Introduction to Investment Management & Alternatives

1. Introduction to Investment Management & Alternatives Rishit Shah

2. Meaning of Investment • Commitment of money that is expected to generate additional money • Current commitment of dollars for a period of time to desire future payments that will compensate the investor for • The time the funds are committed • The expected rate of inflation, and • The uncertainty of the future payments • The investor can be an individual, a government, and/or a corporation

3. Why do individuals invest? • To achieve a higher level of consumption in the future by forgoing consumption today • To improve our welfare in the future • Investments help us achieve tradeoff between current consumption and future consumption • Basic element of all investment decisions: trade-off between expected return and risk

4. Why Study Investments? • The Personal Aspects • To earn better returns in relation to the risk we assume when we invest • Knowledge of investments help investors understand the relationship between risk and return • Investment as a Profession • To become a licensed broker (series 7 exam), to become CFA/CFP/CMA, knowledge of investments is needed

5. Range of Investment Alternatives • There are two broad categories:- • Financial assets are paper (or electronic) claims on some issuer such as the government or corporate body. The important financial assets are: - Equity shares, Corporate debentures, Government securities, deposit with banks, mutual funds, insurance policies, and derivative instruments. • Real assets are represented by tangible assets like: - Residential house, Commercial property, agricultural farm, gold, precious stones, and art objects.

6. Investment Alternatives

7. Non-marketable Financial Assets • A good portion of financial assets is represented by non-marketable assets. They can be classified into the following broad categories: • Bank deposits • Post office deposits • Company deposits • Provident fund deposits • Differentiate between traders, speculators and investors

8. Equity Shares • Equity shares represent ownership capital. • This essentially means that you have a residual interest in income and wealth. Equity shares are classified as follows: • Blue chip shares • Growth shares • Income shares • Cyclical shares • Speculative shares

9. Bonds • Bonds or debentures represent long-term debt instrument. The issuer of a bond promises to pay a stipulated stream of cash flow. Bonds may be classified into the following categories: • Government securities • Savings bonds • Government agency securities • PSU bonds • Debentures of private sector companies

10. Money Market Instrument • Debt instruments which have a maturity of less than one year at the time of issue are called money market instruments. The important money market instruments are: • Treasury bills • Commercial paper • Certificate of deposit

11. Mutual Funds • Instead of directly buying equity shares and/or fixed income instruments, you can participate in various schemes floated by mutual funds which, in turn, invest in equity shares and fixed income securities. There are there broad types of mutual fund schemes: • Equity schemes • Debt schemes • Balanced schemes

12. Life Insurance • In a broad sense, life insurance may be viewed as an investment. Insurance premiums represent the sacrifice and the assured sum, the benefit. The important types of insurance policies in India are: • Endowment assurance policy • Money back policy • Whole life policy • Term assurance policy

13. Real Estate • For the bulk of the investors the most important asset in their portfolio is a residential house. In addition to a residential house, the more affluent investors are likely to be interested in the following types of real estate: • Agricultural land • Semi-urban land • Commercial property • A resort home • A second house

14. Precious Objects • Precious objects are items that are generally small in size but highly valuable in monetary terms. The important precious objects are: • Gold and silver • Precious stones • Art objects

15. Financial Derivatives • A financial derivatives is an instrument whose value is derived from the value of an underlying asset. It may be viewed as a side bet on the asset. The most important financial derivatives from the point of view of investors are: • Options • Futures

16. Classification of Financial Markets • Nature Claim:- • Debt Market • Equity Market • Maturity of Claim:- • Money Market • Capital Market • Seasoning of Claim:- • Primary Market • Secondary Market

17. Classification of Financial Markets • Timing of Delivery:- • Cash or Spot Market • Forward or Futures Market • Organizational Structure:- • Exchanged Traded Market • Over-the-Counter Market

18. Summary Evaluation of Various Investment Avenues

19. Summary Evaluation of Various Investment Avenues

20. Thank You