CHAPTER 1 : INTRODUCTION TO INVESTMENT

Page 1

1.1 MEANING OF INVESTMENT

An investment is an asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth.

To invest is to allocate money (or sometimes another resource, such as time) in the expectation of some benefit in the future. This article concerns the use of the term in finance.

In finance, the expected future benefit from investment is a return. The return may consist of capital gain and/or investment income, including dividends, interest, rental income etc.

Investment generally results in acquiring an asset, also called an investment. If the asset is available at a price worth investing, it is normally expected either to generate income, or to appreciate in value, so that it can be sold at a higher price (or both).

Investors generally expect higher returns from riskier investments. Financial assets range from low-risk, low-return investments, such as high-grade government bonds, to those with higher risk and higher expected commensurate reward, such as emerging markets stock investments.

Investors, particularly novices, are often advised to adopt an investment strategy and diversify their portfolio. Diversification has the statistical effect of reducing overall risk.

Investors famous for their success include Warren Buffett. In March 2013 Forbes magazine, Warren Buffett ranked number 2 in their Forbes 400 list. Buffett has advised in numerous articles and interviews that a good investment strategy is long term and choosing the right assets to invest in requires due diligence.

Edward O. Thorp was a highly successful hedge fund manager in the 1970s and 1980s who spoke of a similar approach. The investment principles of both of these investors have points in common with the Kelly criterion for money management.

Investments are often made indirectly through intermediary financial institutions. These intermediaries include pension funds, banks, brokers, and insurance companies. They may pool money received from a number of individual end investors into funds such as investment trusts, unit trusts, SICAVs etc. to make large scale investments. Each individual investor holds an indirect or direct claim on the assets purchased, subject to charges levied by the intermediary, which may be large and varied.

Approaches to investment sometimes referred to in marketing of collective investments include dollar cost averaging and market timing.

Page 2

Business revolves around the factor of investing; financially, time, in the future and successful investors will generally focus on certain fundamental metrics for their gains. A value investor is aware that when considering the health of a company, the fundamentals associated with it, are a highly influencing factor. They include aspects related to financial and operational data, preferred by some of the most successful investors; for example, Warren Buffett and George Soros. The financial details, such as, earnings per share and sales growth, are essential aids for an investor in determining stocks trading below their worth.

The word investment can be defined in many ways according to different theories and principles. It is a term that can be used in a number of contexts. However, the different meanings of “investment” are more alike than dissimilar.

Generally, investment is the application of money for earning more money. Investment also means savings or savings made through delayed consumption. According to economics, investment is the utilization of resources in order to increase income or production output in the future. An amount deposited into a bank or machinery that is purchased in anticipation of earning income in the long run are both examples of investments.

Although there is a general broad definition to the term investment, it carries slightly different meanings to different industrial sectors.

Investment Definition 

According to economists, investment refers to any physical or tangible asset, for example,

A building or machinery and equipment.On the other hand, finance professionals define an investment as money utilized for buying financial assets, for example stocks, bonds, bullion, real properties, and precious items.

Investment definition according to finance, the practice of investment refers to the buying of a financial product or any valued item with an anticipation that positive returns will be received in the future.

The most important feature of financial investments is that they carry high market liquidity. The method used for evaluating the value of a financial investment is known as valuation.

Definition of investment according to business theories, investment is that activity in which a manufacturer buys a physical asset, for example, stock or production equipment, in expectation that this will help the business to prosper in the long run.

Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in the form of interest, income, or appreciation of the value of the instrument. Investment is related to saving or deferring consumption.

Page 3

An investment involves the choice by an individual or an organization such as a pension fund, after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time.

When an asset is bought or a given amount of money is invested in the bank, there is anticipation that some return will be received from the investment in the future.

Meaning of Investment from different Perspectives:

Investment is a term frequently used in the fields of economics, business management and finance. It can mean savings alone, or savings made through delayed consumption. Investment can be divided into different types according to various theories and principles.

While dealing with the various options of investment, the defining terms of investment need to be kept in mind.

