nature & scope of invt mgmt

8/2/2019 Nature & Scope of Invt Mgmt

1/65


2/65

PERSONEL

INVESTMENT

PLANNING


3/65

INVESTMENT

Investment

Parting with ones fund

to be used by another party

(user of the fund)

For a productive

activity.

Investment is the employment of

funds with the aim of earning

income or capital appreciation.


4/65

Two main attributes Time

Risk

All the more complicated as theamount invested Certain

Future Returns Uncertain

Why should one get a return on the investment?

To compensatea) Saving - Abstaining from current consumption.

b)Parting with the saving Waiting for a futureconsumption.

c)Taking the risk

Uncertaintyof the actual

return

Waitingtime

Cost of gettingback the funds

Safety offunds

Risk ofvariability of

the return


5/65

What is ANALYSIS?

PROPER INVESTMENT is one which maximisesreturn and minimises risk.

The process of

a) analysing the individual securities and the market as awhole,

b) estimating the risk and return expected from eachinvestment avenue


6/65

What is PORTFOLIO?

Combination of different investment instruments.

Each investment has its own risk-return Equation.

Collection of all investments made by a person is

PORTFOLIO.


7/65

PORTFOLIO MANAGEMENT

Traditional

PortfolioManagement

Modern

PortfolioManagement

PortfolioConstruction

Selection ofSecurities

Revision ofPortfolio

EvaluationMeasuring

performance


8/65

INVESTMENT ACTIVITYFINANCIAL

ASSETS

PHYSICAL

ASSETS

Cash

Bank deposits

PF, LIC Schemes

Pension SchemesP.O. Bank

Certificates and

deposits

House, Land,

Building

Gold, Silver and

other metals.Consumer

durables

SAVERbecomes

INVESTORby acquires

MARKETABLE ASSETS

(the assets)

Shares, Bonds,

Government

securities, Mutual

funds etc,.

STOCK AND CAPITALMARKETS

NEW ISSUES STOCK MARKET


9/65

CLASSIFICATION OF INVESTMENT

FINANCIALINVESTMENT

ECONOMICINVESTMENT

Employment

of funds

Object ofearning

Net additions to

the capital stockof the societyAdditionalIncome

Appreciation inthe value of

investment

Those goods andservices which are usedin the production of

other goods andservices.

RESULT OF SAVING

Both classes are interrelated


10/65

CURRENT PORTFOLIOInvestment

TypeTotal A B C/D

% of Portfolio

Primary marketinvestment

5 9 5 2

Shares in securitymarket

5 9 5 1

Fixed Deposits 31 27 31 38

MFs other thanUTI

1 2 1 1

UTI Funds 8 9 7 6

Chit Funds 6 4 6 10

Gold 3 4 4 3

Jewellery 6 8 6 4

LIC/NSS/P.O.Savings

32 28 33 35

Teak plantation/Orchards

1 1 1 1

By Socio-Economic Classification


11/65

INVESTMENT & SPECULATIONFACTORS INVESTOR SPECULATION

Time horizon Longer time Very short time - days or

months

Risk Very moderate risk High risk

Return Moderate return High risk, hence higher

returns

Decision Fundamental factors

regular evaluation

Market forces


12/65

GAMBLINGGame of chance.

Period of investment is very short.

Outcomes are based on the roll of a dice or a card.

Purpose of entertainment.

Only artificial risk No commercial risk.

No risk-return off or analysis.

Negative outcomes are possible.

Financial analysis is of no use.


13/65

GROWING POPULARITY OF

INVESTMENTSHealthy industrial climate.

Good investment

opportunities.Varying interest rates.

Larger incomes.

Burdensome tax rates.

Long life expectancies.

Women venturing into work.

Increase in literacy levels.

Legal protection.

Well organised monetary

system.

Role of financial institutions.

Forms of business.


14/65

INVESTMENT OBJECTIVES

Maximisation of the economic welfare of theinvestor in the long run

Mobilisationof Wealth Liquidity

Cash returnCapital

appreciation

Safety

Other Objectives

Hedge against

inflation

Tax planning


15/65

1.RETURN$ Investment Commitment of funds.

Expectation of some positive rate of return

$ Sacrifice of certain present value for the future reward.

