UNIT 1

Research Report
A research report is a detailed document prepared after analyzing a company,
industry, or security to help investors make investment decisions.

It contains:
Financial analysis
Risk and return analysis
Future performance prediction
Recommendations such as Buy, Hold, or Sell

Example
An analyst studies Infosys shares and gives a recommendation to “Buy” based on
future growth expectations. This analysis is called a research report.

Qualities of a Good Research Report

Clarity – The report should be simple and easy to understand.
Accuracy – Facts, figures, and calculations must be correct.
Objectivity – The report should be unbiased and based on facts.
Conciseness – It should avoid unnecessary information and be brief.
Completeness – All important details and analysis should be included.
Proper Organization – Information must be arranged in a logical sequence.
Reliability – Data used in the report should come from trustworthy sources.
Timeliness – The report should contain current and updated information.
Consistency – Findings and conclusions should not contradict each other.
Readable Format – Proper headings, tables, graphs, and charts should be used.
Analytical Nature – The report should contain proper analysis and interpretation
of data.
Comparability – It should compare past and present performance when necessary.

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Simplicity of Language – Technical terms should be minimized for better
understanding.
Proper Conclusion – The report must end with a clear conclusion.
Practical Recommendations – Suggestions like Buy, Hold, or Sell should be
useful for investors.
Transparency – Methods and sources of data should be clearly mentioned.

Rating Conventions – Meaning

Rating conventions are the standard symbols or grades used by credit rating
agencies to show the creditworthiness and risk level of securities, companies, or
financial instruments.
These ratings help investors understand whether an investment is safe or risky.
Common Rating Symbols
AAA – Highest safety, very low risk
AA – High safety
A – Adequate safety
BBB – Moderate safety
BB – Moderate risk
B – High risk
CCC – Very high risk
D – Default or failure to repay
Features
Given by credit rating agencies
Indicates repayment capacity
Helps investors make decisions
Shows risk and return level
Example
CRISIL gives ratings like AAA, AA, and BBB to bonds and companies based on
financial strength.

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Research Analyst – Meaning
A research analyst is a person who collects, studies, and analyzes financial and
market information to help investors make investment decisions.

Primary Role of a Research Analyst

The primary role of a research analyst is to analyze financial and market
information and provide investment recommendations to investors.
Main Roles
Collect financial and market data
Analyze company performance
Study market trends and risks
Evaluate securities and investments
Prepare research reports
Give recommendations like Buy, Hold, or Sell
Primary Responsibility of a Research Analyst
The primary responsibility of a research analyst is to provide accurate, reliable,
and unbiased research to help investors make informed decisions.
Main Responsibilities
Conduct detailed research and analysis
Prepare clear research reports
Forecast future performance of companies or securities
Maintain confidentiality of information
Follow ethical and regulatory standards
Update investors with current market information
Identify risks and investment opportunities
Important Qualities of a Research Analyst
Analytical Skill – Ability to analyze financial data and market trends.
Knowledge of Finance and Market – Must understand securities, economy, and
investment concepts.
Communication Skill – Should clearly explain findings and recommendations.

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Objectivity – Must provide unbiased and fact-based analysis.
Accuracy – Reports and calculations should be correct and reliable.
Decision-Making Ability – Should make proper investment judgments.
Observation Skill – Must identify market changes and opportunities quickly.
Research Ability – Should collect and interpret relevant information effectively.
Technical Knowledge – Must know financial tools, ratios, charts, and software.
Patience and Concentration – Important for detailed analysis and long research
work.
Ethical Behaviour – Must maintain honesty, confidentiality, and professional
ethics.
Problem-Solving Skill – Should identify risks and suggest solutions.
Time Management – Must complete reports within deadlines.
Forecasting Ability – Should predict future market and company performance.
Attention to Detail – Small financial details should not be missed.
Basic Principles of Interaction with Companies / Clients
Professionalism – The research analyst should behave professionally while
dealing with companies and clients.
Honesty and Integrity – Information and advice must be truthful and ethical.
Confidentiality – Client and company information should be kept confidential.
Transparency – The analyst should clearly disclose methods, risks, and conflicts
of interest.
Objectivity – Recommendations must be unbiased and based on facts.
Fair Treatment – All clients should be treated equally without discrimination.
Clear Communication – Information should be explained in a simple and
understandable manner.
Avoid Misleading Information – False promises or inaccurate statements should
not be given.
Compliance with Regulations – Analysts must follow legal and regulatory
guidelines.
Respect and Trust – Mutual respect should be maintained with clients and
companies.

