Introduction Ist and 2nd Weeks

The Nature and Scope of Investment. Investment and

Speculation.
Features of an Investment Program. Maturity of an
investment. The
Investment Program.
Topic 1 Nature and Scope of Investment

Nature of Investment (or investment management)

This means the following:

 Cash has an investment opportunity when you decide to invest
then you are not deprived of this opportunity to earn a return on
that cash
 When the general price level rises, the purchasing power of cash
declines – larger the increase in inflation, the greater the
depletion (i.e. reduction) in the buying power of cash
 Some investor buy Government Securities or deposit their money
in Bank Accounts that are sufficiently secure
 In contrast, some others prefer to buy, hold and sell equity
shares when even they know they get exposed to risk

Nature and Scope of Investment Decision (Generally)

 To understand various investment decision rules

 To know what are the good investment decisions rules
 To know the category (or Types) of investment decision rules
 Taking investment decision only after analyzing entire process
of investment that with funds Contribution and ends with
getting expecting fulfilled.

Nature of Investment Decisions (In the context of a Firm)

The investment decisions of a firm are generally known as the capital
budgeting, or capital expenditure decisions. The firm's investment
decisions would generally include expansion, acquisition,
 modernization and replacement of the long-term assets. Sale of a
division or business (divestment) is also as an investment decision.
Decisions like the change in the methods of sales distribution, or an
advertisement campaign or a research and development program
have long-term implications for the firm's expenditures and benefits,
and therefore, they should also be evaluated as investment decisions.
DIVESTMENT means ... the action or process of selling off subsidiary business
interests or investments.

What are the reasons for divestment?

Some common reasons to divest include:
 The division is no longer aligned with the core business.
 Sustained lack of profitability or margin continues to lag other parts of
the business.
 Capital is needed to grow other parts of the business.
 Company is over-leveraged (too much debt)
 A previous acquisition isn't working out.

Topic 2 Investment and Speculation

What is difference between Investment and Speculation?
(Speculation means… guess, possibility, conjecture, guesswork, supposition, assumption,
hypothesis)

There are many definitions and all definitions vary slightly, but most
are along the same lines. An investment is an asset or item acquired
with the goal of generating income or appreciation in
the future. Speculation is a financial transaction that has substantial
risk of losing all value, but with the expectation of a significant gain.
High-risk speculation is typically like the gambling, whereas lower-
risk investing uses a basis of fundamentals and analysis.

An Example of Speculation?
For example, if a speculator believes that the stock of a company
called X is over-priced, he or she might short the stock and wait for a
favorable time when the price falls and then sells it to make a profit.
One can speculate on any security.
What is investment in security analysis?
Investments may be classified as financial investments or
economic investments.
In Finance investment is putting money into something with the
expectation of gain that upon thorough analysis has a high degree
of security for the principal amount, as well
as security of return, within an expected period of time.

What are the different types of investments?

There are four main investment types, or asset classes, that
one can choose from, each with distinct characteristics, risks
and benefits.
Familiarity with the different types of assets leads the investor to
think about piecing together a mix that would fit with his/her
personal circumstances and risk of acceptance.
 Growth investments
These are more suitable for long term investors that are
willing and able to withstand market ups and downs.

 Shares (OR Equity… the value of the shares issued by a company)

Shares are considered a growth investment as they can help
grow the value of one’s original investment over the medium
to long term.
Owning shares means receiving income from dividends, which
are effectively a portion of a company’s profit paid out to its
shareholders.
Of course, the value of shares may also fall below the price
one has paid for them. Prices can be unstable from day to day
and shares are generally best suited to long term investors,
who are comfortable withstanding these ups and downs.
Also known as equities, shares have historically delivered
higher returns than other assets, shares are considered one of
the riskiest types of investment.

 Property
Property is also considered as a growth investment because
the price of houses and other properties can rise substantially
over a medium to long term period.
 However, just like shares, property can also fall in value and
carries the risk of losses.
It is possible to invest directly by buying a property but also
indirectly, through a property investment fund.

 Defensive investments
These are more focused on consistently generating income,
rather than growth, and are considered lower risk than growth
investments.

 Cash
Cash investments include everyday bank accounts, high
interest savings accounts and term deposits.
They typically carry the lowest potential returns of all the
investment types.
While they offer no chance of capital growth, they can deliver
regular income and can play an important role in protecting
wealth and reducing risk in an investment portfolio.

