INVESTMENT ENVIRONMENT

Investment refers to well planned and rationally formulated programme which
involves deployment of funds with the sole objective to earn additional income. It is
an art and science to deploy funds in such growth oriented channels which can
generate some yield. The investment is widely used in business and society. The
consumers use the term investment as the commitment of money in some assets as for
example investment in housing or motor vehicle. The term investment as used by
businessman implies as financial investment which is concerned with the deployment
of funds with the objective of realising additional income or growth in value of
investment at a future date.
Investment is commitment of funds that is expected to generate additional money.
Keeping cash in the locker is not an investment as it does not generate any income
rather its value may be eroded by inflation. However, keeping money in a savings
bank a/c is an investment as it generates income by way of interest. An investor buys
shares of a particular company in expectation of getting a dividend.

DEFINITIONS OF INVESTMENT: The following are some noteworthy definitions
of investment:

1. Fisher and Jordan: An investment is a commitment of funds made in the
expectation of some positive rate of return. If the investment is properly
undertaken the return will commensurate with the risk the investor assumes.
2. Amling: Investment may be defined as the purchase by an individual or
institutional investor of a financial or real asset that produces a return proportional
to the risk assumed over some future investment period.
Investment is defined as the commitment of funds for a period of time in order to
derive a future flow of funds that will compensate investing unit for the time the
funds are committed, for the expected rate of inflation and also for the uncertainty
involved in the funds flow of funds.

When you invest, you buy something that you expect will grow in value and provide
a profit, either in the short term or over an extended period. You can choose among a
vast universe of investment alternatives, from art to real estate. When it comes to

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financial investments, most people concentrate on three core categories: stocks, bonds,
and cash equivalents. You can invest in these asset classes directly or through mutual
funds and exchange-traded funds (ETFs).

Many financial investments including stocks, bonds, and mutual funds and ETFs that
invest in these assets are legally considered to be securities under the federal securities
laws. Securities tend to be widely available, easily bought and sold, and subject to
federal, state, and private-sector regulation. However, investing in securities carries
certain risks. That’s because the value of your investment fluctuates as the market
price of the security changes in response to investor demand. As a result, you can
make money, but you can also lose some or all of your original investment.

In finance, investment is the purchase of an asset or item with the hope that it will
generate income or appreciate in the future and be sold at the higher price. It generally
does not include deposits with a bank or similar institution. The term investment is
usually used when referring to a long-term outlook. This is the opposite of trading
or speculation, which are short-term practices involving a much higher degree of risk.
Financial assets take many forms and can range from the ultra-safe low
return government bonds to much higher risk higher reward international stocks.

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Savings are sometimes induced by the incentives like fiscal concessions or income or capital appreciation. The safety sought in investment implies protection against loss under normal conditions. Safety of Investment: It is necessary that the investment should be safe. The number of investors in India is 30-50 million. An investor must consider stability of monetary income and stability of purchasing power of income. Efficiency of a business depends upon profitability. For an investment to be liquid it must be a) reversible or b) marketable. 4. INVESTMENT OBJECTIVES A) FINANCIAL OBJECTIVES: The following are the financial objectives of investment: 1. B) PERSONAL OBJECTIVES: All investors are savers but all savers are not investors. One must also consider the regularity and the periodicity of returns. Liquidity of Investment: An investment is a liquid asset if it can be converted into cash without delay at full market value in any quantity. 3. Profitability: Investors purchase securities in the hope of getting profit in the forum of dividend. Income stability may not always be consistent due to changes in investment climate. 2. Savers from all classes except in the case of 37% of the 3 . Stability of Income: Stability of income is essentially important. It calls for careful review of economic and industry trends before deciding types and or timings of investment. The difference between reversibility and marketability is that reversibility is the process whereby the transaction is reversed or terminated while marketability involves that the sale of the investment in the market for cash. taking into account the tax benefits if any. Such changes in capital values should also be considered to evaluate the profitability of an investment. An investor looks into the expected returns. Some investments such as equity shares my appreciate in their value over time and some may depreciate.

