Investment Management

UNIT - 1
INTRODUCTION TO INVESTMENT
Meaning & Definition of investment –Nature, Characteristics, Objectives, Scope, Process and
Importance of investment, Types of investors, Investment Avenues, Marketable and Non-
marketable Securities, Investment vs. Speculation, Investment vs. Gambling, Role of SEBI as
Market Regulator
INVESTMENT
Origination
 The term "investment" is used differently in economics and in finance. Economists refer to
a real investment (such as a machine or a property), while financial economists refer to a
financial asset, such as money that is put into a bank or the market, which may then be used
to buy a real asset.

Financial meaning of investment:

Investment is the employment of funds with the aim of achieving additional income or growth
in value.

Economic meaning of investment

Economic investment means the net additions to the capital stock of the society which
consists of goods and services that are used in the production of other goods and services.
Addition to the capital stock means an increase in building, plants, equipment and inventories
over the amount of goods and services that existed.

Characteristics of investment
 Return: Investments are made with the primary objective of deriving a return. The
expectation of a return may be from income (yield) as well as through capital appreciation.
Capital appreciation is the difference between the sale price and the purchase price of the
investment. The dividend or interest from the investment is the yield.
 Risk: Risk may relate to loss of capital, delay in repayment of capital, non-payment of
interest, or variability of returns.
 Safety: The safety of investment is identified with the certainty of return of capital without
loss of money or time. Safety is another feature that an investor desires from investments.
Every investor expects to get back the initial capital on maturity without loss and without
delay.
 Liquidity: An investment that is easily saleable or marketable without loss of money and
without loss of time is said to possess the characteristic of liquidity. Equity shares of
companies listed on recognized stock exchanges are easily marketable. Some investments
such as deposits in unknown corporate entities, bank deposits, post office deposits, national
savings certificate, etc are not marketable
 Marketability: Marketability refers to buying and selling of securities in market.
Marketability means transferability or saleability of an asset. Securities listed in a stock
market are more easily marketable than which are not listed. Public Limited Companies’
shares are more easily transferable than those of private limited companies.
 Capital appreciation : Capital appreciation, also known as capital growth, refers to the
increase in the value of an investment over time.
 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 paths just as the security of the principal amount. Every investor must
always consider stability of monetary income and stability of the purchasing power of
income.
 Tax benefits: Tax benefit is the last characteristic feature of the investment. Planning an
investment programme without considering the tax burden may be costly to the investor .
Objectives of Investment
 Maximization of Return: Investment is made with primary objective of earning a return.
The return may be received in the form of regular income or capital gain. Capital
appreciation is the difference between the sale price and the purchase price of the investment.
The dividend or interest from the investment is the yield.
 Minimizing Risk: Every investor likes to minimize his risk. Risk is nothing but the
Variability in returns, to loss of capital, delay in repayment of capital, non-payment of
interest.
 Maintaining Liquidity: the portion of investment would be converted into cash without loss
of money and time; it helps the investor to meet out emergency conditions.
 Hedging against Inflation: The rate of return should ensure a cover against inflation. The
rate of returns should be always be higher than the rate of inflation otherwise investors will
experience loss in real terms.
 Increasing Safety: Safety of investment implies the certainty of return of capital without
loss of money or time.
 Saving Tax: An investor may want to seek investments with favorable tax treatment in order
to lessen his or her overall income tax burden.
 Scope of Investment Management
The scope of Investment Management refers to the various aspects and activities involved in
managing financial assets on behalf of clients, such as individuals, institutions, or corporations. It
encompasses a wide range of services and strategies aimed at maximizing returns and managing
risk. The key components of investment management include:

1. Security Selection

 The process of choosing individual stocks, bonds, mutual funds, exchange-traded funds
(ETFs), or other investment vehicles based on analysis of their potential performance.
2. Asset Allocation

 Deciding how to distribute investments across different asset classes (stocks, bonds, real
estate, commodities, etc.) based on the client's objectives, risk tolerance, and time
horizon.

3. Portfolio Construction

Creating a diversified investment portfolio tailored to the client’s needs. This involves
selecting specific securities within each asset class and considering factors like risk,
return, and liquidity

4. Risk Management

Identifying and managing various risks associated with investments, including market
risk, credit risk, liquidity risk, and operational risk.

5. Performance Monitoring & Reporting

Continuously tracking the performance of the investment portfolio against benchmarks

and goals. This also involves providing detailed reports to clients on portfolio
performance, changes in market conditions, and rebalancing recommendations.

6. Fund Management

Managing pooled funds like mutual funds, pension funds, or hedge funds. The focus here
is on managing large amounts of capital across a wide array of asset classes to generate
optimal returns.