Investment Definition in terms of Economics:

According to economic theories, investment is defined as the per-unit production of goods, which have not been consumed, but will however, be used for the purpose of future production.Examples of this type of investment are tangible goods like construction of a factory or bridge and intangible goods like 6 months of on-the-job training.In terms of national production and income, Gross Domestic Product (GDP) has an essential constituent, known as gross investment.

Investment Definition in terms of Business Management:

According to business management theories, investment refers to tangible assets like machinery and equipments and buildings and intangible assets like copyrights or patents and goodwill. The decision for investment is also known as capital budgeting decision, which is regarded as one of the key decisions.

Investment Definition in terms of Finance:

In finance, investment refers to the purchasing of securities or other financial assets from the capital market. It also means buying money market or real properties with high market liquidity. Some examples are gold, silver, real properties, and precious items.Financial investments are in stocks, bonds, and other types of security investments. Indirect financial investments can also be done with the help of mediators or third parties, such as pension funds, mutual funds, commercial banks, and insurance companies.

Investment Definition in terms of Personal Finance:

According to personal finance theories, an investment is the implementation of money for buying shares, mutual funds or assets with capital risk.

Page 4

Investment Definition in terms of Real Estate:

According to real estate theories, investment is referred to as money utilized for buying property for the purpose of ownership or leasing. This also involves capital risk.

COMMERCIAL REAL ESTATE: Commercial real estate involves a real estate investment in properties for commercial purposes such as renting.

RESIDENTIAL REAL ESTATE: This is the most basic type of real estate investment, which involves buying houses as real estate properties.

Page 5

1.2 Investment Types :

A particular investor normally determines the investment types after having formulated the investment decision, which is termed as capital budgeting in financial lexicon. With the proliferation of financial markets there are more options for investment types.

According to the financial terminology investment means the following:

Purchasing Securities in Money or Capital MarketsBuying Monetary or Paper Financial Assets in Money or Capital MarketsInvesting in Liquid Assets like Gold, Real Estate and Collectibles

Investors assume that these forms of investment would furnish them with some revenue by way of positive cash flow.

These assets can also affect the particular investor positively or negatively depending on the alterations in their respective values. Investments are often made through the intermediaries who use money taken from individuals to invest. Consequently the individuals are regarded as having money.

It is common practice for the particular intermediaries to have separate legal procedures of their own.

Types of Investment :

Capital InvestmentEquity InvestmentLand As InvestmentStock InvestmentRetirement Investment PlanningFinancial Market InvestmentShare Market InvestmentPortfolio InvestmentGold Investment , Investment in GoldBusiness InvestmentReal Estate Investment

Page 6

Capital Investment :

Capital investment is defined as the expenditure that may be incurred by a business organization in order to purchase machineries and other fixed assets. This expenditure is normally beneficial as it lays the foundation for future investments of similar kind.There are several uses of capital investment in the business circle. To start off capital investment primarily suggests the money that may be required for the companies to buy tangible assets like land, buildings or machines. Capital investment also implies the amount of money, which is required to purchase long-term assets besides the amount that is required for daily running of the business.

Capital investment is also known as venture capital in the business circles. An important aspect of capital investment is capital spending.

Capital spending is normally performed for categories that are expected to last for more than a single year.

Equity Investment

The value of the assets being bought with capital spending is supposed to be important as far as the preparation of the cash flow statement is concerned.The basic idea behind any investment is to increase the assets of a particular business unit, be it an individual or a company, has. Any form of capital investment helps the particular investor to increase both the rate and amount of his output.

As per the capital investment plans the companies spend primarily on buying new plants or equipments that may be related to their field of work. Nowadays, the number of investors willing to opt for the medium of capital investment is on the rise.

The phenomenon of working capital is relevant in the context of capital investment as well as determining a company’s operational status. The efficacy of operations of a company is normally inversely proportional to the building up of working capital. Methods like Net Present Value and Internal Rate of Return are employed when the proposals for venture capital investments are judged.

