Unit 1

What is Investment?
By Joey Lai
Banking Academy, Vietnam
Content
Understand the term investment
Differentiate types of investments
Types of investors
Different Types of Risks
Definition
Any asset into which funds can be
placed with the expectation that it
will generate positive income and/or
preserve or increase its value
Investment
An investment is to commit money at risk
to purchase a financial instrument or
other asset for a higher profitable return.
or
Financial Investment
A "real" investor does not simply throw his
or her money at any random investment


Investing is not gambling

What Investing Is Not

Spread Betting
Gambling or Investing?
Investors speculate on two possibilities namely
the upward or downward movement of an individual
share, currency, or commodity, value, or a stock index
Why bother investing?
We want more money to increase our
personal freedom, sense of security and
ability to afford the things we want in life.

Time Horizon of Investment
These include buying a
retirement fund, shares and
bonds.
Short-term
Long-term
Time
Horizon
These include saving for
a car or an overseas
vacation. ( Bank savings)
Investment Vehicles
Investment Vehicles
Buying
mutual funds
Buying
gold
Buying
securities
Buying real
estates
Classification of Financial
Investments
By its time horizon: short-term vs. long-
term
Short-term: Invest for a year or less. A shorter
repayment period. ( lower in risk, lower in
return, higher in liquidity)
Long-term: invest for more than a year. A
longer repayment period. ( higher in risk,
higher in return)
Classification of Financial
Investments
By its mode of invest: Direct or Indirect
Direct: investor directly owns a claim on a security
or property. (invest in a companys shares or
bonds)
Indirect: investor owns an interest in a
professionally managed collection of securities or
properties

Classification of Financial
Investments
By its types: Securities and/ or Property
Securities: Equity, Debt and/ or Derivatives
Real Property: land, shop-buildings, apartments
Tangible Personal Property: gold, artwork,
antiques, collectibles

Classification of Financial
Investments
By its nature of return:
Fixed income investment
Normal bank savings, fixed-term deposits, bonds,
preference shares
Non-fixed income investment
Ordinary shares
Major Types of Investments
Debt, Equity or Derivative Securities, Mutual
Funds
Debt: investor lends funds in exchange for interest
income and repayment of loan in future (bonds)
Equity: represents ongoing ownership in a
business or property (common stocks)
Derivative Securities: neither debt nor equity;
derive value from an underlying asset (options)
Mutual Funds: operated by an investment
company which raises money from shareholders
and invests in a group of assets
A financial advisor explains to an investor about
mutual funds.
Photograph : Joe Readle
Types of Investors
Individual Investors
Invest for personal financial goals
(income, retirement, house, education)
Institutional Investors
Paid to manage other peoples money
Trade large volumes of securities
Include: banks, insurance companies, mutual
funds, pension funds
Risk in Investment
Every investment opportunity
carries some risks.
Risk in Investment
Risk in Investment
7
4
1
3
5 Liquidity Risk
Default Risk
Inflation risk
Political risk Market risk
6
Interest rate risk
2
Business risk
Liquidity of Various Investments
Liquidity Some Examples
Very high Cash, gold, silver, savings and current accounts in banks,
G-Securities
High Fixed deposits with banks, shares of listed companies that
are actively traded, units, mutual fund shares
Medium Fixed deposits with companies enjoying high credit rating,
debentures of good companies that are actively traded
Low and very
low
Deposits and debentures of loss-making and cash-
strapped companies, inactively traded shares, unlisted
shares and debentures, real estate
Savings vs. Investment





money that is supposed to be immediately
liquid and safe.
money that is supposed to be generating
more money
Partnership Investment
Started out this way by pooling
money from seven family
members or extremely close
friends.
Warren Buffet

Upcoming... In next unit
Success skill in managing your
investments lies in achieving the
right balance between risks and
returns. Where risk is high, returns
can also be expected to be high
THANKS!
By Joey Lai
Banking Academy, Vietnam