Investment Management

Introduction in the buildings, equipment or inventories. These

 The term ‘investing’ could be associated with capital stocks are used to produce other goods &
different activities, but the common target in services.
these activities is to ‘employ’ the money (funds) Definition–Financial sense
during the time period seeking to enhance the - “Investment is a commitment /employment of
investor’s wealth. funds made in the expectation of some positive
 Funds to be invested come from assets already rate of return. If the investment is properly
owned, borrowed money and savings. By undertaken, the return will commensurate with
foregoing consumption today and investing their the risk that the investor assumes.” - Donald E.
savings, investors expect to enhance their future Fischer and Ronald J. Jordan
consumption possibilities by increasing their - Financial investment is the allocation of money to
wealth. However, it is always useful to make a assets that are expected to yield some gain over a
distinction between real and financial period of time.
investments.
 Real investments usually involve some kind of Characteristics of Investment
tangible assets, such as land, machinery,  Safety of principal (e.g. gilt edged securities)
factories, etc. Financial investments involve  Liquidity (e.g. CPs and CDs)
contracts in paper or electronic form, such as  Income stability (e.g. Debentures)
stocks, bonds, etc.  Capital appreciation (e.g. equity)
 Investment activity involves the use of funds or  Tangibility (e.g. land and buildings)
savings for acquisition of assets & further  Investment refers to investing money in financial
creation of assets. physical assets and marketing assets. Major
 Investment is an employment of funds on assets investment features are risk, return, safety,
in the aim of earning income or capital liquidity, marketability, concealability, capital
appreciation. growth, purchasing power, stability and the
Definition of Investment benefits.
“Investment analysis is the study of financial securities for Risk
the purpose of successful - Risk refers to the loss of principal amount of an
investing.” investment. It is one of the major characteristics
“An investment is the purchase of goods that are not of an investment. The risk depends on the
consumed today but are used in the following factors:
future to create wealth.” a. When investment maturity period is longer;
“An investment is a commitment of funds make in the investor will take larger risks.
expectation of some positive rate of b. Government or Semi-Government bodies
return.” issue securities, which have lesser risks.
Example – equity shares, preference share and debentures c. In the case of the debt instrument or fixed
etc. deposit, the risk of above investment isless
According to Oxford dictionary due to their secured and • fixed interest
- “Investment is defined as the action or process of payable. For instance, debentures.
investment money for profit.” d. In the case of ownership instrument like
According to Keynes equity or preference shares, the risk is more
- “Investment is define as the addition of the value of the due to their unsecured • nature and
capital equipment which has resulted from the productive variability of their return and ownership
activity of the period.” character.
Types of Investment e. The risk of degree of variability of returns is
Real Investment – Purchase of fixed assets more in the case of ownership capital as
Financial Investment – Purchase of securities compared to debt capital. • The tax
Definition-Economic sense provisions would influence the return of
- “Investment means the net additions to the risk.
economy’s capital stock which consists of goods Return
and services that are used in the production of - Return refers to expected rate of return from an
other goods and services” (Capital formation) investment. Return is an important characteristic
- Investment is the net addition made to the of investment. Return is the major factor which
nation’s capital stock that consists of goods and influences the pattern of investment that is made
services that are used in the production process. by the investor. Investor always prefers high rate
A net addition to the capital stock means increase of return for his investment.
Safety always involves the commitment of current funds
- Safety refers to the protection of investor with the objective of receiving greater amounts of
principal amount and expected rate of return. future funds.
Safety is also one of the essential and crucial
elements of investment. Investor prefers his
capital’s safety.
- Capital is the certainty of return without loss of
money or it will take time to retain it. If investor
prefers less-risk securities, he chooses
Government bonds. In cases, where investor
prefers high rate of returns, investor will choose
private securities, whose safety is low.
Liquidity
- Liquidity refers to investments ready to be
converted into cash. In other words, it is available
immediately in the cash form. Liquidity means
that investment is easily realizable, saleable or
marketable. When the liquidity is high, then the
return may be low. For example, UTI units. An
investor generally prefers liquidity for his
investments and safety of funds through a
minimum-risk and maximum-return investment.
Marketability
- Marketability refers to buying and selling of
securities in market. Marketability means
transferability or saleability of an asset. Securities
listed in a stock market are more easily
marketable than which are not listed. Public
Limited Companies’ shares are more easily
transferable than those of private limited
companies.
Concealability
- Concealability is another essential characteristic
of the investment. Concealability means
investment to be safe from social disorders,
government confiscations or unacceptable levels
of taxation. Property must be concealable and
should leave no record of income received from
its use or sale. Gold and precious stones have
long been esteemed for these purposes, because
they combine high-value with small bulk and are
readily transferable.
Capital growth
- Capital growth refers to appreciation of
investment. Capital growth has today become an
important character of investment. Capital
appreciation, also known as capital growth, refers
to the increase in the value of an investment over
time. It tells you how much profit you would pay
taxes on, if you sold the investment that day.
Investors and their advisers are constantly
seeking ‘growth stock’ in the right industry;
bought at the right time.
Purchasing power stability
- It refers to the buying capacity of investment in
market. Purchasing power stability has become
one of the import traits of investment. Investment