Security

analysis and
Portfolio
Management
FINANCE
Introduction
to
Investment
MODULE 1
INVESTMENT
Investment = Allocation of money/resources with expectation of future
income or profit.
“Making your money work for you.”
Investment may be defined as “Investment means scarifying some
money value in the present with the expectation of making gain in the
future.”

“Savings is keeping money safe, investment is making money grow.”

“Savings protects you today, investments secure your tomorrow.”
•
 What is investing?

Investing is

Committing money Committing time Committing energy

For a Future
Benefits
[Link]
Return : The return Safety :Certainty of
may be characterized return of capital
by the yield plus without loss of money
capital appreciation or time.

Characteristics
of Investment
Liquidity : Investment
Risk: Loss of capital, which is easily
delay in repayment of saleable or marketable
capital, Variability of without loss of money
return & without loss of time
Types of investment
•Traditional investment •Alternative investment
Bonds Hedge fund
Stocks Private equity
Mutual fund Venture capital
Fixed deposit Collectible items
Real estate
Traditional investment
Investing in well-known financial products falls into the category of
traditional investments.
These include bonds, shares, real estate etc. These are categories which are
quite popular among investors as active investment strategies to make your
money grow.
Bond
A bond is a fixed income investment in which an investor loans money to an
entity (typically corporate or governmental) which borrows the funds for a
defined period of time at a variable or fixed interest rate.
It will be considered as safe but at the same time the interest rate is low.
Central govt bonds are known as govt/sovereign debt
State govt bonds are known as municipal bond
(masala bond- Kerala govt registered in the Landon stock exchange)
Stock
Stocks or equity are shares that are issued by companies and are bought by the general public.
• This offers an avenue to companies to raise funds. Stocks entitle a customer ownership of a
company.
• Shares, stocks and equity all imply the same thing. Shares are one of the most popular
investment avenues in the world.
• This is because the returns offered by stocks is generally higher than any other financial
instrument. However, to balance out the high return associated with stocks, the risk associated
with these products is also quite high.
• Any business may issues different types of shares based on the financial urgency and need.
In exchange for the money, shareholders are issued Stock certificates.
• Stocks are mostly divided into two basic types, common stocks and preferred stocks.
Fixed deposit
As the name itself indicates, fixed deposits are financial instruments that are
one of the oldest and safest ways to save money.
• These are not necessarily active investment tools, but are rather a passive
way to save and earn returns.
• A fixed amount of money is kept aside with a financial institution for a fixed
number of days or months or years.
• In turn, interest is earned on this money. The rate of interest differs with
the deposit tenure and also with the banking entity
Real estate
• Property rates are soaring with every passing day which has made real
estate a hot investment avenue for investors.
• Buying, selling and leasing of property offers substantial returns to
investors.
• Appreciation of property makes real estate a good investment tool.
• This has made these places hot hubs for real estate investors.
• Most investors take loans from banks to purchase real estate and then
lease out or sell the same property to enjoy returns offered due to
appreciation in price of the property.
Mutual fund
• Mutual Funds are financial instruments that are professionally managed and that
invest money on behalf of any investor, in different securities.
• These mutual funds are classified into various types based on the type of
securities that they invest in.
• Some of the most popular mutual fund types are balanced funds, stock funds,
open-ended funds etc.
• These funds are classified based on their percentage allocation in different
securities.
• So, an equity fund invests purely is equity and is a high risk high return product
while a debt fund invests purely in debt and money market instruments and is
hence a low risk low return financial product.
Alternative Investments