Equity investment refers to the trading of stocks and bonds in the share market. It is also referred to as the acquisition of equity or ownership participation in the company. An equity investment is typically an ownership investment, where the investor owns an asset of the company.In this kind of investment there is always a risk of the investor not earning a specific amount of money. Equity investment can also be termed as payment to a firm in return for partial ownership of that firm. An equity investor, in some cases, may assume some management control of the firm and may also share in future profits.

In order to understand equity investment properly, it is necessary to see the technical and fundamental analysis. The technical analysis of equity investment is primarily the study of price history of the shares and stock market.

Page 7

A fundamental analysis of equity investment involves the study of all available information that is relevant to the share market in order to predict the future trends of the stock market. The annual reports, industry data and study of the economic and financial environment are also included in the fundamental information of equity investment.

Mutual Funds and Segregated FundsMutual funds or other forms of pooled investment measures are equities held by private individuals but managed and governed by prominent management firms. These types of financial holdings allow individual investors to diversify their holdings and avoid potential loss. Segregated funds, on the other hand, are used by large private investors who wish to hold their shares directly rather than in a mutual fund.

The prime advantage in investing in a pooled fund is that it gives the individual access to professional advice through the fund manager. The major disadvantages involved are that the investors must pay a fee to the fund managers and that the diversification of the fund may not be appropriate for all investors. In those cases, the investors may over-diversify by holding several funds, thus reducing the risk.

Land as Investment

Equity investment refers to the trading of stocks and bonds in the share market. It is also referred to as the acquisition of equity or ownership participation in the company. An equity investment is typically an ownership investment, where the investor owns an asset of the company.In this kind of investment there is always a risk of the investor not earning a specific amount of money. Equity investment can also be termed as payment to a firm in return for partial ownership of that firm. An equity investor, in some cases, may assume some management control of the firm and may also share in future profits.

In order to understand equity investment properly, it is necessary to see the technical and fundamental analysis. The technical analysis of equity investment is primarily the study of price history of the shares and stock market.

A fundamental analysis of equity investment involves the study of all available information that is relevant to the share market in order to predict the future trends of the stock market. The annual reports, industry data and study of the economic and financial environment are also included in the fundamental information of equity investment.

Mutual funds or other forms of pooled investment measures are equities held by private individuals but managed and governed by prominent management firms. These types of financial holdings allow individual investors to diversify their holdings and avoid potential loss. Segregated funds, on the other hand, are used by large private investors who wish to hold their shares directly rather than in a mutual fund.

The prime advantage in investing in a pooled fund is that it gives the individual access to professional advice through the fund manager. The major disadvantages involved are that the investors must pay a fee to the fund managers and that the diversification of the fund may not be appropriate for all investors. In those cases, the investors may over-diversify by holding several funds, thus reducing the risk.

Page 8

Stock Investment

The process of stock investment enables the stock traders or investors to trade in securities. Investors can operate individually or under the guidance of investment management companies. The system of stock investment is not devoid of prices and the process involves a considerable amount of risk and uncertainty.

The ones who are most likely to be affected by the harsh nature of the stock investment are the new investors and those who are not wise in their decision making process. It could be assumed safely that stock market investment is definitely not the right option if an investor is interested in making quick money.

While investing in the stock market it is usual for the investors and the traders to be confronted with expenses like the following:CommissionsFees to be Paid for Brokerage and other ServicesTaxes

Every country with a stock exchange has some regulations formed by bodies at the National and State level. These rules and regulations govern the various activities carried out in stock markets. These laws have to be adhered to by all the market participants while executing the transactions.It is also important for the investors and the traders of the stock market to pay the relevant taxes on income as well as dealings that have been instituted by the various legislative bodies. There are some expenses, which are actually additional costs.

The categories in this section are:Electricity Consumption ExpensesOpportunity Cost of Money and TimeInternet Service Provider ExpensesCurrency RiskData and News Agency Services ExpensesFinancial Risk

There are some tested ways of achieving success in stock market investments.

