investors, to pay the professional manager to selectively invest
your funds in specific profitable security.
The mutual funds are set with a specific strategy in mind and their distinct focus can
be large stocks, small stocks, bonds from government or companies, stocks in
certain industries or countries etc.
The primary advantage of mutual fund is you can invest your money without time or
experience in choosing the sound investment to place you funds.
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16. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Mutual funds can be grouped 2 categories:
i. Equity funds are made up of investment of only common stock, more riskier
though has good return than other types of fund.
ii. Fixed- income funds. These are made up of government and corporate
securities that provide fixed income return. This type of fund is usually rated low
risk.
Mutual funds are not yet popular in Uganda although they are popular and numerous
in other countries, especially the developed ones. As the economy grows and the
international economy gets more integrated, however, mutual funds are likely to
become a feature of Uganda’s financial sector in the future.
Stock market investments
The capital of the company can be divided into different units with definite value
called shares. Holders of these shares are called shareholders or members of the
company. There are two types of shares which a company may issue (1) Preference
Shares (2) Equity Shares.
Preferences Shares The shareholders enjoy the preferential rights as to dividend and
repayment of capital in the event of winding up of the company over the equity
shares The holder of preference shares will get a fixed rate of dividend. Preference
shares may be Cumulative Preference Share.
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17. THE UGANDA INSTITUTE
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UIBFS
ISO 9001:2008 CERTIFIED
Non-cumulative Preference Shares
The holders of non-cumulative preference shares no doubt will get a preferential right
in getting a fixed dividend it is distributed to quality shareholders.
The fixed dividend is to be paid only out of the divisible profits but if in a particular
year there is no profit as to distribute it among the shareholders, the non-
cumulative preference shareholders, will not get any dividend for that year and
they cannot claim it in the next year during which period there might be profits.
If it is not paid, it cannot be carried forward. These shares will be treated on the same
footing as other preference shareholders as regards payment of capital in
concerned.
Redeemable Preference Shares Capital raised by issuing shares, is not to be repaid to
the shareholders (except buy back of shares in certain conditions) but capital
raised through the issue of redeemable preference shares is to be paid back by the
raised thought the issue of redeemable preference shares is to be paid back to the
company to such shareholders after the expiry of a stipulated period, whether the
company is wound up or not.
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18. THE UGANDA INSTITUTE
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UIBFS
ISO 9001:2008 CERTIFIED
Participating or Non-participating Preference Shares
The preference shares which are entitled to a share in the surplus profit of the
company in addition to the fixed rate of preference dividend are known as
participating preference shares.
After the payment of the dividend a part of surplus is distributed as dividend among
the quality shareholders at a particulate rate.
The balance may be shared both by equity shareholders at a particular rate. The
balance may be shared both by equity and participating preference shares.
Thus participating preference shareholders obtain return on their capital in two forms
(i) fixed dividend (ii) share in excess of profits. Those preference shares which do
not carry the right of share in excess profits are known as non-participating
preference shares.
Equity Shares
Equity shares will get dividend and repayment of capital after meeting the claims of
preference shareholders. There will be no fixed rate of dividend to be paid to the
equity shareholders and this rate may vary from year to year.
This rate of dividend is determined by directors and in case of larger profits; it may
even be more than the rate attached to preference shares. Such shareholders may
go without any dividend if no profit is made.
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19. THE UGANDA INSTITUTE
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UIBFS
ISO 9001:2008 CERTIFIED
• In case of winding up of the company,
equity capital can be paid back only after
every other claim including the claim of
preference shareholders has been settled.
• The most outstanding feature of equity
capital is that its holders control the affairs
of the company and have an unlimited
interest in the company's profits and assets.
• They enjoy voting right on all matters
relating to the business of the company.
They may earn dividend at a higher rate and
have the risk of getting nothing.
• The importance of issuing ordinary shares is
that no organisation for profit can exist
without equity share capital. This is also
known as risk capital.
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20. THE UGANDA INSTITUTE
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UIBFS
ISO 9001:2008 CERTIFIED
Advantages of equity shares: The advantages to the company that issues equity shares
may be summarised as below:
• Long-term and Permanent Capital: A company is not required to pay-back the
equity capital during its life-time and so, it is a source of finance and a permanent
source of capital.
