IMPORTANCE OF SUBJECT

ECONOMIC DEVELOPMENT

Investment Saving

In every Economic System

Deficient generating Surplus Generating

Issue Hold Invest

Transaction/Precaution/
speculation Physical/Financial

Exchange of Saving
Return
Thus the whole economic development depends on saving and Investment
 CONCEPT OF INVESTMENT
• Current Income will be either consumed or saved for future benefit.
• Employment of fund with the aim of earning income or securing growth is
normally referred as investment.
• Three concept-
Economic Investment-Net addition to capital assets.
Commitment Investment-Lay man in which no return or risk is
calculated
Financial Investment-Investment is commitment of personal funds to
derive future income in the form of interest, dividend, rent, premium,
pension benefit or appreciation of his principal capital.
Thus there are three basic features which are identified as common to
all types of investment-
There is commitment of present funds.
There is expectation of some return or benefit from such
commitment in future and
There is always some risk in respect of return and the principal
amount investment.
Investment and Speculation

Price change and moderate return

• Time
• Risk
• Return
• Basis
• Leverage
INVESTMENT OBJECTIVES

Main objective is to reduce risk and to get maximum return.

(1) Return: Investor expects regular income& appreciation.

Rate of return could be defined as total income investors
receive during the holding period stated as a percentage of
purchasing price at the beginning of the holiday period.
Return = E1 – E0+dividend*100

E0

Or
Dividend + capital appreciation*100

Purchase price
• (2) Risk:
1- Variability of rate of return
2- Probability of actual return less the expected.
3- There is always risk.
Safety of principal

GOI bond
Debenture
Equity share

Stability of return

Debentures
Equity
Capital appreciation
(3) Liquidity:
1-Quickly
2- Transaction cost is low
3 -Price change between two successive
• (4) Safety: 1) amount investment
2) Stability of return
3) Capital appreciation
(5) Hedge against inflation:
1) Rate of return > inflation
2) Dividend + capital
appreciation
 Attributes:

(1) Rate of return

(2) Risk
(3) Liquidity
(4) Tax saving
Initial Tax Benefit like NSC AND PPF
Continuing Tax Benefit like Dividend
Terminal Tax Benefit-PPF

(5) Convenience: ease with which investment is

made n looked after. For ex. - In bank deposit no
maintenance effort whereas in property lot of procedural and legal
hassles.

* Outlets where money is invested are known as investment

assets or securities.
* Analysis, decision making & process involved in allocation
fund is investment management.
Investment Decesion Process

• 1.Objectives and constraints

• 2-Review of avenues
• 3-Investment analysis
• 4-Portfolio construction
• 5- Portfolio revisions
• 6-Portfolio evaluation
Forms or type of investment
Based on return-
Fixed income securities
Variable income Securities
Based on source-
Govt. securities
Semi govt.
Based on transferability

Security form Non Security

Equity share Deposits Scheme

Preference share Tax sheltered scheme
Debenture Life Insurance
Government Securities Mutual Fund
Real Assets
Security Analysis and its Approach

• Security Analysis: Basic purpose currently appear to be worth

buying or worth selling
• Approaches:
Fundamental Approach : Present value of future dividend and
capital
Technical Approach: Demand and Supply, past behavior to find future
value.
Psychological Approach: Emotion rather reasons. Greed and fear are
important aspects.
Electic Approach: To combine the above three reasons.
Matrix Approach: Maximum sore card based on the weight given on
securities.