Some of those are listed below:Trading in a Bear MarketDetermining the cut-loss point before entering the tradeCapital preservationFollowing the trends of the stock marketTrading mechanicallyTaking care of losses

Retirement Investment Planning

Retirement investment planning ensures financial security in the post retirement period. The resulting retirement benefits prove to be of great use for retirees. A considerable amount of money should be invested in retirement investment plans. Money must not be withdrawn indiscriminately from retirement accounts.

Page 9

An individual’s various retirement investments must be monitored regularly. Both social security and investment in stocks may contribute to an individual’s retirement. The first step to success in retirement investing is to develop the habit of saving early in life. Next, a sound investment strategy is necessary, one which allows for an amount of risk but also enhances the average annual returns on investment.

Investment in short-term government bonds and government treasury bills are two examples of areas for retirement investment. Investment in stocks can also be an option.

But a major risk associated with stocks is the volatility of returns. Investors should allow themselves at least 5 to 10 years before retirement if they want to look at stocks as a serious retirement investment option. One must be disciplined and focused if one is to receive maximum profits from investment in this arena.

Bonds and T-bills do not lose their value, and hence, can be safe investment options. Income accrued from bond interests are taxable. However, the benefit from these investment plans, which are not tax sheltered, is that with a little amount of prudence, investors can gain a considerable amount of post-tax income.

Annuity is another viable option. This insurance product ensures a fixed amount of money on an investment until the expiry of the annuity contract. The insurance benefits that are received include death benefits and assurance of investment returns to the beneficiaries. The rates of interest associated with annuities are high. They also ensure protection of income throughout the annuity holder’s life.

People can also invest in mutual funds for retirement. Long-term financial goals can be well satisfied from mutual funds. The procedure of investment in mutual funds is quite simple and a mutual fund account should be opened first to carry out the entire process. Such investments are very cost effective. The 401K retirement plan is a good option if employees have the opportunity to take advantage of it. It is an employer sponsored retirement plan.

Financial Market Investment

When investing in the financial market, traders are provided with the opportunity to deal in financial securities, commodities and other freely interchangeable goods at affordable rates of transaction. The prices of these are reflective of effective market speculation. It has been observed that there has been noticeable evolution and an increase in the various financial markets.These markets are making the best of efforts to enhance the factor of liquidity.

The different financial markets that are available at the present time are:Real Estate MarketBond MarketCommodities MarketStock or Equities MarketSpot or Cash MarketForex Market

Page 10

Over-the-counter MarketDerivatives Market

There is an existence of general, as well as specialized financial markets in today’s world. General markets are where a diverse group of commodities are traded, whereas specialized ones are those, which specialize in dealing with only one kind of commodity or good.

The financial markets of today bring buyers with different interests onto the same platform. This process enables them to locate prospective customers and enhances the efficiency of the market operations as a whole.

The main participants of the process of financial market investment are as follows:InvestorsInstitutional InvestorsSpeculators

The following facilities are available with investments in financial markets:Matching Seekers of Capital to its PossessorsRaising of Capital in the Capital MarketsInternational Trade in the Currency MarketsTransferring the Risk in the Derivatives Markets

The term market economy is important in the context of financial market investment. A market economy is primarily one where, the entire economic system has a certain degree of reliance on the transactions carried out between the traders and buyers. Market economy is different from other forms of economy like command economy or non-market economy. A basic example of non-market economy is gift economy.

Share Market Investment

Shares are purchased and sold on the primary and secondary share markets. To invest in the share market, investors acquire a call option, which is the right to buy a share, or a put option, which is the right to sell a share. In general, investors buy put options if they expect prices to rise, and call options if they expect prices to fall.For currency rate exchanges, investors may buy a swap option. The value of a derivative depends on the value of the underlying asset.

The various classifications of derivatives relevant to share market investment are:SwapFutures ContractForward ContractOption Contract

A forward contract is agreements between two parties purchase or sell a product in the future, at a price determined now. This mutual agreement satisfies the profit motive of both the buyer and seller, and the uncertainties and risks of price fluctuations in the future are aborted.A future contract is different from a forward contract in the sense that the former requires the presence of a third party and the commitment for trade is simply notional.

