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  1. 1. what is a Security ?Assets with some financial value are called securities.Characteristics of Securities  Securities are tradable and represent a financial value.  Securities are fungible.Classification of Securities  Debt Securities: Tradable assets which have clearly defined terms and conditions are called debt securities. Financial instruments sold and purchased between parties with clearly mentioned interest rate, principal amount, maturity date as well as rate of returns are called debt securities.  Equity Securities: Financial instruments signifying the ownership of an individual in an organization are called equity securities. An individual buying equities has an ownership in the company’s profits and assets.  Derivatives: Derivatives are financial instruments with specific conditions under which payments need to be made between two parties.What is Security Analysis ?The analysis of various tradable financial instruments is called security analysis. Securityanalysis helps a financial expert or a security analyst to determine the value of assets in aportfolio.Why Security Analysis ?Security analysis is a method which helps to calculate the value of various assets and alsofind out the effect of various market fluctuations on the value of tradable financialinstruments (also called securities).Classification of Security AnalysisSecurity Analysis is broadly classified into three categories: 1. Fundamental Analysis 2. Technical Analysis 3. Quantitative AnalysisWhat is Fundamental Analysis ?Fundamental Analysis refers to the evaluation of securities with the help of certainfundamental business factors such as financial statements, current interest rates as well ascompetitor’s products and financial market.What are Financial Statements ?Financial statements are nothing but proofs or written records of various financialtransactions of an investor or company.
  2. 2. Financial statements are used by financial experts to study and analyze the profits, liabilities,assets of an organization or an individual.What is Technical Analysis ?Technical analysis refers to the analysis of securities and helps the finance professionals toforecast the price trends through past price trends and market data.What is Quantitative Analysis ?Quantitative analysis refers to the analysis of securities using quantitative data.Difference between Fundamental Analysis and Quantitative AnalysisFundamental analysis is done with the help of financial statements, competitor’s market,market data and other relevant facts and figures whereas technical analysis is more to do withthe price trends of securities.What is Portfolio Management ?The stream which deals with managing various securities and creating an investmentobjective for individuals is called portfolio management. Portfoilo management refers to theart of selecting the best investment plans for an individual concerned which guaranteesmaximum returns with minimum risks involved.Portfolio management is generally done with the help of portfolio managers who afterunderstanding the client’s requirements and his ability to undertake risks design a portfoliowith a mix of financial instruments with maximum returns for a secure future.Portfolio TheoryPortfolio theory was proposed by Harry M. Markowitz of University of Chicago. Accordingto Markowitz’s portfolio theory, portfolio managers should carefully select and combinefinancial products on behalf of their clients for guaranteed maximum returns with minimumrisks.Portfolio theory helps portfolio managers to calculate the amount of return as well as risk forany investment portfolio.What is a Portfolio ?A combination of various investment products like bonds, shares, securities, mutual fundsand so on is called a portfolio.In the current scenario, individuals hire well trained and experienced portfolio managers whoas per the client’s risk taking capability combine various investment products and create acustomized portfolio for guaranteed returns in the long run.It is essential for every individual to save some part of his/her income and put into somethingwhich would benefit him in the future. A combination of various financial products where anindividual invests his money is called a portfolio.What is Portfolio Revision ?