• No Fixed Burden: unlike preference shares, equity shares pose a fixed burden on
the company's resources, because the dividend on these shares is subject to
availability of profits and the intention of the board of directors. They may not get
the dividend even when company has profits. Thus they provide a cushion of
safety against unfavorable development
• Credit worthiness: Issuance of equity share capital creates no change on the assets
of the company. A company can raise further finance on the security of its fixed
assets.
• Risk Capital: Equity capital is said to be the risk capital. A company can trade on
equity in bad periods on the risk of equity capital.
• Dividend Policy: A company may follow an elastic and rational dividend policy and
may create huge reserves for its developmental programmes.
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Advantages to equity shareholders/ investors may enjoy the following advantages:
• Income: Equity shareholders are the residual claimant of the profits after meeting
all the fixed commitments. The company may add to the profits by trading on
equity. Thus equity capital may get dividend at high in boom period.
• Right to Control and Manage the company: Equity shareholders have voting rights
and elect competent persons as directors to control and manage the affairs of the
company.
• Capital profits: The market value of equity shares fluctuates directly with the
profits of the company and their real value based on the net worth of the assets of
the company. An appreciation in the net worth of the company's assets will
increase the market value of equity shares. It brings capital appreciation in their
investments.
• An Attraction of Persons having Limited Income: Equity shares are mostly of lower
denomination and persons of limited recourses can purchase these shares.
• Dilution in control: Each sale of equity shares dilutes the voting power of the
existing equity shareholders and extends the voting or controlling power to the
new shareholders. Equity shares are transferable and may bring about
centralization of power in few hands. Certain groups of equity shareholders may
manipulate control and management of company by controlling the majority
holdings which may be detrimental to the interest of the company.
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22. THE UGANDA INSTITUTE
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UIBFS
ISO 9001:2008 CERTIFIED
Equity Trading. If equity shares alone are issued, the company cannot trade on equity.
Capitalisation: Excessive issue of equity shares may result in over-capitalization.
Dividend per share is low in that condition which adversely affects the psychology
of the investors. It is difficult to cure.
Non flexibility in capital structure: Equity shares cannot be paid back during the
lifetime of the company. This characteristic creates inflexibility in capital structure
of the company.
High cost: It costs more to finance with equity shares than with other securities as the
selling costs and underwriting commission are paid at a higher rate on the issue of
these shares.
Speculation: Equity shares of good companies are subject to hectic speculation in the
stock market. Their prices fluctuate frequently which are not in the interest of the
company.
Traditional equity investments
By “traditional” here, we mean committing capital to new or expanding businesses
that produce goods and services. This differs significantly from the speculative
type trading in the capital markets, most of which has a short term focus.
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UIBFS
ISO 9001:2008 CERTIFIED
Government debt securities
Long term securities type of investment, individuals and organisations give long-term
loans to the Government or corporations for a defined period, by buying clearly
priced debt instruments or securities. The lender or debt holder earns interest on
the funds for a pre-determined period of time after which the funds are paid back.
Investors earn from long-term debt by receiving regular interest payments which can
be fixed or floating. It is fixed when the interest rate does not change throughout
the investment period, but floating when the interest rate keeps changing. The
principal is repaid at maturity.
Long-term debt securities normally have a minimum life span of ten years. Corporate
issuers of such debt instruments, like the case is with equity securities, often seek
funds for projects that require long-term financing.
The primary difference between equity financing and debt financing is that under debt
financing, the investor receives their principal on the bond maturity date and can
no longer benefit from the future growth of the corporation, while an equity
investment does not have a due date and the investor will continue to benefit
from the dividend and capital appreciation of the corporation.
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Property
Property (land and buildings) are the other very attractive investment opportunity in
Uganda. Land appreciates in value far faster than the rate of inflation, hardly
depreciates, is quite secure and provides psychological value in terms of a feeling
of security and prestige.
Whether the investor buys property to own or to sell, the returns continue to be
attractive. This is not an area in which professional investors put emphasis but in
Uganda, it is a major investment attraction.
Investment appraisal / valuation
There are many ways of evaluating or appraising proposed or potential investments.