• Alternative Investments are those that are not regular investments like stocks, bonds
etc.
• These are investments made in order to acquire jewelry, precious metals etc. which are
expected to yield returns in future.
• Hedge funds, some real estate types, venture capital and derivatives also form a part of
alternative investment.
• Alternative investments are so called due to their non-traditional as well as complex
nature. Also, another distinguishing feature of alternative investments is relatively low
liquidity and well as very high minimum investment limits.
• While a common investor may not access alternative investments like hedge funds or
derivatives due to their complex nature, others like gold and real estate are available to
even the common man.
Hedge Funds
• These can be understood as a professionally managed private investment
company or partnership structure.
• High network individuals and institutions can only invest
Non listed private equities are available
High risk and high return
• However, they are characterized by high fees as well as low liquidity. It is seen that
managers of hedge funds generally have a personal stake in the fund
Domestic hedge fund ,Offshore hedge fund , fund of fund
Private Equity

• Private equity is trading in shares of an operating company that is not

publicly listed and whose shares are not available on the stock market.
•Institutional investors employ various strategies to indulge in private
equity trading.
• Private equity is popular since it offers diversification of financial portfolio
by allowing investment in avenues that are not tightly coupled to normal
investments.
Venture Capital
• Venture Capital is one of the most popular investment strategies currently
being deployed by investors in the Indian start-up scene.
• The idea behind this investment strategy is to invest substantial capital in a
budding company in return for stocks of the same.
• This is done with companies who are either in their initiation phase or in
their growth phase.
• Venture capitalism is generally based on ideas that find substance with the
investors or any new technology that the investors feel might take the
market by storm in future.
 Collectible items
• Collecting items that have substantial value and those that have historical and artistic
significance is one of the most difficult types of alternative investments.
• This requires knowledge of the article that you are purchasing.
• Mostly, collectibles like stamps, jewelry, boats, planes, art works etc. tend to appreciate in
value and are considered good and profitable assets to own. The value of artifacts is
generally expected to appreciate and keep pace with inflation and hence collectibles make a
good form of alternative investment.
• There are a few more alternative investment instruments available in the financial world.
However, their use is limited since these are more complex products and are hence not
considered by the common investor.
• Seasoned investors and professional investors tend to consider these alternative
investment strategies to increase wealth.
✓ Speculation is an investment
approach in which the investor
aims to buy or sell stocks,
currencies, or other assets solely
to make a quick profit..
✓ In such cases, the investor is
known as a speculator.
✓ In most cases, speculators are
not individuals that people
admire.
✓ Speculative Investments
generally have a significant risk
of loss
✓ However, there is also a good
chance of making lots of money
 Bull speculator
A bull is an optimistic speculator.
He expects a rise in the price of
securities in which he deals.
Therefore, he enters into purchase
transactions with view to sell them at
a profit in the future.
If his expectation becomes a reality,
he shall get the price difference
without actually taking delivery of the
securities.
They rigging the market to invest in
the market
Bear speculator

A bear is the pessimistic

speculator who expects a
sharp fall in the prices of
certain securities.
He enters into selling
contracts in certain
securities on a future
date.
If the price of the
security falls as he shall
get the price difference.
 Stag speculator

A stag is considered as a cautious

investor when compared to the bulls
or bears.
He is a speculator who simply applies
for fresh shares in new companies
with the sole object of selling them at a
premium or profit as soon as he gets
the shares allotted.
 Lame Duck
When a bear is unable to meet his
commitment immediately.
Lame Duck is a type of speculator
who is on the verge of going
bankrupt because of his/her bad
trades.
In most cases, a lame duck is a bear
speculator who is unable to get the
borrowed securities at a lower price
and the person is said to be
struggling like a lame duck.
 Gambling is the practice or act
of playing games of chance for a
stake. In most cases, the stake is
money.
However, if the gambler has run
out of money, the stake could
include any possession. It is the
noun of the verb to gamble.
The term means the same
as betting or wagering. We call
somebody who bets a gambler.
Gamblers bet on something that
results either in a gain for them,
or a loss.
“Gambling is taking part in a game during which you risk money, or something of monetary
value, in order to win money or a prize.”
Security Market

Market in which securities are issues, purchased by investor, and subsequently

transferred among investors.
When financial assets are transferred are corporate securities and govt securities
,the mechanism of transfer is known as security market.
Hence, on the basis of maturity period of securities traded in the market , The
security market segmented into two types:
Money market
Capital market
Short-term
financial assets Money market
with maturities of
one year or less.

