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01 Notes

The investment decision process involves 5 key steps: 1. Determine investment objectives and policy to define the goals of the investment. 2. Analyze investment options through security analysis to identify suitable securities. 3. Construct an investment portfolio by selecting securities to meet objectives. 4. Regularly review the portfolio for performance and make adjustments if needed. 5. Evaluate the portfolio to determine if it has fulfilled the stated investment objectives.

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23 views3 pages

01 Notes

The investment decision process involves 5 key steps: 1. Determine investment objectives and policy to define the goals of the investment. 2. Analyze investment options through security analysis to identify suitable securities. 3. Construct an investment portfolio by selecting securities to meet objectives. 4. Regularly review the portfolio for performance and make adjustments if needed. 5. Evaluate the portfolio to determine if it has fulfilled the stated investment objectives.

Uploaded by

namratanaik2426
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© © All Rights Reserved
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Quadrant II - Notes

Paper Code: COC 108


Module Name: The Investment Decision Process
Module No:01

The Investment Decision Process-Meaning

• The investment decision is an outcome of a systematic process.

• It involves consideration of important factors at individual level.

• It involves careful evaluation of the purpose or goals of investment and


regular monitoring of investment to assess the extent to which an
investment is able to fulfill such goals.

The Investment Decision Process


Step 1 Determine the investment objectives and policy

Step 2 Security Analysis

Step 3 Portfolio Construction

Step 4 Review of Portfolio

Step 5 Evaluation of Portfolio Performance


Step 1 Determine the investment objectives and policy

 Investment objective:

Investment process is required to achieve certain objectives of an investor.


Earning return is certainly the main objective of investment.

 Investment policy:

Investment policy is defined to achieve the stated investment objective.


Step 2 Security Analysis

 Once investment objectives are identified and investment policy is


prepared , the next step in investment decision process is to analyze the
investment options and identify the right securities.

 This process of analyzing individual securities is called as security


analysis.

Step 3 Portfolio Construction:

 The term portfolio refers to a group of securities. This two or more


securities when combined for the purpose of investment, it is called as
an investment portfolio.

The investor need to take decision on selecting the securities so analysed for
the purpose of constructing a portfolio.
Step 4 Review of Portfolio:

 Portfolio once constructed has to be continuosly monitored in order to


ensure that it is generating required returns.

 The process of review of portfolio involves addition , removal and


changing the proportion of funds invested.

Step 5 Evaluation of Portfolio Performance:

 The last step in investment decision process is the evaluation of


portfolio.

 An investment portfolio is constructed to achieve stated invested


objectives.

 The portfolio therefore should be evaluated to find out if it has fulfilled


investor objectives of good returns.

Types of investment
• The different types of investments are categorized as :
a)Commodities: Commodities offer an alternative avenue of investment.
Bullion, Metals , Energy , Agriculture produce are few examples of
commodities .Several commodities are traded by investors in India and world
over.

b) Real estate: The Real Estate sector comprises of housing, retail, hospitality.
Direct acquisition of residential and commercial property is the most common
form of investment.

c)Financial assets

I . Equity shares: Equity shares are the financial instruments that give
ownership right to its holders.

ii. Mutual funds: Mutual funds are financial intermediaries which pool
saving from investor and invest the funds in portfolio of securities.

iii Bonds: Bonds are generally long term investment options . Issuer of bonds
borrows money from investors by issuing bonds and utilizes the funds for long
period of time . Bonds carry fixed rate of interest called as coupon. Bonds are
issued by government , financial institutions as well by corporate entities.

Iv. Debentures : Debentures are yet another type of debt securities which are
issued by companies .Debentures also carry a fixed rate of interest or coupon
and fixed maturity

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