Concealability: To be safe from social disorders. 2. Gold and precious stones have long been esteemed for these purposes because they combine high value with small bulk and are readily transferable. Purchasing Power: Investment involves the commitment of current funds with the objective of receiving greater amounts of future funds. Many financial investments including stocks. and mutual funds and ETFs that invest in these assets are legally considered to be securities under the federal securities 4 . they are anxious to have maximum cash returns on their investments and are prone to take excessive risks. You can choose among a vast universe of investment alternatives. population which is below the poverty line. bonds. The main objective and motives behind investment by the investors are as follows: 1. thus affecting their choices . investor should carefully study a) the degree of price level inflation they expect. When investors incomes are small. 3. most people concentrate on three core categories: stocks. One concerned with the amount of income paid by the investment and the other with burden of income taxes upon that income. government confiscation or unacceptable levels of taxation. The purchasing power of the future funds should be considered by the investor. you buy something that you expect will grow in value and provide a profit. On the other hand. bonds. When you invest. Tax Benefits: To plan an investment programme without regard to one tax status may be costly to the investor. property must be concealable and leave no record of income received from its use or sale. from art to real estate. You can invest in these asset classes directly or through mutual funds and exchange-traded funds (ETFs). investors who are not pressed for cash income less than others. When it comes to financial investments. There are really two problems involved here. and cash equivalents. either in the short term or over an extended period. For maintaining purchasing power stability. b) the possibilities of gain and loss in the investment available to them and c) the limitations imposed by personal and family considerations.

As a result. and subject to federal. However. That’s because the value of your investment fluctuates as the market price of the security changes in response to investor demand. TYPES OF INVESTMENT 1. joint-venture or the sharing of technology and skills. Securities tend to be widely available. state. but you can also lose some or all of your original investment. Direct investments can involve management participation. The purchase or 5 . investing in securities carries certain risks.laws. DIRECT INVESTMENT: The purpose of a direct investment is to gain enough control of a company to exercise control over future decisions. you can make money. easily bought and sold. This can be accomplished by gaining a majority interest or a significant minority interest. and private-sector regulation.

rather divide that investment into smaller units and divide among investors that helps to reduce the risk. EQUITY INVESTMENT: The investment in the equity shares of a company is called equity investment. The investor hand over his finances to the investment company that will invest the amount further and give him returns. he or she is indirectly an equity investor through the bank's stock portfolio.acquisition of a controlling interest in a foreign business by means other than the outright purchase of shares. the investor will get his agreed rate of return. In domestic finance. This is a long-term stock investment strategy whereby profits are realized through dividend payments and capital gains accrued on the equity of a particular stock. There are a number of benefits to indirect investment. 2. Investing in the stock market is a way of life in the United States. INDIRECT INVESTMENT: When there is an intermediary between the Investor and Investment that is indirect investment. This type of arrangement is often associated with investing in real estate ventures. An indirect investment is a type of investing opportunity that does not require the actual purchase of the asset that ultimately generates the return. and most of these are equity investments. (Usually an investment company does not invest in a single investment. Even if a depositor in a bank or credit union has only a few hundred dollars in deposits. typically by purchasing stocks issued by a real estate company that in turn purchases and maintains the properties generating the dividends issued to the shareholders. the purchase or acquisition of a controlling interest or a smaller interest that would still permit active control of the company. 6 . 3. That can be in common stock or preferred stock. including the ability to avoid having to be directly involved in the management and upkeep of the assets involved.) It is on the discretion of the investment company where to invest the finances.

the property is in the form of stock certificates and any debt is actually devaluation of the security. 4. you may reclaim the property or project. equity capital is money gained by a company in exchange for a share of ownership in the company. they typically want to find ways to ensure that money will be available for the future. The value of a property. With debt equity. 5. A debt investment essentially is a loan given to companies or individuals to cover property or projects. from financial to foolish. usually with interest. you don't own the property or get profits.The great majority of equity investors do not actually hold the securities. Debt investment most often involves debt securities rather than debt equity. With debt security. seek to invest their funds in order to gain a financial return. less any debts owed on the property. a safe investment option is debt investment. you actually have ownership of a portion of the company's assets. Instead. Even when people make decent incomes. Equity investment is sort of a loan to the company that is paid back or not by way of dividends paid out of company profits or through the sale of ownership rights. Later. or certificates. is what’s known as equity. they have an account with a bank or a fund manager who has physical access to these stock certificates. Therefore. they pay you back. In the case of equity investment. DERIVATIVE SECURITIES INVESTMENT: 7 . The result is that many people. at one time or another. loans. If the property or project is pledged as collateral for your loan (mortgaged). DEBT INVESTMENT: The investment in bonds. deposits and debentures is debt investment. This devaluation may be incurred by a number of causes. Often.

