Description
PPT on Investment Attributes in India
Investment Attributes in India
Objectives of our project
Setting the investment objectives Create the investment policy Make security analysis Do the valuation process Construct the portfolio Review the portfolio Evaluate the portfolio performance Rebalance the portfolio, if necessary
Introduction
? Investing in various types of assets is an interesting activity that attracts people from all walks of life irrespective of their occupation, economic status, education and family background. ? When a person has more money than he requires for current consumption, he would be coined as a potential investor. ? The investor who is having extra cash could invest it in securities or in any other assets like gold or real estate or could simply deposit it in his bank account. ? The companies that have extra income may like to invest their money in the extension of the existing firm or undertake new projects/ventures. ? All of these activities in a broader sense mean investment. ? An investment is a commitment of money that is expected to generate additional money. Investment has two key elements namely, time and risk. ? Every investment entails some degree of risk; it requires a present certain sacrifice for a future uncertain benefit. ? A simple formula for investment is: Investment = {Commitment of funds} + {For a future period} + {In expectation of good rate of return} with some degree of risk
? Investments are evaluated to decide or choose the right investment. Evaluation of investment involves evaluating the attributes of investments. Return, risk, liquidity, tax benefits and convenience are the key attributes taken into consideration before investing into any particular type of investment. ? The sophisticated nature of investing means that a lot goes into making an investment decision. Since there is much at stake, an investor should consider the basic attributes of investments when deciding on a suitable option. At least four investment attributes are integral to sound decisions in this sphere. 1. 2. 3. 4. 5. 6. 7. Rate Of Return. Risk. Tax Benefit. Duration Liquidity Marketability Convenience
Investment Attributes History
? The concept of investment attributes was started by East India Company on 25th July 1777 under the British Act 1764. ? Mr Hastings was the Governor of East India Company. He invested 21,46 ,17,684 Sicca rupees in European Silver and Gold Market and started trading in Bengal. ? Trade in India was carried upon the common principles of commerce after a long time the investment bought good returns to East India Company and both the nations was considerably benefited both in trade and in revenue and the dividends of proprietors were often high and always sufficient to keep up the credit of the company·s stock in heart and vigor. ? Many countries took part in trading process of gold and silver which gave rise to more profits for Mr. Hasting. ? Fine day the ship sunk all the gold and silver which made huge losses to the investors as well as to both the countries and all the investment also sunk with that ship. ? Company started making debt of triple the amount invested in Gold and silver trader·s market. ? India and England totally became bankrupt. At that time there was no insurance companies who would give returns to East India Company. very less tax was evade on trading system, but investment had high risk.
Rate of Return
? A good rate of return from an investment is the first and the foremost condition for effective investment. The rate of return is the ratio of sum of annual income and price appreciation to purchase price of the asset or investment. ? Rate of Return = Annual Income + (Ending Price ² Purchasing Price) Purchasing Price ? There are 3 ways to measure the rate of return on an investment. ? Average annual rate of return (also known as average annual return). ? Compound rate of return (also called average annual geometric return). ? Internal Rate Of Return
Risk
? ? ? ? ? Rate of return from different investment options vary a lot. Remember the famous quote, ¶More the risk and more the profits· Risk means uncertainty of returns. the risk is judged based on parameters like variance, standard deviation and beta. Challenge for a finance manager while investing funds is to achieve high returns on investments while keeping the risk at lowest possible levels. Classification of Risk:- Lower Risk, Medium Risk, High Risk On ground of assurance of the return, there are two kinds of Investment - Riskless and Risky Types Of Risk:Capital Risk Currency Risk Liquidity Risk Financial Risk Market Risk.
? ? ? ? ? ? ? ?
Tax Benefit
? Most of the countries have tax incentives for particular investments except tax free countries. ? investments which have tax benefits, it is an important consideration because taxes form major part of their expenses. ? Some of our investments would provide us with tax benefits while other would not. This would also be kept in mind when choosing the investment avenue. ? Tax benefits are mainly of 3 types: ? Initial Tax Benefits. ? Continuing Tax Benefits. ? Terminal Tax Benefits.
Duration
? Investments typically have a longer horizon than cash and income options. ? Duration of an investment-particularly how long it may take to generate a healthy rate of return-is a vital consideration for an investor. ? Good investment has a good risk-return trade off and provides a good return-duration trade-off as well. ? Good investment is one that suits investment objectives ? It must have a combination of investment attributes. ? There are several risks that an investment faces.
