20-09-2025

Syllabus of Unit 1
MBA II (Semester 3)
• Introduction and Concepts
2024 Pattern • Investment: Meaning, nature and objectives
Security Analysis and • Investments vs Speculation & Gambling
• Investment Process
Portfolio Management • Investment Environment
(SE FIN - 03) • Investment avenues: Marketable and Non marketable
financial assets
• Portfolio Management: Meaning, attributes,
significance
Unit 1: Introduction to • Process of Portfolio Management
Investment • Portfolio manager and his role

Investment – Concept and Meaning Investment – Concept and Meaning

• Investment means employment of funds with an • Three concepts of Investment
objective of achieving either additional income or • Economic Investment (net addition to capital stock of
growth in its value or both society consisting of goods and services used in
production of other goods and services)
• Investment is defined as ‘commitment of funds made
in the expectation of some positive rate of return’ o Land, Building, Plant, Machinery, Technology, etc.
• Commitment of savings in assets (financial or • Investment in general terms (vehicle, gold and silver,
physical) by postponing current consumptions real estate, AC, mobile, etc.)

• Involve sacrificing present value in anticipation for • Financial Investment (securities, assets, instruments)
uncertain return / rewards / benefits in future o Generate positive returns (gains) over long-term
period of time
• Right amount, right timing, right type of asset
o Returns in regular income or capital appreciation

Characteristics of Investments Types of Investors

• Systematic, Scientific and long term process • Individual Investors: Large in number but investible
amount are comparatively small / limited
• Continuous, Rationale and Logical process
o Lack skills, knowledge and resources for detailed
• Well-planned evaluation and analysis before investing
• Detailed analysis o Includes professional investors, HNIs, etc.
• Trade-off between risk and return • Institutional Investors: Banks, NBFCs, Mutual Funds,
investment companies, insurance companies, etc.
• Safety of principal
o Organizations with huge surplus funds to invest in
• Liquidity (easily sell without loss of time or value)
various profitable avenues
• Budget (capacity) o Few in number, but large investible resources
• Protection against inflation o Engage professional fund managers for analysis
• Types of investors: individual v/s institutional o Better chance to maximize returns and minimize risk

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Factors Influencing for Investments Investment v/s Speculation

• Speculation is short term
• Increase in investing population
• Based on expectations & judgement (not systematic)
• Increase in income levels and higher savings
• Profits earned from subsequent changes in prices
• Tendency of people towards investments • Involve high risk. Hence, returns are more uncertain
• Availability of investment opportunities • Speculator takes higher risk for higher return
• Decision taken only when chances of success high
• Increase in investment related information
• Risk already exists, question is who will bear risk
• Increase in life expectancy • Speculator is interested in capital gain in near future
• Regulations & legal environment of financial system against capital appreciation in long term
• Frequent buying and selling transactions
• Protection from inflation
• Speculation is more risky than Investment

Investment v/s Gambling Investment Process (Steps)

• Gambling is opposite of Investment • Setting investment policy
• Very short term duration • Asset mix decision
• High risk followed by high expectations of returns • Formulation of portfolio strategy
• Unplanned, non-scientific, un-rational • Perform security analysis
• No knowledge of nature of risk involved • Portfolio construction
• Based on suggestions, tips, intuitions, rumours • Portfolio execution
• Thrill, fun, enjoy, excitement, pleasure, adventure • Portfolio evaluation
• Person keeps on taking higher risk without • Portfolio revision
demanding for any compensation
• Artificial / unnecessary risk is created purposefully

Investment Environment Investment Avenues: Marketable

• Investment Environment must be favourable so that • Marketable securities can be bought and sold quickly
investors can invest their savings properly through exchanges and markets
• Factors considered for sound investment strategy: • Ownership is easily transferable
o Stable Government and Stable currency • Values / prices are based on pricing in the market
o Foresight of public financial institutions • Considered liquid as it can be easily converted to cash
o Development of corporate sector • Following are examples of marketable securities:
o Temperament and psychology of investors 1) Securities of Public Listed Company (Equity Shares,
o Types of investment media and channels Preference Shares, Debentures, Bonds)
o Sources of investment information 2) Government Securities 3) PSU Bonds
o Economic environment of country 4) Mutual Funds
o Network of banks & non-banking financial institutions 5) Money Market Instrument: T-Bill, Commercial Papers

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Investment Avenues: Non-Marketable Portfolio Management: Meaning

• Securities cannot be bought and sold in market • Investor tend to invest savings in group of various
• Independent of market fluctuations securities (not in one single security / instrument)

• Harder to transfer ownership • Such group of securities is called as Portfolio

• Considered illiquid & cannot be converted to cash easily • Risk and return characteristics of portfolio differ from
those of individual securities
• Following are examples of non-marketable securities:
• Portfolio Management deals with analysis of individual
1) Securities (shares and bonds) of Private Companies securities as well as with theory & practice of optimally
2) Deposits in banks, non-banking financial institutions combining securities into portfolio
and Corporate Deposits • Optimal portfolio help investor to reduce risk and earn
3) Deposits in investment company 4) Provident Fund better returns
5) Pension Fund 6) Life Insurance • Phases of PM: Security Analysis, Portfolio Analysis, Port.
Selection, Portfolio Revision and Portfolio Evaluation
7) Post Office deposits & savings 8) Govt. Bonds

Significance of Portfolio Management Key Elements of Portfolio Management

• Minimization of risk A) Asset Allocation
• Distribute investments across various assets & securities
• Enhance returns and capital appreciation
• Aim is to balance risk and return as per financial goals
• Maximization of and management of wealth and risk tolerance
• Develop and execute proper investment strategy • Protection against significant loss in any one asset class
B) Diversification
• Effective tax planning (reduce tax liability)
• Closely linked to asset allocation but focus on spreading
• Diversify investments across different asset classes, investments within each asset class
sectors and regions • Example: When investing in shares, choose shares from
different sectors
• Reduces risk as under-performance of one business not
have major impact on entire portfolio