$ Return

$ Rate of Return= End period value-Beginning period value

Beginning period value

$ Rate of Return= Capital appreciation+Dividend

Purchase Price

Semi-annual

Annual

100

OR

100


16/65

2.RISK

$ Probability of actual return < Expected return Risk

$ Variability of Return Risk


17/65

3.CAPITAL APPRECIATION$ In the long run Value of the asset should increase in

the market.

$ InvestmentPhysical

Financial

Before investing seewhich is suitable


18/65

4.SAFETY$ Hard earned money.

$ Securities Safe Calculated and moderate risks

are present.

$ Securities Safe Repay its principal amount and

returns thereon.

$ Legal problems Grievance redressal.


19/65

5.LIQUIDITY$ Degree of its ready marketability.

$ Ready encash-ability.


20/65

6.HEDGE AGAINST INFLATION$ Seeking protection against inflation.

$ Rate of return Cover The rate of inflation.

$ Unless this is ensured Investors will lose in real terms


21/65

7.TAX PLANNING

$ Tax on interest / dividend / return.

$ Tax on Capital gains.


22/65

ESSENTIAL FEATURES OF AN

INVESTMENT PROGRAMME

Consistent with the objectives of the investors.Ingredients of a good investment programme:

a) Safety of principal- protection against any possible lossunder changing conditions.

b) Careful review

c) Extensive diversification

INDUSTRIAL trends

ECONOMIC trends

VerticalDiversification

HorizontalDiversification


23/65

LIQUIDITY & COLLATERAL VALUE

Converted into cash immediately without monetary loss.

Funds are required investors should be able to sell the securities

or use it as a collateral security.

STABLE INCOME

Regularity of income

Adequacy of income

CAPITAL GROWTH

A company flourishes Industry is sound.

Investors should be smart to understand the connection betweenthe industry growth and capital appreciation.

RIGHT SECURITY IN THE RIGHT INDUSTRY IN THE RIGHT

TIME.


24/65

TAX IMPLICATIONS

Tax on dividend and capital gains.

STABILITY OF PURCHASING POWER

Comparison of present value Future gains

Inflation

Purchasing power

LEGALITY

Legal securities Customer protection management of

mutual funds.


25/65

INVESTMENT PROCESS

Invest ment

policy

Analysis

(Scrutiny)

Valuation Portfolio

Construction

Portfolio

Evaluation

1) Investiblefundsa) Savings,b) Borrowed.

1) Marketanalysis(boom &

depression, entry& exit points canbe fixed, generaleconomic scene)

Intrinsic value(Book value

market value)

Diversification offunds to meetthe goods.

1)Managedefficientlyi) Incomea) Fixed income

(Debentures,bonds, pref.shares)b) Variableincome (Equityshares)

ii) Sourcea) Government,b) Semi-govt.,c) Corporate.

a) Diversification

Reduction of riski) Debt/equityii) Industry

diversificationiii) Company

diversification

2) Objectivea) Risk averseb) Risk lover

2) Industryanalysis(economic

signals, growthpatterns etc,.)

3) Knowledge ofthe market

a) Risk return,b) Tax,c) functioning ofthe stockexchange,d) Brokerage

Future value(Book value

market value)

3) Companyanalysis(profitability,operatingefficiency etc,.)


26/65

INVESTMENT

AVENUES/ALTERNATIVESREAL OR

TANGIBLE

INVESMTENTS

CONTINGENTINVESTMENTS

TITULARINVESTMENTS

Land, Buildings,

Jewellery,Precious stones,Gold and Silver.

Insurancepolicies

Certificates,Deposits, promissory

notes, PF, Mutualfunds, Shares andDebentures.


27/65

FEATURES OF INVESTMENT

AVENUESFeature High Low

1) RiskPeriod

Longer the maturity period. Shorter the maturity period.

Credit Worthiness Lesser the credit worthiness. More the credit worthiness.

Nature of the security Risk of loss of money equityshares.

Risk of loss of moneydebentures

Variability of income Equity shares. Debentures and PreferenceShares.

2) Tax implication Shares NSC, Government bonds, UTIBonds etc.


