Investment Management

1 InvestmentManagement(AsperNewSyllabus(CB CS)forFifthSemester,BBA, ) ,DelhiUniversity,Professor,JagannathInte rnationalManagementSchool,Kalkaji, NEWDELHI NAGPUR BENGALURU HYDERABAD CHENNAI PUNELUCKNO W AHMEDABAD ERNAKULAM BHUBANESWAR KOLKATA AuthorNopartofthispublicationmaybereprod uced,storedinaretrievalsystem,ortransmit tedinanyformorbyanymeans,electronic,mech anical,photocopying, :2016 , Ramdoot PoojaApartments ,4-B,MurariLalStreet,AnsariRoad,DaryaGan j, :011-23270392,23278631;Fax:011-23256286 Nagpur:KundanlalChandakIndustrialEstate, GhatRoad, :0712-2738731,3296733;Telefax:0712-27212 16 ,2ndMainRoadSeshadripuram,BehindNataraja Theatre, :08041138821,9379847017,9379847005 ,Lingampally,BesidesRaghavendraSwamyMath am,Kachiguda, :040-27560041,27550139 Chennai:New-20,Old-59,ThirumalaiPillaiRo ad, , :9380460419 Pune:FirstFloor,"Laksha"Apartment, ,Mehunpura,Shaniwarpeth(NearPrabhatTheat re), :020-24496323/24496333;Mobile:0937057933 3 Lucknow:HouseNo731,ShekhupuraColony, ,Aliganj, :0522-4012353;Mobile:09307501549 Ahmedabad:114, SHAIL ,1stFloor, , ,NavrangPura, :079-26560126;Mobile:09377088847 Ernakulam:39/176(NewNo:60/251)1stFloor,K arikkamuriRoad,Ernakulam,Kochi :0484-2378012,2378016 Mobile:09387122121 Bhubaneswar:5 StationSquare,Bhubaneswar-751001(Odisha) .

2 Phone:0674-2532129,Mobile:09338746007 Kolkata:108/4,BeliaghataMainRoad,NearIDH ospital, ,Kolkata-700010,Phone:033-32449649,Mobil e:7439040301 DTPby:AshaPrintedat: (I) , , , , , , ,WilliamSharpe,CapitalAssetPricingModel( CAPM) ,commerce, , , :IntroductiontoInvestmentManagement10 HrsInvestmentManagement,NatureandScope,I nvestmentAvenues,TypesofFinancialAssetsa ndRealAssets,Security,ReturnandRisk SystematicandUnsystematicRisk SourcesofRisk,MeasurementofRiskandReturn ,SourcesofInvestmentInformation,FixedInc ome Securities Bonds,PreferenceShares SourcesofRisk,Valuation,DurationofBonds TheoryofInterestRates YieldCurve, :SecuritiesAnalysis14 HrsAnalysisofVariableIncomeSecurities,Fu ndamentalAnalysis AnalysisofEconomy,IndustryAnalysis,Compa nyAnalysis FinancialandNon-financial EquityValuationModels,Options,Futures,Fo rwards,WarrantsandtheirValuations,Techni calAnalysis Dow sTheory,Charts EfficientMarketHypothesisanditsImplicati ons,TaxAspectsofInvestment,SecuritiesTra dingProcedure, :PortfolioManagement10 HrsMeaningofPortfolioManagement,Portfoli oAnalysis,WhyPortfolios?

