INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT

Case analysis:
Mr. Nirmal has been very prudent in saving funds and has made several
investments through shares (7 lakhs), post office deposits (5 lakhs), residential
house (40 lakhs), endowment policy (15 lakhs).
His retirement benefits will sum upto 55 lakh Rs and he wants to use this sum to
purchase an apartment and enjoy return in the form of rent from the tenants.
Firstly investment in an apartment for commercial purpose is a very safe option in
case the Mr. Nirmal’s willingness to take risk is very low(risk averse), since the
amount of risk is less the future returns in terms of capital appreciation may also
be less because buildings are subject to depreciation and their value only
deteriorates over time.
Investing in precious metals is also a low risk option with moderate returns and
average liquidity. The current and future returns depends on the market
fluctuation, however there is always a risk of storage of these items.
Some of the other options available are: firstly bank deposit is an low return, low
risk but highly liquid and convenient option as money can be withdrawn anytime
and cash is the most liquid asset and returns would be the interest earned on the
deposit over the period of time.
Bonds is a stable and low risk way of diversifying the portfolio. Bonds are issued
by the government and public institutions with a fixed rate of interest, highly
marketable and liquid.
Investments in money market instruments can act as a substitute for cash and is
highly liquid and deals in short term instruments and hence can be sold and
converted into cash at any time. However, the returns range from moderate to
low.
Investment in company deposits also is a notable option as the rate of return is
higher than the interest provided on bank deposits. However, investment should
be made in creditworthy companies. Investment in non-convertible debentures
can earn high returns with low risk and average liquidity.
Despite of the available investment options, Mr. Nirmal can always choose to
invest in a combination of 2 or more investment avenues depending on the
amount of risk he is willing to take, the liquidity position he wishes to have and so
on. Also investing in different assets will help him to diversify and reduces the risk
of loss.