28/65

RISK-RETURN RELATIONSHIPS

Bank

UTI units, MF

PSU Bonds

NCD

CD

ES

Company Deposits

Venture Funds

RETURNS

RISK


29/65

REAL INVESTMENT OR TANGIBLE

INVESTMENTPhysical tangible existence.Eg: Land, House, Jewellery, Precious stones, Gold, Silver,

Property, Antiques, Non-financial investments.


30/65

REAL ESTATE

1) High capital appreciation.2) Easy availability of loans.

3) Tax rebate on interest paid

on loans + principal.4)Psychologically a secure

feeling.

5) Higher income groups also

invest in,

a) Time share plans,

b) Holiday resorts.

5) Usually people dont investin more than two houses

because,

a) Large capital,

b) Malpractices,

c) Land ceiling act,

d) Lack of liquidity.


31/65

CAUTIONS

Plan approved by the local authority,

Possibility of capital appreciation.

Originality of title deeds.

Plinth area to be verified.

Credibility of the broker.


32/65

ARTS & ANTIQUES

Paintings Aesthetic sense Coins, Sculptures,

Manuscripts Archaeological society.

Western countries Guard against Jake.


33/65

CONTINGENT INVESTMENTSInsurance

Main features Value is related to a contingent - Death,accident, injury etc.

Contingent arises considerable amount is paid to meet theloss arising due to the contingency.

Contract Insurancecompany

Insured

Primarily to cover the wish

Specified time / Life time

Now, its a good investment

vehicle

Advantages:

a)Protection

b)Facility of savings

c)Liquidity

d)Tax benefits


34/65

SCHEMES OF LIC

Whole life policy

Endowment assurance plan

Jeevan anurag

Jeevan nidhi Jeevan pramukh

Jeevan mitra

Jeevan saral Jeevan aadhar

Money back policy

Bina plus


35/65

TITULAR INVESTMENT

DEPOSITS

Sum of money placed with a borrower for a specified

period of time in return for a periodic interest either

explicitly paid or added to the principal.


36/65

1.BANK DEPOSITSa)Savings Bank accounts

1) Promote savings.

2) Millions of low and middle class

people.

3) Bank formalities.

4) Pass book and cheque book.

5) Frequent withdrawals are not permitted.

6) Interest 3.5% on minimum balance between 10th and last day

of the month.


37/65

b)Current account

1) Running account.

2)Business enterprises.

3)Frequent withdrawals are permitted.

4)Normally no interest paid.


38/65

c) Recurring deposits

1) Investor pay a specified

amount every month for a stipulated

period.

2)After lapse of specified time,

accumulated money along with

interest is returned back.

3)Period of payment 1 year to 10 years.

4)Since there is regular inflow without

withdrawals,LIQUIDITY OF THE BANK


39/65

d)Fixed Deposits

1) Deposit with a bank for a fixed period.

2)

3)Win - Win

Minimum Maximum

Period 15 days(7days > 25 lakhs)

120 months

Amount 1000 Unlimited

Investors

Better Interest

Bank

Greater liquidity


40/65

I. Novel Deposit Scheme

1) Premium savings Account:

Minimum balance of 10,000.

Excess of 10,000 is automatically converted into FD 180 days

1000

If money is required FD is withdrawn prematurely.

II. Special premium savings account

High earnings with easy liquidity.

Minimum balance is 20,000 and same as above.


41/65

III.Vikas Cash Certificate

Money multiplier.

Minimum 100 Multiples of 100.

Period 6 months to 120 months.

Interest is compounded quarterly.

IV.Special Security deposit

Monthly on quarterly income plan.

Minimum 1000 Multiple of 100.

Period 1 year to 10 years in completed quarters.

Monthly interest at discounted value or interest accruing at

the end of the quarter will be paid.


42/65

V.Quick Money Deposit

FD with an OD facility.

Minimum deposit 25,000, multiples of 1000.

12 months to 60 months.

OD 80% of deposit.

Premature withdrawals Penalty

VI.Senior citizens security deposit

Higher income for age above 60.

1000 in multiples of 1000.

12 months to 120 months.

Interest is 0.5 % than normal.

No penalty on premature withdrawals.


43/65

VII.Suvidha deposits

FD with partial withdrawals.

VIII.Corporate Suvidha Deposit

Large deposits.

5 crores Multiples of 1 crore.


