Investment Meaning, Nature and

Scope: Decision Process

Investment

In finance, the purchase of a financial product or

other item of value with an expectation of
favorable future returns. In general terms,
investment means the use money in the hope of
making more money.

Objective of SAPM

To improve decision-making skills in management

of investment through better understanding of
modern theories on portfolio management and
functioning of capital market.
To get better return on portfolio with lesser risk

Nature and Scope of Investment

Decision

To understand various investment decision rules.

To know what are the good investments decisions
rules.
To know the category of investment decision
rules.
You can take investment decision only after
analyzing entire process of investment that starts
with funds contribution and ends with getting
expectations fulfilled.

Continue

The investment decision rules allow you to

formalize the process and specify what condition
or conditions need to be met to accept the project.
You will take decision only after ensuring that the
required expectations in terms of returns are
ensured at any cost.

Decision Process

Understand characteristics of good investment

decision rules.
Decide basis of calculation of return based on
required condition.
Use constrain to eliminate investment alternatives.
Follow decision rules to accept or reject
investment opportunity.

Characteristics of Good Investment

Decision Rules

It should maintain a fair balance between allowing

manager to analyze the project and bring-in
subjective assessment into the decision and
ensuring that different projects are judged
consistently.
It must maximize the value of the firm and
minimize risk.
It should work across a variety of investments.

Category of Investment Decision Rules

Accounting Income-based decision rule

Return on Capital
Return on Equity

Cash flow-based decision rule

Cash Return on capital

Cash Return on Equity