The analysis of various tradable financial instruments is called security analysis. Security analysis helps a financial expert or a security analyst to determine the value of assets in a portfolio. is a method which helps to calculate the value of various assets and also find out the effect of various market fluctuations on the value of tradable financial instruments (also called securities).

1. Introduction to Investment and
Securities
Lecture 2

2. Introduction
Investment is the employment of funds on assets with the
aim of earning income and capital appreciation.
Two attributes of investment: Time and Risk.
In economics, investment is the net addition to the nation’s
capital stock that consists of goods and services that are
used in the production process.
The capital stock means increase in buildings, equipments
and inventories.
Financial investment is the allocation of money to assets
that are expected to yield some gains over a period of time.

3. Investment and Speculation
Time Horizon: Investors Plans for longer time horizon than
Speculators.
Risk: Investors assume moderate risk but Speculator is willing
to take high risk.
Return: Investors likes to have moderate rate of return and
Speculators have expectation of high returns.
Decision: Investors considers fundamental factors but the
Speculators considers rumours, heresays and market
behaviour
Funds: Investors use their own funds while Speculators uses
borrowed funds.

4. Investment Objectives
The main objectives of investment are maximizing the return and
minimizing the risk.
The other subsidiary objectives are maintaining liquidity, hedging
against inflation, increasing safety, saving tax.
The rate of return is the total income the investors receives during the
holding period , stated as a percentage of the purchasing price at the
beginning of the period.
Risk is the probability of undesirable/unwanted outcome (probability
of actual outcome becoming less than the expected return)
Risk is the variability of return (from one period to the other period)

5. The investment process
Framing of the investment policy: Investible fund, objectives
and knowledge about investment alternatives and market.
Security analysis: Securities are scrutinized through market,
industry and company analyses.
Valuation: Determination of Return and Risk expected from an
investment. The intrinsic value and future value of the security
needs to be ascertained.
Portfolio Construction: Portfolio is a collection of
assets/securities. It is associated with diversification, selection,
and allocation of funds for selected securities.
Portfolio Evaluation: Appraisal and Revision

6. Investment Planning
Setting the investment goals: Single, Family person, Pre-
retirement and Post-retirement.
Deciding the investment timeframe: Short-term, medium-term,
long-term.
Risk profiling: Conservative, Moderate and Aggressive
investors.
Evaluating the markets and the investment landscape.
Designing an investment Portfolio: Portfolio is a mix of real and
financial assets.

7. Securities Return Risk Marketability/Liquidity Tax
Shelter
Safety
Current Yield Capital
Appreciation
Equity Schemes
Debt Schemes
Bank Deposits
PPF
Life insurance
policies
Real Estate
Gold and other
metals

8. Investment avenues
Securities: Stocks, Bonds, Debentures, Govt.securities, Money
market instruments, Mutual Funds, Derivatives
Deposits: Bank deposits, NBFC deposits
Postal schemes: MIS, NSC, KVP, IVP, PPF, Senior Citizen
Schemes
Insurance: Life Insurance policies, Unit Linked Insurance plans
(ULIPs)
Real Assets: Real estate, Precious Metals, Arts and antiques

9. THANK YOU