Meaning and concept of Securities and Investment, Speculation, Difference between speculation and Investment,Objectives of Investment, Process of Investment. Investment Avenues, Investment Constraints, Sources of Investment informan, Investment strategies under economic growth and inflation

1. Investment
Analysis and
Portfolio
Management
Module: 1
Introduction to Securities
and Investment

2. Introduction- Securities
 Securities are fungible and tradable financial
instruments used to raise capital in public and
private markets.
 There are primarily three types of securities:
 equity—which provides ownership rights to
holders;
 debt—essentially loans repaid with periodic
payments; and
 hybrids—which combine aspects of debt and
equity

3. Investment-Introduction
 Investment is employment of funds on assets
with a aim of earning income or capital
appreciation.
 The activity happens irrespective of Income,
Knowledge, occupation, economic status and
family background.

4. Definition of Investment
 Investment involves making of a sacrifice in
the present with the hope of deriving future
benefits. Investment has many meanings and
facets. The two most important features of an
investment are current sacrifice and future
benefit

5. Nature of Investment Decisions
 Investment decisions are premised on an important
assumption that investors are rational and hence
prefer uncertainty.
 They are risk averse which implies that they would
be unwilling to take risk just for the sake of risk.
 They would assume risk only if an adequate
compensation is forthcoming. And the dictum of
‘rationality’ combined with the attitude of ‘risk
aversion’ imparts to investment their basic nature.

6. Speculation-Meaning
 A speculation usually involves the purchase of
a salable asset in hopes of making a quick
profit from an increase in the price of the
asset which is expected to occur within a few
weeks or months.
 A gamble is usually a very short-term
investment in a game of chance. The holding
period for most gambles can be measured in
seconds.

7. Difference between Investment and
Speculation

8. Investment objectives
 The main objectives of investments are:
Maximization of return
Minimization of risk
 Other subsidiary objectives are:
Maintaining liquidity
Hedging against inflation
Increasing safety
Saving tax Maximization of return

9. Process of Investment

10. Investment Avenues

11. Types of Investment
Information
 Descriptive Information – factual data on
past behavior of economy, market, industry
company or given investment vehicle
 Analytical Information – available current
data in conjunction with projections and
recommendations about potential investments

12. Sources of Investment
Information
 Company financial statements
 Economic and financial publications
 Online information resources
 Security price quotations
 Market averages and indexes

13. Other sources
 Corporate Sources –
 annual reports
 Brokerage Firm Reports –
 research reports by security analysts
 The Press – Wall Street Journal, Forbes, etc.
 Investment Advisory Services – Value Line
 Internet Sources
 vestment Clubs – provide social, educational, and investment value.

14. Definition of Investment
Constraints
 Investment constraints are the factors that
restrict or limit the investment options
available to an investor. The constraints can
be either internal or external constraints.
Internal constraints are generated by the
investor himself while external constraints are
generated by an outside entity, like a
governmental agency.

15. Types of Investment Constraints
Liquidity
 Such constraints are associated with cash
outflows expected and required at a specific time
in future and are generally in excess of income
available. Moreover, prudent investors will want to
keep aside some money for unexpected cash
requirements. The financial advisor needs to keep
liquidity constraints in mind while considering an
asset’s ability to be converted into cash without
impacting the portfolio value significantly.

16. Time Horizon
 These constraints are related to the time
periods over which returns are expected from
portfolio to meet specific needs in the future.
An investor may have to pay for college
education for children or needs the money
after his retirement. Such constraints are
important to determine the proportion of
investments in long-term and short-term asset
classes.

17. Tax
 These constraints depend on when, how and
if returns of different types are taxed. For an
individual investor, realized gains and income
generated by his portfolio are taxable. The tax
environment needs to be kept in mind while
drafting the policy statement. Often, capital
gains and investment income are subjected to
differential tax treatments.

18. Legal and Regulatory
 Such constraints are mostly externally
generated and may affect only institutional
investors. These constraints usually specify
which asset classes are not permitted for
investments or dictate any limitations on asset
allocations to certain investment classes. A
trust portfolio for individual investors may
have to follow substantial regulatory and legal
constraints.

19. Unique Circumstances
 Such constraints are mostly internally
generated and signify investor’s special
concerns. Some individuals and philanthropic
organizations may not invest in companies
selling alcohol, tobacco or even defense
products. Such concerns and any special
circumstance restricting the investor’s
investments should be well considered while
formulating investment policy statement.

20. Investment strategies under
economic growth and recession
 Assess your current investments
 consider re-allocating assets
 Diversify your assets
 Make part of your investment recession-
proof
 Look for high-quality stocks
 Include precious metals in your portfolio