2. Sri Ramakrishna College of Arts & Science
Coimbatore – 06.
Topic: Nature of Investment
M.VADIVEL
Assistant Professor
Department of B.Com PA
Sri Ramakrishna College of Arts & Science
Coimbatore.
3. Nature of Investment
Meaning
The meaning of investment is putting your money into an asset that can grow
in value or produce income or both. For example, you can buy equity stock of a listed
company in the hopes of receiving regular dividends and capital appreciation in the
form of the share price.
4. Objectives of Investment
Safeguard your Money
Grow your Savings
Build Funds for Emergencies
Secures your Retired Life
Save Tax
Fund Bigger Life Goals
5. Safeguard your Money
Investing keeps your money safe from immediate and unnecessary
expenditures. It also helps you keep your money safe from inflation
effects. Inflation erodes the value of your money unless it is invested in an
interest-earning asset. Thus, investing will help you automatically keep up with
inflation.
Grow your Savings
Investment is the only way to start growing your invested money. It allows
your money to earn interest and if you keep the interest invested it will also start
to earn interest.
6. Build Funds for Emergencies
Life is usually a series of ups and downs. Few times you are earning decent and saving money while
other times you need a large sum for an emergency. Building investment pools help you on such rainy days.
Secures your Retired Life
Retired life is where you don’t have a source of income to sustain your life. Once you have built a
retirement corpus, you can experience the freedom that comes with it.
Save Tax
Investment in tax-saving instruments like life insurance plans, ULIPs, PPF, NPS, etc allows you to claim
deductions on your taxable income. Thus, investing in specific assets can help you reduce your tax liability.
Many of these investments also help you reduce your future tax with tax-free maturity values.
7. Fund Bigger Life Goals
Your monthly income will not be enough to purchase your next
car or build a house for your family. However, if you invest a small sum
in a few years both could be possible.
8. types of investment options in India
Investment Type Description Risk Reward
Stocks Stocks represent your
ownership share in the
company. Stocks will
provide a return on
investment through
changes in the share
price, or dividends. It can
be highly volatile and is
considered one of the
riskiest investments.
High High
Bonds Bonds are an instrument
of borrowing.
Bondholders have the
first right to the assets of
the company. Thus,
these are considered
safer than equity stocks.
Also, a
bondholder’s return on
investment will be more
stable than a
stockholder's as bonds
can have fixed coupon
rates.
Low Low
9. Mutual Funds Mutual funds are pooled
assets that are
professionally managed. It
can pool money from
thousands of small
investors and create a
portfolio of up to 30
securities to generate a
return on the pooled
money. Mutual funds allow
investors to invest a small
amount regularly and
choose their asset
portfolio as per their risk
profile.
Medium Medium
Unit Linked Insurance
Plans
ULIPs are life insurance
plans that allow you to
invest in diversified funds
as per your risk profile. You
will get market-linked
returns and tax-saving
benefits on your
investments. Life cover will
be available regardless of
the performance of the
invested sum.
As per your portfolio High
10. Gold Investing in physical
gold could be
expensive, risky, and
fraught with storage
issues. Thus, you can
use an electronic form
of gold investment.
Gold ETFs and Gold
Bonds are some of the
popular ways of
investing in gold and
keeping up with its
price.
Medium Low
Public Provident Fund
(PPF)
It is a scheme that offers
a good rate of return
and a sovereign
guarantee.
With PPF you can beat
inflation, and build
handsome wealth, that
too completely tax-free.
PPF also allows
adequate liquidity.
Thus, this investment
helps you build a safety
fund for your family.
The account is
extendable after 15
years of maturity. So,
you can use it to save
for your retirement and
draw a tax-free pension
after 60.
Low Low
11. Investment
Option
Liquidity Risk-Return Ideal Investment
Term
Savings Account Equal to Cash Almost Nil Nil
Fixed Deposit Lower than
Savings
Higher than
Savings
7 days to 10 years
Gold High Medium 5 to 15 years
Equity Stocks High Very High 3 to 30 years
Equity Mutual
Funds
Medium to High High 5 to 10 years
ULIPs Low Medium to High 5 to 81 years
Public Provident
Fund (PPF)
Low Low (but tax-free) 15 years+
Real Estate Very Low Medium 10 years+
Assets and investment options offer a different trade-off between
these factors:
13. Fundamental analysis
Fundamental analysis focuses most on the financial analysis and well-being of a
company. This type of analysis helps search for stocks with significant potential for
growth whose intrinsic value might have been negatively mispriced by the market.
Technical analysis
• Technical analysis focuses on evaluating certain patterns of stock prices by relying
on charts calculated by a computer.
• Technical analysts pay attention to price movements that indicate a pattern,
trading signals, and other analytical charting tools that help identify the strengths
and weaknesses of a security.
14. Top-down analysis
• A top-down approach focuses on building a portfolio based on
macroeconomic factors and market trends. Top-down investors
evaluate investment opportunities based on their anticipation of
stock market performance.
Bottom-up analysis
• Bottom-up approach focuses on metrics related to specific
companies. Bottom-up investors try to establish the financial health
of a company by analyzing its financial statements.
15. Portfolio analysis
• Portfolio analysis focuses on evaluating investments in a portfolio. You
can use this type of analysis to determine the performance of a fund
by comparing it to the benchmark index. Also, portfolio analysis
allows seeing whether your funds are diversified in an appropriate
way.
Security analysis
• Security analysis focuses on determining the strength of a single
investment. This type of analysis lays the fundamental ground for
value investing, which revolves around buying assets that might be
undervalued.