7. The greater the amount of risk that an investor is willing to take on. Its value is determined by fluctuations in the underlying asset. For example. The derivative itself is merely a contract between two or more parties. A security whose price is dependent upon or derived from one or more underlying assets. Derivatives are generally used as an instrument to hedge risk. but can also be used for speculative purposes. dollars to do so) would be exposed to exchange-rate risk while holding that stock. a European investor purchasing shares of an American company off of an American exchange (using U. LOW RISK INVESTMENT: 8 . The most common underlying assets include stocks.S.Investment in paper assets such as options.  The value of investment is measured on the basis of underlying assets.  There is a physical asset involved behind these investments. commodities. the investor could purchase currency futures to lock in a specified exchange rate for the future stock sale and currency conversion back into Euros. the greater the potential return. currencies. A high standard deviation indicates a high degree of risk. 6. Different versions of risk are usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment. Risk includes the possibility of losing some or all of the original investment. Most derivatives are characterized by high leverage. Junk Bonds or Speculative Bonds are considered high risk investments. A fundamental idea in finance is the relationship between risk and return. and contracts is known as derivative securities investment. The chance that an investment's actual return will be different than expected. bonds. interest rates and market indexes. The reason for this is that investors need to be compensated for taking on additional risk. futures. HIGH RISK INVESTMENT: The investment in securities like Futures. The major risk is the Interest Rate Risk that cause variability in their value. Thus they provide high yield in compare to other securities. To hedge this risk.

9 . utility stocks tend to remain relatively stable in price. such as technology or entertainment. then all past due dividends will be paid to shareholders.  Participating Preferred. Bonds and stocks are low risk investments thus yield low return as well. Can be converted into a certain number of shares of common stock. and electricity regardless of economic conditions.  Utility Stock: Like preferred stock. and pay dividends of about 2% to 3% above treasury securities. and usually trades within a few dollars of the price at which it was issued (typically $25 per share).The investment in securities like Treasury Bills.  They are noncyclical stocks. Allows shareholders to receive larger dividends if the company is doing well financially. utilities are one of the most defensive sectors in the economy.  Convertible Preferred. which means that their prices do not rise and fall with economic expansion and contraction like some sectors. When the company is able to catch up on its obligations. It has a stated dividend rate that is usually around 2% higher than what CDs or treasuries pay.  Their share prices are generally not as stable as preferred offerings. Because people and businesses always need gas. water. There are a few types of preferred stock:  Cumulative Preferred. The other major characteristics of utility stocks include:  Utility stocks are common stocks and come with voting rights. Accumulates any dividends that the issuing company cannot pay due to to financial problems.  Preferred Stock: Preferred stock is a hybrid security that trades like a stock but acts like a bond in many respects.

SHORT TERM INVESTMENT: The investment in securities which are matured within a year is short term investment. Utility stocks are also often graded by the ratings agencies in the same manner as bonds and preferred issues.  Fixed Annuities: Fixed annuities are designed for conservative retirement savers who seek higher yields with safety of principal. This means that a company can afford to invest excess cash in stocks and bonds to earn higher interest than what would be earned from a normal savings account. 8. For the most part. as well as by state guaranty funds that reimburse investors who purchased an annuity contract from an insolvent carrier.  Utility stocks typically carry slightly higher market risk than preferred issues and are also subject to taxation on both dividends and any capital gains. This account contains any investments that a company has made that will expire within one year. and can be sold at any time without penalty. Although there have been instances of investors who lost money in fixed annuities because the issuing company went bankrupt. especially if the contract is purchased from a financially sound carrier. are fully liquid like preferred stocks. 10 . Most companies in a strong cash position have a short-term investments account on the balance sheet. the odds of this happening today are extremely low.  The principal and interest in fixed contracts is backed by both the financial strength of the life insurance companies that issue them. These instruments possess several unique features. these accounts contain stocks and bonds that can be liquidated fairly quickly. including:  They allow investors to put a virtually unlimited amount of money away and let it grow tax-deferred until retirement. An account in the current assets section of a company's balance sheet.