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Responsibility – Advice should be given carefully after proper analysis.
Timely Response – Queries and reports should be provided on time.

UNIT 2
Equity Share – Meaning
An equity share is a type of share that represents ownership in a company.
Equity shareholders are the real owners of the company and they receive
dividends based on the company’s profits.
Features of Equity Shares
Ownership rights in the company
Voting rights in company decisions
Dividend is not fixed
Higher risk and higher return
Claim on assets after preference shareholders during liquidation
Example
If a person buys equity shares of Reliance Industries, they become a part-owner
of the company.

Debentures – Meaning
A debenture is a long-term borrowing instrument issued by a company to raise
funds from the public.
Debenture holders are creditors of the company and receive fixed interest.
Features
Fixed rate of interest
No ownership rights
Repayment after a fixed period
Safer than equity shares
One-line Definition

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“A debenture is a long-term debt instrument issued by a company with a fixed
rate of interest.”
Bonds – Meaning
A bond is a financial instrument issued by companies or governments to borrow
money from investors for a fixed period at a fixed interest rate.
Features
Fixed interest income
Fixed maturity period
Lower risk compared to shares
Example
Government bonds are issued by the government to raise funds.
One-line Definition
“A bond is a debt security issued to raise funds with a promise to repay principal
and interest.”
Mutual Funds – Meaning
A mutual fund is an investment scheme that collects money from many investors
and invests it in shares, bonds, and other securities.
It is managed by professional fund managers.
Features
Diversified investment
Professional management
Suitable for small investors
Reduces investment risk
Example
SBI Mutual Fund manages money collected from investors and invests in
different securities.
One-line Definition
“A mutual fund is a pooled investment scheme managed by professionals on
behalf of investors.”

Notes – Meaning (Finance)

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Notes are written debt instruments issued by companies, banks, or governments
to borrow money from investors for a specific period with a promise to repay
principal and interest.
It is similar to bonds and debentures.
Features
Written promise to repay money
Carries fixed interest rate
Has maturity period
Used for raising funds
Investors receive periodic interest
Types
Short-term notes
Promissory notes
Treasury notes
Example
Government treasury notes are issued to raise short-term funds from the public.

Notes – Meaning (Finance)

Notes are written debt instruments issued by companies, banks, or governments
to borrow money from investors for a specific period with a promise to repay
principal and interest.
It is similar to bonds and debentures.
Features
Written promise to repay money
Carries fixed interest rate
Has maturity period
Used for raising funds
Investors receive periodic interest
Types
Short-term notes

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Promissory notes
Treasury notes
Example
Government treasury notes are issued to raise short-term funds from the public.
Warrants – Meaning
A warrant is a financial instrument that gives the holder the right to buy shares of
a company at a fixed price within a specified period.
It is issued by companies to attract investors.
Features
Right to buy shares
Fixed exercise price
Valid for a specific period
Not an obligation to buy
Helps companies raise capital
One-line Definition
“A warrant is a financial instrument that gives the right to purchase company
shares at a fixed price within a specified time.”
Convertible Warrants – Meaning
Convertible warrants are warrants that can be converted into equity shares of the
company after a certain period at a predetermined price.
Features
Can be converted into equity shares
Fixed conversion price
Provides future ownership opportunity
Used to attract long-term investors
Example
An investor holding convertible warrants of Tata Motors can convert them into
equity shares later at a fixed price.
ETF (Exchange Traded Fund) – Meaning