7. Financial Planning

Integrating investment management with other financial strategies, including retirement

planning, estate planning, tax optimization, and wealth transfer strategies.

8. Client Relationship Management

Building and maintaining strong relationships with clients by understanding their

financial goals, risk tolerance, and investment preferences. This may involve regular
 meetings and communication to ensure the investment strategy aligns with the client’s
evolving objectives.

9. Regulatory Compliance

Ensuring that investment management practices comply with relevant laws and
regulations. This includes following guidelines set by financial regulatory bodies like the
SEC (Securities and Exchange Commission) in the U.S. or the FCA (Financial Conduct
Authority) in the UK.

10. Sustainable Investing (ESG)

Increasingly, investment management also includes considerations for environmental,

social, and governance (ESG) factors. ESG investing focuses on making investments in
companies that are committed to sustainable and ethical practices.

11. Alternative Investments

In addition to traditional asset classes, investment managers may also invest in

alternatives such as private equity, venture capital, hedge funds, commodities, and real
estate.

12. Global Investment Strategy

Managing investments across different geographic regions, which can involve currency
risk, geopolitical risks, and other global market factors. International diversification can
help mitigate risks and capitalize on global growth opportunities.

13. Technology & Data Analytics

Modern investment management involves the use of technology such as financial

modeling, big data, and artificial intelligence (AI) to make informed decisions and
automate processes. These technologies can help in portfolio optimization, market
analysis, and risk management.

14. Behavioral Finance

Analyzing the psychological factors that influence investment decisions. Understanding

how emotions, biases, and cognitive errors affect investors’ choices is crucial to
improving investment strategies.
Process of Investment

 Framing of Investment policy – Investable Funds, Objectives, Knowledge

 Analysis –Market Analysis, Industry Analysis and Company Analysis
 Valuation – Intrinsic value and Future Value
 Portfolio construction – Diversification, Selection and Allocation
 Portfolio Evaluation – Appraisal and Revision

(1) Framing of investment policy

Before making any investment one must formulate an investment policy for systematic
functioning. The main components of an investment policy include –
 Investible Funds – Availability of funds, Source of funds i.e. Savings or borrowing(if funds
are borrowed then the rate of return on investment must be higher than the rate of borrowing)
 Objectives – Required rate of return, Need for regular income, risk perception, need for
liquidity, capital appreciation or safety of principle
 Knowledge – One should be aware of different investment alternatives, various stock
markets, and financial structure of the country and must have sufficient knowledge regarding
functions of brokers, mode of operations, related taxes and charges etc.
(2) Analysis
After a suitable investment policy has been formulated, the next step is to conduct
market, industry and company analysis.
 Market Analysis – A market analysis helps an investor to understand the general economic
scenario. Economic variables like Gross domestic product (GDP), inflation, economic
policies etc. help an investor to depict stock prices and stock trends and fluctuations.
 Industry Analysis – An industry analysis helps analyze the economic significance and growth
potential of an industry. Factors like growth rate, growth potential and contribution of an
industry in an economy helps an investor to make an informed decision.
 Company Analysis – Knowledge regarding a company`s earnings, profitability, capital
structure, top management, market share etc. is essential for an investor, as these factors have
a direct impact on the stock prices of the company and the return to investors

(3) Valuation
The next step is to determine the expected risks and returns from an investment. The
intrinsic value of a share is measured through the book value and price-earnings ratio of a
share. The intrinsic value of a share is then compared with its market value to make an
investment decision. An effort is made to determine the future value of the investment.
Intrinsic value of a stock is its true value. Intrinsic value is also called the real value and may or
may not be the same as the current market value.

If intrinsic Value > Market Price --- Buy Security

If intrinsic Value < Market Price --- Sell Security
(4) Portfolio Construction
A portfolio is a combination of different securities. A portfolio must be constructed in
such a way that it meets the investor`s needs and objectives with the aim to deliver
maximum returns with minimum risk.
 Diversification: Main objective of diversification is the reduction of risk in the form of loss
of capital and income. Several modes are available to diversification of portfolio-
Debt and equity diversification
Industry diversification
Company diversification
 Selection and Allocation: Securities have to be selected based on the level of diversification
of industry and company analysis.
Funds are to be allocated for selected securities.
(5) Evaluation
Portfolio performance is periodically evaluated to measure and compare the variability
of returns from different securities.
 Portfolio appraisal involves evaluating the portfolio with respect to two key dimensions –
Risk and Return. On the basis of appraisal results.
 Revisions are made to the portfolio. Low yielding securities with high risk are replaced with
low risk and high yielding securities. This process is done periodically to keep stable returns.
 Importance of Investment
Investment is crucial for both individuals and businesses for several reasons. Here are some
key points highlighting its importance:

1. Wealth Accumulation

 Personal Wealth Growth: By investing money in assets like stocks, bonds, real estate,
or mutual funds, individuals have the potential to grow their wealth over time. Investment
returns can outperform regular savings accounts, leading to a significant increase in
wealth.
 Business Growth: For businesses, investment allows them to expand operations,
improve technology, and increase their competitive advantage, which can result in higher
profits and a stronger market position.