Market for Treasury

bills , commercial bills,
commercial paper
certificate of deposit
etc are the short term
securities traded in the
money market .
The capital market
is the source of
long-term funds for Capital market
business and
industry.

Equity shares,
Preference shares , Market segment
Debentures, and where securities with
bonds are the long- maturities of more
term securities than one year are
traded in the capital bought and sold.
market
Types of financial markets

* The market mechanism for the buying and selling of new issues
of securities is known an Primary market. It is also termed as
New issues market because it deals new issues of securities.

*The secondary market deals with securities which have already been
issued and are owned by investors, both individual and institutional.
The buying and selling of securities already issued and outstanding
take place in stock exchanges.
 Primary market/New issue market
▪ When a new company floated, its shares are issued to the public in the primary market
as an Initial Public Offer(IPO)
▪ If the company subsequently decides to include debt its capital structure by issuing
bonds or debentures ,these may also be floated in the primary market.
▪ Similarly ,when a company decides to expand its activities using either equity finance or
bond finance, the additional shares or bonds may be floated in the primary market.
▪ Small and medium scale business ,enter the primary market to raise the money from
the public.
▪ The primary market (NIM) does not have a physical structure for form.
▪ Can be directly bought from the shareholders
What are functions of primary market :
Methods of floating new issue
Right issue
A Rights Issue is a method by which a company raises additional capital by
offering new shares to its existing shareholders, in proportion to their
current shareholding, at a discounted price compared to the market price.
It is called "rights issue" because shareholders get the right (but not
obligation) to buy these additional shares before they are offered to the
public.
Suppose you own 100 shares of a company.
The company announces a 1:5 rights issue at ₹100 per share (market price = ₹150).
This means for every 5 shares held, you can buy 1 new share at ₹100.
Since you hold 100 shares → you are entitled to 20 new shares (100 ÷ 5).

▪Subscribe fully (buy all 20 shares at discount),

▪Partially subscribe,

▪Sell your rights to another investor,

▪Ignore (but your ownership % will dilute).

Pros and cons assignment

Private placement
Shares issued by a company to a selected group of investors, instead of inviting
public at large to subscribe its shares is known as private placement
Sec.42 of Companies Act, 2013 defines Private Placement as, “any offer securities
or invitation by a company to subscribe securities to a selected group of persons
through issue of a private placement offer letter".
Private companies wholly and public companies partially issue their securities
private placement.
A company whether private or public may make private placement securities
through issue of a 'Private Placement Offer Letter (PPOL)'..
3 types of private placement
Preferential Allotment :
Securities (shares, debentures, etc.) issued to a select group of investors
chosen by the company.
Investors could be promoters, strategic partners, or financial institutions.
Example: A company issues shares to a foreign investor for technology
partnership.
Qualified Institutional Placement (QIP):
Available only for listed companies in India.
Securities issued to Qualified Institutional Buyers (QIBs) like mutual
funds, banks, insurance companies, FIIs.
Advantage: Faster and less regulatory burden compared to FPO.
Venture Capital / Private Equity Placement (common for unlisted
companies):
Unlisted startups issue shares to venture capitalists or private equity
investors.
Provides growth funding before IPO.
Example: Flipkart raised funds from Tiger Global via private placement
before listing.
 Book building
Book building is a price discovery mechanism in which the price of an IPO or
other security is determined by the demand and supply conditions prevailing
in the market.
The lead manager known as “Book runner” determine the level of interest of
investors at various price levels and obtain commitments.
Price Band Announcement
◦ Company announces a range (e.g., ₹100 – ₹120 per share).
Bidding by Investors
◦ Investors place bids for shares, mentioning the quantity and price they are willing
to pay.
◦ Example: One investor may bid 500 shares at ₹110, another 1,000 shares at ₹120.
Collection of Bids
◦ Bids are collected in an order book maintained by the lead manager/merchant
banker.
Price Discovery
◦ Based on demand, the company decides the cut-off price at which maximum shares
can be allotted.
Allotment of Shares
◦ Shares are allotted to investors at the cut-off price.
The stock market is a
platform where publicly
traded companies' shares
are bought and sold.
It's a way for investors to
buy a portion of ownership
in a company, hoping to
profit from its growth and
profitability
Organised stock exchange
An organized stock exchange is a regulated marketplace where
securities (shares, bonds, debentures, derivatives, etc.) are listed, bought,
and sold under the supervision of a governing body and according to legal
rules.
Examples in India: BSE (Bombay Stock Exchange), NSE (National Stock
Exchange).
Global examples: NYSE (New York Stock Exchange), LSE (London Stock
Exchange), Tokyo Stock Exchange.
Functions of stock Exchanges

