INVESTMENT MANAGEMENT :

04BF0601
SIXTH SEMESTER
BBA – FM

BY

DR.M.S.RAO, PROFESSOR
FACULTY OF MANAGEMENT
STUDIES
MARWADI UNIVERSITY
 Sensex reaches to 60927

 FPIs Continue flow on Indian Equity

 The Sensex moved from 26000 in March 2020, to the current 60927 level within a span of 30 months

 FPIs have injected more than $ 4.27billion in 2021-22 ( As of Sept.22 2021)

 Retail participation and equity fundraising have picked up significantly

 Equity issue via IPOs during the 2021 Jan-Sept period mobilized worth $9.7 billion from 72 issues

 Since the Sensex first touched the 60,000 mark on oct 22,2021

 Dr. Reddy’s reentered the index, in the recent reconstitution in Dec 2020

 Weight in the index RIL 12, HDFC, and Infosys weights at 10.5 and 9.7 respectively

 Coal India and Yes Bank stocks are exiting from Sensex

 The BSE Sensex was launched on jan2,1986 with 1978-79 as a base year at a BV of 100 points

 1986= inception ; Jan 1995- 3600; Jan2000-5,000 ; Jan2005-6,200; Jan2010- 16,350; Jan2015-27,900;

 Jan2020-41,600 Due to the pandemic Sensex crashed on March 20, 2020, to 29,900, and it recovered and now
reached to 60910
 Due to the global recession inconsistency in movement
CURRENT STATE OF AFFAIRS IN THE COUNTRY

Covid-19 New variant fear

India’s Progressing by initiating GOI
National Gati Shakthi Master plan (Digital platform to bring 16
Ministries together for planning and coordinated implementation of
infrastructure connectivity projects)

Performance Linked Incentive Scheme

FITCH projected India growing 7.0% with downside risk in
FY23.
LEARNING OBJECTIVES OF THE COURSE
• To understand overview of investments and its environment
• To Know about Risk and Return and its measurements
• To familiarize about investment Process and various steps in it
• To facilitate to know about portfolio and its Risk and return and Markowitz contribution
• To understand different portfolio performance measurement methods
• Overall knowledge on investments, how become familiar with risk and return of individual
securities and portfolio, knowing the process of investment and acclaimed with different portfolio
performance methods.
SYLLABUS
Unit I : Introduction to investments:
Meaning and Concept, Savings Vs Investment,
Traders, Speculators, Gamblers, Investors,
The objective of Investment;
Investment Avenues: Classification of Investments
Tax Planning for Investment:
Taxation of Dividend and Interest Income,
Brokerage Income and Business Profits,
Tax Treatment on Investments, Capital Gains Taxation
Unit –II: Risk and return
• Measurement of Risk (standard deviation) and
• Return (Historical and Expected),
• sources of risk,
• Risk return analysis for long term and short term investments

Unit –III: Investment Process:

• Establish Objectives,
• Selection of asset mix,
• formulation of Portfolio strategy,
• Selection of Securities,
• Portfolio Execution,
• Portfolio Revision,
• Performance Evaluation
SYLLABUS ……..
Unit –IV: Portfolio Theory:
• Diversification,
• Systematic and unsystematic risk,
• Measuring Portfolio return and risk (2 and 3 securities portfolio)
• Markowitz Portfolio Theory
Unit –V: Portfolio Performance Evaluation
• Sharpe’s performance index (RVAR),
• Treynor’s performance index (RVOL),
• Jensen Alpha,
• M2 performance measurement

Text Book :
1. Investment Analysis and Portfolio Management by Prasanna Chandra ; MC Graw hill
2. Securities Analysis and Portfolio Management by Pandian Punithavathy ; Vikas publishing house
INTRODUCTION

Every one has Income and spending of money

Rarely current Income of money and current spending money is
equal
The imbalance lead to either Savings or Borrowings
Current Income > Current spending = Savings
Current income < Current Spending = Borrowings
 SAVINGS DEFINITION
Excess of income over expenditure
JM Keynes: “It consists of the amount left over
when the cost of a person’s consumer expenditure is subtracted from the amount
of disposable income he earned in a given period of time “
Disposable income means
Income remaining after the deduction of taxes and social security charges is
available to spend/save as one wishes.
Discretionary income means
Disposable income – Amount spend on all necessities
Savings = Discretionary income – Entertainment expenditure
All savers need not be investors,
India’s savings rate is 28.2% ( March 2021)
 WHAT PEOPLE DO WITH SAVINGS
• To put money under a locker until some future time when future consumption
desires exceed the current income
• They have the same amount they saved
• Another possibility keeping somewhere these savings for a future larger amount of
money
• What people do with their savings to make them increase over time is
INVESTMENT
CONCEPT OF INVESTMENT

 Sound investment decisions will enhance economic welfare

Two key aspects of investments are time and risk

Sacrifice takes place now and tends to be certain
Some investments are time dominated
Some other investments risk is dominated (stock option)
In yet other investments both are important (equity)
Well being in the long run depends significantly how wisely or
foolishly an investor invest
Investors have unrealistic expectation and disappointment
SAVINGS VS. INVESTMENT
Savings does not have any additional earnings
Investments have expectations of additional earnings
Keep savings our money at locker does not create any additional
money hence it is savings
Expectation of additional return is the difference between savings
and investment
Ex: Bank deposit- Additional interest
 purchase of house : expectation of appreciation
 Loan given to customer : expected additional interest
 Insurance Policy – expected protection against risk , tax benefit
DEFINITIONS OF INVESTMENT