2. Compound Interest

 Investment allows for the power of compound interest, where the returns earned on an
investment start generating their own returns. Over time, this compounding effect can
significantly increase the value of the initial investment.

3. Retirement Planning

 Investing for retirement is essential. Savings alone may not be enough to ensure a
comfortable retirement, so investing in retirement accounts or other long-term
investments allows individuals to build a substantial retirement fund that can support
them in their later years.

4. Inflation Protection

 Inflation erodes the purchasing power of money over time. Investments, especially in
assets like stocks, real estate, or commodities, typically grow faster than inflation, helping
to preserve and increase the real value of money.

5. Diversification and Risk Management

 By investing in different assets or markets, individuals and businesses can diversify their
portfolios, reducing the overall risk. Diversification spreads risk across different sectors,
reducing the impact of poor performance in one area.

6. Economic Growth

 Investment drives economic growth by funding businesses, infrastructure, and

innovation. When individuals or institutions invest in new technologies, industries, or
markets, they contribute to the overall development of the economy.
7. Income Generation

 Investments like dividend stocks, rental properties, or bonds can generate regular income
streams. This income can supplement a salary, cover living expenses, or reinvest in
additional opportunities.

8. Financial Independence

 Through smart and consistent investing, individuals can work toward financial
independence, where their investments generate enough passive income to support their
lifestyle without relying on a regular paycheck.

9. Capital Formation

 Investment is crucial for capital formation in the economy. It enables businesses to access
the funds needed for expansion, innovation, and creating jobs, which is essential for the
growth of any economy.


10. Long-Term Financial Security

 For individuals, investing ensures long-term financial security. It creates a safety net for
the future, protecting against unforeseen events or economic downturns.

In short, investment is a key strategy for growing wealth, achieving financial goals, and building
long-term security, both personally and for businesses.
 INVESTMENT ALTERNATIVES/AVENUES

 Securities: Stock, Debentures, Bonds, Government Security, Money Market Instruments,

Derivatives and Mutual Funds.
 Deposits: Bank deposits, Non Banking Finance Company deposits.
 Postal schemes: Postal Savings, National Saving Certificate, Monthly Income Scheme,
Kissan Vikas Patra, Public Provident Fund
 Insurance: Life Insurance Policies, Unit Linked Insurance Plans
 Real assets: Real Estate, Precious Metals, Arts, Antiques

SECURITIES
Stock/Shares
Equity Share
Equities are a type of security that represents the ownership in a company. Equities are
traded (bought and sold) in stock markets.

Types of equity shares

 Blue chip stocks: Blue chip stocks are shares of very large and well-recognized companies
with a long history of sound financial performance. These stocks are known to have
capabilities to endure tough market conditions and give high returns in good market
conditions. Blue chip stocks generally cost high, as they have good reputation and are often
market leaders in their respective industries.
 Growth shares A growth stock is any share in a company that is anticipated to grow at a rate
significantly above the average growth for the market. These stocks generally do not pay
dividends.
 This is because the issuers of growth stocks are usually companies that want to reinvest any
earnings they accrue in order to accelerate growth in the short term.
 Income stocks: Income stocks are stocks that offer regular and steady income, usually in the
form of dividends, over a period of time with low exposure to risk.
 Cyclical stocks: Cyclical that's price is affected as per the business cycle of an economy. A
cyclical stock typically moves up or down depending on the upward or downward movement
in the economy. These stocks are usually traded heavily as investors try to buy them at the
low point of a business cycle and sell at the high point of the same cycle.
 Speculative stocks: Speculative stocks are high-risk, high-reward, and tend to appeal to
short-term traders.
 Defensive stock: A defensive stock is a stock that provides consistent dividends and stable
earnings regardless of the state of the overall stock market.

Preference share
It represents security that takes some characteristics of equity and some of debentures.
These carry a fixed rate of dividend and paid out of distributed profit.

Debentures
A long term securities yielding a fixed rate of interest issued by a company and secured
against assets.

Types of Debenture
 Secured and Unsecured: Secured debenture creates a charge on the assets of the company,
thereby mortgaging the assets of the company. Unsecured debenture does not carry any
charge or security on the assets of the company.