3 PortfolioObjectives,PortfolioManagementP rocess,SelectionofSecurities,PortfolioTh eory,MarkowitzModel,Sharpe sSingleIndexModel,EfficientFrontierwithL endingandBorrowing,OptimalPortfolioCapit alAssetPricingModel,ArbitragePricingTheo ry, :PortfolioManagementStrategies12 HrsBondPortfolioManagementStrategies,Equ ityPortfolioManagementStrategies,Strateg iesusingDerivatives,Hedging,PortfolioRev ision RebalancingPlans,PortfolioEvaluation,Sha rpe sIndex,Treynor sMeasureandJenson :MutualFunds10 HrsMutualFunds,Investor sLifeCycle,PersonalInvestment,PersonalFi nance,PortfolioManagementofFundsinBanks, InsuranceCompanies,PensionFunds,Internat ionalInvesting,InternationalFundsManagem ent,EmergingOpportunities, Seminars, AnIntroduction3 :MeaningandSelection257 388 SkillDevelopment389 391 Index392 395 DETAILCONTENTSUNITI:INTRODUCTIONTOINVEST MENTMANAGEMENTC hapter1:InvestmentManagement AnIntroduction3 :RiskandReturn17 (CAPM) :FixedIncomeSecuritiesAnalysisandValuati on52 ,MarketInterestRate, :SECURITIESANALYSISC hapter4:FundamentalAnalysis109 (EVA) :EquityEvaluation137 :FinancialDerivatives161 :TechnicalAnalysis187 :EfficientMarketTheory205 :TradingofSecurities219 (FIIs) (BOLT) :NSE,BSE,OTCEI, :PORTFOLIOMANAGEMENTC hapter10:PortfolioManagement:MeaningandS election257 :TheoriesofPortfolioManagement280 (CML) (CAPM) (SML) :PORTFOLIOMANAGEMENTSTRATEGIESC hapter12:PortfolioManagementStrategies31 9 :MUTUALFUNDSC hapter13:MutualFunds349.

4 PersonalInvestment368 391 Index392 395 UNITIINTRODUCTIONTOINVESTMENTMANAGEMENTC hapter1:InvestmentManagement AnIntroductionChapter2:RiskandReturnChap ter3:FixedIncomeSecuritiesAnalysisandVal uation2 InvestmentManagement3 InvestmentManagement , , , , , waiting forafuturerewardintermsofincomethroughre gularinterest,dividends,premiums, Investment , AnIntroductionChapter 14 InvestmentManagement Itmustbeclearlyestablishedthatinvestment involveslong-termcommitment. Financialandeconomicmeaningofinvestmenta redifferentandmustbeunderstoodintermsofu seofcapital. Investmentspeculationandgamblingcanbedis tinguishedfromeachotherthroughtheirrisk, ,planningforretirementincome,highplannin gforadditionalincomeduetohighratesoftaxa tionandinflationarypressureinaneconomy,t heexpectationofcontinuousstableincomeint heformofregulardividends.

5 Businessprocessingoffices,callcentres,ex ports,media,tourism,hospitality,manufact uringsector,banks, , ,theobjectivesofinvestmentaretoachieveag oodrateofreturninthefuture,reducingriskt ogetagoodreturn,liquidityintimeofemergen cies, , : Tounderstandtheexactmeaningofinvestment Tofindoutdifferentavenuesofinvestment Tomaximizereturnandminimizerisk Tomakeaprogrammeforinvestmentthrougheval uatingsecurities,constructingaportfolioa ndreviewingaportfolio Tofindoutatimeperiodforinvestmentstotake place capital andintheirview,investmentisacommitmentof aperson sfundstoderivefutureincomeintheformofint erest,dividends,rent,premiums, , Investment asnetadditionstotheeconomy ,theterminvestmentimpliestheformationofn ewandproductivecapitalintheformofnewcons truction,newproducers durableequipmentsuchasplantandequipment.