foreign investment denotes that foreigners take a somewhat active role in management as a part of their investment. the purchase price would be shown as a long-term investment. Currently there is a trend toward globalization whereby large. multinational firms often have investments in a great variety of countries. In this case.  LONG TERM INVESTMENT: The investment in securities which have maturation life of over a year or have no limited maturity life like stocks is long term investment.  Domestic Investment: Investing within the premises of the country is called domestic investment. An account on the asset side of a company's balance sheet that represents the investments that a company intends to hold for more than a year. Foreign investment typically works both ways. Typically. Many see foreign investment in a country as a positive sign and as a source for future economic growth. Commerce Department encourages foreign investment through its "Invest in America" initiative. especially between countries of relatively equal economic stature. The U. A common form of this type of investing occurs when company A invests largely in company B and gains significant influence over company B without having a majority of the voting shares.S. bonds. Flows of capital from one nation to another in exchange for significant ownership stakes in domestic companies or other domestic assets. real estate and cash. 11 .  Foreign Investment: Whereas investment in foreign countries or either in foreign currency securities within own country is foreign investment. They may include stocks.

Here's a quick refresher on some of the most popular security investments. Stocks: Stocks are the best known equity security. Equity securities grant you partial ownership of a company. Debt securities are considered loans to companies or entities of the government. INVESMENT ENVIRONMENT The field of study which involves the study of investment environment. Investment Environment:  Types of Securities: Investments are a great way to grow your money. You're purchasing an ownership interest in a company when you buy stock. They're usually divided into two categories. Stock prices can fluctuate greatly. 12 . Stock has a higher investment risk than most other securities. Investors try to buy stock when the price is low and sell it when the price is high. You're entitled to a portion of company profits and sometimes shareholder voting rights. investment process and investment securities and markets. However. They allow you to potentially have more money at retirement or for other investment goals than if you just put your earnings in a bank. There are many different securities that you can invest your money in. There's no guarantee that you won't lose money. stock usually has the potential for the greatest returns.

Municipal Bonds: Municipal bonds are debt securities from states and local government entities. Government Bonds: Government bonds are issued by the US federal government. In addition. It may focus on stocks. However. Government bonds have very low investment risk.  Corporate Bonds: A corporate bond is a debt instrument issued by a company. the interest rate is usually lower than corporate bonds. You're guaranteed a steady income from bonds. An investment company chooses the securities and manages the mutual fund. bondholders aren't entitled to dividends or voting rights. However. stockholders have potential for greater returns in the long run. they're virtually risk-free since they're guaranteed by the US government. 13 . Preferred stock normally offers dividends but not voting rights. However. In fact. Your money is usually pooled with other investors.Most stock is considered common stock. cities. They're issued to help finance the national debt. bonds or a collection of both. The most common are US Treasury bonds. You're entitled to receive interest each year on the loan until it's paid off. towns and school districts. Bonds are safer and more stable than stocks. It's a loan to the company when you invest in a bond. It may also be exempt from state and local income taxes if you live where the bonds are issued. the potential return is lower than stocks and corporate bonds. The interest income you earn on the municipal bonds is usually exempt from federal income taxes. Common stockholders also have greater potential for higher returns. Mutual Funds: A mutual fund is made up of a variety of securities. This diversity helps decrease investment risk. These local entities include counties.

Financial markets are typically defined by having transparent pricing. while others .  TYPES OF FINANCIAL MARKETS: A financial market is a broad term describing any market place where buyers and sellers participate in the trade of assets such as equities. Some are very small. Thus. Investors have access to a large number of financial markets and exchanges representing a vast array of financial products.like the New York Stock Exchange (NYSE) and the forex markets . Some of these markets have always been open to private investors. this type of market is composed of both the primary and secondary markets.  Futures Options: A futures contract is an agreement to sell a specific commodity at a future date for an agreed upon price. and market forces determining the prices of securities that trade. A call is the right to buy the stock. Many investors use futures options to help reduce investment risk.  Stock Options: A stock option is the right to buy or sell a stock at a certain price for a period of time. Stock options can be used to help reduce your investment risk. bonds. costs and fees. currencies and derivatives. 14 . A futures option is the right to buy or sell a futures contract at a certain price for a specific period of time. basic regulations on trading. others remained the exclusive domain of major international banks and financial professionals until the very end of the twentieth century. Organizations and institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds.  Capital Markets: A capital market is one in which individuals and institutions trade financial securities. Financial markets can be found in nearly every nation in the world. with only a few participants. trade trillions of dollars daily. A put is the right to sell the stock.