 Convertible and Non-Convertible: Convertible debenture can be converted into

equity shares after the expiry of a specified period. On the other hand, a non-convertible
debenture is those which cannot be converted into equity shares.

Bond
Bond is a long term debt that promises to pay a fixed annual sum as interest for specific
period of time. They are issued by public sector undertakings. The value of bond depends upon
the rate of interest and maturity period.

Types of bonds
 Fixed Rate Bonds: In Fixed Rate Bonds, the interest remains fixed throughout the tenure of
the bond. Owing to a constant interest rate, fixed rate bonds are resistant to changes and
fluctuations in the market.

 Floating Rate Bonds: Floating rate bonds have a fluctuating interest rate (coupons) as per
the current market reference rate.

 Zero Interest Rate Bonds: Zero Interest Rate Bonds do not pay any regular interest to the
investors. In such types of bonds, issuers only pay the principal amount to the bond holders.
 Redeemable Bonds: Redeemable bonds are bonds that can be redeemed or paid off by the
issuer prior to the bonds' maturity date.

 Perpetual Bonds: Bonds with no maturity dates are called perpetual bonds. Holders of
perpetual bonds enjoy interest throughout.

 Subordinated Bonds: Bonds which are given less priority as compared to other bonds of the
company in cases of a close down are called subordinated bonds. In cases of liquidation,
subordinated bonds are given less importance as compared to senior bonds which are paid
first.

 Bearer Bonds: Bearer Bonds do not carry the name of the bond holder and anyone who
possesses the bond certificate can claim the amount. If the bond certificate gets stolen or
misplaced by the bond holder, anyone else with the paper can claim the bond amount.

Government securities
 Government securities are government debt issuances used to fund daily operations, and
special infrastructure and military projects.
 They guarantee the full repayment of invested principal at the maturity of the security and
often pay periodic coupon or interest payments.
 Government securities are considered to be risk-free as they have the backing of the
government that issued them.
 The tradeoff of buying risk-free securities is that they tend to pay a lower rate of interest than
corporate bonds.
 Investors in government securities will either hold them to maturity or sell them to other
investors on the secondary bond market.

Money market instruments

Treasury Bills (T-Bills)
 The Treasury bills are issued by the Central Government and known to be one of the safest
money market instruments available. Besides, they carry zero risk, so the returns are not
attractive. Also, they come with different maturity periods like 1 year, 6 months or 3 months
and are also circulated by primary and secondary markets. The central government issues
them at a lesser price than their face-value.
 The difference of maturity value of the instrument and the buying price of the bill, which is
decided with the help of bidding done via auctions, is basically the interest earned by the
buyer.
 There are three types of treasury bills issued by the Government of India currently that is
through auctions which are 91-day, 182-day and 364-day treasury bills.
Commercial Papers (CPs)
 Commercial papers can be compared to an unsecured short-term promissory note which is
issued by top rated companies with a purpose of raising capital to meet requirements directly
from the market.
 They usually have a fixed maturity period which can range anywhere from 1 day up to 270
days.
 They offer higher returns as compared to treasury bills. They are automatically not as secure
in comparison. Also, Commercial papers are traded actively in secondary market.

Certificate of Deposits (CD’s)

 Certificate of deposit or CD’s is a negotiable term deposit accepted by commercial banks. It
is usually issued through a promissory note.
 This functions as a deposit receipt for money which is deposited with a financial organization
or bank. The Certificate of Deposit is different from a Fixed Deposit receipt in two ways. i.
Certificate of deposits are issued only of the sum of money is huge. ii. Certificate of deposit
is freely negotiable.
 The Certificate of Deposit issued by banks range from 3 months, 6 months and 12 months.

Bill discounting
Bill discounting is an arrangement whereby the seller recovers an amount of sales bill from
the financial intermediaries before it is due.

Inter-bank Term Market

The inter-bank term market is for the cooperative and commercial banks in India who
borrow and lend funds for a period of over 14 days and up to 90 days. This is done without any
collateral security at the rates determined by markets.

Repo and Reverse repos

 Repurchase agreements, or repos, are a form of short-term borrowing used in the money
markets, which involve the purchase of securities with the agreement to sell them back at a
specific 0064ate, usually for a higher price.
 Repos and reverse repos represent the same transaction but are titled differently depending
on which side of the transaction you're on. For the party originally selling the security (and
agreeing to repurchase it in the future) it is a repurchase agreement (RP). For the party
originally buying the security (and agreeing to sell in the future) it is a reverse repurchase
agreement (RRP) or reverse repo.

