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Introduction to Investment Management

Introduction to Investment Management
Investment:

Conversion of money in to assets

Assets may be physical and financial
Investment Philosophy:

Time, Real Rate of Return & Uncertainty
Investment Styles:

Active : [Investments decision is taken on mutual
Dr. N S Bohra consent of investors and portfolio managers]

Passive :
Associate Professor [Portfolio managers only maintain the
portfolio of investors and works as an agent ]

Introduction to Investment Management Introduction to Investment Management

Investment Styles: Investment Buzz:

Movement Investment Styles: [investment on
Speculation:[Investment/Disinvestment based
those stock that set the tone of market] on technical analysis]

Growth Investment Styles: [investment on those
Gambling: [Taking decisions not backed by
stocks of those companies that are growing faster than the
economy] credible analysis]

Value Investment Styles: [investment on those
ShortSelling: [purchase preceding the sales ]
stocks whose current valuation doesnt some aspects of the
Margin Trading : [Margin requirement 40%
company that could be extremely valuable ]
means you can use the 60% of brokers money]
Types of Investors :
Hedging: [ covering investments against the loss]

Individual

Institutions

Arbitrage: [Taking simultaneous opposite
positions in TWO investment market]

Capital Market: An Introduction Capital Market: An Introduction

Capital Market
Market:: Primary Capital Market
Market::
o The market for relatively long-term [greater than
A primary market is that segment of the capital market,
one year original maturity] financial instruments. which deals with the raising of capital from investors
via issuance of new securities.

New stocks/bonds are sold by the issuer to the public
in the primary market. When a particular security is
offered to the public for the first time, it is called an
Initial Public Offering [IPO].

When an issuer wants to issue more securities of a
category that is already in existence in the market it is
referred to as Follow-up Offerings [FPO]

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Capital Market: An Introduction Capital Market: An Introduction

Secondary Capital Market

Market::

The secondary market [also known as aftermarket]
is the financial market where securities, which have
been issued before are traded.

Unlike in the primary market where the funds move
from the hands of the investors to the issuer (company/
Government, etc.), in case of the secondary market,
funds and the securities are transferred from the hands
of one investor to the hands of another.
Types of Orders:
 Limit Price/Order:
Secondary Capital Market
Market:: [Types of Orders]
[1]Limit Price/Order:
 In these orders, the price for the order has to be specified while
entering the order into the system.
 The order gets executed only at the quoted price or at a better
price (a price lower than the limit price in case of a purchase order
and a price higher than the limit price in case of a sale order).
[2] Market Price/Order :
 Here the constraint is the time of execution and not the price. It
gets executed at the best price obtainable at the time of
entering the order. The system immediately executes the order,
if there is a pending order of the opposite type against which
the order can match. The matching is done automatically at the
best available price (which is called as the market Price]

Capital Market: An Introduction Capital Market: Investors Protection

Secondary Capital Market

Market:: [Types of Orders] Indian Stock Market Scams:
[3]Stop Loss Price/Order:
 Stop-loss orders which are entered into the trading system, get
activated only when the market price of the relevant security reaches
a threshold price.
Securities Scam Harshad Mehta [1991-92]
 When the market reaches the threshold or pre-determined price, the
Satyam Ramalinga Raju [2009] Around 12,000
stop loss order is triggered and enters into the system as a
market/limit order and is executed at the market price / limit order Crores
price or better price.
[4]Day Order (Day):
Fake Stamp Fraud Abdul Karim Telgi - Around
 A Day order is valid for the day on which it is entered. The order, if 30,000 Crores .
not matched, gets cancelled automatically at the end of the trading
day.
DSQ Software Dinesh Dalmiya (2001) - Around 600
[5] Immediate or Cancel order (IOC): Crores .
 An IOC order allows the investor to buy or sell a security as soon as
the order is released into the market, failing which the order is
removed from the system. Partial match is possible for the order and
the unmatched portion of the order is cancelled immediately.

