Presentation on Investments

vehicles
INVESTMENT
 The action or process of investing money for
profit .

 Investment refers to current commitment of

funds for a specified time period to derive
benefits in future.

 Any vehicle into which funds can be placed with

the expectation that it will generate positive
income and/or that its value will be preserved or
increased.
INVESTMENT
 The future benefits derived from an investment
are known as ‘returns’.
 Giving loan: with an expectation to get the
principal back along with the interest at a
future date.
 Buying gold: with an expectation of
appreciation in its value in future.
 Buying an insurance plan: for various
benefits derivable in future and/or in case of
an eventuality.
 Buying shares of companies: for dividend
and/or capital appreciation.
 As the reward would accrue only in future, it
involves ‘risk’ (of realized return being lower
than that expected)
OBJECTIVES OF AN INVESTOR
 Maximization of return.
 Minimization of risk.

 Hedge against inflation (if the investment cannot

earn as much as the rise in price level, the ‘real’
rate of return will be negative).
 Face future contingencies with ease.
INVESTMENT VEHICLES
 FINANCIAL ASSETS
 Equity shares
 Bonds
 Preference shares
 Non- marketable financial assets
 Money market instruments
 Mutual funds
 Life insurance
 Financial derivatives

 REAL ASSETS
 Real estate
 Precious objects
EQUITY SHARES
 Represents shares of ownership in a company.
 Risk: residual claim over income and is always
fluctuating throughout the years.
 Rewards:
1.Dividends at the end of a year,
2.chances of getting capital gains (difference
between purchase price and selling price),
3.all share holders are partners in progress.
PREFERENCE SHARES
 Represents a hybrid security that has
attributes of both equity shares and
bonds.
 They carry a fixed rate of dividend.
However it is payable only out of
distributable profits.
 Dividend on preference shares is generally
cumulative. Dividend skipped in one year
has to be paid subsequently before equity
dividend can be paid.
BONDS
 They are long term debt instruments
issued for a fixed time period.
 Bonds are debt securities issued by the
government or PSUs.
 Debentures are debt securities issued by
private sector companies.
 Debt securities issued by the central
government , state government and quasi
government agencies are referred to as
gilt-edged securities.
BONDS (CONTD..)
 They comprise of periodic interest payments over
the life of the instrument and the principal
repayment at the time of redemption.
 Coupon rate is the nominal rate of interest fixed
and printed on the bond certificate. It is
calculated on the face value and is payable by the
company till maturity.
NON-MARKETABLE
SECURITIES
 Theserepresent personal transactions
between the investor and the issuer.

 Bank deposits
 Company deposits

 Post Office Monthly Income Scheme

BANK DEPOSITS
 There are various kinds of bank accounts –
current, savings and fixed deposit.
 While a deposit in a current account does not
earn any interest, deposit made in others earn
an interest.
 Liquidity, convenience and low investment
risks are the common features of the bank
deposits.
 Deposits in scheduled banks are safe because
of the regulations of RBI and the guarantee
provided by the Deposit Insurance Corporation
on deposits upto Rs 1,00,000 per depositor of
the bank.
COMPANY DEPOSITS
 Deposits mobilized by companies are governed by the
provisions of section 58A of Companies Act, 1956.
 The interest offered on this fixed income deposits is
higher than what investors would normally get from
the banks.
 Manufacturing and trading companies are allowed to
pay a maximum interest of 12.5%.
 The rates vary depending on the credit rating of the
company offering the deposit.
POST OFFICE MONTHLY INCOME
SCHEME
 Meant for investors who want to invest a lump sum
amount initally and earn interest on a monthly basis.
 Minimum investment is Rs.1,000 in multiples of Rs
1,000.
 The maximum deposits in all the accounts taken
together should not exceed Rs.3 lakh in a single
account and Rs.6 lakh in a joint account.
 The tenure of the MIS scheme is six years.
MONEY MARKET
INSTRUMENTS
 Debt instruments which have a maturity of less
than a year at the time of issue are called money
market instruments.
 These are highly liquid instruments.

 Types of money market instruments :

 Treasury bills
 Certificate of deposits
 Commercial papers
TREASURY BILLS
 Issued by GOI.
 They are of two durations – 91 days and 364
days
 Are negotiable instruments and can be
rediscounted with GOI.
 They are sold on an auction basis every week
in certain minimum denominations by the
RBI.
 They do not carry an explicit interest rate.
Instead they are issued at a discount to be
redeemed at par. The implicit return is a
function of the size of discount and the period
of maturity.
 They have zero default risk, assured return,
are easily available.
CERTIFICATE OF DEPOSITS
 Negotiable instruments issued by banks /
financial institutions with a maturity ranging
from 3 months to 1 year.
 These are bank deposits transferable from one
party to another.
 The principal investors are banks, financial
institutions, corporates and mutual funds.
 These carry an explicit rate of interest.
 Banks normally tailor make their
denominations and maturities to suit the
needs of the investors.
COMMERCIAL PAPERS
 Issued in form of promissory notes redeemable at par
by the holder on maturity.
 Usually has a maturity period of 90 to 180 days.
 They are sold at a discount to be redeemed at par.
 CPs can be issued by corporates having a minimum
net worth of Rs 5 crores and an investment grade
from credit rating agencies.
 Minimum issue size is Rs 25 lacs.
MUTUAL FUNDS
 Also known as an instrument for collective investment.
 Investment is done in three broad categories of financial
assets i.e. stocks, bonds and cash.
 Depending on the asset mix, mutual fund schemes are
classified as: Equity schemes, hybrid schemes and debt
schemes.
 On the basis of flexibility, Mutual fund schemes may be:
Open ended or Close ended.
 Open ended schemes are open for subscription and
redemption throughout the year.
 Close ended schemes are open for subscription only for a
specified period and can be redeemed only on a fixed date of
redemption.
 On the basis of objective, mutual funds may be growth
funds, income funds, or balanced funds.
 NAV of a fund is the cumulative market value of the assets
of the fund net of its liabilities.
FINANCIAL DERIVATIVES
 Derivative is a product whose value is derived
from the value of the one or more underlying
assets. These underlying assets may be equity,
index, foreign exchange, commodity or any other
asset.
 Derivative does not have a value of its own.
Rather its value depends on the value of the
underlying asset.
 Derivatives initially emerged as hedging devices
against fluctuations in commodity prices and
commodity linked derivatives remained the sole
form of such products. Financial derivatives
emerged post 1970 period.
 Financial derivatives have various financial
instruments as the underlying variables.
 Forwards, Futures, Options & Swaps are four
basic types of derivatives
REAL ESTATE
 Real Estate is a tangible kind of
investment. This investment could be
buying a house, an apartment, or just
plain land. It includes land and anything
permanently attached to a piece of land.
Real estate can make you a lot of money
over time.
 This investment involves a long-term
commitment of funds and gains that are
generated through rental or lease income
as well as capital appreciation.
COMMODITIES
A commodity is anything from gold, silver,
or oil, to farm products, such as cotton,
paddy, wheat, pulses, etc.
 The prices of commodities are driven
mostly by supply and demand. For
example, oil prices will go higher if there
is a shortage. Investments in commodities
are very speculative because their future
demand is difficult to predict. These
investments are best left to professionals.
BENEFITS OF INVESTING
 Liquidity
 Income

 Safety

 Growth

 Savings

 Reinvestment

 Improvement in standard of living

 THANK YOU