INVESTMENT

Investment refers to a commitment of funds to one

or two assets that will be held over some future time
period in expectation of addition income and growth in
value. It involves the commitment of resources which
have been saved or put away from current consumption
in that hope some benefits will occur in future.
 Definition of Investment

• In finance the purchase of a financial product or other

item of value with an expectation of favorable future
returns. In general terms, investment means the use
money in the hope of making more money.
• Investment may be defined as the purchase by an
individual or institutional investors of a financial or a legal
asset that produces a return proportional to the risk
assumed over some future investment period.
 Principles Of Investment
Principle No.1: Always Invest with a Margin of Safety
Margin of safety is the principle of buying a security at a
significant discount to its intrinsic value, which is thought
to not only provide high-return opportunities, but also to
minimize the downside risk of an investment.
Principle No.2: Expect Volatility and Profit from It
Investing in stocks means dealing with volatility. Instead
of running for the exits during times of market stress, the
smart investor greets downturns as chances to find great
investments.
Principle No.3: Know What Kind of Investor You Are 
 Objectives of Investment

• Primary Objective

1. Maximization of Return/Profit
2. Minimization of Risk

• Secondary Objective

1. Safety
2. Liquidity
3. Hedge against inflation
4. Reduction of tax payments
 Risk and Return

Risk
The risk arises when the return will be lower than
expected. It is the deviation from the average return.
Also described as the chance that an investment actual
return will be different than expected.

Types of Investment Risk

• Systematic Risk
• Unsystematic Risk
 The variability in a security’s total returns that is
directly associated with overall movements in the general
market or economy is called systematic (market) risk.

The variability in a security’s total returns not

related to overall market variability is called the
nonsystematic (non-market) risk. This risk is unique to
a particular security and associated with such factors as
business and financial risk as well as liquidity risk.
 Types of Systematic Risk

• Market Risk

• Interest Rate Risk

• Purchasing Power Risk

• Exchange Rate Risk

 Types of Unsystematic Risk

• Business Risk

• Financial Risk

• Credit or Default Risk

• Liquidity Risk

• Reinvestment rate risk

 Return

It is gain or loss of a security in any given period.

The return consist of income and the capital gains on an
investment. Return is a motivating force behind every
investment. It is the reward which an investor expects for
parting with his money (i.e. sacrificing his present
consumption) and for taking risk. It is the gain or profit
which accrues to an investment.