  3. 3. The art of changing the mix of securities in a portfolio is called as portfolio revision.The process of addition of more assets in an existing portfolio or changing the ratio of fundsinvested is called as portfolio revision.The sale and purchase of assets in an existing portfolio over a certain period of time tomaximize returns and minimize risk is called as Portfolio revision.Need for Portfolio Revision  An individual at certain point of time might feel the need to invest more. The need for portfolio revision arises when an individual has some additional money to invest.  Change in investment goal also gives rise to revision in portfolio. Depending on the cash flow, an individual can modify his financial goal, eventually giving rise to changes in the portfolio i.e. portfolio revision.  Financial market is subject to risks and uncertainty. An individual might sell off some of his assets owing to fluctuations in the financial market.Portfolio Revision StrategiesThere are two types of Portfolio Revision Strategies. 1. Active Revision Strategy Active Revision Strategy involves frequent changes in an existing portfolio over a certain period of time for maximum returns and minimum risks. Active Revision Strategy helps a portfolio manager to sell and purchase securities on a regular basis for portfolio revision. 2. Passive Revision Strategy Passive Revision Strategy involves rare changes in portfolio only under certain predetermined rules. These predefined rules are known as formula plans. According to passive revision strategy a portfolio manager can bring changes in the portfolio as per the formula plans only.What are Formula Plans ?Formula Plans are certain predefined rules and regulations deciding when and howmuch assets an individual can purchase or sell for portfolio revision. Securities can bepurchased and sold only when there are changes or fluctuations in the financial market.Why Formula Plans ?  Formula plans help an investor to make the best possible use of fluctuations in the financial market. One can purchase shares when the prices are less and sell off when market prices are higher.  With the help of Formula plans an investor can divide his funds into aggressive and defensive portfolio and easily transfer funds from one portfolio to other.Aggressive Portfolio
  4. 4. Aggressive Portfolio consists of funds that appreciate quickly and guarantee maximumreturns to the investor.Defensive PortfolioDefensive portfolio consists of securities that do not fluctuate much and remain constant overa period of time.Formula plans facilitate an investor to transfer funds from aggressive to defensive portfolioand vice a versa.Why Investment is Important ?Every individual needs to put some part of his income into something which would benefithim in the long run. Investment is essential as unavoidable circumstances can arise anytimeand anywhere. One needs to invest money into something which would guarantee maximumreturns with minimum risks in future. Money saved now will help you overcome tough timesin the best possible way.What are Bonds ?Bonds are issued by organizations generally for a period of more than one year to raisemoney by borrowing.Organizations in order to raise capital issue bond to investors which is nothing but a financialcontract, where the organization promises to pay the principal amount and interest (in theform of coupons) to the holder of the bond after a certain date. (Also called maturitydate).Some Bonds do not pay interest to the investors, however it is mandatory for theissuers to pay the principal amount to the investors.What is a Maturity Date ?Maturity date refers to the final date for the payment of any financial product when theprincipal along with the interest needs to be paid to the investor by the issuer.Characteristics of a Bond  A bond is generally a form of debt which the investors pay to the issuers for a defined time frame. In a layman’s language, bond holders offer credit to the company issuing the bond.  Bonds generally have a fixed maturity date.  All bonds repay the principal amount after the maturity date; however some bonds do pay the interest along with the principal to the bond holders.Types of BondsFollowing are the types of bonds: 1. Fixed Rate Bonds In Fixed Rate Bonds, the interest remains fixed through out the tenure of the bond. Owing to a constant interest rate, fixed rate bonds are resistant to changes and fluctuations in the market.
  5. 5. 2. Floating Rate Bonds Floating rate bonds have a fluctuating interest rate (coupons) as per the current market reference rate. 3. Zero Interest Rate Bonds Zero Interest Rate Bonds do not pay any regular interest to the investors. In such types of bonds, issuers only pay the principal amount to the bond holders. 4. Inflation Linked Bonds Bonds linked to inflation are called inflation linked bonds. The interest rate of Inflation linked bonds is generally lower than fixed rate bonds. 5. Perpetual Bonds Bonds with no maturity dates are called perpetual bonds. Holders of perpetual bonds enjoy interest throughout. 6. Subordinated Bonds Bonds which are given less priority as compared to other bonds of the company in cases of a close down are called subordinated bonds. In cases of liquidation, subordinated bonds are given less importance as compared to senior bonds which are paid first. 7. Bearer Bonds Bearer Bonds do not carry the name of the bond holder and anyone who possesses the bond certificate can claim the amount. If the bond certificate gets stolen or misplaced by the bond holder, anyone else with the paper can claim the bond amount. 8. War Bonds War Bonds are issued by any government to raise funds in cases of war. 9. Serial Bonds Bonds maturing over a period of time in installments are called serial bonds. 10. Climate Bonds Climate Bonds are issued by any government to raise funds when the country concerned faces any adverse changes in climatic conditionsWhat is Investment ?It is essential for every individual to keep aside some amount of his income for a securefuture. The art of assigning some amount of money into something, which would benefit theindividual concerned in the near future, is called as investment.Why Investment ?  Investment helps an individual to save money for the times when he would no longer
