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INVESTMENT OBJECTIVES

OBJECTIVES  INVESTMENT

The main investment objectives are increasing the rate of return and reducing the risk. Other objectives like safety, liquidity and hedge against inflation can be considered  as subsidiary objectives.

Return     

Investors always expect a good rate of return from their investment. rate of return could be defined as the total income the investor receives during the holding period stated as a percentage of the purchasing price at the beginning of the holding period.

Return=
End period  value – Beginning period value+ Dividend   x 100

                                         Beginning period value

Rate of return is stated semi annually or annually to help comparison among the different investment alternatives. If it is stock, the investor gets the dividend as well as the capital appreciation as returns. Market return of the stock indicates the price appreciation for the particular stock. If a particular share is purchased in 1998 at Rs.50, disposed at Rs.60 in 1999 and the dividend yield is Rs.5,then the return would be calculated as follows.

Return=

Capital appreciation & dividend  x 100

                            Purchase price

 Return=          10+ 5  x 100 = 30%

                           50

Risk   Risk of holding securities is related with probability of actual return becoming less than the expected return. The word is synonymous with the phrase variability of return. Investment `risk is just as important as measuring its expected rate of return because minimizing risk and maximizing the rate of return are interrelated objectives in the investment management. An investment whose rate of return varies widely from period to period is risky then whose return that  

dose not change much. Every investor likes to reduce the risk of his investment by proper combination of different securities.

LIQUIDITY  Marketability of the investment provided liquidity to the investment.

The liquidity depends upon the marketing and trading facility. If a portion of the emergencies. Stocks are liquid only if they command good market by providing adequate return through dividends and capital appreciation.

Hedge against inflation

Since there is inflation in almost all the economy, The Rate of return should ensure a cover against the inflation. The return rate should be higher than the rate of inflation, otherwise the investor will have loss in real terms. Growth stocks would appreciate in their values overtime and provide a protection against inflation. The return thus earned should assure the safety of the principal amount, regular flow of income and be a hedge against inflation.

Safety

The selected investment avenue should be under the legal and regulatory frame work. If it is not under the legal frame work, it is difficult to represent the grievances, if any. Approval of the law itself adds a flavor of safety. Even though by law, the safety of the principal differs from one mode of investment to another. Investment  done with the government assure more safety than with the private party. From the safety point of view investment can be ranked as follows bank deposits, government bonds, UTI units, non-convertible debenture, convertible debentures, equity shares, and deposits with the non-banking financial companies.

                            

GAMBLING AND INVESTMENT

GAMBLING AND INVESTMENT

A gamble is  usually a very short term investment in a game or chance. Gambling is different from speculation and investment. The time horizon investor in gambling is shorter than speculation and investment. The result are determined by the roll of dice or the turn of a card. Secondly, people gamble as a way to entertain themselves, earning incomes would be the secondary factor. Thirdly, the risk in gambling is different from the risk of the investment. Gambling employ artificial risks whereas commercial risks are present in the investment activity. There is no risk  and return off in the gambling and the negative outcomes are expected. But in the investment there in an analysis of risk and return. Positive returns are expected by the investor. Finally, the  financial analysis does not reduce the risk proportion involved in the gambling.

Speculation

SPECULATION

Speculation means taking up the business risk in the hope of getting short term gain. Speculation essentially involves buying and selling activities with the expectation of getting profit from the price fluctuation. This can be explained with an example. If a spouse buys a stock for its dividend, she may be termed  as an investor. If she buy with the anticipation of  price rise in the near future and the hope of selling it at a gain price she would be termed as a speculator. The dividing line between speculation and investment is very thin because people bye stocks for dividends and capital appreciation .

The time factor involved in the speculation and investment. The  investor is interested in consistent good rate of return for a longer period. He is primarily concerned with the direct i.e. extremely high rate of return than the normal return in the short run. Speculation’s investment are made for short term.

The speculator is more interested in the market action and its price movement.

The investor constantly evaluates the worth of security whereas the speculator

Evaluates the price movement. He is not worried about the fundamental factors like his counterpart, the investor.

The investor would try to match the risk and return. The speculator would like to assume greater risk than the investors. Risk refers to the possibility of incurring loss in the financial transaction . The negative short term fluctuation affect the speculators in a worse manner than the investor. The risk factor involved in the investment is also limited. After studying the factors related with the concerned company’s stock, the investor buys in and risk exposure in limited. The investor likes to invest in securities where his principal world be safe

Investment

INVESTMENT 

Investment is the employment of funds on assets with the aim of earning income or capital appreciation. Investment  has  two attributes namely time and risk.

Present consumption is sacrificed to get a return in the future . The sacrifice that has to be borne is certain but the return in the future may be uncertain. The attribute of investment indicates the risk factor. The risk is undertaken with a view to reap some return from the investment. For a layman, investment means some monetary commitment. A person’s commitment to buy a flat or a house for his personal use may be an investment from his point of view. The cannot be considered as an actual investment as it involves sacrifice but does not yield any financial return.

To the economist, investment in the net addition made to the nation’s capital stoke that consists of goods and services that are used in the production process. A net addition  to the capital stoke means an increase in the buildings, equipment or inventories. These capital stoke are used to produce  other goods and services.

Financial investment is the allocation of money to assets that are expected to yield some gain over a period of  time. it is an exchange of financial claims such as stoke and bonds for money. They are expected to yield returns  and experience capital growth over the years.

The financial and economic meanings are related to each other because the savings of the individual flow into the capital market as financial investments, to be use in economic investment. Even though they are related to each other, we are concerned only about the financial investment made on securities.

INTRODUCATION TO INVESTMEN AND SECURITIES

INTRODUCATION TO SECURITIES AND  INVESTMEN  

Various types of Investing in 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 then 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 simple deposit it in has bank account .The companies that have extra income may like to invest their money in the extension  of the existing firm or undertake new venture .All of these activities in a broader sense mean investment