The money market is used by participants as a means for borrowing and lending in the short term. and foreign governments to finance a variety of projects and activities. Treasury bills.S. states and U. Bonds can be bought and sold by investors on credit markets around the world.stocks and bonds in the company's name. municipal bonds. The primary market is where new issues are first offered. banker's acceptances.  Stock markets: Stock markets allow investors to buy and sell shares in publicly traded companies. They are one of the most vital areas of a market economy as they provide companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company’s future performance. credit or fixed-income market. It is much larger in nominal terms that the world's stock markets. commercial paper. This market can be split into two main sections: the primary market and the secondary market. Money market securities consist of negotiable certificates of deposit (CDs). notes and bills. which borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies. and U. These are bought and sold in the capital market. a company raises money through the sale of securities . The main categories of bonds are corporate bonds. Treasury bonds. municipalities. Eurodollars.S. This market is alternatively referred to as the debt. which are collectively referred to as simply "Treasuries." Money Market: The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. federal funds and repurchase agreements 15 .  Bond Markets: A bond is a debt investment in which an investor loans money to an entity (corporate or governmental). U.Any government or corporation requires capital (funds) to finance its operations and to engage in its own long-term investments. with any subsequent trading going on in the secondary market.S. To do this. municipal notes. from several days to just under a year.

The money market is used by a wide array of participants. Money market investments are also called cash investments because of their short maturities. it can be used quite effectively as part of a risk management program. The derivatives market adds yet another layer of complexity and is therefore not ideal for inexperienced traders looking to speculate. contracts bought and sold on the spot market are immediately effective. The cash markets tend to be dominated by so-called institutional market players such as hedge funds. In the cash market.  Derivatives Markets: The derivative is named so for a reason: its value is derived from its underlying asset or assets. However. Prices are settled in cash "on the spot" at current market prices. Because they are extremely conservative. money market securities offer significantly lower returns than most other securities. If that sounds complicated. and generally not suitable for inexperienced traders. A derivative is a contract. there are risks in the money market that any investor needs to be aware of. in which trades are determined at forward prices. detailed information and a high level of macroeconomic analysis and trading skills. The very nature of the products traded requires access to far-reaching. The money market is typically seen as a safe place to put money due the highly liquid nature of the securities and short maturities. By the same token. goods are sold for cash and are delivered immediately. This is notably different from other markets.(repos). However. with opportunities for both big losses and big gains. from a company raising money by selling commercial paper into the market to an investor purchasing CDs as a safe place to park money in the short term. including the risk of default on securities such as commercial paper. it's because it is.  Cash or Spot Market: Investing in the cash or "spot" market is highly sophisticated. The cash market is complex and delicate. limited partnerships and corporate investors. Examples of common derivatives are: 16 . but in this case the contract price is determined by the market price of the core asset.

The forex market is where currencies are traded. corporations. The forex is the largest market in the world in terms of the total cash value traded. There are also many derivatives. hedge funds and extremely wealthy individuals. mainly in the over-the-counter (non-exchange) market.9 trillion per day and includes all of the currencies in the world. five days a week and currencies are traded worldwide among the major financial centers of London. swaps and contracts-for-difference(CFDs). and any person. Not only are these instruments complex but so too are the strategies deployed by this market's participants. Hong Kong.  Primary Markets vs. options. New York.  Forex and the Interbank Market: The interbank market is the financial system and trading of currencies among banks and financial institutions. Singapore. firm or country may participate in this market. most liquid market in the world with an average traded value that exceeds $1. Secondary Markets: 17 . The emergence of the internet has changed all of this. The forex market is the largest. Until recently. and now it is possible for average investors to buy and sell currencies easily with the click of a mouse through online brokerage accounts. Zürich. institutions and hedge fund managers use to varying degrees but that play an insignificant role in private investing. excluding retail investors and smaller trading parties. Tokyo. Paris and Sydney. trade is conducted over the counter. central banks. structured products and collateralized obligations available. futures.forwards. While some interbank trading is performed by banks on behalf of large customers. Frankfurt. The forex market is open 24 hours a day. forex trading in the currency market had largely been the domain of large financial institutions. There is no central marketplace for currency exchange. that professional investors. most interbank trading takes place from the banks' own accounts.

