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Chapter 1 Part 1 Investment Speculation Gambling PDF
Chapter 1 Part 1 Investment Speculation Gambling PDF
INVESTMENTS
Prepared By
Dr. Rajanikant Verma
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Part 1 : Unit I
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Unit I
The investment decision process, Types of
investments commodities, real estate
and financial assets, the Indian securities
market, the market participants and
trading of securities, security market
indices, sources of financial information,
concept of return and risk, impact of Taxes
and inflation on return.
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Meaning of Investment
Investment is a term, which is frequently
used in the field of economics, business
management, finance and it means
savings or savings made through delayed
consumption. Investment can be divided
into different types according to various
theories and principles.
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A particular amount of money is invested
in the bank or an asset is bought in the
anticipation that some return will be
received from the investment in the future.
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Important points in Definitions
Commitment of present funds
Expectations of returns
Risk involved in respect of returns
Security analysis
Appreciation or reduction in capital value
Price for waiting
Different views
Investment Vs Speculation Vs Gambling
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Investment Goals and Plans
1. Key Factors
a. Return
b. Risk
c. Taxes
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Investment in terms of Finance:
In finance, investment refers to purchasing securities or
any other financial assets from the capital market or
money market or purchasing real properties with high
market liquidity for example, gold, silver, real properties,
and precious items. Financial investments are
investment in stocks, bonds, and many other types of
security investments. Indirect financial investments can
also be done with the help of mediators or third parties,
such as pension funds, mutual funds, commercial banks,
and insurance companies.
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Investment in terms of Personal Finance:
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Investment in terms of Real Estate:
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Purpose of Investment
Longer life expectancy
Retirement plan
High Rate of taxations
High interest rate
High rate of inflation
Larger income
Availability of numbers of plans
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Types of Assets
Real Assets
Examples
Tangible, moveable, Immoveable
Used for production of goods and services
Financial assets
Examples
Papersecurities
Represent Financial claim
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The main functions assigned to the financial assets
are two:
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In reference to the main characteristics of the financial assets:
Liquidity: They are easy to convert into liquid money thanks to the
existence of a market that the issuer of the assets doesnt fulfill the
agreement, the payment of principle and interests. Its worth to
emphasize that it is not understood a risk of an asset whatever
happens with the oscillations of the quotes on the market.
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Types of Investments
Risk less vs Risk free
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Features of Investment Programme
Safety of Principal
Liquidity
Income stability
Appreciation and Purchasing Power
stability
Legality and freedom from care
Tangibility
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The Difference Between
Investment & Speculation
Investment & speculation are overlapping and used interchangeably.
Speculation means the ownership of an asset with the intent to profit from
expected changes in supply or demand.
For example, a speculator buys a share of stock not to benefit from the
dividends or the earnings of a company, but because he expects the
demand for the stock to rise, lifting its price. Similarly, one speculates in a
commodity such as silver because one expects demand to shift, or one
might sell short wheat (selling to buy back later) if one thinks the supply will
increase more than others expect. Speculators in currencies expect
changes in foreign exchange prices due to shifts in supply and demand.
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Investments are also usually not considered gambling, although some
investments can involve significant risk. Examples of investments
include stocks, bonds and real estate. Starting a business can also be
considered a form of investment. Investments are generally not
considered gambling when they meet the following criteria:
Economic utility
Some speculative investment activities are particularly risky, but are still
usually considered separately from gambling:
Prediction markets
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The Difference Between
Investment & Speculation
Basis Investment Speculation
Time Horizon Long Term Short Term
Five steps:
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STEP 1: Investment Policy
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Step 2: Security Analysis
Using potential investment categories,
find mispriced securities
Using fundamental analysis
Intrinsic value should equal discounted present
value
Compare current market price to true market
value
Identify undervalued securities
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Step 3: Construct a Portfolio
Identify specific assets and proportion of
wealth in which to invest
Address issues of
Selectivity
Timing
Diversification
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Step 4: Portfolio Revision
Periodically repeat step 3
Revise if necessary
Increase/decrease existing securities
Delete some securities
Add new securities
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Step 5: Portfolio Performance Evaluation
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Thanks
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