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An Exchange Traded Fund (ETF) is an investment fund that is traded on a stock
exchange like shares.
It invests in a group of securities such as stocks, bonds, or commodities and tracks
an index.
Features
Traded like shares in stock exchange
Provides diversification
Lower cost compared to mutual funds
Can be bought and sold anytime during market hours
Tracks an index like Nifty or Sensex
Advantages
Low risk through diversification
Easy liquidity
Professional management
Lower expense ratio
Example
Nippon India ETF Nifty BeES tracks the Nifty index and is traded in the stock
market.
Indices – Meaning
Indices are statistical measures that show the overall performance and movement
of a group of selected securities in the stock market.
They indicate whether the market is rising or falling.
Features
Represents market performance
Based on selected shares
Acts as a market indicator
Helps investors analyze market trends
Types of Indices
Stock Market Index
Sectoral Index

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Broad Market Index
Examples
NIFTY 50
BSE SENSEX
Uses of Indices
Measures market performance
Helps in investment decisions
Used for comparison of returns
Basis for ETFs and index funds
Mutual Fund Units – Meaning
Mutual fund units are the small equal portions into which the total investment of
a mutual fund is divided.
When an investor invests money in a mutual fund, they receive units based on the
Net Asset Value (NAV).
Research – Meaning (Security Analysis)
Research in security analysis means the systematic study and analysis of
securities, companies, industries, and market conditions to make proper
investment decisions.
Investing – Meaning
Investing is the process of placing money in financial assets or securities with the
expectation of earning income or profit in the future.
The main objective of investing is wealth creation and earning returns.
Fundamentals of Research
Fundamentals of research are the basic principles, concepts, and methods
followed in conducting systematic study and analysis.
Research helps in collecting and analyzing information to make proper decisions.
Main Fundamentals of Research
Problem Identification
Clearly defining the research problem or objective.
Systematic Approach
Research should follow an organized and step-by-step process.

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Data Collection
Gathering relevant information from primary or secondary sources.
Objectivity
Research should be unbiased and based on facts.
Analysis and Interpretation
Collected data must be properly analyzed and interpreted.
Accuracy
Information and findings should be correct and reliable.
Hypothesis Formulation
Developing assumptions or predictions for testing.
Conclusion and Recommendation
Research should end with findings and useful suggestions.
Verification
Results should be testable and verifiable.
Documentation
Proper recording and presentation of research findings.
Technical Analysis – Meaning
Technical analysis is the method of evaluating securities by studying past price
movements, trading volume, and market trends.
It mainly uses charts and patterns to predict future price movements.
Features
1. Based on past market data
2. Uses charts and graphs
3. Focuses on short-term investment
4. Helps identify market trends
Example
An investor studies the price chart of Tata Steel shares to predict future price
movement.
One-line Definition

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“Technical analysis is the study of past market data and price movements to
predict future security prices.”
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Fundamental Analysis – Meaning
Fundamental analysis is the evaluation of securities by analyzing economic,
industry, and company factors to determine their intrinsic value.

It studies:
Financial statements
Profitability
Management efficiency
Economic conditions
Features
1. Focuses on long-term investment
2. Determines intrinsic value
3. Based on financial and economic analysis
Example
An investor analyzes the profits and growth of Infosys before investing.
One-line Definition
“Fundamental analysis is the evaluation of securities using financial and
economic factors to find their true value.”
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Economic Analysis – Meaning
Economic analysis is the study of economic factors that affect the overall market
and investment environment.
It analyzes:
Inflation
Interest rates
GDP
Fiscal and monetary policies
Employment levels
Features
1. Studies overall economy
2. Helps understand market conditions
3. Influences investment decisions