Derivatives
Due to frequent changes in financial that occur frequently. Investors try to protect
themselves with the help of derivatives. Example: Future and Options
Futures and options
 Futures are contracts made between two parties wherein they agree to buy or sell a particular
asset at a fixed price at a particular time in the future. This helps in reducing the risk and
losses involved.
 An options contract gives an investor the right, but not the obligation, to buy (or sell) shares
at a specific price at any time, as long as the contract is in effect. Here parties have option but
not obligation

Types of options
Call Option
Put Option
 A Call Option gives the buyer the right, but not the obligation to buy the underlying security
at the exercise price, at or within a specified time.
 A Put Option gives the buyer the right, but not the obligation to sell the underlying security at
the exercise price, at or within a specified time.

MUTUAL FUND
Mutual fund is a financial instrument that pools the small savings from different investors.
And invest these mobilized savings the pooled money is then invested in securities like stocks of
listed companies, government bonds, corporate bonds, and money market instruments.

Types of Mutual Funds

 Maturity period: Open ended and closed ended
 Based on Investment objective: Growth Oriented Scheme, Income Oriented Scheme.
Balanced Fund Money market mutual funds, Gilt Funds, Index fund
 Based on Geographical location: Domestic Fund, Offshore fund
 Some other types of Mutual Funds: Sector-specific funds, Tax saving schemes, Exchange
Traded Fund

Based on Maturity Period

 Open ended funds: Open ended funds are always open to investment and redemptions,
hence, the name open ended funds. Open ended funds are the most common form of
investment in mutual funds in India. These funds do not have any lock-in period or
maturities.
 Closed ended fund: A closed ended mutual fund scheme is where your investment is locked
in for a specified period of time. You can subscribe to close ended schemes only during the
new fund offer period (NFO) and redeem the units only after the lock in period or the tenure
of the scheme is over.

Based on Investment objective

 Growth Oriented Scheme: The primary goal of this type of mutual fund is to ensure wealth
creation in the medium and long-term. Aligned with the objective, the fund manager
allocates the corpus predominantly (over 65%) in equities. With a focus on higher returns.
 Income Oriented Scheme: An income fund is a type of mutual fund or exchange that
emphasizes current income, often in the form of interest or dividend-paying investments,
either on a monthly or quarterly basis, as opposed to capital gains or appreciation.

 Balanced Fund: The name comes from the asset allocation as the fund is allocated in both
equities and debt instruments in defined proportions. The objective of the balanced fund is to
have reasonable growth and regular income with the lowest possible risk.

 Money market mutual funds: Money market mutual funds (MMF) invest in short-term debt
instruments, cash, and cash equivalents that are rated high quality. It is for this reason that
money market mutual funds are considered safe or investment with minimal to low risk. As
these funds invest in high-quality instruments, they offer a predictable risk-free return rate.
The fund manager invests in high-quality liquid instruments such as treasury bills (T-Bills),
repurchase agreements (Repos), commercial papers, and certificates of deposit.

 Gilt Funds: Gilt Funds are debt funds which only invest in bonds and fixed interest-bearing
securities issued by the state and central governments.

 Index fund: An index fund is a portfolio of stocks or bonds designed to mimic the
composition and performance of a financial market index.

 Load Mutual Fund: A load mutual fund charges you a sales charge or commission for the
shares purchased. This charge could be a percentage of the amount you are investing in, or it
can be a flat fee, depending on the mutual fund provider.

 No-Load Mutual Fund: A no-load mutual fund means there will not be a sales charge when
the investor buys the shares or sell their shares. However, this does not mean that absolutely
no fee will be charged. A fund may market them as a no-load fund if they charge less than
the Regulatory Authority allowed charges.

Based on Geographical location

 Domestic Fund: When you buy shares in a domestic stock fund, the money you invest is
pooled with money from other investors and is primarily used to buy stocks issued by Indian
companies.
 Offshore fund: An offshore mutual fund is an investment vehicle-based in
an offshore location outside the Country.

Some other types of Mutual Funds

 Sector-specific funds: Mutual funds which invest in a particular sector or industry are said
to be sector-specific funds.

 Tax saving schemes: Tax saving schemes is mutual fund schemes that qualify for tax
deductions of up to 1.5 Lakh under Section 80C of the Income Tax Act. These schemes are
also known as Equity Linked Saving Scheme (ELSS) or tax planning or saving mutual funds.

 Exchange Traded Fund: The term stock exchange-traded fund (ETF) refers to a security
that tracks a particular set of equities. These ETFs trade on exchanges the same way normal
stocks do These ETFs provide investors with immediate diversification
Advantages of Mutual Funds
 Liquidity
You can sell your open-ended equity mutual fund units when the stock market is high and
make a profit.
 Diversification
The fund manager spreads your investment across stocks of companies across various
industries and different sectors called diversification.

