Concepts and philosophy Investments can be defined as the utilization or deployment of funds in the expectation of future positive returns.

The concept of investment may be divided into the broader or customary sense and in the narrower sense. The broader or customary sense of the term 'investment' is any asset or property right acquired or held for the purpose of preserving capital or earning an income. In the narrower sense the term 'investment' is used to suggest a commitment which is relatively free from risk of loss. Again, investment is the purse of security(s) that, upon an appropriate analysis, offers safely of principal and satisfactory yield, commensurate with the risks assumed. In other words, investment is defined as the commitment of funds in anticipation of receiving a larger future flow of funds. Lastly investment is defined as the postpone of the present consumption of asset with the expectation of receiving future resources compensating the investor for the time the funds are committed, the expected rate of inflation, and the uncertainty of the future payments of both principal and returns thereon. However, investments refer to investing money in certificates of deposits, government and corporate bonds, common stocks, or mutual funds. Moreover, investments also include other paper assets like warrants, puts and calls, futures contracts, and convertible securities. Deployment of funds in real assets like gold, silver, diamonds, arts, house, buildings, real estate, and other tangible assets are also termed as investments. In finance technology, investments include both real assets and financial assets. Marketable securities are financial assets that are generally traded in the financial markets. Our main objective concerned in this text generally refers to the analysis of financial assets and in particular to marketable securities. Why are Investment? People invest to make money, increase money, monetary wealth both current and future, improve their welfare. Investors expect to increase their future consumption possibilities by increasing their wealth rather than present consumption. Some people save and, invest during their working periods from which they can withdraw during their retirement periods. An investor has many alternatives. Savings which are kept as idle do not earn anything. Hence, savings are invested in assets depending on their risk and return characteristics. The objectives of investment are: 1. to maximize the return at a given or lower level of risk 2. to minimize risk at a given or higher level of return 3. to hedge against inflation

However, the reasons for investment are furnished below: Income: People make investment to have future generation of income in the form of interest from fixed income securities and/or dividends from equities. Capital preservation: People make investments in order to preserve capital. These types of investment are called conservative investments. Investors invest their funds in assets with the assurance that the funds will be available, with no risk of loss in purchasing power at a future point in time. As the investors desire the real value of the funds invested, the nominal value of the investment should increase at a pace consistent with inflation trends. Therefore, the returns on such investments should approximate the risk-free nominal interest rate for a nontaxable investment. Capital gains: People also make investments so that the funds will appreciate or grow in value. The objective of such investment is to increase money at a faster rate than inflation. Investments with the motive of capital gains should have risk exposure to get the desired Returns. Risk can affect returns either positively or negatively. Capital distribution: Capital distribution refers to the distribution of retained earnings in the form of stock dividends, bonus shares to common stockholders which increase the equity. Investment Categories There are various types of investments prevailing in the securities markets. Considering various concepts and nature of investments, they are classified into four broad categories, as follows: Consumer investment: The concept of the purchase of durable consumer goods by the consumer. Typically, this is not investing one's funds but it is a savings process. Usually the income derived from the purchase of durable consumer goods comes not in the form of money but in the form of services and amenities of property ownership. Business or economic investment: The concept of business or economic investment refers to a situation where money is used to purchase business assets that will produce income which will be adequate compensation for the risk involved in the venture. Profit motive is the main object in this concept of investment. The businessman is thoroughly willing to purchase productive assets to earn a profit and is aware of the risk involved. Economic or business investment, therefore, is any

investment in assets which brings about the production of goods and services and real terms for the purpose of earning a profit commensurate with the risk involved. Financial or security investment: Financial or security investment refers to the purchase of an asset in the form of securities producing a profit for the in investors. The investor assuming of all the risk involved in such a purchase tries to keep the risk to a minimum and at the same time he maximizes the profit. Financial or security investment may broadly be categorized, which are our main focus, are subject to the discussion in accordance with their sources of issuance and the nature of the buyer commitment. Analyst's investment: An analyst's investment refers to the operations that promise safety of principal and an adequate return. These are the various types of investments out of which an investor can select to invest his/her investible funds commensurate with his objective.

