INVESTMENTS

An introduction
INVESTMENTS
Income

Savings

Investments-Financial &
Real assets
INVESTMENTS
Postponed
consumption
WHY SHOULD ONE POSTPONE?
To get return, which should
compensate

Time

Inflation

Risk

RETURN IS NOTHING BUT
Real rate +

Inflation rate expected+

Risk premium

Difference between investment &
speculation
Investment

Long term
Expect normal return
Take low risk
Use fundamental
analysis
Use own funds
Stay
Speculation

Short term
Expect high return
Take high risk
Use technical analysis

Use borrowed funds
Keep moving

Investing is like a long car trip

A lot of planning needs to go into it.
How long is the trip? (What is the investors "time horizon"?)
What should one pack? (What type of investments will the
investor make?)
How much petrol is required for the trip? (How much money will
the investor need to invest to reach his goals?)
Will the trip require a stop over along the way? (Does the investor
have short-term financial needs?)
How long is the stay? (Will the investor need to live off the
investment in later years?)
Planning and Setting Goals.
Running out of gas, stopping frequently to visit restrooms, and
driving without sleep can ruin the trip. So can saving too little
money or investing erratically

An investor must answer the following questions before he can
successfully set about the savings / investing journey:

What are the investors goals?
Is the investment for retirement? A down payment on a house?
Child's education? A second home? .

How much money can the investor devote to a regular investing
plan?
Planning and Setting Goals.
Ask some more pointed questions:
How much will college cost (at the time the child needs to go)?
How much yearly income is reasonable for retirement?

The more specific the investor can be, the more likely he is to set
and achieve reasonable goals.

Once the investor has a rough idea of how much money he
will need and how much time he has to get there. He can start
to think about what investment vehicles might be right for him
and what kind of returns he can reasonably expect. He needs
to understand his investment style in order to match it with
the various available investment choices.
Planning and Setting Goals.
Investment management process
Life Cycle Stage analysis Accumulation,
Consolidation, Spending and Gifting
Decide investment objectives Capital
Appreciation, Current Income, Balanced and Capital
Preservation
Decide Investment Constraints Liquidity, Time
Horizon, Tax Considerations and Risk
Choice of asset mix
Formulation of strategy- active and passive
Selection of securities-fundamental and technical
Portfolio execution
Portfolio revision
Performance evaluation

11
Investments : Key Determinants
Security Selection 4.6%
Market Timing 1.8%
Other Factors 2.1%
The most important determinant of portfolio return is asset
allocation .
Asset
Allocation
91.5%
Source: Brinson, Singer & Beebower
( 1991 )
12
Aggressive
Assets
Serious Assets
Sacred Assets
Bank Fixed
Deposits
Income Funds &
Real Estate
Derivatives &
Equity Mutual
Funds
Disciplined Investment Planning
GOI Relief
Bonds