6 Theymaybedividedin new or secondhand suppliers and investoras users ,however,investmentisusedinits financialsense , risk Speculation iscorrelatedwith highrisk , , ,therefore, , quickturn , awellgroundedandcarefullyplannedspeculat ion , , , , ,liquidity, ,judgmentsonmovementinthestockmarket, ,itisestablishedthatinvestmentisanattemp ttocarefullyplan,evaluateandallocatefund sinvariousinvestmentoutletswhichofferssa fetyofprincipal, ,gameofcards,lottery, , , ,speculationandgamblinggiveusabasicideao ftheirnature, ssavingsintodifferentoutletswiththeexpec tationofsafe, , ,furniture,gold,silver, ,bonds,debentures,bills,loans,lease, , , ,ifapersontakesaninsurancepolicyof`1,00, 000ofLifeInsuranceCorporation, :DistinctionbetweenRealandFinancialAsset sRealAssetsFinancialAssetsLandandbuildin g, ,debentures,bonds,derivatives,fixeddepos its, ,immoveable, ,sugar,potatoes,rubber, ,silver, , (NCDEX) ,NationalBankforAgricultureandRuralDevel opment(NABARD),LifeInsuranceCorporationo fIndia,PunjabNationalBank,CanaraBank,CRI SILLtd.

7 ,IndianFarmersFertilizerCooperativeLtd.( IFFCO)andNationalStockExchangeofIndiaLtd .(NSE). ,opportunitiesconducivetoinvestment,medi aavailableforinvestment, somearesimpleanddirect, , , ,inotherwords, , , , , ; , :InvestmentAvenues11 InvestmentManagement (LIC)orUnitTrustofIndia(UTI)anddependsup onthemtomakeinvestmentsonhisandotherpeop le , ,intheformofprovidentfundsandpension,lif einsurancepolicy, , , : Directinvestmentsarethosewheretheindivid ualhasadirectholdonhisinvestmentdecision . , , , , ,tohim, , ,Infosys, , ,nameofpromotersandboardofdirectors,them ainactivities, ,convertiblebondsmayunderpropercondition s,proveanidealcombinationofhighyield, , ; , , , : Fixedsecuritiesterminalvaluesarecertainw ithfixedreturnandmaturitydates. Non-securityInvestments , ; ,antiquesandothervaluablessuchassilver, AnIntroductionThesefeaturesshouldbeconsi stentwiththeinvestors ,liquidity,incomestability,adequateincom e,purchasingpower,stability,appreciation ,freedomfrommanagementofinvestments, ,tobecertainofthesafetyofprincipal, , ,geographically,bymanagement, ,therefore,keepasmallproportionofcash, , ,explorethepossibilityofgainandlossinthe investmentsavailabletothem, ,however, ,estates,trusts, ,LifeInsuranceCorporation, , , , ,however, :FeaturesofInvestmentAvenuesParticularsR iskReturn/ ,makinginvestmentanalysis,valuationofsec urities, Investmentisemploymentoffundsforachievin gadditionalincomeandgrowthinvalue.

8 Investmentmustbedistinguishedfromspecula tionandgamblingintermsoftimehorizon,risk , luck . Investmentsmaybefinancialclaimsorrealand tangibleassetslikelandandbuildings,plant andmachinery,gold,antiques,etc. , AnIntroduction Aninvestmentprogrammeshouldconsistofsafe tyoftheprincipalamount,liquidity,incomea ndpurchasingpowerstabilityandappreciatio n. ,investmentanalysis,valuationofsecuritie s, , :(i)Commodityassets(ii)Processofinvestme nt(iii) :(i)Directandindirectassets(ii)Realandfi nancialassets(iii) (T)orFalse(F). ,valuation, , , , , , , , , , , (a)commitmentoffundsforfutureincome(b)ne tadditionstoeconomycapitalstock(c)short- termcommitmentoffunds(d) :(a)Investmentishighriskspeculationislow risk.(b)Investmentisshort-termperiodofti mespeculationcoverslong-termperiod.(c)In vestmentisbasedonplanningoffundsforsafet y,liquidity,profitability,speculationonh aunchesandbenefits.

9 (d)Investmentisyourownfunds,speculationc onsistsofotherpeople (a)believesinlowrisk(b)considershighrisk andhighprofits(c)expectsotherpeopletopla nhisresourcesinonebestsecurity(d)buyingg overnmentsecuritieswithsafetyofreturnAns .:1.(a),2.(c),3.(b).vvv