 Fixed interest
The best known type of fixed interest investments are bonds,
which are essentially when governments or companies borrow
money from investors and pay them a rate of interest in
return.
Bonds are also considered as a defensive investment, because
they generally offer lower potential returns and lower levels of
risk than shares or property.
They can also be sold relatively quickly, like cash, although it’s
important to note that they are not without the risk of capital
losses.
Topic 3 Investment Program
Investment Program?
Definition
An investment program represents the planned or budgeted costs
for the capital investments (or other projects) of an enterprise or
corporate group in the form of a hierarchical structure which can be
formed according to the needs.
A hierarchical structure refers to a company's chain of command,
typically from senior management and executives to general
employees. In other words, this structureapplies to organizations
with a sole leader and a flow of subordinates underneath them.

Importance of Investment Program: A good Investment Programme

pushes the investors to invest their funds in such assets that provide
stable income. Regularity of income is reliable with a
good investment programme. The income should not only be stable
but also adequate as well.
A good investment programme is one which is reliable and meets
the objectives of the investor, ... Liquid investments help investors
meet emergencies. ... provided and the burden of income tax on that
income should be given a serious thought.
A liquid investment is any investment that can be easily converted into cash without
having a significant impact on its value. Examples of liquid investments
are cash, money market funds, and shares of publicly held companies that actively
trade on an established stock exchange.
The most liquid investments are Cash, Bank accounts, and CDs (credit
default swap): Cash is the most liquid asset. Whether by hand or by
smartphone, one can transfer it in seconds. Bank savings and
checking accounts are also considered cash — that's why they're
 called "demand deposit accounts" — the funds can be withdrawn at
any time. How do you create an investment program?

Making an Investment Plan: A Step-by-Step Guide

1. Step #1: Assess Your Current Financial Situation.
2. Step #2: Define Financial Goals.
3. Step #3: Determine Risk Tolerance and Time Horizon.
4. Step #4: Decide What to Invest In.
5. Step #5: Monitor and Rebalance Your Investments.
6. Bottom Line

A lender is an individual, a public or private group, or a financial institution that makes funds available to a
person or business with the expectation that the funds will be repaid. Repayment will include the payment of any
interest or fees.

Topic 4 Features of an Investment Program

What are the features of an investment Programme?

These features are:
 Safety of Principal: The Safety of funds invested is one of the essential ingredients of a
good investment
programme.
 Adequate Liquidity and Collateral Value:
The purpose of money markets is to provide liquidity for individuals
and firms. The cheapest way to do so is by using over-collateralized
debt that obviates (i.e. remove…a need or difficulty). The need for price
discovery.
Liquidity refers to the ease with which an asset, or security, can be converted
into ready cash without affecting its market price. Cash is the most liquid of
assets while tangible items are less liquid. The two main types
of liquidity include market liquidity and accounting liquidity.
 Stability of Income:
 Capital Growth:
 Tax Benefits:
 Purchasing Power Stability:

Topic 5 Maturity of an investment

Maturity of an Investment
The maturity date refers to the date when an investment, such as a
Regular Income Certificate, Defense Certificate, Certificate of Deposit
(CD) or Bond, becomes due and is repaid to the investor. At that
point, the investment stops paying interest/profits and investors can
redeem (i.e. cash in, cash, trade in, exchange, convert etc.
accumulated interest and their capital without penalty.
Maturity is the agreed-upon date in which the investment ends,
often activate the repayment of a loan or bond, the payment of a
commodity or cash payment, or some other payment or settlement
term.

What are Financial securities? Describe some financial

instruments?
Securities are broadly categorized into: debt securities (e.g.,
banknotes, bonds, and debentures) equity securities (e.g., common
stocks) derivatives (e.g., forwards, futures, options, and swaps).

Debentures?
‫ کفالت نامہ تمسک‬Kafalat
Nama Tamsk : Debenture Bond Unsecured
Bond Debenture : (noun) the ability of a customer to obtain
goods or services before payment, based on the trust that
payment will be made in the future.

In corporate finance, a debenture is a medium- to long-

term debt instrument used by large companies to borrow
money, at a fixed rate of interest. ... The interest paid to
them is a charge against profit in the company's financial
statements.
A debenture is a bond issued with no collateral. Instead, investors rely upon the
general creditworthiness and reputation of the issuing entity to obtain a return of
their investment plus interest income. ... Examples of debentures are Treasury
bonds and Treasury bills.

Corporate finance is the division of finance that deals with

how corporations
deal with funding sources, capital structuring, and investment
decisions. Corporate finance is primarily concerned with maximizing
shareholder value through long and short-term financial planning
and the implementation of various strategies.

A corporation, sometimes called a C corp, is a legal entity that's

separate from its owners. Corporations can make a profit, be taxed,
and can be held legally liable. Corporations offer the strongest
protection to its owners from personal liability, but the cost to form
a corporation is higher than other structures.
Examples:- Engro Corporation, HUB Power co. Dawood Hercules
Corporation, Arif Habib Corporation etc