Liquidity
? Liquidity means marketability of an investment. ? For example, equity shares of a big company can be easily liquidated in the stock markets. On the other hand, money invested in an asset (machinery) cannot be liquidated as easily as the equity share. ? Investment is considered highly marketable or liquid it can be easily transacted with low transaction cost and low price variation. ? Finance manager looks for more liquid investments when the funds are available for short period. ? Liquidity is always given a preference because it helps the managers remain flexible.
Marketability
? It is desirable that an investment instrument be marketable, the higher the marketability the better it is for the investor. ? Investment instrument is considered to be highly marketable when: It can be transacted quickly , the transaction cost (including brokerage and other charges) is low. The price change between 2 transactions is negligible. Shares of large, well-established companies in the equity market are highly marketable. Shares of small and unknown companies have low marketability. Gauge the marketability of other financial instruments like provident fund (which in itself is non-marketable). Then we would consider other factors like, can we make a substantial withdrawal without much penalty, or can we take a loan against the accumulated balance at an interest rate not much higher than our earning rate of interest on the provident fund account.
Convenience
? Convenience means ease of investment. ? When an investment can be made and looked after easily, we consider it as convenient investing. ? For example, it is easy to invest in equity shares compared to real estate because real estate involves lot of documentation and legal requirements. ? The ease with which an investment can be made and managed. ? The degree of convenience would vary from one investment instrument to the other.
Classification of Investors
Conclusion
? The game of investment, as any other game, requires certain qualities and virtues on the part of investors, to be successful in the long run:1. Contrary thinking 2. Patience 3. Composure 4. Flexibility & Openness 5. Decisiveness. ? A good investment has a good risk-return trade-off and provides a good return-duration trade-off as well. ? Given that there are several risks that an investment faces, it is important to use these attributes to assess the suitability of a financial instrument or option. ? A good investment is one that suits your investment objectives. ? To do that, it must have a combination of investment attributes that satisfy you
Thank You«.!!!
doc_645089164.pptx
PPT on Investment Attributes in India
Investment Attributes in India
Objectives of our project
Setting the investment objectives Create the investment policy Make security analysis Do the valuation process Construct the portfolio Review the portfolio Evaluate the portfolio performance Rebalance the portfolio, if necessary
Introduction
? Investing in various types of assets is an interesting activity that attracts people from all walks of life irrespective of their occupation, economic status, education and family background. ? When a person has more money than he requires for current consumption, he would be coined as a potential investor. ? The investor who is having extra cash could invest it in securities or in any other assets like gold or real estate or could simply deposit it in his bank account. ? The companies that have extra income may like to invest their money in the extension of the existing firm or undertake new projects/ventures. ? All of these activities in a broader sense mean investment. ? An investment is a commitment of money that is expected to generate additional money. Investment has two key elements namely, time and risk. ? Every investment entails some degree of risk; it requires a present certain sacrifice for a future uncertain benefit. ? A simple formula for investment is: Investment = {Commitment of funds} + {For a future period} + {In expectation of good rate of return} with some degree of risk
? Investments are evaluated to decide or choose the right investment. Evaluation of investment involves evaluating the attributes of investments. Return, risk, liquidity, tax benefits and convenience are the key attributes taken into consideration before investing into any particular type of investment. ? The sophisticated nature of investing means that a lot goes into making an investment decision. Since there is much at stake, an investor should consider the basic attributes of investments when deciding on a suitable option. At least four investment attributes are integral to sound decisions in this sphere. 1. 2. 3. 4. 5. 6. 7. Rate Of Return. Risk. Tax Benefit. Duration Liquidity Marketability Convenience
Investment Attributes History
? The concept of investment attributes was started by East India Company on 25th July 1777 under the British Act 1764. ? Mr Hastings was the Governor of East India Company. He invested 21,46 ,17,684 Sicca rupees in European Silver and Gold Market and started trading in Bengal. ? Trade in India was carried upon the common principles of commerce after a long time the investment bought good returns to East India Company and both the nations was considerably benefited both in trade and in revenue and the dividends of proprietors were often high and always sufficient to keep up the credit of the company·s stock in heart and vigor. ? Many countries took part in trading process of gold and silver which gave rise to more profits for Mr. Hasting. ? Fine day the ship sunk all the gold and silver which made huge losses to the investors as well as to both the countries and all the investment also sunk with that ship. ? Company started making debt of triple the amount invested in Gold and silver trader·s market. ? India and England totally became bankrupt. At that time there was no insurance companies who would give returns to East India Company. very less tax was evade on trading system, but investment had high risk.