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Example
If inflation increases, investors may expect stock market changes and modify
investments accordingly.
One-line Definition
“Economic analysis is the study of economic factors that influence the
performance of securities and the stock market.”
Basic Principles of Microeconomics
Microeconomics studies the behavior of individual consumers, firms, and
markets.
Principles of Microeconomics
1. Law of Demand
When price increases, demand decreases and vice versa.
2. Law of Supply
Higher price leads to higher supply.
3. Utility Maximization
Consumers try to maximize satisfaction from limited income.
4. Profit Maximization
Firms aim to earn maximum profit.
5. Opportunity Cost
Choosing one option means sacrificing another.
6. Marginal Analysis
Decisions are made based on additional cost and additional benefit.
7. Price Mechanism
Prices are determined by demand and supply.
One-line Definition
“Microeconomics studies individual economic units such as consumers, firms,
and markets.”
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Basic Principles of Macroeconomics

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Macroeconomics studies the economy as a whole.
Principles of Macroeconomics
1. National Income Determination
Measures the total income of a country.
2. Inflation and Price Stability
Studies rise in general price levels.
3. Employment Generation
Focuses on unemployment and job creation.
4. Economic Growth
Increase in production and national income.
5. Monetary Policy
Central bank controls money supply and interest rates.
6. Fiscal Policy
Government uses taxation and expenditure to control the economy.
7. Balance of Payments
Studies a country’s international trade and payments.
One-line Definition
“Macroeconomics studies the overall economy including inflation,
unemployment, national income, and economic growth.”
UNIT 3
Basic Principles of Microeconomics
Microeconomics studies the behavior of individual consumers, firms, and
markets.
Principles of Microeconomics
1. Law of Demand
When price increases, demand decreases and vice versa.
2. Law of Supply
Higher price leads to higher supply.

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3. Utility Maximization
Consumers try to maximize satisfaction from limited income.
4. Profit Maximization
Firms aim to earn maximum profit.
5. Opportunity Cost
Choosing one option means sacrificing another.
6. Marginal Analysis
Decisions are made based on additional cost and additional benefit.
7. Price Mechanism
Prices are determined by demand and supply.
One-line Definition
“Microeconomics studies individual economic units such as consumers, firms,
and markets.”
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Basic Principles of Macroeconomics
Macroeconomics studies the economy as a whole.
Principles of Macroeconomics
1. National Income Determination
Measures the total income of a country.
2. Inflation and Price Stability
Studies rise in general price levels.
3. Employment Generation
Focuses on unemployment and job creation.
4. Economic Growth
Increase in production and national income.
5. Monetary Policy
Central bank controls money supply and interest rates.
6. Fiscal Policy
Government uses taxation and expenditure to control the economy.

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7. Balance of Payments
Studies a country’s international trade and payments.
One-line Definition
“Macroeconomics studies the overall economy including inflation,
unemployment, national income, and economic growth.”
Debt Market – Meaning
The debt market is a financial market where debt instruments like bonds,
debentures, and government securities are bought and sold.
In this market, companies and governments borrow money from investors and
pay interest in return.
Debt market
1. Face Value
Face value is the original value of a bond printed on the certificate and repaid at
maturity.
Example
If a bond is issued for ₹1,000, then ₹1,000 is the face value.
Simple Meaning
Original value of the bond.
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2. Coupon Rate
Coupon rate is the fixed interest rate paid on the face value of a bond.
Formula
\text{Coupon Rate} = \frac{\text{Annual Interest}}{\text{Face Value}} \times
100
Example
A ₹1,000 bond paying ₹80 yearly interest has an 8% coupon rate.
Simple Meaning
Interest rate paid by the bond.
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3. Maturity
Maturity is the date on which the bond issuer repays the principal amount to
investors.
Example
A 5-year bond matures after 5 years.
Simple Meaning
Ending date of the bond.
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4. Principal
Principal is the original amount invested or borrowed.
Example
If an investor buys a bond for ₹1,000, then ₹1,000 is the principal.
Simple Meaning
Original invested amount.
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5. Redemption of a Bond
Redemption means repayment of the bond amount by the issuer at maturity.
Example
At maturity, the company repays ₹1,000 to the bondholder.
Simple Meaning
Repayment of bond amount.
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6. Holding Period Return (HPR)
Holding period return is the total return earned from holding an investment over
a period.
Formula
\text{HPR} = \frac{\text{Income} + \text{Price Change}}{\text{Initial
Investment}} \times 100
Simple Meaning