Capital Market: Investors Protection

Market
Regulations

SEBI Investors
Investment Alternatives
Education
[Investors Protections ]

Grievance
Redress

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Investment Alternatives: Equity Investment Alternatives: Debt

Ordinary Share  With Full Voting Right

Fixed Deposits
Traditional Reoccurring Deposits
Instruments Public Provident Fund
 With Differential
National Saving Certificates
Voting Right Kisan Vikas Patra
Equity Debt
Money
Market Commercial Paper
Participating w.r.t. to Instruments
Dividend
Treasury Bills
Preference Share Certificate of Deposit
Participating w.r.t to MMMF
capital

Debt: Traditional Instruments Debt: Traditional Instruments

Fixed Deposit: Bank & Post Office.
1. Post office FD for 1,2,3,4,5 years & Bank FD are for 7 Days to 10
years.
2. POFD can closed after 6 months but before one year of opening
account, in such case interest is nil, if the deposit is for 1 year PO
will pay interest.
Recurring Deposit: Bank & Post Office.
1. PORD are fixed tenure of 5 years but bank RD are flexible in
maturity.
2. Minimum investment in PORD is Rs 10 but Bank RD depends on
Banks.
3. Bank RD are more convenient then PORD.
4. Interest on RD Bank & PO both are taxable.
Public Provident Fund;
1. The Public Provident Fund is savings-cum-tax-saving
instrument in India,
2. Introduced by the National Savings Institute of the Ministry
of Finance in 1968.
3. Original duration is 15 years. Thereafter, on application by the
subscriber, it can be extended for 1 or more blocks of 5 years
each.
4. Loan facility available from 3rd financial year up to 5th
financial year. The rate of interest charged on loan taken by
the subscriber of a PPF account on or after 01.12.2011 shall
be 2% more than the prevailing interest on PPF.

Debt: Traditional Instruments Debt: Traditional Instruments

Kisan Vikas Patra. National Saving Certificates:
1. Investment can be made in denomination of Rs. 1000, 5000, 1. Scheme specially designed for Government employees,
10,000 and 50,000.There is no upper ceiling on investment. Businessmen and other salaried classes who are Income Tax
2. KVP comes with a maturity of eight years seven months assesses.
3. he certificates can be issued in single or joint names and can 2. No maximum limit for investment.
be transferred from one person to any other person. 3. Certificates can be kept as collateral security to get loan from
4. KVP can be transfer from one post office to another banks.
anywhere in India and of nomination will be available. 4. Investment up to INR 1,00,000/- per annum qualifies for IT
5. One can avail loans on KVP from the banks and in other Rebate under section 80C of Income Tax Act.
case where security is required to be deposited. 5. Trust and HUF cannot invest.
6. Liquidity: Investor can encash his certificates after the lock- 6. Rate of interest 8.50%.
in period of 2 years and 6 months. 7. Maturity value of a certificate of INR.100/- purchased on or
after 1.4.2012 shall be INR. 151.62 after 5 years.

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Debt: Money Market Instruments Debt: Money Market Instruments

Commercial Paper: Certificates of Deposits:
1. Issued by corporate, FI and PD 1. CDs are unsecured negotiable instruments
2. Short Term maturity (9/15/30/45/60/90/120/270/360 2. Bank CDs are always issued at discount but FI issued CDs
Days). with coupon bearing.
3. Unsecured & Negotiable 3. CDs are freely transferable.
4. Issued in denomination of Rs 5lakh or multiple. 4. Can issued only in dematerialized form.
5. Eligible investors are individual, corporate, banks. 5. Denomination of Rs 1 Lakh or in a multiple of 1 lakh.
6. Mandatory rating
7. CPs are issued at discount and redeemable at par maturity.
8. Issued as dematerialized form June 30,2001.

Debt: Money Market Instruments ADR: Equity Market Instruments

Treasury Bills: 1.
1. T Bills are short term (91/182/364 days) GOI security,
issued by RBI. 2.
2. Issued at discount and mature at par., denomination of Rs 3.
25,000 or in a multiple of Rs 25,000. 4.
3. Issued though auction and dematerialized form.
4. T Bills are issued in entries form as SGL (Subsidiary
General Ledger) account maintain by RBI.
5. Settlement of T-Bills is through Delivery Vs Pament system.
The issuing bank in the US studies the financials of the
foreign company in detail to assess the strength of its stock.
The bank buys shares of the foreign company.
The shares are grouped into packets.
Each packet is issued as an ADR through an American sock
exchange.