What is an investment?

 Make our money work for us  Employment of funds on assets with the aim

of earning income or capital appreciation.  Investment has two attributes, Time & Risk  Could be tangible, i.e., real estates or intangible, i.e., securities.

 Investment and speculation

 speculation means taking of the business risk in
the hope of getting short term gain.  It is similar to investment.  Time factor involved in both is different. Eg .buying a shares for dividend termed as investor but buying shares in hope of selling in near future when prices rise termed as speculators.

Investment and gambling

 Gambling is a very short term investment in a

game or chance.  Time horizon involved is the shortest.  It involves artificial risk not the commercial risk.  Negative outcomes are expected. Eg.-putting money in cricket matches, in horse racingetc

TYPES OF INVESTORS
 SAVERS  SPECULATORS  SPECIALIST

Types of investment
      

Cash investment Debt securities Stocks Mutual funds Derivatives Commodities Real estate

 Cash investments
These include savings bank accounts, certificates of deposit (CDs) and treasury bills. These investments pay a low rate of interest and are risky options in periods of inflation.

 Debt securities:
This form of investment provides returns in the form of fixed periodic payments and possible capital appreciation at maturity. It is a safer and more 'risk-free' investment tool than equities. However, the returns are also generally lower than other securities.

 Stocks:
Buying stocks (also called equities) makes you a partowner of the business and entitles you to a share of the profits generated by the company. Stocks are more volatile and riskier than bonds.

Mutual funds: This is a collection of stocks & bonds and involves paying a professional manager to select specific securities for you. The prime advantage of this investment is that you do not have to bother with tracking the investment.

 Commodities:
The items that are traded on the commodities market are agricultural and industrial commodities. These items need to be standardized and must be in a basic, raw and unprocessed state. The trading of commodities is associated with high risk and high reward. Trading in commodity futures requires specialized knowledge and in-depth analysis.

Real estate:
This investment involves a long-term commitment of funds and gains that are generated through rental or lease income as wellas capital appreciation. This includes investments into residential or commercial properties.

 Derivatives :
These are financial contracts the values of which are derived from the value of the underlying assets, such as equities, commodities and bonds, on which they are based. Derivatives can be in the form of futures, options and swaps. Derivatives are used to minimize the risk of loss resulting from fluctuations in the value of the underlying assets (hedging).

Types of Markets
 Money Markets: market where short-term

securities are bought and sold

 Capital Market: market where long-term

securities such as stocks and bonds are bought and sold

 Primary Market: the market in which new

issues of securities are sold to the public

 Secondary Market: the market in which

securities are traded after they have been issued

MONEY MARKET
 Money market means market where money or its

equivalent can be traded. Money Market is a wholesale market of short term debt instrument and is synonym of liquidity.. Money Market is part of financial market where instruments with high liquidity and very short term maturities ie one or less than one year are traded. Hence, money market is a market where short term obligations such as treasury bills, call/notice money, certificate of deposits, commercial papers and repos are bought and sold.

Structure of Capital Market in India

Market Segments
Primary and Secondary

Regulators
SEBI, RBI, DCA, DEA

Legislations
Capital Issues (Control) Act,1947 SEBI Act, 1992; Depositories Act,1996 Securities Contract Regulation Act 1956 Companies Act, 1956

Participants
Issuers, Intermediaries, Investors

Primary Markets
 Initial Public Offering (IPO)
First public sale of a companys stock Requires SEBI approval.

The Secondary Market

 Purchases and sales of existing stocks and bonds occur in the

secondary market.
 Transactions in the secondary market do not provide

additional funds to the firm.

 The secondary market increases the liquidity of securities

outstanding and lowers the required returns of investors.

 Composed of organized exchanges like the New York Stock

Exchange and American Stock Exchange plus the over-thecounter (OTC) market.

THANKS