rather than from issuing companies themselves. OTCBB and pink sheet companies have far fewer regulations to comply with than those that 18 ." are facilitated by underwriting groups. Neither of these networks is an exchange. Secondary markets exist for other securities as well. investment banks or entities such as Fannie Mae purchase mortgages from issuing lenders.A primary market issues new securities on an exchange. Nasdaq or other venue where the securities have been accepted for listing and trading. Primary markets. Companies.  The OTC Market: The over-the-counter (OTC) market is a type of secondary market also referred to as a dealer market. prices are often set beforehand. whereas in the secondary market only basic forces like supply and demand determine the price of the security. The Securities and Exchange Commission (SEC) registers securities prior to their primary issuance. they describe themselves as providers of pricing information for securities. the cash proceeds go to an investor rather than to the underlying company/entity directly. NYSE or American Stock Exchange (AMEX). then they start trading in the secondary market on the New York Stock Exchange. in fact. The term "over-the-counter" refers to stocks that are not trading on a stock exchange such as the Nasdaq. The secondary market is where investors purchase securities or assets from other investors. The secondary market is where the bulk of exchange trading occurs each day. This generally means that the stock trades either on the over-the-counter bulletin board (OTCBB) or the pink sheets. The issuing company or group receives cash proceeds from the sale. such as when funds. Primary markets can see increased volatility over secondary markets because it is difficult to accurately gauge investor demand for a new security until several days of trading have occurred. also known as "new issue markets. The primary markets are where investors have their first chance to participate in a new security issuance. In any secondary market trade. In the primary market. governments and other groups obtain financing through debt or equity based securities. which consist of investment banks that will set a beginning price range for a given security and then oversee its sale directly to investors. which is then used to fund operations or expand the business.

 Face Amount Certificates: 19 .trade shares on a stock exchange. These markets deal with transactions between broker-dealers and large institutions through over-the-counter electronic networks. Financial institutions and financial markets help firms raise money. A unit investment trust.  TYPES OF INVESTMENT COMPANIES:  Unit Investment Trusts (UITs)." These don't concern individual investors because they involve significant volumes of shares to be transacted per trade.  Unit investment trusts sell a fixed number of shares to unit holders. issuing bonds to borrow money from investors that will be repaid at a fixed interest rate. The fourth market is made up of transactions that take place between large institutions. is a company established under an indenture or similar agreement. It has the following characteristics:  The management of the trust is supervised by a trustee. Third and Fourth Markets: You might also hear the terms "third" and "fourth markets. there is no day-to-day management of the portfolio. They can do this by taking out a loan from a bank and repaying it with interest. or UIT. as it remains fixed for the life of the trust. Because access to the third and fourth markets is limited. who receive a proportionate share of net income from the underlying trust. not managed.  The portfolio is merely supervised. which could greatly affect the price of the security. or offering investors partial ownership in the company and a claim on its residual cash flows in the form of stock. The third market comprises OTC transactions between broker-dealers and large institutions. The main reason these third and fourth market transactions occur is to avoid placing these orders through the main exchange. their activities have little effect on the average investor.  The UIT security is redeemable and represents an undivided interest in a specific portfolio of securities. Most securities that trade this way are penny stocks or are from very small companies. In other words.

or for a specific surrender value. continuously issue new shares.  Face amount certificate companies are almost nonexistent today. Once shares are issued.A face amount certificate company issues debt certificates at a predetermined rate of interest. Additional characteristics include:  Certificate holders may redeem their certificates for a fixed amount on a specified date. an investor may purchase them on the open market and sell them in the same way. These shares may only be purchased from the investment company and sold back to the investment company.  Open-End Investment Companies: Open-end investment companies. much like other securities. There are two types of management investment company: closed- end and open-end. before maturity. The primary differences between the two come down to where investors buy and sell their shares in the primary or secondary markets and the type of securities they sell.  Closed-End Investment Companies: A closed-end investment company issues shares in a one-time public offering. Instead of selling at net asset value. also known as mutual funds.  Management Investment Companies: The most common type of investment company is the management investment company. The market value of the closed-end fund's shares will be based on supply and demand.  Certificates can be purchased either in periodic installments or all at once with a lump-sum payment. Mutual funds are discussed in more detail in the Variable Contracts section. the shares can sell at a premium or at a discount to the net asset value. nor does it redeem its shares like an open-end investment company. 20 . which actively manages a portfolio of securities to achieve its investment objective. It does not continually offer new shares.