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Total return earned during holding period.
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7. Current Yield
Current yield shows the annual return based on the current market price of the
bond.
Formula
\text{Current Yield} = \frac{\text{Annual Interest}}{\text{Market Price}} \times
100
Simple Meaning
Return based on current bond price.
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8. Yield to Maturity (YTM)

Yield to maturity is the total return an investor earns if the bond is held until
maturity.

Simple Meaning
Total expected return till bond maturity.
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9. Duration
Duration measures the sensitivity of bond price to interest rate changes and
also indicates the average time to receive cash flows.
Simple Meaning
Measures interest rate risk of a bond.
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10. Modified Duration
Modified duration measures how much the bond price changes when interest rates
change.
Simple Meaning
Shows percentage change in bond price due to interest rate change.
Equity market
1. Face Value
Face value is the original value of a share decided by the company at the time of
issue.
Example
If a share is issued at ₹10, then ₹10 is the face value.

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Simple Meaning
Original value of the share.
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2. Book Value
Book value is the value of a company’s assets after deducting liabilities.
Formula
\text{Book Value} = \text{Total Assets} - \text{Total Liabilities}
Simple Meaning
Net value of the company according to books/accounts.
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3. Market Value
Market value is the current price at which a share is traded in the stock market.
Example
If a share trades at ₹500 in the market, then ₹500 is its market value.
Simple Meaning
Current trading price of the share.
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4. Replacement Value
Replacement value is the cost required to replace the company’s assets at current
market prices.
Simple Meaning
Current cost to replace company assets.
---
5. Intrinsic Value
Intrinsic value is the true or actual value of a share based on company
fundamentals.
Simple Meaning
Real worth of the share.
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6. Market Capitalization
Market capitalization is the total market value of all outstanding shares of a
company.

Formula

\text{Market Capitalization} = \text{Market Price per Share} \times \text{Total

Outstanding Shares}

Example

If a company has 1 lakh shares and each share costs ₹100, market capitalization
= ₹1 crore.

Simple Meaning

Total market value of the company’s shares.

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7. Enterprise Value (EV)

Enterprise value is the total value of a company including debt and excluding
cash.

Formula

\text{Enterprise Value} = \text{Market Capitalization} + \text{Debt} -

\text{Cash}

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Simple Meaning

Total value of the business including debt.

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8. Earnings – Historical, Trailing, and Forward

Historical Earnings

Past earnings already earned by the company.

Simple Meaning: Previous profits of the company.

Trailing Earnings

Recent 12 months earnings of the company.

Simple Meaning: Latest past earnings.

Forward Earnings

Expected future earnings of the company.

Simple Meaning: Predicted future profits.

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9. Earnings Per Share (EPS)

EPS shows profit earned for each share.

Formula

\text{EPS} = \frac{\text{Net Profit}}{\text{Number of Equity Shares}}

Simple Meaning

Profit earned per share.

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10. Dividend Per Share (DPS)

Dividend per share is the dividend paid for each equity share.

Formula

\text{DPS} = \frac{\text{Total Dividend}}{\text{Number of Equity Shares}}

Simple Meaning

Dividend received for each share.