Rate of Return
? A good rate of return from an investment is the first and the foremost condition for effective investment. The rate of return is the ratio of sum of annual income and price appreciation to purchase price of the asset or investment. ? Rate of Return = Annual Income + (Ending Price ² Purchasing Price) Purchasing Price ? There are 3 ways to measure the rate of return on an investment. ? Average annual rate of return (also known as average annual return). ? Compound rate of return (also called average annual geometric return). ? Internal Rate Of Return
Risk
? ? ? ? ? Rate of return from different investment options vary a lot. Remember the famous quote, ¶More the risk and more the profits· Risk means uncertainty of returns. the risk is judged based on parameters like variance, standard deviation and beta. Challenge for a finance manager while investing funds is to achieve high returns on investments while keeping the risk at lowest possible levels. Classification of Risk:- Lower Risk, Medium Risk, High Risk On ground of assurance of the return, there are two kinds of Investment - Riskless and Risky Types Of Risk:Capital Risk Currency Risk Liquidity Risk Financial Risk Market Risk.
? ? ? ? ? ? ? ?
Tax Benefit
? Most of the countries have tax incentives for particular investments except tax free countries. ? investments which have tax benefits, it is an important consideration because taxes form major part of their expenses. ? Some of our investments would provide us with tax benefits while other would not. This would also be kept in mind when choosing the investment avenue. ? Tax benefits are mainly of 3 types: ? Initial Tax Benefits. ? Continuing Tax Benefits. ? Terminal Tax Benefits.
Duration
? Investments typically have a longer horizon than cash and income options. ? Duration of an investment-particularly how long it may take to generate a healthy rate of return-is a vital consideration for an investor. ? Good investment has a good risk-return trade off and provides a good return-duration trade-off as well. ? Good investment is one that suits investment objectives ? It must have a combination of investment attributes. ? There are several risks that an investment faces.
Liquidity
? Liquidity means marketability of an investment. ? For example, equity shares of a big company can be easily liquidated in the stock markets. On the other hand, money invested in an asset (machinery) cannot be liquidated as easily as the equity share. ? Investment is considered highly marketable or liquid it can be easily transacted with low transaction cost and low price variation. ? Finance manager looks for more liquid investments when the funds are available for short period. ? Liquidity is always given a preference because it helps the managers remain flexible.
Marketability
? It is desirable that an investment instrument be marketable, the higher the marketability the better it is for the investor. ? Investment instrument is considered to be highly marketable when: It can be transacted quickly , the transaction cost (including brokerage and other charges) is low. The price change between 2 transactions is negligible. Shares of large, well-established companies in the equity market are highly marketable. Shares of small and unknown companies have low marketability. Gauge the marketability of other financial instruments like provident fund (which in itself is non-marketable). Then we would consider other factors like, can we make a substantial withdrawal without much penalty, or can we take a loan against the accumulated balance at an interest rate not much higher than our earning rate of interest on the provident fund account.
Convenience
? Convenience means ease of investment. ? When an investment can be made and looked after easily, we consider it as convenient investing. ? For example, it is easy to invest in equity shares compared to real estate because real estate involves lot of documentation and legal requirements. ? The ease with which an investment can be made and managed. ? The degree of convenience would vary from one investment instrument to the other.
Classification of Investors
Conclusion
? The game of investment, as any other game, requires certain qualities and virtues on the part of investors, to be successful in the long run:1. Contrary thinking 2. Patience 3. Composure 4. Flexibility & Openness 5. Decisiveness. ? A good investment has a good risk-return trade-off and provides a good return-duration trade-off as well. ? Given that there are several risks that an investment faces, it is important to use these attributes to assess the suitability of a financial instrument or option. ? A good investment is one that suits your investment objectives. ? To do that, it must have a combination of investment attributes that satisfy you
Thank You«.!!!
doc_645089164.pptx