Page 11

Before a share is chosen for investment, a technical analysis of the share is performed. The price and volume of a share over a period of time are tracked and then a business plan is constructed. A fundamental analysis involves a close study of the company associated with the share, and its performance over time. The fundamental analysis is important for the share market investor.

The price levels of a traded share are as follows:Opening Price: This is the price at which the market opens. In other words, it is the price of the first transaction.Closing Price: This is the price at the time of closing of the market or the price of the last trade.Intra-Day High: This denotes the maximum price at which the share was traded in the day.Intra-Day Low: This is the minimum price at which the share traded in the day.

 

Portfolio Investment

Portfolio investment refers to the passive holdings of the financial securities such as foreign stocks, foreign bonds and other foreign financial assets, which are not under the control of the investors. Unlike foreign direct investment, the issuers of securities do not control the portfolio investment.The foreign direct investment involves the investors to make investment to acquire the lasting interest in the enterprises that are operational outside the domestic economy. A typical foreign direct investment relationship allows the parent enterprise and a foreign affiliate to form together a transnational corporation.

The portfolio investments are primarily connected with the portfolio diversification process and the examples of portfolio investment are:

.

The portfolio investment is a part of the capital account on the balance of payments statistics while the balance of payment or BOP measures the amount of payments that flow from one single country to all other countries. In order to summarize the international economic transactions of a specific country over a specified period of time, usually one financial year, the balance of payment index is counted. Apart from the financial capital investments and financial transfers, the BOP is calculated from the quantity of country’s exports and import of goods and services also. In other words, the BOP typically reflects the payments and liabilities to the foreign countries termed as debits and also the obligations and payments received from the foreign countries termed as credits.

The developing countries use the portfolio investment as a growing tool in the economy and take some measures to encourage the use of portfolio investment. While going for liberalization and economic reforms in order to bring about the substantial and rapid economic growth, the government takes up some policies and instruments. The portfolio investment is one of the most famous financial instruments that are taken up by government to enhance the economic growth. The foreign direct investments are also encouraged by the developing countries while going for the economic reforms.

Page 12

Gold Investment

Gold investment is a long-term investment scheme involving low risks. People willing to invest in gold have a natural advantage because the demand for gold is much more than its actual supply.

The gold industry is huge and has many facets, and a savvy investor can exploit this. Money can be invested directly in gold mines, for example, which can be more lucrative than investing in physical gold.

Benefits of gold investment:Gold is a popular form of savingGold is indestructibleGold is a major requirement in the jewelry industryThe malleability and ductility of gold make it very usefulGold can be transported easilyGold is the universal standard against which the value of any object can be assessedIt retains as well as appreciates in value

Gold investors prefer to buy gold in its cheapest forms such as krugerrands, sovereigns and bars. Gold bars are the cheapest while gold sovereigns, because of their smaller size, are worth paying an extra premium for.

Business Investment

Business investment can give investors a chance to invest in different kinds of businesses. Business investment can be a good option for the investors to manage their own portfolios. A number of business investment opportunities exist. Investors may choose from different business investment plans depending on the market conditions and trends.Business investment typically means purchasing an asset in the form of stocks or bonds with a hope of getting returns and interest in the future. Companies also release their shares and bonds in the capital market in order to collect money for some financial purpose. The assets that are purchased may be physical, intangible, or financial depending on the nature of the asset.

Real estate is one kind of business investment where money is used to purchase property. The sole purpose of the investment is to hold or lease the property for income. An element of capital risk is always involved.

Real estate investment can be i either residential or commercial property. Business finance, on the other hand, refers to the business finance loan, which is one of the easiest ways to acquire funds for a company. Considering the cutthroat competition of the business world, having financial support seems to be crucial.

Finance is the most important aspect for an entrepreneur both in order to start a new business and to expanding an existing business.

Page 13

A number of finance companies specialize in offering business financing, and a number of different financing options exist, depending on the situation. Entrepreneurs need to check the business loan market well before choosing a particular loan option, for example, by cross checking the rates of different finance companies. Now, with the advent of Internet era, it has become easier to access information about the financial market.