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11. Market Value vs Intrinsic Value

Market Value Intrinsic Value

Current stock market price Actual or true value of share

Changes daily based on demand and supply Based on company fundamentals
Influenced by market sentiment Determined through analysis

Simple Meaning

Market Value: Price shown in stock market

Intrinsic Value: Real worth of the share based on analysis

Unit 4
Company Analysis – Meaning
Company analysis is the process of evaluating a company’s financial
performance, management, operations, strengths, and future growth potential for
investment decisions.
Types of Company Analysis
1. Qualitative Analysis
Qualitative analysis studies the non-financial aspects of a company.
Includes
Management quality
Brand image

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Business strategy
Employee relations
Company reputation
Purpose
To understand the overall quality and future potential of the company.
Simple Meaning
Analysis based on quality and non-financial factors.
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2. Quantitative Analysis
Quantitative analysis studies the financial and numerical aspects of a company.
Includes
Sales
Profit
EPS
Financial ratios
Balance sheet figures
Purpose
To measure the financial performance of the company.
Simple Meaning
Analysis based on numbers and financial data.
Qualitative dimensions

Cash Flow – Meaning

Cash flow refers to the movement of cash into and out of a business during a
specific period.
It shows how much cash the company receives and spends.
Example
Cash received from sales = Cash inflow
Salary paid = Cash outflow

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One-line Definition
“Cash flow is the movement of cash in and out of a business.”
Importance of Cash Flow
Helps maintain daily business operations
Shows the liquidity position of the company
Helps in financial planning
Indicates ability to pay debts and expenses
Useful for investment decisions
Helps measure financial health of the company
Assists management in controlling cash usage

Balance Sheet – Meaning

A balance sheet is a financial statement that shows the assets, liabilities, and
capital of a business at a particular date.
It shows the financial position of the company.
One-line Definition
“A balance sheet is a statement showing the financial position of a business by
listing assets, liabilities, and capital on a specific date.”
Need / Importance of Balance Sheet
Shows the financial position of the company
Helps know assets and liabilities
Useful for investors and creditors
Helps in financial analysis and decision-making
Measures business stability and solvency
Helps compare company performance
Important for loans and investments

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Profit and Loss Account – Meaning
A Profit and Loss Account is a financial statement that shows the profit earned or
loss incurred by a business during a particular accounting period.
It records all revenues and expenses of the business.
One-line Definition
“A profit and loss account is a statement showing the revenues, expenses, profit,
or loss of a business for a specific period.”
Need / Importance of Profit and Loss Account
Helps determine profit or loss
Shows business performance
Helps control expenses
Useful for decision-making
Helps investors and management analyze profitability
Assists in financial planning
Helps compare performance between years

Historical Business
Based on past performance
Uses previous financial data
Shows past sales and profits
Based on actual results
Helps analyze company stability
More reliable and factual
Uses past balance sheet and profit & loss account
Future Business
Based on future expectations

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Uses forecasts and estimates
Shows expected growth and profits
Based on predictions
Helps identify future opportunities
More uncertain and risky
Uses future plans and market expectations
Qualitative Dimensions

1. Introduction

1. Gives overall idea about the company

2. Explains nature of business

3. Helps understand company background

4. Includes company history and objectives

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2. Understanding Business and Business Models

1. Explains how the company earns revenue

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2. Identifies products and services

3. Shows target customers and market

4. Helps understand business operations

5. Indicates company growth potential

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3. Competitive Advantage

1. Shows strengths over competitors

2. Helps maintain market position

3. Increases profitability and growth

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4. Can be through brand, technology, or quality

5. Creates long-term business success

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4. Quality of Management

1. Measures efficiency of company management

2. Good management improves performance

3. Helps proper decision-making

4. Increases investor confidence

5. Important for future growth

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---

5. Pricing Power and Sustainability

1. Ability to increase product prices without losing customers

2. Helps maintain profits during inflation

3. Indicates strong brand value

4. Sustainability ensures long-term business survival

5. Supports stable growth and earnings

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6. Organization Structure

1. Shows hierarchy and management system

2. Defines roles and responsibilities

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3. Helps smooth business operations

4. Improves coordination and communication

5. Increases efficiency in decision-making

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7. Critical Business Drivers

1. Factors that influence company growth and profit

2. Includes sales, demand, technology, and market trends

3. Helps identify business success factors

4. Important for forecasting future performance

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5. Affects company value and investment decisions
Unit 5
1. Dividend

Meaning

Dividend is the portion of profit distributed by a company to its shareholders.