 Expert Management
A mutual fund is good for investors who don’t have the time or skills to do the research and
asset allocation. A fund manager takes care of it all and makes decisions on what to do with your
investment.
 Tax-efficiency
You can invest in tax-saving mutual funds called Equity Linked Saving Scheme (ELSS)
which qualifies for tax deduction up to Rs 1.5 lakh per annum under Section 80C of the Income
Tax Act.
 Safety
There is a general notion that mutual funds are not as safe as bank products. This is a myth
as fund houses are strictly under the purview of statutory government bodies like SEBI.
 Risk Reduction (Safety)
Reduced portfolio risk is achieved through the use of diversification, as most mutual funds
will invest in anywhere from 50 to 200 different securities-depending on the focus.

Disadvantages of Mutual Funds

 Market risk
 Scheme risk
 Business risk
 Inflation Risks

DEPOSITS
Bank Deposits
Deposit is a financial term that means money held at a bank. A deposit is a transaction
involving a transfer of money to another party for safekeeping. The following are types of
deposits;
 Savings Bank Account: As the name suggests this type of account is suitable for people who
have a definite income and are looking to save money. For example, the people who get
salaries or the people who work as laborers.

 Current Deposit Account: Businessmen, companies, and institutions such as schools,

colleges, and hospitals have to make payment through their bank accounts. Since there are
restrictions on the number of withdrawals from a savings bank account, that type of account
is not suitable for them. They need to have an account from which withdrawal can be made
any number of times.
 Fixed Deposit Account: Some bank customers may like to put away money for a longer
time. Such deposits offer a higher interest rate. If money is deposited in a savings bank
account, banks allow a lower rate of interest. Therefore, money is deposited in a fixed deposit
account to earn interest at a higher rate.

 Recurring Deposit Account: While opening the account a person has to agree to deposit a
fixed amount once in a month for a certain period. The total deposit along with the interest
therein is payable on maturity. However, the depositor can also be allowed to close the
account before its maturity and get back the money along with the interest till that period.

 NBFC deposits: NBFC fixed deposits, also called company deposits, are investment avenues
offered by Non Banking Financial Companies. In other words, if a bank does not offer an FD
scheme, it is offered by a company and called a corporate Deposit.

Banks usually offer deposit schemes with tenures ranging from 7 days to up to 10 years. In
the case of NBFCs, however, the deposit period is different. The minimum tenure usually starts
from 12 months, and the maximum tenure goes up to 5 years.

POSTAL SCHEMES
 National savings Certificate(NSC)
Backed by government of India and it is a savings band that can be purchased at any post
office. Maturity period is for 5 or 10 years and available at various denominations like Rs.100,
500, 1000,5000,10000. The Rate of interest is 6.8%
 Kisan Vikas Patra
Within 10Years and 4 Month the amount gets double and available at various
denominations like Rs.100, 500, 1000, 5000, 10000
 Monthly Income Scheme
Single time investment and generates monthly rate of returns at 6% to 7%

 Senior citizen Scheme

Provides higher interest rate on fixed deposits for 60years and above citizens
 Public Provident Fund(PPF)
Retirement saving scheme offered by government of India with the aim of providing post
retirement life with 7.5% interest rates.

REAL ASSETS
Real assets are tangible in nature. The major type of real assets are:
 Real estate - Residential Property, Commercial Property and Land
 Precious Metals - Gold, silver and also Diamonds
 Art and Antiques – Paintings, Historical objects, sculptures

INSURANCE
Meaning
Insurance is a legal contract that transfers risk from a policyholder to an insurance provider.
 Insurers use a pool of many premiums to pay for the financial losses. You are covered for
losses outlined in your contract only, not for predictable events.

Types of Life Insurance Policies

 Term Life Insurance: Insurance Company offers financial coverage to the policy holder for
a specific time period but no maturity benefits.
 Whole Life Policy: The policyholder pays regular premiums until his death, upon which the
corpus is paid out to the family.
 Endowment Plans: Endowment plans pay out the sum assured under both scenarios - death
and survival.
 Unit Linked Insurance Plans: ULIP is a life insurance product, which provides risk cover
for the policy holder along with investment options to invest in any number of qualified
investments.
 Money Back Policy: Money back plan provides life insurance cover against death of the
policy holder along with periodic returns as a percentage of sum assured.
 Children’s Policies: These plans can be taken in the name of the child or the parent.
However, it is only for the benefit of the child. This helps parents mobilize finances when the
child reaches a particular age or stage of life.
 Pension Plans: - These are offered to help an individual to build a retirement corpus. In case
of an unfortunate death of the policyholder, the nominee can either take a lump sum or
receive a regular pension for the rest of the policy tenure.

