Investment and Securities

PRAVEEN KUMAR
 Investment

It is the employment of funds on assets with the aim of earning

income and capital appreciation. It has two attributes:
 Time: present consumption is sacrificed to get the return in the
future.
 Risk: sacrifice to be borne is certain but the return in the future
is uncertain.
Economist: investment is the net addition made to the nation’s
capital stock that consist of goods and services that are used in
production process.
Financial investment: it is the allocation of money to asset that
are expected to yield some gain over a period of time.
 Speculation

Speculation means taking up the business risk in the hope of

getting short term gain.
It essentially involve buying and selling activities with the
expectation of getting profit from the price fluctuations.
The time factor involved in speculation and investment is
different.
 Speculator & Investor

Investor Speculator
Time horizon Plans for longer time Plans for very short
horozon. Holding period period. Holding period
may be from one year to may varies from few days
few years. to months.
Risk Assume moderate risk Willing to undertake high
risk.
Return Moderate return High return
Decision Considers fundamental Inside information,
factors and evaluates the market behavior.
performance of the
company regularly.
Funds Use his own funds. Use borrowed funds to
supplement his personal
resources.
 Investment Objectives

Main objective:
 Increasing the rate of return: rate of return could be defined as the total
income the investor receive during the holding period stated as the
percentage of purchasing price at the beginning of the holding period.

return= (end value-beginning value)+ dividend *100

end value
Reducing the risk.

Other objective:
 Liquidity
 Safety
 Hedge against inflation.
 Investment Process

The investment process involves a series of activities leading

to the purchase of securities or other investment alternatives.
The process can be divided into five stages:
a. Investment policy
a. 1.Investible funds
b. 2. objectives
c. 3. knowledge
b. Security Analysis
b. 1.market analysis
b. 2. Industry analysis
b. 3. Company analysis
 Investment process cont…

c. Valuation
d. Portfolio construction
1. Diversification
2. Debt and equity diversification
3. Industry Diversification
4. Company Diversification
5. Selection

e. Portfolio evaluation
1. Appraisal
2. Revision