44/65

IX. Cumulative Education deposit

Education loans can be taken on the deposit already

made.

X. Pigmy deposits

Small amounts.

Doorstep collection.


45/65

POST OFFICE SCHEMES

Very popular Govt. of India has collected crores of

money through this mode.

a)Post office monthly scheme

1500 to 4,50,000 ( 6,00,000 in case of joint account).

5 years.

8.2% bonus on maturity.

Tax benefit Sec.80 L


46/65

b) Kisan Vikas Patra

Most popular.

100, 1000, 5000 and 10,000 year. Compounded interest.

Amount doubles in 8 years to 7 months.

Minimum holding period is 2 years and 6 months.Not transferable.

c)National Savings Certificate

CI of 8%. Principal + Interest Maturity.

100 = 150.90 After 5 years.

Tax rebate Sec. 88 and 80 L.

bli id f d


47/65

d)Public Provident fund

Head post office/SBI/ Nationalised banks.

Interest 8.6%.

Maximum limit - 1,00,000 per annum.

Period 15 years.

Interest Sec. 10

Amount of investment Rebate Sec. 88.

e) Post office Recurring deposit

5 years.

Minimum 10 Maximum no limit.

10 per month = 738.62 After 5 years.


48/65

f)Post office time deposit

FD 1 year and 5 years. Interest 7.70% to 8.30%.

g) Deposit schemes for retired Govt. employees or

Public sector undertakings

Retired employees Govt. securities and PSUs.

7% interest.

Retirement benefits to be invested within 3 years from

retirement.


49/65

h)Post office savings account

Individual investors.

Maximum of 1,00,000.

Cheque facility.

Interest Exempt Sec. 10 of the IT act.

Minimum balance of 50.

i)Savings schemes for Seniors citizens 60 years.

VRS.

1000 to 15,00,000.

9% interest quarterly. Deposit period 5 years

Extended by 3 years.

Transferable One PO to another PO.

FIXED DEPOSIT SCHEMES IN


50/65

FIXED DEPOSIT SCHEMES IN

COMPANIES

Public limited company in the private

sector.

Cumulative / Non-Cumulative.

Newspaper advertisements.

Companies rules of 1975.

All details regarding the Company

Purpose of deposit to be specified.


51/65

PROVIDENT FUND SCHEME

Retirement benefit scheme. Stipulated sum is deducted from the salary.

Like amount contributed by the

Invested in gilt-edged securities. Interest is credited.

Balance on retirement = (Retirer contribution + Retireecontribution + Interest on

both) Encourages personal savings micro level.

Generates resources to be invested at macro level.

Tax benefit under Sec. 88.


52/65

StatutoryProvident fund

Recognized fund Unrecognized fund Public fund

Government Establishmentsemploying morethan 20 people,12% - Contribution9.5% - Interest

Retirers contribution isexempted from tax.

Anybody

Semi Government Retirees contribution isnot exempted from tax. Rs.500 toRs.70,000

Railways Payment received Retirees contribution->Exempt from tax

15 years

Universities Interest is taxable underincome from othersources.

8%

PROVIDENT FUND


53/65

MUTUAL FUNDS

On the basis ofexecution and

operation

On the basis ofyield andinvestment

pattern

Closeended

Openended

Incomefund

Growthfund

Specialisedmutual

fund

Moneymarket

fund

Balancefund

Taxationfund


54/65

BENEFITS Safety of principal

Capital appreciation.

Interest and dividend.

Even small investors can have access to investment in top

companies.

Careful selection of securities over a diversified portfolio

covering large member of companies and industries.


55/65

IMPORTANCE

Mobilising the savingsand channelising then

into good investment.

Wide scope for portfolioinvestment.

Better yields.

Expert investment advice

at low cost.

Tax benefits

Flexible investment

schedule.

Greater affordability and

liquidity.

Develops the capital

market.

Reduce market cost of new

issues.

Promotes industrial

development.


56/65

GOVERNMENTSECURITIES

PROMISSORY NOTES

Issued by government

(Central/state/quasi)

Also known as GILT-EDGEDsecurities or government

securities or government

guaranteed securities.

Highly liquid.

Most popular.

Negotiable instruments.

Freely transferable Delivery

through endorsements.

Registered promise of the

government.