1. Providing Liquidity and Marketability

• Investors can easily buy and sell securities at any time.
• Ensures securities are always convertible into cash.
2. Price Discovery
• Stock exchanges help in determining the fair market price of securities based
on demand and supply.
• Book-building and continuous trading ensure transparent price discovery.
3. Mobilization of Savings
• Acts as a channel for household savings to flow into productive
investments (companies, infrastructure, etc.).
4. Encouraging Capital Formation
• By providing companies with a platform to raise funds through public
issues, stock exchanges encourage industrial and economic growth.
5. Protecting Investor Interests
• Regulated by SEBI in India (or respective national regulators).Ensures
companies follow disclosure norms, preventing fraud and protecting
investors.
6. Providing Information and Transparency
• Stock exchanges publish price movements, trading volumes, financial
reports, and company disclosures to keep investors informed.
Types of investors
Retail Individual Investor (RII):
A Retail Individual Investor (RII) is a small investor who applies for shares worth
up to ₹2 lakhs in an IPO. At least 35% of IPO shares are reserved for them, making
them a vital part of the primary market.
Who invest their own money, often through online brokerages or robo-advisors.
They typically make investment decisions independently, and their investment
goals and risk tolerance can vary widely.
Retail investors often engage in investing as a means of growing their personal
savings or achieving specific financial objectives.
Qualified Institutional Buyer (QIB):
They are institutional investors in the securities market. Financial
institutions such as banks, mutual funds, insurance companies, foreign
portfolio investors, provident funds, scheduled commercial banks,
pension funds etc. come under this category.
They manage wide range of asstes like equities , fixed income , real
estate , private equity ,hedge fund etc.
Non Institutional Investor (NII) :or accredited investors
In other words, resident Indians, HUFs, companies, NRIs, societies and trusts
whose application size exceeds * 2 lakhs are included under this category.
They are also called High Networth Investors (HNIs).
Entities such as certain types of corporations, partnerships, and trusts with
total assets exceeding $5 million are also considered accredited investors. It's
important to note that regulations and criteria for accredited investors may
vary by jurisdiction. For the most current and specific criteria, it is advisable to
consult the relevant regulatory authorities or legal counsel.
Angel investors :
They are high-net-worth individuals who provide funding to startups and early-
stage companies in exchange for ownership equity or convertible debt. They
often offer not only financial support but also mentorship, expertise, and
valuable networks to the companies they invest in. Angel investors play a
crucial role in providing capital to entrepreneurs and helping them grow their
ventures during the critical early stages of development.
Venture capitalists
Professionals who invest in startups and early-stage companies, often
providing guidance and mentorship in addition to capital.
Venture capitalists manage funds pooled from various sources, including
institutional investors, high-net-worth individuals, and other entities.
Venture capitalists usually make larger investments, as they manage
funds that are significantly larger than what individual angel investors can
provide.
Thank you