Finance companies generally grant loans to companies for purposes such as purchasing machinery and plants, for buying buildings and offices, for working capital requirements, and for other business expenses.

Investment Company

An investment company is basically in charge of helping the clients to deal in various forms of investment like the securities market for example. The investment companies are normally engaged in trading securities but there are other variations of the investment company as well.The real estate investment companies are a type of investment company which deals in mortgage services. These companies are suitable for those investors working on their own and are unable to commit too much time for their business activities. Of late these real estate investment companies have been attending to the individual needs of the investors.

The stock investment companies help their clients to deal in thestock market. The services provided by these companies enable the clients to deal in the stocks and derivatives of a certain company.

The securities traded in the stock markets could be listed in an exchange and traded in private too. The mortgage investment companies deal in the provision of mortgage services to respective clients, as and how they might require them.The mortgage investment companies are highly sought after in the United States of America because of the excellent quality of services they are reputed to provide.

These companies also look after the individual needs of the investors. The offshore investment companies provide the investors with the opportunity to invest in properties that are located in the specific country from where they are operating.

The offshore investment companies give a lot of importance on collaterals as they play an important role in the context of reducing the level of risk involved in the transactions.

The capital investment companies offer services to both the individual as well as the organizational investors. Some of these companies in the United States also serve clients from

Page 14

Canada. These companies provide their individual clients with mutual funds, personal investment management services and investment funds. To the organizational clients they provide mutual funds.

Real Estate Investment Company

A real estate investment company looks after the investments made by its clients in the real estate market. The real estate investment company is an important concept for individual real estate investors operating in the United States of America.The real estate investment companies look after those clients who do not have sufficient time to undertake real estate transactions personally. The real estate investment companies also pay special attention to the individual needs of the investors. The individual investors are the major players in most of the real estate markets around the world especially the United States, as they constitute a major portion of the real estate market.

The real estate investment companies perform a variety of functions at different places in the world. For example in the United States they execute the functions of a broker.

The real estate investment companies often act as representatives of both the parties that are involved in transaction � the buyers and the sellers. They are often entrusted with the responsibility of creating the most conducive atmosphere for carrying out transactions.The real estate investment company offers diverse range of services that include all aspects of real estate transactions like the following:FinancingSellingPurchasingExchanging

The real estate companies often employ trained professionals to look after their clients. It has been observed that the services of real estate investment companies have been able to provide safeguard against the risks associated with real estate transactions.

In order to make the most out of their relationships with the real estate investment companies it is imperative for the investor to have a fair amount of insight as well as be well opinionated in the matters relating to real estate.

The real estate investment companies trade in the real estate market with various market participants like the following:ConsultantsVendorsBrokersInvestorsGovernmental Bodies

Investment Company Boston

Growth and development of a nation depend on the pattern of investment. The investment company Boston understands the importance of investments and plays a major role in developing the economy of Boston. The investment companies of Boston are the connecting links between the investors operating in the Boston financial market.

Page 15

The investment instruments provided by the investment companies in Boston are very useful. The investment companies in Boston collect revenues from their shareholders and invest that money in other projects and companies on behalf of the shareholders. These companies are corporations, partnerships and trusts and they normally collect the funds of the investors through securities.

One major advantage of these companies is that small companies and domestic investors can approach these companies to aid them in their investment designs.

The Boston investment companies act as financial intermediaries in trading of shares. There are different types ofinvestment companies in Boston. The mutual fund companies of Boston invest in bonds, stocks, securities and others with the funds gathered from the investors.The shares of these companies are known as Net Asset Value. A fund manager manages the securities of such companies.

The mutual fund investment companies collect the interest and dividend incomes of the investors. The close-end fund companies of Boston have a limited amount of shares. Shares here can be purchased from the secondary market. There are also investment trusts in Boston. They issue shares for the investors within limited amount. As the investors purchase these shares, a substantial amount of money is pooled, which in turn is invested in other companies by the investment trust companies of Boston. The specialty of these companies is that they only have a board of directors and no employees.