2 Analysis and evaluation of investment vehicles. The investment policy should have the specific objectives regarding the investment return requirement and risk tolerance of the investor. The investment management process describes how an investor should go about making decisions. Investment policy includes setting of investment objectives. Investment management process can be disclosed by five-step procedure. which includes following stages: 1 Setting of investment policy. it is not appropriate for an investor to set his/ her investment objectives as just “to make a lot of money”. 21 . because it is obvious that every investor would like to earn the highest return possible. 4 Portfolio revision 5 Measurement and evaluation of portfolio performance. For example. But because there is a positive relationship between risk and return. the investment policy may define that the target of the investment average return should be 15 % and should avoid more than 10 % losses. Investment objectives should be stated in terms of both risk and return. Identifying investor’s tolerance for risk is the most important objective. INVESTMENT MANAGEMENT PROCESS Investment management process is the process of managing money or funds. Setting of investment policy: is the first and very important step in investment management process. 3 Formation of diversified investment portfolio.

This stage of investment management concludes with the identification of the potential categories of financial assets for inclusion in the investment portfolio. This step involves examining several relevant types of investment vehicles and the individual vehicles inside these groups. Most frequently two forms of analysis are used: technical analysis and fundamental analysis. investment horizon and tax status of the investor. projected investment horizon. 22 . as well as other unique needs and preferences of investor. The required rate of return for investment depends on what sum today can be invested and how much investor needs to have at the end of the investment horizon. The investment policy can include the tax status of the investor. for the investor with low tolerance of risk common stock will be not appropriate type of investment. There are many different approaches how to make such analysis. Setting of investment objectives for individual investors is based on the assessment of their current and future financial objectives. we could see that various financial assets by nature may be more or less risky and in general their ability to earn returns differs from one type to the other. amount of investable funds. Analysis and evaluation of investment vehicles: When the investment policy is set up. Constrains can include any liquidity needs for the investor. The investment horizon is the period of time for investments. the analysis will be concentrated to the common stock as an investment. For example. The investment policy should also state other important constrains which could influence the investment management. if the common stock was identified as investment vehicle relevant for investor. The identification of the potential categories is based on the investment objectives. the available investment types can be analysed. Projected time horizon may be short. As an example. Wishing to earn higher income on his / her investments investor must assess the level of risk he /she should take and to decide if it is relevant for him or not. investor’s objectives defined and the potential categories of financial assets for inclusion in the investment portfolio identified. long or even indefinite. The one purpose of such analysis and evaluation is to identify those investment vehicles that currently appear to be mispriced.

but only when the term of the certificate of ownership comes to an end. INVESTMENT SECURITIES Types of securities: Debt securities . bills. bonds.a kind of debt securities. Treasury of the state . Savings certificates . Their investor is entitled to receive the deposit and interest thereon. the deposit of funds. and at the end of this term gets invested amount back. Buying Treasury Bill. Bonds . Promissory note . the owner is making money in the budget of the state in exchange for it. receives a fixed income. Certificates may be bearer or registered shares.a kind of securities placed by the state. savings certificates. In Russia. for the duration of ownership of treasury bills. which is the obligation of the issuer (the company 23 . the debt securities are dennymi: Treasuries of the State.are securities that give their holder the right to receive fixed interest rates (income) and transferred to a refund in the amount of debt. It gives the owner (note holder) an exclusive right upon the expiration of the obligation to demand from the drawer (the debtor) the payment of a sum of money specified in the bill.a written certificate issued by the lending institution.a written promissory note completed by a strict form prescribed by the exchange. carried out by a certain date.

Also. like many aspects of globalization. Describe the steps in investing and review fundamental personal tax considerations. presents opportunities as well as challenges. The question is particularly acute for developing countries: many of the greatest controversies about financial liberalization covered in this issue brief are raised when investment flows from developed to developing countries. Describe the investment process and types of investors. You may wonder where the balance of costs and benefits lies. the nominal value of its bonds as soon as the end in a timely manner. Discuss the principal types of investment vehicles. Understand the term investment and factors used to differentiate types of investments. CONCLUSION As you can see. the obligation of the issuer is a periodic payment to the creditor interest. ranging from the inadequate supervision of the banking sector to corruption or inadequate labor and environmental standards. international investment. Discuss investing over the life cycle and in different economic environments.that issued bonds) to return to the creditor (owner of the securities). 24 . many of the problems of developing countries stem from internal deficiencies. To be sure.

c 25 .wikipedia. WEBSITES:  www.google. Himalaya Publishing House. Himalaya Publishing House. -Avadhani. -Preeti Singh.com www.BIBLIOGRAPHY:  Investment Management.A  Investment Management. V.