  6. 6. be able to earn.  Investment makes an individual’s future secure and stable.Where to Invest ?An individual can invest in any of the following:Gold/SilverMutual FundsShares and StocksBondsProperty (Residential as well as commercial)How to Invest ?An individual should not invest just for the sake of investing. One should understand as towhy he needs to invest? Don’t just invest in any plan available in the market. Decide the bestplan for yourself as per your income, age and financial requirements. One must go throughthe terms and conditions before investing in any market plan.Who decides where to invest ?How would one come to know where to invest and where not to invest ?How would an individual decide which organization’s share would yield him the best resultsin the near future and which should be sold off immediately ?Here comes the role of a Portfolio Manager.Who is a Portfolio Manager ?An individual who understands the client’s financial needs and designs tailor madeinvestment solutions with minimum risks involved and maximum profits is called a portfoliomanager.A portfolio manager invests money on behalf of the client in various investment tools such asmutual funds, bonds, shares and so on to ensure maximum profitability.It is the responsibility of the portfolio manager to choose the best plan for his client as per hisfinancial requirements, income and ability to undertake risks.How to choose the right portfolio manager ?Portfolio managers charge a good amount of money form their clients for their services. Onemust be careful while selecting the right portfolio manager.  Make sure the portfolio manager you choose has complete market knowledge and knows about the existing investment plans and the various risks involved. Taking the assistance of someone who himself is not clear about the market policies does not make sense.  A portfolio manager should be trustworthy. You will find all types of portfolio managers in the market - cheat, dishonest, unprofessional. An individual must hire the best portfolio manager who understands the market well and can guide him correctly. Don’t give money to someone who does not have a good background. You never
  7. 7. know he might run away with all your hard earned money. Ask for his business card. Check his reputation in the market.  An individual must not blindly trust his portfolio manager. Make it a point to read the related documents carefully before investing. A/C payee cheques must be issued and one should never sign any blank document.  A good portfolio manager should be transparent with his client. One should not try to confuse his client by using complicated terminologies and professional jargons. The various plans must be explained to the client in the easiest possible way.  Select a portfolio manager who does not have any personal interests in your investing in any particular plan. He should be able to help you decide the best plan available in the market.A portfolio manager is one who helps an individual invest in the best available investmentplans for guaranteed returns in the future.Let us go through some roles and responsibilities of a Portfolio manager:  A portfolio manager plays a pivotal role in deciding the best investment plan for an individual as per his income, age as well as ability to undertake risks. Investment is essential for every earning individual. One must keep aside some amount of his/her income for tough times. Unavoidable circumstances might arise anytime and one needs to have sufficient funds to overcome the same.  A portfolio manager is responsible for making an individual aware of the various investment tools available in the market and benefits associated with each plan. Make an individual realize why he actually needs to invest and which plan would be the best for him.  A portfolio manager is responsible for designing customized investment solutions for the clients. No two individuals can have the same financial needs. It is essential for the portfolio manager to first analyze the background of his client. Know an individual’s earnings and his capacity to invest. Sit with your client and understand his financial needs and requirement.  A portfolio manager must keep himself abreast with the latest changes in the financial market. Suggest the best plan for your client with minimum risks involved and maximum returns. Make him understand the investment plans and the risks involved with each plan in a jargon free language. A portfolio manager must be transparent with individuals. Read out the terms and conditions and never hide anything from any of your clients. Be honest to your client for a long term relationship.  A portfolio manager ought to be unbiased and a thorough professional. Don’t always look for your commissions or money. It is your responsibility to guide your client and help him choose the best investment plan. A portfolio manager must design tailor made investment solutions for individuals which guarantee maximum returns and benefits within a stipulated time frame. It is the portfolio manager’s duty to suggest the individual where to invest and where not to invest? Keep a check on the market fluctuations and guide the individual accordingly.  A portfolio manager needs to be a good decision maker. He should be prompt enough to finalize the best financial plan for an individual and invest on his behalf.  Communicate with your client on a regular basis. A portfolio manager plays a major role in setting financial goal of an individual. Be accessible to your clients. Never ignore them. Remember you have the responsibility of putting their hard earned money into something which would benefit them in the long run.