REAL ASSETS
 Real assets are tangible in nature. The major type of real assets are

1. Real estate –
Residential Property - Flats, apartments houses, colleges
Commercial Property – Hotels, restaurants, hospitals, educational institutions and
commercial premises
Land – Industrial Plot, farm house plot, agriculture land and nonagriculture Land.

2. Precious Metals –
Gold(Gold Bars, gold ornaments, gold coins and Gold securities exchange Traded Funds/G-
ETF), silver and also Diamonds

3. Art and Antiques –

Paintings, Historical objects, sculptures, manuscripts, etc
 MARKETABLE SECURITIES
Marketable securities are liquid financial instruments that can be quickly
converted into cash at a reasonable price. The liquidity of marketable securities comes
from the fact that the maturities tend to be less than one year, and that the rates at which
they can be bought or sold have little effect on prices.

 Marketable securities are assets that can be liquidated to cash quickly.

 These short-term liquid securities can be bought or sold on a public stock exchange or a
public bond exchange.
 These securities tend to mature in a year or less and can be either debt or equity.
 Marketable securities include common stock, Treasury bills, and money market
instruments, among others.
NON MARKETABLE SECURITIES

A non-marketable security is an asset that is difficult to buy or sell due to the fact that
they are not traded on any major secondary market exchanges. Such securities, often
forms of debt or fixedincome securities, are usually only bought and sold through private
transactions or in an over-the-counter (OTC) market.
For the holder of a non-marketable security, finding a buyer can be difficult, and some
non-marketable securities cannot be resold at all because government regulations prohibit
any resale. A non-marketable security may be contrasted with a marketable security,
which is listed on an exchange and easily traded.
Common examples include rural electrification certificates, state and local government
securities, private shares, and federal government series bonds.
A limited partnership investment is an example of private security that could be non-
marketable due to the difficulties concerning reselling. Another example is the private
stock owned by the owner of a company which is not publicly traded.
 INVESTMENT AND SPECULATION
 Investment
Investment is the employment of funds on assets to earn income or capital appreciation.
The individual who makes an investment is known as investor.
 Speculation
Speculation means taking up the business in hope of getting short term gain. It essentially
involves buying and selling activities with the expectation of getting profit from capital
appreciation
 Speculator
Speculator is the investor who seeks the opportunities for very large returns .The speculator
is less interested in consistent performance and more interested in extremely high rate of return
in short period.
DIFFERENCE BETWEEN INVESTOR AND SPECULATOR
Point of Investor/Investment Speculator/Speculation
difference

Time horizon Long Term( From One year to few Short Term (Few days to Months)
years)
Risk Assumes moderate Risk Willing to take high risk

Return Likes to have moderate return Likes to have high return associated
associated with limited risk with high risk

Decision Considers fundamental factors and Considers insider information and

evaluates the performance market behavior

Funds Uses his own funds Uses borrowed funds

Buying and Frequent buying and selling of Frequent buying and selling of
selling securities does not take place securities does take place
Yield & capital Interested in yield rather than capital Interested in capital gains yield
gain gains rather yield
Source of Earnings of enterprise Capital gains
income
Psychological Cautious Daring
attitude
Gambling
Gambling refers to any kind of illegal activity which consist of risk and high returns but
people are also so interested in gambling for thrill and excitement. It is unplanned and
unscientific act without the knowledge of risk involved. Gambling is different from investment
and speculation.
 Gambling involves higher risk then investment and speculation
 The time horizon involved in gambling is shorter than investment and speculation.
 Gambling gives higher rate of return then investment and speculation.
 There is no analysis of risk and return as it is there in investment and speculation.
 People gamble in order to entertain themselves.
 Earning income is secondary factor in gambling has earning income is primary factor in
investment.
 Gambling involves artificial risk or unnecessary risk whereas commercial risk is found in
investment activities.
 Gamble is a game of chance and a holding period for most gambles can be measured in
seconds for example roll of dice or turn off a card.
 INVESTMENT V/S SPECULATION V/S GAMBLING
Base Investment Speculation Gambling

Time Long term - one year Short term Very short term - few
to year speculation - few hours to days
days to month

Risk Risk is less Risk is high Risk is very high

Return Return is less Return is high Return is very high

Illusion Consider Considers insider Consider emotional
fundamental and information and and secret
technical report market behavior information
 TYPES OF INVESTORS
Investor maybe divided into an individual Investor or an Institutional investor.

Difference between Individual investor and Institutional investor.

