Download Security Analysis and Portfolio Management

Investment Management
Unit- 1
Investment Setting
Investment alternatives
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Marketable securities
A security that can be bought and sold in a
secondary financial market.
Non-marketable securities:
are investments that cannot be transferred from
one party to another.
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Marketable securities
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Money market instruments:
 Repos and Reverse Repos
 T-bills & Dated securities
 Commercial papers
 Certificate of deposit
Capital market instruments:
 Equity shares
 Preference shares
 Bonds
 Debentures
 Mutual funds
Others
 Real Assets
 Art
 Antiques
 Real Estate
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Non Marketable securities
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Bank Deposit
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Post office Deposit
 National Savings Certificates
 Indira vikas patra
 Kisan vikas patra
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Insurance Policies
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NBFC’s Deposit
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Provident fund schemes
 Public provident fund scheme
 Employee provident fund scheme
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Money Market
Money market is for a maximum tenor of up to one year.
 Classified into
Overnight market - The tenor of transactions is one
working day.
Notice money market – The tenor of the transactions is from
2 days to 14 days.
Term money market – The tenor of the transactions is from
15 days to one year.
 The money market is regulated by the Reserve Bank of India.
 All the money market transactions should be reported on the
electronic platform called the Negotiated Dealing System
(NDS).
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Money market instruments
Repo market
 Borrowing funds by selling securities with an agreement
to repurchase the said securities on a mutually agreed
future date at an agreed price which includes interest for
the funds borrowed.
 Reverse Repo market
 The reverse of the repo transaction is called ‘reverse repo’
 Buying of securities
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Money market instruments
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T-bills/Treasury bills:
◦ To meet short term financial requirements of the
government
◦ Are zero coupon bonds issued at discount to face value and
are redeemed at par.
◦ No tax deducted at source
◦ Minimum default risk
◦ Government of India issues three types of treasury bills
through auctions, namely, 91-day, 182-day and 364-day.
◦ There are no treasury bills issued by State Governments.
◦ Maximum tenure of these securities is one year
◦ Treasury bills are available for a minimum amount of
Rs.25,000 and in multiples of Rs. 25,000.
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Money market instruments
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Dated Securities:
◦ Government paper with tenor beyond one year is known as dated security.
◦ Securities generally carry a fixed interest rate and have a fixed maturity
period
◦ Issued and redeemed at face value, interest paid on half yearly routine
◦ Rate of interest and tenure is fixed at the issuance and does not change till
maturity.
◦ At present, there are Central Government dated securities with a tenor up to
30 years in the market.
◦ sold through auctions
◦ Subscriptions can be for a minimum amount of Rs.10,000 and in multiples
of Rs.10,000.
◦ Auctions are conducted electronically on PDO-NDS(Negotiated dealing
system).
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Money market instruments
• Commercial papers
 Issued by companies & commercial banks in the form of a
promissory note to raise funds for short term.
 Issued at discount to face value and redeemed at par on maturity
 Maturity period- minimum 15days to maximum one yr.
 Corporate houses that obtain an investment grade rating alone can
issue.
• Certificate of deposit
 a certificate issued by a bank to a person depositing money for a
specified length of time at a specified rate of interest.
 CDs may be issued at a discount on face value too.
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Equity Shares
◦ Represent ownership capital of the company
Stock market classification of shares:
Growth shares – Higher rate of growth in profitability
Income shares – belongs to company that have stable
operations and limited growth opportunities
Defensive shares-unaffected by market movements
Cyclical shares – business cycle affects the cyclical shares
Speculative shares-lot of speculative trading involved
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Bonds or Fixed Income Securities
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A marketable legal contract that promises to pay its investors a
stated rate of interest and to repay the principal amount at the
maturity date.
Types:
Bearer Bonds:
◦ Interest paid to holder of the bank
Deep Discount Bonds
◦ Issued at discount to face value with long maturities around 10
yrs.
Mortgage Bonds:
◦ A mortgage bond is a secured bond issued by a company. With a
mortgage bond, the company pledges specific assets as a
collateral for the bond.
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Debentures:
◦ A debenture is an unsecured bond issued by a company
without providing any specific asset as collateral.
◦ Are general creditors of the firm.
◦ Only well-established and creditworthy companies are able
to issue debentures.
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• Mutual funds
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A mutual fund is a type of investment fund that pools money
from many investors to purchase securities.
professionally managed
• Open-End vs Closed
end schemes
• Equity schemes
• Growth schemes
• Index schemes
• Sector schemes
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•
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Balanced Schemes
Debt schemes
Income schemes
Money market
schemes
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Real Assets:
◦ Gold and silver
Art:
◦ Paintings
Real Estate
◦ Commercial property
◦ Suburban land
◦ Time share in a holiday resort
◦ New and used residential property
◦ Agricultural land
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Non Marketable securities
Bank Deposit
 Post office Deposit
National Savings Certificates – In denominatons of
100,500,1k..Interest compounded half yearly
Indira vikas patra - interest compounded annually and is taxable
and is like a bearer bond
Kisan vikas patra – In denominations of 1k,5k,10k, interest
compounded annually and is taxable
 Insurance Policies
 NBFC’s Deposit – Investment in leasing companies, chit funds,etc
 Provident fund schemes
Public provident fund scheme (PPF)
Employee provident fund scheme (EPF)
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Thank you …!!!
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