Key Elements of Portfolio Management Key Elements of Portfolio Management

C) Security Selection E) Monitoring and Evaluation:
• Involve choosing specific investment security within • If required, adjust portfolio to improve performance or
each asset class based on thorough research & analysis adapt to changes in market or circumstances
• Consider various factors for making decisions like
company’s financial health, market trends, growth
potential, etc.
D) Rebalancing
• With time, investment value & asset allocation changes
• It the process of adjusting portfolio to return to its
intended allocation
• Rebalancing involves selling assets with increased value
and purchase assets having decreased value

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Process of Portfolio Management (5 Stages) Process of Portfolio Management (5 Stages)

A) Security Analysis B) Portfolio Analysis
• Detailed & in-depth analysis of available securities • Each individual security has risk–return characteristic
• Investor aims to buy underpriced securities and sell
overpriced securities • Each portfolio has its own risk – return characteristic
which is not just aggregate of individual security
• 3 alternate approaches of security analysis
• Fundamental Analysis: determine true worth • Risk and return of each portfolio has to be calculated
(intrinsic value of security based on fundamentals) mathematically and expressed quantitatively
• Technical Analysis: security price movements are • Portfolio Analysis consists of identifying the range of
systematic and exhibit certain consistent patterns possible portfolios that can be constituted from a
• Efficient Market Hypothesis: market prices fully and given set of securities and calculating their return
immediately reflect all relevant available information and risk for future analysis

Process of Portfolio Management (5 Stages) Process of Portfolio Management (5 Stages)

C) Portfolio Selection D) Portfolio Revision (cont…)
• Goal is to generate portfolio having highest returns • With time, security once attractive may not be now
at given level of risk (known as efficient portfolio)
• Investor has to revise portfolio considering
• Inputs from portfolio analysis used to identify the developments in market
set of Efficient Portfolio
• Purchase of some new securities and sale some
• From this set of efficient portfolio, Optimal portfolio existing securities from portfolio
has to be selected for investment
• Portfolio revision result in changes in mix of
D) Portfolio Revision securities and its proportion
• Investor has to constantly monitor portfolio to • Portfolio may also revise due to investor related
ensure it continue to be optimal requirements such as availability of funds, change in
• Changes occur daily due to economy and financial risk attitude, need for cash, etc.
markets are dynamic

Process of Portfolio Management (5 Stages) Types of Portfolio Management

E) Portfolio Evaluation A) Active Portfolio Management
• Concerned with assessing performance of portfolio • Portfolio Managers are actively involved (frequently)
over selected period of time in terms of risk & return in process of buying and selling securities
• Involves quantitative measurement of actual return • Aim is to outperform market and secure maximum
realized and risk born by portfolio over the period of profits for individuals
investment • Investment decisions made after adequate market
• Provide mechanism to identify weaknesses in analysis, research and forecast
investment process and improve deficient areas • Take advantage of short term opportunities
• Provide feedback to improve the entire process of • Require in-depth knowledge and understanding of
portfolio management business cycle and market dynamics
• Provide feedback to design better portfolio next
time

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Types of Portfolio Management Types of Portfolio Management

B) Passive Portfolio Management C) Discretionary Portfolio Management
• Aim is to match current market scenario rather than • Portfolio manager has authority to make decisions on
trying to beat the market behalf of investor without seeking prior approval for
every trade
• Goal is to match performance of market index
instead of trying to outperform • Manager creates personalized portfolio based on
financial goals, risk tolerance and time horizon
• Involves investing in diversified portfolio of assets
• Authority like documentation, paperwork and filing, etc.
and holding for long period
• Generally favoured by high-net-worth individuals or
• Preferred by investors willing to opt for low-cost organizations not having time or expertise to manage
strategy, poses reduced risk and effective in long their investments
term
• Advantage is all decision-making is carried out by expert
who eliminates lot of hassle

Types of Portfolio Management Portfolio Manager

D) Non-Discretionary Portfolio Management • Portfolio Managers are investment decision-makers
• Portfolio manager give advice and suggestions to • Devise and implement investment strategy & processes
client and explains advantages and disadvantages of to meet client financial goals, construct and manage
each option portfolios, make decisions on what and when to buy
and sell investments
• However, decision-making authority lies with the
client • Portfolio Manager is the one who helps individuals /
clients to invest in the best available investment plans in
• Client retains control over all investment decisions order to earn maximum guaranteed returns in future
• Explicit approval of client required before any • Manage and handle investment portfolios for clients to
transaction is made ensure they attain financial goals and targets
• Preferred by individuals willing to have more say in • Design tailor made investment solutions for clients that
investment decisions guarantee maximum returns and benefits within a
stipulated time frame

Portfolio Manager Roles and Responsibilities of Portfolio Manager

• Prime duty to suggest and guide client where to invest • Understand, discuss and consult with the clients
and where not to invest • Design customized / suitable investment plan for clients
• Important role in deciding financial objectives, income, • Track performance of portfolio and making necessary
risk tolerance and investment horizon of client adjustments
• Stay updated on market conditions and keep track • Stay transparent and regularly communicate with client
about market changes and guide the individual • Research and analysis for evaluating investment options
accordingly
• Adhere to regulatory compliances and reporting
• Educating investors (provide information & awareness)
• Updated & informed of market fluctuations and changes
• Good decision maker and prompt to finalize best
financial plan for client and invest on his behalf
• Accessible to clients and never ignore them