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INVESTMENT ANALYSIS

Meaning of Investment
Investment is putting money into an asset with the expectation of capital appreciation, usually over the long-term future. Most or all forms of investment involve some form of risk, such as investment in equities, property, and even fixed interest securities which are subject to inflation risk. In contrast putting money into something with a hope of short-term gain, with or without thorough analysis, is gambling or speculation. This category would include most forms of derivatives, which incorporate a risk element without being long-term homes for money, and betting on horses. It would also include purchase of e.g. a company share in the hope of a short-term gain without any intention of holding it for the long term. Under the efficient market hypothesis, all investments with equal risk should have the same expected rate of return: that is to say there is a trade-off between risk and expected return.. An investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.

Objectives of Investment
1. 2.

3.

Income Capital Appreciation (a) Conservative Growth, (b) Aggressive Growth ( c) Speculation Forms of return- (a) Periodic cash receipts (b) Capital Gain

Return= End Period value-Beginning period value +Dividend*100/ Beginning value OR Return= Capital Appreciation and dividend*100/ Purchase Price
4. Safety and security of Funds 5 . Risk 6. Liquidity 7. Tax Consideration

Types of Investment
1. 2. 3.

4.

Physical Investments Financial Investments Marketable and Non- Marketable Investments Transferable and Non-Transferable Investments

Scope of Investment
1. 2. 3. 4.

Identification of Investors requirements Formulation of Investment Policy and Strategy Execution of Strategy Monitoring of Portfolio

Investment Process

Investment policy

Analysis

Valuation

Portfolio Construction

Portfolio Evaluation

-Investible Fund -Objectives -Knowledge

-Market -Industry -Company

-Intrinsic Value -Future Value

Diversification -Selection & allocation

-Appraisal -Revision

Investment Avenues/ Types


Forms of investment: Forms of investment Small savings schemes Post office schemes National saving schemes, Saving deposit, Fixed deposit, Recurring deposit, Savings certificate, Indira vikas patra Kisan vikas patra Bank Deposits: Bank Deposits Savings bank account Current account Recurring deposit Fixed deposit Mutual fund Company deposits: Company deposits: It is the fixed deposit investment schemes offered by various companies like private and public. It includes name of the company Date of the incorporation Type of business Details of the company Name and address Profit and dividend description

Equity Shares: Equity Shares are common shares enjoyed by the investor and it has a equal rights to be used by the shareholder. Characteristics of Equity shares: Voting rights, Ownership rights, Par value Rights shares

Govt Securities: Issued only by the central government, state government and semi government authorities. Ex: Gold bond, national defense bond. Mutual Fund: Mutual fund is a trust that pools money from a group of investors (sharing common financial goals) and invest the money thus collected into asset classes that match the stated investment objectives of the scheme. Since the stated investment objectives of a mutual fund scheme generally forms the basis for an investor's decision to contribute money to the pool, a mutual fund can not deviate from its stated objectives at any point of time. Ex: UTI Objectives of units: Safety Growth in dividend liquidity

Insurance : Insurance is the protection against the risk. It is the element of investment. It has tax benefit. Gold and silver: Gold is the valuable asset in our daily economy of life and it is used in various forms for the purpose of investment. Its value increased or decreased depends upon the economic condition. Ex: Gold coins Gold Bar and jewels. Silver: silver may be in the form of weight by the kilo gram. Silver may be less then the price of gold. Real Estate: Land and house property is called as real estate. This investment taken by large number of people for hedging the inflation rates. Principles of investing in real estate: price Supply of land Tax Land has collateral value

Debentures Preference Shares

Concept and Measurement of Investment risk and return


Definition of 'Return' The gain or loss of a security in a particular period. The return consists of the income and the capital gains relative on an investment. It is usually quoted as a percentage. Risk The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment. Different versions of risk are usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment. A high standard deviation indicates a high degree of risk. Many companies now allocate large amounts of money and time in developing risk management strategies to help manage risks associated with their business and investment dealings. A key component of the risk management process is risk assessment, which involves the determination of the risks surrounding a business or investment.