Investment Process Investment includes the various methods and steps adopted by the prudent investors during the development of their funds in order to earn profit and to minimize risks involved therein. The main steps in the investment process may be furnished with the diagram given below: Goal Settings Identifying Risk Measuring Risk-Return Formation of portfolios Review of the performance Portfolio revision

To set goals and objectives: The first step in the investment process is to identify the goals and objectives of the investors. A systematic investment decision requires the formulation of a set of long-term or short-term goals which can serve as a guide for managerial decisions. This step also

includes the determination of the quantum of investment in different shares and debentures quoted in the capital market. To determine appropriate risk level: The second step in the investment process is to determine the amount of risk that an investor is willing to assume to achieve the investment objective. This step will largely determine the mix of assets to be held in the investment portfolio and attempt will be made to quantify the risk and measurement of the same by applying appropriate tools. To estimate the risk and return: The third step in the investment process is to estimate the risk and return for the investors to take their decisions, because risk and return go hand in hand. Investors must balance risk with return. To form optimal portfolio: The fourth step in the investment process is to construct optimal portfolio which includes estimate, of risk and return for individual securities and to maintain relationship between securities, portfolios and the like. An investment portfolio is the list of investment securities both common stock and bonds that an investor owns. To make the analysis of the performance: The fifth and the last step in the investment process is to analyze the performance of the vendor company's financial statement in order to take investment decision. To review the portfolio: The investor should monitor the results of their portfolios for determining the goals and objectives and review the performance of the portfolios. This may provide some insights which will improve their security analysis and portfolio selection techniques.

Investment Vs Speculation The distinction between investment and speculation must be clear even though it is easier to state investment and what speculation is. But it is very difficult to distinguish between investment and speculation because the main objective of both investment and speculation is to earn profit. Investment An investment can be defined as the utilization of funds in assets committing a positive return in over some future time identified as holding period. Investment comes from savings. Speculation Speculation can be defined as the activity seeking, opportunities promising very large return earned quickly which involve more risk. Investment differs from

speculation three major factors viz., 1. risk, 2. capital gains 3. time period.

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The points of distinction between investment and speculation may be depicted in the following chart: Investment Speculation i. An investment is a commitment of i. Speculation means the deliberate funds made in the expectation of assumption of risks in ventures positive rate of return. which offers the hope of commensurate gains. The oped for gains may come in the form of larger incomes than a safe investment would supply. ii. The investors invest their surplus ii. The speculators invest their funds for a relatively long period of investible time. funds for a relatively short time. iii. Investors receive a stable return iii. Speculators maximize the profit, and capital appreciation over a by capitalizing the price changes. period of time. They are interested in capital gains. iv. The investors assume minimum iv. The speculators assume risk with the hope of consistent rate relatively high of return. risk with the hope of abnormal extremely high rate of return. v. The investors give emphasis v. The speculators do not give upon the principle of conservatism emphasis for the safety of their principal. upon the principle of conservatism for the safety of their principal. vi. The investors are interested vi. The speculators are usually in the interested in internal conditions of the company trading securities. They ignore and dividends devote their energy to and are interested in technical determine the market financial security of the company position. and its earnings power. vii. The investors desire a modest vii. The speculators always desire

rate of dividend or profit or long- short-term price appreciation, and term growth prospect of the do not bother for long-term growth company. prospect of the company. From the above discussion it is clear that the difference between investment and speculation is matter of time horizon, degree of risk, normal and abnormal rate of return and long-term or short-term growth prospect of the vendor company. Factors Influencing Investment Investment has widespread scope in the capital market and other sectors of the country. But the functions of the investors are influenced positively or negatively by the following factors: General Price level: It is the first factor influencing the functions of an investor, because the general price level always shows rising tendency due to the inflation prevailing in the economy. The rising tendency of the general price level creates elements of uncertainty and confusion into the thinking of investors which cause fear of safety of principal. Business conditions and profits: Business conditions and profits are the second important factor influencing the functions of an investor. Because the investors invest their funds in shares, stocks, bonds, debentures and the like after analyzing the vendor company's growth prospect of the business in terms of profits, earning capacity and the liquidity. Dividends: The third factor influencing the functions of an investor is the payment of dividends declared by the company to its shareholders. The stable rate of dividends always attracts the investors to invest in the shares and stocks of the vendor company and any fluctuation of profit discourages the investors to invest their funds in the form of shares, and stocks of the same. Interest rate: Interest rate is the fourth and one of the most important factors influencing the investors to invest in debentures and bonds of the vendor company. The investors will invest money in the form of bonds and debentures of the vendor company which pay high rate of interest. The investors feel encourage to invest their investible fund if the rate of interest commensurate with the rate i of Inflation prevailing in the economy. Security prices: The fifth and the last factor influencing the functions of an

investor is the security price. The security prices may leveled by the two systems viz., stock pride cycles system and stock price swings system. The security price quoted under stock price cycles system is consistently and somewhat revolving system. But the security price is quoted inconsistently and fluctuates under the stock price swing system. The Investors feel encourage to invest their funds under the stock price cycles system rather than stock price swing system. In fine, these are the factors influencing the functions of an prospective investor. A prudent investor must consider the above mentioned factors and analyze them very carefully while making an investment decision.