“Investment is a commitment of funds made in the expectation of some positive

rate of return”
Fisher and Jordan
“Sacrifice of current money or other resources for future benefits”

Prasanna Chandra
“An investment is something which costs a certain amount of money to acquire,
generates a regular return or returns in the form of appreciation, and can
liquidate without affecting daily life /livelihood.”
Business Line daily Newspaper
OBJECTIVES OF INVESTMENTS
• Return: outcome an investment
• Risk : variability of expected return
• Safety : No loss of Principle amount
• Liquidity: convertibility into cash with insignificant loss
• Marketability: Breadth, depth and resilience
• Capital growth: appreciation in value of investment
• Purchasing power stability: Protection from inflation
• Stability of income : stable cash flows
• Tax benefits : tax exemption sources to minimize tax burden
 SPECULATORS
“who are Accepting a higher level of risk by anticipating above average rate
of return”
Characteristics of Speculators
1. Accepting a higher level of risk
2. Expecting above average rate of return
3. Short period of duration for employing funds
4. Expecting more capital gain than income ( Buying low selling high)
5. Price movement and Market expectations are criteria
6. Some basis for deploying resources
 DIFFERENT CATEGORIES OF SPECULATORS
1. Bulls :Optimists about the market and its long-term climb
2. Bears: pessimists about market and its long term decline
3.Stags: Buy the shares of a company's initial public offering, or IPO, and sell
them as soon as the stock is listed and trading commences.
4. Chickens: stick to conservative instruments such as bonds, bank deposits
or company deposits
5. Pigs: They, are impatient willing to take a high risk, invest based on hot
tips and want to make a quick buck in a hurry.
6. Lame Ducks : speculator who take short position means selling stocks
without owning the stock with an expectation of prices are fall down in the future . Unfortunately prices
are increases then who suffocated such a situation is known as Lame ducks.
7. Wolves: Individuals who could employ criminal or unethical means to make money
8.Ostriches : Speculators ignore negative news in the hope that it will go away
WHAT IS A TRADER?

• A trader is an individual
• who engages in the buying and selling of financial assets in any financial market,
• either for themself or on behalf of another person or institution.
• The main difference between a trader and an investor is the duration for which the person
holds the asset.
• Investors tend to have a longer-term time horizon,
• while traders tend to hold assets for shorter periods of time to capitalize on short-term
trends.
DIFFERENCES BETWEEN INVESTORS, SPECULATORS, AND TRADERS
Distinction investor speculator Trader
Nature Steady return Irregular income and Commission as an income
and certain appreciation Uncertain capital appreciation
Planning period Longer very shorter shorter
Risk disposition Moderate Above average Based on client profile
Return Moderate Above average Hope of the clients
Attitude Cautious Aggressive and risk takers confident and risk takers
Leverage Little /No Yes (more borrowed) Based on Margin
Criteria Fundamental Analysis Technical Analysis Direction of the clients
Type of person Conservative Aggressive Nature of the client
Avenues Stocks, Bonds, FDs, Futures, options, Hedge All Financial assets
Acquisition –basis out right on cash basis often margin Based on client profile
Collateral Yes No Yes
Players Individuals, corporates, Individuals & corporates DII, FIIs, FPIs,
Individuals
Governments
“To invest successfully over a lifetime
does not require a stratospheric I.Q.,
unusual business insight, or
inside information.
What is needed is
a sound intellectual framework for making
decisions and
the ability to keep emotions from
destroying that framework.”
- Warren Buffett
 Warren Buffett
• An American investor
• Business Tycoon, philanthropist
• Chairman and CEO of Berkshire Hathaway
• Net worth: 100.6 Billion USD ( April ,2021)
• World’s seventh wealthiest person
• Books :
• 1.The Essays on Warren Buffett: Lessons for investors and Managers
• 2.Berkshire Hathaway Letters to shareholders 1965-2014
• Key People :
• 1. Charlie Munger – Vice chairman
• 2. Ajit Jain –Vice Chairman- Insurance operations
INVESTMENT AVENUES
1. Equity Shares Attributes :
1. Risk
2. Debentures or Bonds 2. Return
3. Preference shares 3. Safety
4. Liquidity
4. Money Market Instruments 5. Marketability
-Treasury bills 6.CapitalAppreciation
7. Inflation Protection
- Commercial paper 8. Stability of Income
9. Tax incentives
- Certificate of Deposits
5. Mutual Funds: Different Variants (AMFI)
6. Life Insurance and General Insurance
7. Real Estate: Plot, Flat, Semi-urban land, Agricultural Land
8. Precious Objects: Gold, Silver, and others
Gold's returns past 15, 20, and 25 years are 11.6%, 12.4%, and 9.4% CAGR,
9. Derivatives: Forwards, Futures and Options
10. Non-Marketable Securities:
Life insurance investments, bank accounts, company deposits, provident fund deposits
 INVESTMENT AVENUES
1. Equity Shares
Features , types, listing norms, Market capitalization , Blue chip companies, value
stocks, cyclical stocks , Large caps, Mid caps and small caps, Sensex, Nifty, Emerge,
underwriter, investment bankers, Registrars, custodians, Stock exchanges, Clearing
houses.
2. Debentures or Bonds
3. Preference shares
4. Money Market Instruments
-Treasury bills
- Commercial paper
- Certificate of Deposits
5. Mutual Funds
6.Life Insurance and General Insurance
7. Real Estate
8. Precious Objects
9. Derivatives
10. Non-Marketable Securities