  8. 8.  Be patient with your clients. You might need to meet them twice or even thrice to explain them all the investment plans, benefits, maturity period, terms and conditions, risks involved and so on. Don’t ever get hyper with them.  Never sign any important document on your client’s behalf. Never pressurize your client for any plan. It is his money and he has all the rights to select the best plan for himself.It is essential for individuals to invest wisely for the rainy days and to make their futuresecure.What is a Portfolio ?A portfolio refers to a collection of investment tools such as stocks, shares, mutual funds,bonds, cash and so on depending on the investor’s income, budget and convenient timeframe.Following are the two types of Portfolio: 1. Market Portfolio 2. Zero Investment PortfolioWhat is Portfolio Management ?The art of selecting the right investment policy for the individuals in terms of minimumrisk and maximum return is called as portfolio management.Portfolio management refers to managing an individual’s investments in the form of bonds,shares, cash, mutual funds etc so that he earns the maximum profits within the stipulatedtime frame.Portfolio management refers to managing money of an individual under the expert guidanceof portfolio managers.In a layman’s language, the art of managing an individual’s investment is called as portfoliomanagement.Need for Portfolio ManagementPortfolio management presents the best investment plan to the individuals as per theirincome, budget, age and ability to undertake risks.Portfolio management minimizes the risks involved in investing and also increases thechance of making profits.Portfolio managers understand the client’s financial needs and suggest the best and uniqueinvestment policy for them with minimum risks involved.Portfolio management enables the portfolio managers to provide customized investmentsolutions to clients as per their needs and requirements.Types of Portfolio ManagementPortfolio Management is further of the following types:
  9. 9.  Active Portfolio Management: As the name suggests, in an active portfolio management service, the portfolio managers are actively involved in buying and selling of securities to ensure maximum profits to individuals.  Passive Portfolio Management: In a passive portfolio management, the portfolio manager deals with a fixed portfolio designed to match the current market scenario.  Discretionary Portfolio management services: In Discretionary portfolio management services, an individual authorizes a portfolio manager to take care of his financial needs on his behalf. The individual issues money to the portfolio manager who in turn takes care of all his investment needs, paper work, documentation, filing and so on. In discretionary portfolio management, the portfolio manager has full rights to take decisions on his client’s behalf.  Non-Discretionary Portfolio management services: In non discretionary portfolio management services, the portfolio manager can merely advise the client what is good and bad for him but the client reserves full right to take his own decisions.Who is a Portfolio Manager ?An individual who understands the client’s financial needs and designs a suitable investmentplan as per his income and risk taking abilities is called a portfolio manager. A portfoliomanager is one who invests on behalf of the client.A portfolio manager counsels the clients and advises him the best possible investment planwhich would guarantee maximum returns to the individual.A portfolio manager must understand the client’s financial goals and objectives and offer atailor made investment solution to him. No two clients can have the same financial needsWhat Caused the Global Economic Crisis ? inShare The previous article in the module introduced the global economic crisis with a brief overview of the causes. This article looks at the causes of the global economic crisis in depth. For starters, the global economic crisis carries a distinct “Made in the USA” tag which means that the origins of the crisis are to found in the reckless lending and risky banking practices of Wall Street. The first aspect is the building up of toxic derivatives on top of the subprime housing market which meant that once the housing market went bust, the financial securitization and the derivatives that were based on the housing market blew up leading to banks being unable to lend to each other and suffering losses. What exacerbated the situation was that the globalization of the world economy meant that the crisis was not restricted to the United States alone and hence the world economy took a beating as a result of the crisis.The next aspect is the fact that Americans and much of the rest of the world were deeply indebt (personal, corporate and governmental) which was unsustainable. The point here is thatif one lives beyond one’s means, sooner or later the debts come due and the financial
  10. 10. reckoning day would mean that one is either forced to pay up or go bankrupt. When thishappens at the individual level, it usually results in foreclosure of homes, being declaredbankrupt and hence unable to pay the credit card bills etc. When this happens across theeconomy and involves corporates, banks, governments (local, regional and national), and thenet result is a credit crunch which in other words was the name given to the global economiccrisis.The third aspect to the crisis is that growth cannot proceed ad infinitum in a world of finiteresources. Thus, as skyrocketing petrol prices and food prices were on display in the summerof 2008, individuals and families were left at the mercy of market forces forcing a full blowncrisis of market led growth. The point here is that we live in a world of limited resources andhence the paradigm of growing forever needs a rethink as there are limits to which we canuse the resources. This is another aspect of the crisis which has been noted by somecommentators.To sum up, there was a convergence of different forces (economic, social and political)which resulted in a “perfect storm” of economic and social calamity. Hopefully, the crisisshould serve as a warning to policymakers to promote sustainable business practices and forindividuals and families to not live beyond their means. The bottom line for any debt basedeconomic system is that one can only postpone the day of reckoning but cannot go on foreverin the expectation that the debts would not come due.In conclusion, this article provided a detailed description of the factors that caused the globaleconomic crisis and the subsequent articles would look at the various casual factors alongwith some recommendations on how to resolve the crisis