The appraisal is done to inform the investor of the potential returns or profitability
of the investment.
Business Valuation has become an intrinsic part of the corporate landscape and
professionals in finance have developed detailed methods for such appraisal.
The investor, large or small, must assess the potential of any investment before
making a decision. The business world has witnessed dynamic changes in the
recent years as mergers and acquisitions, corporate restructurings, IPOs and share
trading are happening in record numbers..
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ISO 9001:2008 CERTIFIED
Although there are numerous individual valuation techniques, they are categorized
into four standard business valuation approaches applying standard formulas;
Asset-based valuation
The asset approach is based on the premise that it is generally possible to liquidate
the property, plant and equipment (PP&E) assets of a company and after paying
off the company's liabilities accrue the net proceeds to the equity holders of the
company. Valuation of assets based on liquidation or book value does not yield
better results if the fair market value of assets is in excess of value of its assets on
a liquidated basis.
Using this approach, the basic formula is;
Company value = Total assets – Total liabilities
You can then compute the value per share as
Market Valuation
This valuation method is applicable for quoted companies only. The market value is
determined by multiplying the quoted share price of the company by the number
of issued shares. This valuation reflects the price that the market at a point in time
is prepared to pay for the shares. This valuation method broadly takes into account
the investors’ perceptions about the performance of the company’s (past and
future) and the management’s capabilities to deliver a return on their investments.
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Valuepershare=
TotalAssets−Totalliabilities
Totalnumberofshares
26. THE UGANDA INSTITUTE
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ISO 9001:2008 CERTIFIED
Using this approach, the basic formula is;
Company value = Total number of issued shares X market price per share
Value per share = Market price per share
Price /Earnings ratio Valuation
This method bases valuation on a comparison between the company’s market price
per share and its earnings per share. The price-earnings ratio (P/E) is simply the
price of a company's share the stock market divided by its earnings per share.
By multiplying this P/E multiple by the net income, the value for the business could be
determined.
This valuation method provides a benchmark business valuation as the non-listed
companies wishing to use this method; a comparable quoted company/sector
should be used.
Using this approach, the basic formula is:
Company value = Price /Earnings ratio X net income (for immediate past year)
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The Price =
Market price per share
Earnings per share
Earings per share =
Totalnet income aftertax
Totalno.of ordinary shares
27. THE UGANDA INSTITUTE
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ISO 9001:2008 CERTIFIED
Discounted cash flows
This valuation method, based on free cash flow, is considered a strong tool because it
concentrates on cash generation potential of a business. It also discounts the
projected free cash flows to cater for both the time value of money and inflation.
Using the discount factor, the net present value is calculated using the formula:
Where n is the number of years/ periods from the time of investment, r is the
interest rate , c is the cost
Example: Nile Crane Bus Company Limited plans to invest UGX 800 million in the bus
business. The projected free cash-flows over the next 5 years are shown below.
What is the net present value of the project? (Use a discount rate of 10%).
Year 0 1 2 3 4 5
Free Cash Flow(million) (800) 300 250 270 210 260
NPV= 170 million. A project is attractive if it has a high positive NPV
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n
c(1+r)
28. THE UGANDA INSTITUTE
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ISO 9001:2008 CERTIFIED
Dividend Valuation
• How does the financier justify investing in shares
giving him or her a minority stake with no
prospect of dividends?
• He may be prepared to pay for the prospect of
capital profit on sale or flotation, but it is usually
a distant and uncertain prospect, over which he
has no control.
• The investment is unlikely to be attractive, and
the financier will seek to obtain dividend terms
on his shares or at the least a statement of
dividend policy by the directors.
• For minority investments, dividend valuation is
often applied. The procedure and formula used
could be as above, but replacing the earnings per
share with dividend per share.
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Project Valuation
• An investor’s financial position plays a role on the investment objectives. A
billionaire obviously will have much more different goals than a newly employed
executive.
• The general rule in investment is the shorter your time horizon is the more
conservative you should be. That is to say if you are investing primarily for
retirement and you are at your early 30s, you still have enough to make up for any
losses you might incur along the investment way and vice versa.
• As for business entities, the business person who wants to make business decision
whether to build and equip a new factory has to first figure out how much it will
cost him to get the factory into working order and what will be the return on the
investment that the factory will bring each year of operation.
