Basics of Investment

1. Investment
Concept, Risk, Return & Diversification

2. Syllabus
• Meaning and concept
• Investment objectives
• various asset classes
• factors in investment decisions
• Investment process
• concept of risk and return – sources of risk
• Measurement of risk and return
• Diversification and hedging
• Ethical investing.

3. What is an Investment?
An investment is an asset or item acquired with the goal of
generating income or appreciation.
An investment is a monetary asset purchased with the idea that the
asset will provide income in the future or will later be sold at a higher
price for a profit.
It is a commitment of funds in monetary assets, made in the
expectation of some positive rate of return.

4. Savings and Investment!
Income
PRESENT
CONSUMPTION
FUTURE
CONSUMTION

5. INCOME
FUTURE
CONSUMPTION
SAVINGS INVESTMENT

6. Characteristics of an Investment
• RETURN
• RISK
• SAFETY
• LIQUIDITY

7. Objectives of Investment
• GROWTH
• SAFETY
• REGULAR RETURNS/INCOME
• TAX BENEFITS
• LIQUIDITY
• HEDGE AGAINST INFLATION

8. Benefits of Investment
• Income
• Capital Appreciation
• Highly Regulated
• Tax Advantages
• Collateral
• Confidentiality
• Flexibility
• Operating Convenience
• Liquidity
• Hedge against Inflation
• Spreading Risk

9. • Higher Risk
• Capital Gain in short term
• Shorter Period
• Lower Risk
• Regular returns + Capital Appreciation
• Longer Period
InvestmentSpeculation

10. Asset classes
• Real Investments
1. Real Estate
2. Commodities
3. Bullion
4. Art

12. Asset classes
• Financial Investments
1. Equities
2. Debts
3. Mutual Funds
4. Deposits
5. Life Insurance Policies
6. Govt/Semi-Govt Securities

13. Investment process
1. Defining Investment Objectives
2. Analyzing Securities
3. Portfolio Construction
4. Portfolio Evaluation
5. Portfolio Revision

14. Risk & Return
• Calculating Expected return…
• CalculatingTotal Risk…
• Calculating Systematic Risk…

15. Diversification & Hedging
• Diversification aims at minimizing the risk or reducing the
magnitude of possible losses by spreading the investment
into various asset classes.
• Hedging is the process of controlling/offsetting the
possibility of loss by bearing a hedging cost.
• “A risk management strategy used in offsetting the
probability of loss from fluctuations in the prices of
commodities, currencies, or securities.”
• The most common way of hedging in the investment
world is through derivatives.

16. Ethical Investment
• Ethical investing refers to the practice of using one's ethical principles as
the primary filter for the selection of securities investing.
• Depends on an investor's ethical views rather than economic motives.
• Gives the individual the power to allocate their savings towards companies
whose practices and values align with their personal beliefs.
• The earliest recorded instance of ethical investing in America was by the
18th century Quakers, who restricted members from spending their time or
money in the slave trade.
• Example: Islamic banking, which shuns investments in alcohol, gambling,
pork and other forbidden items.

17. How to Invest Ethically?
• Analyzing investments using ethical standards.
• Historical, current, and projected performance of the
investment should be scrutinized.
• It is also important to confirm the company's
commitment to ethical practices.
• A company's mission statement

18. Sources of Risk
 Market Risk
 Interest Rate Risk
a) Reinvestment Risk
b) Price Risk
 Purchasing Power Risk
 Regulation Risk
 Business Risk
International Risk
 Liquidity Risk

19. Previous Questions -
• Explain Systematic and Unsystematic risk with examples.
• Explain the different dimensions of Investment and its contents as a process.
• Financial Investments include those instruments and Institutional media into
which savings are placed. But general sense it is so different in common man.
Make a comment.
• Analyzing the life cycle of the Industry may give more clarity on the proposed
investment decision of the investor not the trader. Justify the statement.
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