RISKS AND RETURNS

Investors have different motives for investing Regular incomedividend/interest Capital gains or capital appreciation Hedge against inflation i.e. positive real returns. Safety of funds regular returns and refund on maturity liquidity and maturity Security analysis involves an examination of expected returns and accompanying risks. The first three motives refer to the returns, last two are related to risks.. Returns depend on risks investors want more returns and lower risks.

COMPONENTS OF RETURNS
Return is measured by taking the income plus the price change. The term yield is also used in respect of fixed income securities. The return is to be calculated on the purchase price. The expected return may differ from realized returns and this variation is a risk factor. Total return is calculated Return=End Period value-Beginning period value +Dividend*100/ Beginning value OR Return= Capital Appreciation and dividend*100/ Purchase Price

RISK ELEMENTS
the components of risks are broadly two 1. Systematic risks that portion of variability of return caused by common factors affecting the prices of all securities in the market alike through economic, political and social factors. Examples of systematic risks 1) Market risks changes in market condition 2) Interest rate risks changes in interest rates. 3) Inflation risks 4) Trade cycles/business condition or monsoon for agriculture based economies.

RISK ELEMENTS CONTD

..

Unsystematic risks That portion affecting the variability of returns caused due to unique factorsrelating to the particular industry/firm through such factors such as management failures, labour strike, raw material scarcity, substitute products. Examples of unsystematic risks 1) Financial risks heavy interest/inefficient capital management. 2) Management risks inefficiency/poor planning 3) Labour and other input risks

MEASUREMENT OF RETURN
Arithmetic average It is a summation of returns over a given number of years. Geometric return measures the compound cumulative returns over time.

The measurement of return on any security is generally done on the basis of the market return, which is based on an approved index such as BSE index (30 scrips). base 1978-79=100

Risk from investing

Returns are uncertain


Future values of investments are dependent on demand by investors Before you select an investment, you should assess the risk Measuring an investments risk
Range of returns: returns of a specific investment over a given period Standard deviation: the degree of volatility in the stocks return over time A risky stock will normally have a relatively wide range of returns and a high standard deviation of returns

RISKS AND UNCERTAINTY


Risks and uncertainty go together investor knows that there are some possible consequences but in uncertainty outcome is not known. Some risks can be predicted and controlled by the investors and some by issuers but there are some risks which cannot be controlled. What causes the risks Wrong decision about the investment alternative Wrong timing of investment Nature of instruments Maturity period /length of investment Amount of investment

Identification of Investment Opportunities


The investment management teams consisting of national experts and experienced, local professionals combine top-down guidance from our Strategy Team with bottom up analysis from our Research Teams to deliver best ideas to clients. Professionals can access a comprehensive, diverse set of strategies and investment products to design a portfolio that addresses unique situation by correctly identifying investment opportunity. Investment Management Solutions Include: Strategy Economic Analysis Market Forecasting Strategic Policy Guidance

Speculation
Speculation has a special meaning when talking about money. The person who speculates is called a speculator. A speculator does not buy goods to own them, but to sell them later. The reason is that he wants to earn profit from the changes of market prices. One tries to buy the goods when they are cheap and to sell them when they are expensive. There is a good chance to do that as long as the market price of a good changes often in different directions. Speculation includes the buying, holding, selling, and shortselling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives or any valuable financial instrument. It is the opposite of buying because one wants to use them for daily life or to get income from them (as dividends or interest). A message expressing an opinion based on incomplete evidence Speculation is one of the market roles in western financial markets. The others are hedging, long term investing and arbitrage. Speculators do not plan to keep an asset for a long time

Gambling and Investment activities.


Gambling is the wagering of money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods. Gambling thus requires three elements be present: consideration, chance and prize. Typically, the outcome of the wager is evident within a short period.

Investment activities
1. 2. 3.

Economic Activities Financing Activities Investing Activities