• The business persons use the discounted flow analysis basis to gauge the viability
of the project This analysis is based on discounting of the revenue received in the
later years to be discounted to the present value to arrive at their present value.
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30. THE UGANDA INSTITUTE
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Let us think of an investment of say US$
100 invested at 10%. A year from
now the investor will earn US$ 10.
This implies the US$100 is worth the
same US$110 at the end of the year
of investment.
To calculate the value of the project, the
organisation will calculate its present
discounted value at the interest rate
at which it can borrow.
Let us assume the relevant interest rate
is 12%.
Consider a project worth UGX
100,000,000 which generated UGX
50,000,000 and UGX 80,000,000 in
year two and year three respectively.
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0
5
10
15
20
25
30
35
40
45
2001 2003 2004 2005 2006 2007 2008 2009 2010
31. THE UGANDA INSTITUTE
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ISO 9001:2008 CERTIFIED
Year 1 Year 2 Year3 Present Discounted
Value
Cash/ Revenue
Present value
-100M 50M 80M
Present Value 1/1.12= 0.893 1/ (1.12)² =0.797
Present value of
costs/ Revenue
-100M 50M X 0.893 =
44.65
80M X
0.797=63.76
(-100M+ 44.65
+63.76) =8.41
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From the above table, the present value of the net revenue received from the project is
UGX 8.41 million which is positive therefore the firm should undertake the project.
Editor's Notes
When the bond matures, investors then receive the full principal amount invested. This differs from the purchase of common stock, in which shareholders actually own a piece, albeit a small one, of a company. Unlike shareholders, bondholders also have a priority claim on assets in the event of a liquidation or bankruptcy. Bonds are generally grouped under the category of fixed income securities.
In Uganda, the Capital Markets Authority and Uganda Stock Exchange are presently exploring, alongside other East African regulatory authorities the possibility of developing a credit rating scheme for the region. There are also globally recognized rating firms such as Standard and Poor and Moody’s that rate firms from ‘least risky /good buy’ to ‘most risky / unsuitable’. Bonds are also rated in a similar way. Many banks and other institutional investors are permitted by law to hold only the well rated securities.
The mutual fund is a company that pools investors’ money to make multiple types of investments. These multiple investments are termed a portfolio i.e. stocks, bonds and money market funds.
Mutual funds are all set up and managed by a professional investment manager with a specific strategy in mind (a distinct focus on large stocks, small stocks, governments’ bonds, company bonds, stocks and bonds, industry stocks, or stocks in certain countries) to earn a better return for the Investors. Since the investment manager invests these funds on behalf of the investors, he automatically becomes a shareholder of the fund. His earns also depends on the performance of the fund.
If the company does no earn adequate profit in any year, dividends on preference shares may not be paid for that year. But if the preference shares are cumulative such unpaid dividends on these shares go on accumulating and become payable out of the profits of the company, in subsequent years. Only after such arrears have been paid off, any dividend can be paid to the holder of quality shares. Thus a cumulative preference shareholder is sure to receive dividend on his shares for all the years out of the earnings of the company.
As per section (80) 5a, a company after the commencement of the Companies (Amendment) Act, 1988 cannot issue any preference shares which are irredeemable or redeemable after the expiry of a period of 10 years from the date of its issue. It means a company can issue redeemable preference share which are redeemable within 10 years from the date of their issue.
The Uganda Investment Authority, in promoting Uganda as a suitable investment destination, emphasizes this type of investment because our capital market is not yet well developed. The most promising investments in Uganda at present are largely private sector capital injections or placements into business start-ups, expansion or diversification. Uganda Investment Authority is charged with the responsibility to promote this kind investment in Uganda
At the core of the dynamics of all these activities stands some notion of valuation. The valuation methods are not only necessary for accounting purposes but they also serve as road-maps for investors like banks, venture capitalists and corporate acquirers who need to know the true value of a company’s assets
This valuation method uses the future free cash flow of the company (cash inflows minus cash outflows meeting all the liabilities) discounted by a suitable factor that may take into consideration the average cost, general market interest rates, inflation and the time value of money, plus a risk factor.