57/65

STOCK CERTIFICATES

LIC and PF

a) Legally a minimum

amount to be used for this

purpose.

b) Large resources are

available.

c) Development of economic

status of the country.

CHARACTERISTICS OF


58/65

CHARACTERISTICS OF

GOVERNMENT SECURITIES

1) Issuing authority : Central/State/Quasi government.

Central Gold bonds, National defence bonds,

Special rupee bonds, Treasury bills, Special rupee

securities etc. State/Local Port trusts, EB Bonds, Financial

institutions : IDBI, IFCI, Housing boards bonds.

2)PurposeMobilising funds for the implementation of priority

programmes it also influences the stock market.


59/65

3) Government securities and Commercial Banks

Commercial banks Loans RBI

by offering government securities in which theyinvest as a collateral security.

4)Rate of Interest : Interest as risk

5) Tax Concessions : IT Act 15,000

deduction from GTI. Interest is also exempted from tax in

certain cases.

6)Underwriting

issued by the Debt office of RBI. issue is open for 2/3 days.

OTC.

No underwriting brokers.

INVESTMENT AVENUES


60/65

NAME OF SECURITY Rate of interest p.a. INCOME TAX concession

PO Savings Bank a/c 3.5% Sec. 10(15)(ii)

Savings Deposits of Banks 3.5% --do--

Public Provident Fund a/c 8.0% Sec. 80 C

PO Time Deposit a/c 6.25% to 7.5% Sec. 80 L

Bank Fixed Deposits 4% to 8% --do--

PO Recurring Deposits a/c 7.5% (period 5 years) --do--

6-year PO Monthly incomescheme

8.0%(payable monthly)

Sec. 80 L within limit of Rs.12,000

Kisan Vikas Patra (8 yearsand 7 months)

8.41%(Compounded)

No

NSC VIII Issue (6 years) 8.0% Sec. 80 C

Units of UTI/Schemes ofMutual funds

Variable Included in 80 L with additionalRs.3000 rebate

Equity shares of companies Variable Dividend income not taxable.

INVESTMENT AVENUES

NAME OF SECURITY Rate of interest p a INCOME TAX concession


61/65

NAME OF SECURITY Rate of interest p.a. INCOME TAX concession

Equity Shares of Companies Variable Tax rebate at 20% oninvestment in equity linkedschemes of Rs.10,000 max.-

a rebate on Rs.2000

Convertible Debentures Variable Taxable

Non-Convertible Debentures --do-- Taxable

Fixed Deposits ofCompanies/NBFCs

Free and Variable11% to 14%

Taxable

Preference Shares(Redeemable/Cumulative)

14% to 15% Dividend deductible uptoRs.12,000 under Sec. 80 L

Cumulative ConvertiblePreference Shares (CCP)

10% --do--

Bonds of Public Sector Co. 9% to 10.5% Taxable

Senior Citizens Certificates 9% Taxable

RBI Relief Bonds (since

Discontinued)

8% Not Taxable

INVESTMENT PROFILE OF INDIAN


62/65

INVESTMENT PROFILE OF INDIAN

INVESTORS

Shares, Debentures,Company deposits

Claims on Govt.

Pension & Insurancefunds

Bank Deposits

0

5

10

15

20

25

30

35

40

45

ProportionofInvestments

Risk

If an average Indian saves 100


63/65

If an average Indian saves 100,

55 Physical assets

45 Financial assets.

FINANCIAL ASSETS12.5%58%

Cash and CurrencyBank Deposits

RisklessReturn 0.6%

30% Contractual savings

Insurance, PF, Pension funds

Risk is less

Return is moderate1% UTI and Mutual Funds

Voluntary investmentsTax rebates

Risk is little moreReturn is 10%

24% Govt. Securities, PO Savings, PSU bonds Risk is moderateReturn depends on taxconcessions

4% Deposits in companies Very riskyReturns are high

1% - 2% Shares and Debentures RiskiestReturns are very high


64/65

Only about 10% - High risk High return

30% - Contractual Savings

60% - Currency and bank deposits

Indirect Investment in Shares and Debentures

through

Banks, UTI, MF, Insurance etc.

Public securities Private Securities Currency

80% 10% 10%

RETURNS


65/65

nature & scope of invt mgmt

Documents