CLASS:- BBA 5

SUBJECT:- INVESTMENT MANAGEMENT

Unit – 01
Introduction:-

Investment is an economic activity in Which every person is engaged in one

form or another. Even though the basic objective of making investment is
earning profits, not everybody who makes investment benefits from it. Those
who incur losses have not managed their funds. scientifically and have just
followed blindly. All investments are risky to some degree or other as risk and
return go together. The art of investment is to see that the return is maximised
with the minimum degree of Risk.

Meaning of Investment :-

“A commitment to found made in the expectation of some positive rate of

return “

Examples :-
1) If one person advance money along with interest at a future date.
2) Another person may have purchased one kilogram gold for the purpose of
price appreciation and consider it as an investment
3) Another person may have purchase an insurance plan for the various
benefits it promises in future that is his investment.

Characteristics of investment management:-

1) Return:Return refers to expected rate of return from an investment. Return is

an important characteristic of-investment. Return is the major factor which
influences the pattern of investment that is made by the investor. Investor
always prefers high rate of return for his investment. Returns could be in the
form of dividend, interest, capital gain etc. Returns depend upon the factors
such as nature of the investment.

2) Risk:
If an investor is averse , he can invest in bank deposits, government
securities, Its insurance, provident fund, , debentures etc. It an investor is a risk
taker he can choose the equity shares, precious metals, real estate and mutual
funds etc. Higher rISK Will lead to higher return.
but in practice higher risK may always nOt guarantee higher return
3) Safety:Safety is another feature which an investor desires for his investments.
Safety implies the certainty of return of capital without loss of money or time.
Every investor expects to get back his capital on maturity without loss and
without delay. In other words safety refers to the protection of investor's
principal amount and expected rate of return.

4) Liquidity:
An investor which is easily saleable or marketable without loss of
Money without loss of time is said to be possess . Liquidity means that
investment 18 easily realisable. saleable or marketable. When the liquidity is
high. then the return may be low.

5) Marketability: Marketability refers to buying and selling of securities in

market. Marketability means transferability or saleability an asset. Securities
are listed in a stock market which are more easily marketable than which are
not listed. Public Limited Companies shares are more easily transferable than
those of private limited companies.

6) Capital
Growth: Capital Growth refers to appreciation of investment. Capital
growth has today become an important characteristic of investment. Growth of
investment depends upon the industry growth.

7) Stability
of Income: It refers to constant return from an investment . Another
major characteristic feature of the investment is the stability of income.
Stability of income must look for different path just as security of principal.
Every investor always considers stability of monetary income

8) Tax
shelter: An investor can avail tax exemptions by investing in the
government securities, P, PPF, Indira Vikas Patras, Insurance and selected
mutual fund.

Scope of investment management :-

1. Monitoring the performance of portfolio by incorporating the latest market

conditions
2. . Identification of the investor’s objective, constraints and preferences.
3. Making an evaluation of portfolio income (comparison with targets and
achievement)
4. Making revision in the portfolio.
5. Implementation of the strategies in tune with investment objectives.

Objectives of investment :-
 1. Maximisation of return
2. Minimisation of risk 3. Hedge against inflation .

Difference between Investment & Speculation :-

Investment involves the allocation of money towards purchasing an asset,

which is not to be consumed in the present but hoping it will generate stable
income or is expected to appreciate in the future.

Traditional Investment:-
1. Stocks
2. Bonds
3. Fixed Deposits
4. Provident Funds
5. Gold and Jewellery
Alternative Investment:- 1. Real
Estate
2. Private Equity Investments
3. Antique Collectibles
4. Paintings
5. Hedge Fund Investments

• Speculation :-
- Speculation (also known as speculative trading) is a financial term that refers
to the act of purchasing an asset (a commodity, good or real estate) that
has a substantial risk of losing value but also holds the hope of gaining
value in the near future.
- Speculation works when an investor has a strong worldview or prediction
about an industry.

For example- An investor who invests in foreign currency buys some currency in
the hopes of selling it at an appreciated rate when market fluctuations happen.
This type of speculation is known as currency speculation.

Types of speculators:-

1. Bull:- Bull or tejiwala is an operator who expects a rise in prices of

securities in the future. In anticipation of price rise he makes purchases of
shares at present and other securities with the intention to sell at higher
prices in future. He is called bull because just like a bull tends to throw his
victim up in the air. He is an optimistic speculator.
 2. Bear:- A bear or Mandiwala speculator expects prices to fall in future and
sells securities at present with a view to purchase them at lower prices in
future. A bear does not have securities at present but sells them at higher
prices in anticipation that he will supply them by purchasing at lower prices
in future.

3. Stag:- A stag is a cautious speculator in the stock exchange. He applies for

shares in new companies and expects to sell them at a premium, if he gets
an allotment. He selects those companies whose shares are in more
demand and are likely to carry a premium.

4. Lame Duck- : When a bear finds it difficult to fulfils his commitment, he is

said to be struggling like a lame duck.
:

Types of Alternative Investments:-

• Private equity :-
This is a broad category of alternative investment in which capital investments
are made into private firms or firms that are not listed in public exchange (i.e.
New York Stock Exchange). Private equity has subsets like Growth capital,
Venture capital and Buyouts. Private equity firms provide benefits like talent
sourcing assistance, industry expertise and mentorship to the founders.

• Real estate:-
There are various types of real estate such as land, farmland, timberland etc. It
is an interesting category of alternative investments as its characteristics are the
same as bonds (the property owners make money from their tenants) and
equity for increasing their asset value for the long term which is also known as
capital appreciation. In this alternative investment, the major challenge is
valuation. Individuals use real estate valuation methods like discount cash flow,
income capitalisation, sales comparable etc. but all these methods have their
pros and cons. It is important to develop strong valuation skills to achieved
success in real estate investments.

• Commodities :-
Commodities include industrial metals, agriculture products, natural gas, oil and
other natural resources. They are not highly sensitive to the public equity
market because they are considered as a hedge against inflation. It is important
to know the value of the commodities increase and decrease in tandem with
supply and demand. So the investors wait for the high demand of their
commodities to make high profits
•. Collectables :-
This category of alternative investments includes a wide range of items from
vintage cars to rare wines to old rare paintings. Investors spend money on
collectibles with the hope that their value will be increased over time. This
alternative investment contains high risk due to high acquisition cost,
uncertainty about the rise and fall of their value and even potential destruction
of the item. Only experts should go for these types of investments to get
profitable returns.

• Hedge Funds :-
Hedge funds are investment funds that trade
relatively liquid assets and employ various
investing strategies with the goal of earning a
high return on their investment. Hedge fund
managers can specialise in a variety of skills
to execute their strategies, such as long-short
equity, market neutral, volatility arbitrage,
and quantitative strategies.

Gambling :-
Gambling refers to wagering money in an event that has an uncertain
outcome in hopes of winning more money, The investor trusts his
instincts and the sole basis that he employs his money in hope of winning
that gamble to earn profits. However, the chance of winning that gamble
is particularly very less. This gameplay is less of economic activity and
more of an artificial activity which is played with instincts.

Example – A person putting all his money in a horse race or casino is

referred to as gambling. This is a gamble as the investment is not backed
by any information or analysis and the chances of winning are unknown.

Different types of Gambling :-

1) Casino Gaming :- Games available in most casinos are

commonly called casino games. In a casino game, the players gamble
cash or casino chips on various possible random outcomes or
combinations of outcomes. Casino games are also available in online
casinos, where permitted by law.
2) Lottery :- A game with established rules where players buy
tickets for a chance to win cash or other merchandise prizes.