Example

Infosys pays ₹20 dividend per share to shareholders.

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2. Rights Issue

Meaning

Rights issue is the offer of new shares to existing shareholders at a discounted

price.

Example

A company offers 1 new share for every 5 existing shares held.

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3. Bonus Issue

Meaning

Bonus issue means free additional shares given to existing shareholders from
company reserves.

Example

A 1:1 bonus issue means investor gets 1 extra share for every 1 share held.

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4. Stock Split

Meaning

Stock split means dividing existing shares into smaller units to reduce market
price per share.

Example

In a 1:2 split, 1 share becomes 2 shares.

Simple Example

1 share worth ₹1,000 becomes 2 shares worth ₹500 each.

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5. Share Consolidation

Meaning

Share consolidation means combining smaller shares into fewer larger-value

shares.

Example

In a 2:1 consolidation, 2 shares become 1 share.

Simple Example

2 shares worth ₹50 each become 1 share worth ₹100.

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6. Merger and Acquisition

Merger – Meaning

Two companies combine to form a single company.

Example

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Vodafone Idea was formed through merger.

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Acquisition – Meaning

One company purchases another company.

Example

Facebook acquired Instagram.

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7. Loan Restructuring

Meaning

Loan restructuring means changing loan terms to make repayment easier.

Changes may include

Lower interest rate

Extended repayment period

Reduced installments

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Example

A bank increases loan repayment time from 5 years to 10 years.

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8. Buyback of Shares

Meaning

Buyback means a company repurchases its own shares from shareholders.

Example

Tata Consultancy Services buys back shares from investors.

Purpose

Increase share value

Reduce number of shares in market

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9. Delisting of Shares

Meaning

Delisting means removing a company’s shares from the stock exchange.

Example

A company voluntarily removes its shares from trading in stock market.

Types

Voluntary delisting

Compulsory delisting

Simple Meaning

Shares can no longer be traded on stock exchange.

Fundamentals of Risk and Return

Meaning

Risk and return are the basic concepts of investment.

Risk means the possibility of loss in investment.

Return means the profit or income earned from investment.

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Relationship Between Risk and Return

Higher risk usually gives higher return, and lower risk gives lower return.

Example

Shares → High risk, high return

Government bonds → Low risk, low return

One-line Definition

“Risk is the possibility of loss, while return is the gain earned from investment.”

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Risks in Investments

1. Market Risk

Risk caused by overall market fluctuations.

Example

Share prices fall due to economic slowdown.

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---

2. Credit Risk

Risk that borrower may fail to repay money.

Example

Company unable to pay bond interest.

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3. Interest Rate Risk

Risk caused by changes in interest rates.

Example

Bond prices fall when interest rates rise.

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4. Inflation Risk

Risk that inflation reduces purchasing power of returns.

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Example

Investment return is lower than inflation rate.

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5. Liquidity Risk

Risk of not being able to sell investment quickly.

Example

Difficulty selling property immediately.

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6. Business Risk

Risk arising from company operations and performance.

Example

Company faces losses due to poor management.

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7. Political Risk

Risk due to government policy changes or political instability.

Example

Tax policy changes affecting business profits.

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Behavioural Biases Influencing Investment

Meaning

Behavioural biases are emotional and psychological factors that affect investment
decisions.

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Types of Behavioural Biases

1. Overconfidence Bias

Investors believe they are always correct.

Example

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Taking excessive risk thinking profits are guaranteed.

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2. Herd Behaviour

Investors follow others without proper analysis.

Example

Buying shares because everyone else is buying.

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3. Loss Aversion

Fear of loss influences decisions more than profit.

Example

Holding loss-making shares for too long.

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4. Anchoring Bias

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Investors depend too much on initial information.

Example

Believing a share must return to old price.

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5. Emotional Bias

Decisions are made based on emotions instead of analysis.

Example

Selling shares in panic during market fall.

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One-line Definition

“Behavioural biases are psychological factors that influence investor decisions

and market behaviour.”

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