SECURITY ANALYSIS & PORTFOLIO MANAGEMENT - INTRODUCTION

BY

VEDAPRADHA.R

INTRODUCTION TO INVESTMENT

MANAGEMENT

MEANING OF INVESTMENT

Investment is the application of present resources which have been saved or put aside from current consumption in the hope that some benefit will occur in the future.

NEED FOR INVESTMENT

Increase in income level Increase in life expectancy Retirement benefits Minimise inflation pressure Tax benefits

OBJECTIVES Maximise returns Minimise risk Hedge against inflation Regular income Avail tax benefits Safety for funds

FACTORS INFLUENCING INVESTMENT DECISIONS

Return Risk Liquidity Tax shelter Marketability Convenience

INVESTMENT PROCESS Determining investment objectives and policy Security analysis Construction of portfolio Portfolio revision/rebalancing Portfolio evaluation

Note: KYC from SEBI is mandatory

( registered office) for mutual funds & stock market entry – Individual investors only

INVESTMENT ALTERNATIVES/AVENUES

• FINANCIAL ASSETS

• Non marketable financial securities

• Bonds

• Mutual funds

• Shares

• Money market instruments

• Life insurance policies

•REAL ASSETS•Precious stones•Real estate•Precious metals•Art objects

•FINANCIAL DERIVATIVES

NON MARKETABLE SECURITIES Bank deposits Post office savings Monthly income scheme of post office Kisan Vikas Patra National savings certificate Company deposits Employee provident fund scheme (EPF) Public Provident fund deposits

SHARES

Equity

Preference

EQUITY SHARES CAPITALISATION Blue chip shares Growth shares Income shares Cyclical shares Defensive shares Speculative shares Tech shares

BONDS OR DEBENTURES

Government Bonds – RBI, PSU

Corporate bonds Municipal bonds

MONEY MARKET INSTRUMENTS

Treasury bills Certificate of deposits Commercial paper Repos

MUTUAL FUNDS

Equity scheme Debt scheme Balanced scheme

LIFE INSURANCE

Endowment assurance policy Money back policy Whole life policy Term assurance policy ULIP

REAL ASSETS Real estate Precious stones Precious metals

FINANCIAL DERIVATIVES

Options Futures Forwards Swaps Collaterals

MATRIX APPROACH TOWARDS INVESTMENT

The below are the criteria for evaluation of investment alternatives or matrix approach towards investment decisions.

Rate of return Risk Marketability Tax shelter Convenience Liquidity

MATRIX APPROACH

RISK & UNCERTAINTYTypes of Risk

SYSTEMATIC•Market risk•Interest rate risk•Purchasing power risk

UNSYSTEMATIC

•Business risk•Financial risk•Credit risk

RETURN

Realized return - The actual or income which has been earned

Expected return – It is the return which an investor expects or anticipates earning over some future period

COMPONENTS OF RETURN Current gains Capital gains

BENEFITS OF DIVERSIFICATION

Minimisation of risk Portfolio optimization Human bias Hedging Tax benefits Economic cycles

INVESTMENT STRATEGIES Investment objective Fluctuations Indifferent Individual approach Diversification Speculation Vs Investor Liquidity Analysis Common sense approach Long term investor

MEASURES OF RISK & RETURN

Range Standard Deviation & co-variance

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