Individual investor Institutional investors

Large in number Fewer in number

Investable resources are comparatively smaller Investable resources are much larger

They generally lack skill to carry out carry out Have highly skilled professional fund
extensive evaluation before investing managers to carry out extensive analysis and
evaluation of different investment
opportunities

Do not have much time They have sufficient time. Example mutual
funds insurance banks and non banking
companies, Investment companies
 INVESTMENT PLANNING
Investment planning is the part of financial planning. Investment planning refers to a course
of action taken to accomplish once investment goal and it is a process of thinking in advance
before making and investment

Features of investment planning

 Setting of investment goal
 Deciding the investment time frame
 Risk profiling
 Evaluating the market and the investment features
 Designing and investment portfolio evaluated the market and investment avenues

Investment planning involve following steps:-

 Setting investment goal
 Understanding the risk and return
 Designing an investment portfolio
 Evaluating the market and investment avenues

Importance of Financial Planning

 Inculcates the habit of saving: An investment plan will help inculcate the habit of saving. By helping
you schedule your investment regularly, the investment will increase your financial discipline.

 Offers financial security: Having an investment plan provides financial security for the future. In
case of any adverse events, you and your family have your investments to lean back on.

 Increases financial awareness: An investment plan increases your understanding of your current
financial situation. It will help you evaluate your financial position and helps you find the best
investment product that will suit your situation.

 Helps maintain and improve the standard of living: In times of an emergency, your investments
can come in handy. For example, if you lose your job, you can use your investments to pay your bills
until you find a new one. Even if there is no emergency, you can use the returns from your
investments to fulfill your financial goals, such as buying a car or house.

 Manages income and expenditure efficiently: With an investment plan, you can manage your
income and expenditure. For example, you can create a budget which will help in planning your
expenditure and savings ahead of time.
 SEBI
 SEBI was established in the year 1988 and given statutory powers in 1992 with SEBI Act
1992 being passed by the Indian Parliament.
 SEBI has it's Headquarter at the business district of Bandra Kurla Complex in Mumbai, and
has Northern, Eastern, Southern and Western Regional Offices in New Delhi, Kolkata,
Chennai and Ahmedabad respectively.

OBJECTIVES
1. To protect the interest of investors and ensure safety of their investments.
2. To promote the development of securities market – Investor education
3. To prevent fraudulent and unfair trade practices
4. To regulate and develop a code of conduct for intermediaries such as brokers,
underwriters, merchant bankers
5. To regulate the securities market.
MANAGEMENT

The Board of SEBI consists of following:

 a) The chairman who is nominated by Union Government of India.
 b) One member from The officials of Reserve Bank of India.
 c) Two members, i.e. Officers from Union Finance Ministry.
 d) Five other members of whom at least three shall be the wholetime

DEPARTMENTS OF SEBI

1.Market Intermediaries Regulation and Supervision Department (MIRSD)

2.Market Regulation Department (MRD)
3.Derivatives and New Products Department (DNDP)
4.Corporation Finance Department (CFD)
5.Investment Management Department (IMD)
6.Integrated Surveillance Department (ISD)
7.Investigations department (IVD)
8.Enforcement department (EFD)
9.Legal Affairs Department (LAD)
FUNCTIONS:
1. REGULATORY FUNCTION
 Regulating the business in stock exchange
 Registration and regulating the working of Stock Brokers.
 Merchant Bankers, Depository participants and other intermediaries
 Regulation of Collective Investment Schemes
 Prohibition of Unfair Trade Practices and Insider Trading
 Regulating substantial acquisition of shares and takeover of companies
 Conducting Inquires and Audits of the stock exchanges and others associated with securities
market.

2. DEVELOPMENT FUNCTIONS
 Promote investor’s education to increase participation in capital market
 Training of intermediaries such as brokers.
 Conducting research and publishing market information which are useful to all market
participants.

3. PROTECTIVE FUNCTIONS
 Controlling Price Rigging - The practice of inflating the price of stocks, or enhancing their
quoted value, by a system of pretended purchases, creating an unusual demand for such
stocks
 Prohibition of Insider Trading - The employees or executives who have access to the
strategic information about the company, use the same for trading in the company's stocks
or securities, it is called insider trading and is highly discouraged by the SEBI
Prohibition of fraudulent and Unfair Trade Practices.
 SEBI promotes fair practices and code of conduct

Powers of SEBI
 For the discharge of its functions efficiently, SEBI has been vested with the following
powers:
 Powers to suspend trading of any security in the recognized stock exchange
 Power to restrain persons from accessing the securities market
 Powers to regulate or prohibit issue of prospectus, offer document or advertisement
soliciting money for issue of securities
 To approve by−laws of stock exchanges
 To require the stock exchange to amend their by−laws.
 Power to investigate & Inspect the books of accounts and call for periodical returns from
recognized stock exchanges.
 Inspect the books of accounts of intermediaries
 Power to cancel certificate
 Power to impose penalties and adjudication
 Power to make regulations