The top investment companies in Boston are as follows:Boston Trust and Investment Management CompanyFidelity InvestmentsFirst BostonBoston CapitalNewbury, Piret & Co. Investment Bankers

Canada Company Investment

 thorough study on investment industry of Canada gives an idea of the different investment plans offered by the investment companies in Canada. Canada company investment market is now in a growing state, as a number of investment companies are coming to the market with their investment strategies.An investment company maintains a business of holding securities of the other companies only for the investment purposes. The investment companies in Canada go for investing the money on behalf of its shareholders who share the profits and losses in turn. There are three types of investment companies available in Canada.

Open-end management investment companies that handle the mutual funds, closed-end management investment companies handling closed-end funds and unit investment trusts or UITs are the three types of investment companies in Canada.

The face-amount certificate company is another type of Investment Company in Canada that is lesser-known investment company in Canada. Now with the advent of Internet technology, the investment companies in Canadaare offering online investment services to their clients. People also now want to go for online investment transactions in Canada.

Page 16

Choosing the best online investment company in Canada may be difficult for people, but with some browsing and proper study on the investment market, individuals can go for the proper online investment plan in Canada. Depending on the criteria, the right investment company should be selected from the market. For example, the individuals going for mutual funds or stocks should consult such an investment company that exclusively handles these categories. The investors should be careful while selecting the most suitable investment company for investing purposes.

There are a number of investment companies in Canada that offer mutual fund schemes.

The list of mutual fund companies in Canada is:

IGM Financial

CI Fund Management Inc

Royal Bank of Canada

Toronto-Dominion Bank

Canadian Imperial Bank of Commerce

AMVESCAP (AIM Trimark)

FMR Corporation

Allianz

Bank of Montreal

Franklin Resources

Dundee Corporation (Dynamic)

Phillips Hager & North Ltd.

Bank of Nova Scotia

National Bank of Canada

CMA Holdings Incorporated

Federation des caisses Desjardins du Quebec

AIC

Manulife

Industrial Alliance Insurance and Financial Services Inc

HSBC (Canada) Investments

Brandes Investment Partners

Page 17

Standard Life

Saxon Financial

Acuity Funds

Ethical Funds Inc

Sentry Select Capital Corp

Mawer Investment Management

Sceptre Investment Counsel

Other reporting IFIC members

Other non-reporting IFIC members

Investment Company in Singapore

There are a number of investment companies in Singapore.The investment plans offered by the investment companies in Singapore are designed to take care of the investment requirements of the clients. The Government of Singapore Investment Corporation Pte Ltd is an investment company in Singapore.It was incorporated in 1981 with the primary aim of governing the foreign reserves of the country. It invests all over the world in a variety of assets or properties. This investment company possesses a portfolio worth of $ 100 billion.

The assets that are invested in by the Government of Singapore Investment Corporation Pte Ltd are as follows:Real EstateEquitiesMoney Market InstrumentsFixed Income

BIL International Limited is an investment company based in Singapore. The chief areas of operation of the company in properties like hotels, resorts as well as strategic investments. Bio One Capital is amongst the prominent investment companies in Singapore whose primary area of focus is biomedical science.

The Bio One Capital is the division that deals with the investments on behalf of the Singapore Economic Development Board and monitors investment worth $1.2 billion in the following fields:BiotechnologyPharma and Medical Technology Companies and Start UpsEnGro Corporation is one of the biggest investment companies in Singapore making hi tech as well as capital investment.

It is also a manufacturer of the following products:Ground Granulated Blast Furnace SlagJoint Adhesives

Page 18

High Slag Blast Furnace CementSpecialty ChemicalsWaterproofing Products

Equation Corp Ltd focuses on the following services apart from acting as an investment holdings company:

Providing Electronic Waste Recycling Services Sales and Distribution of Audio, Video, and Consumer Electronics Products Trading of Ferrous and Non Ferrous Metals and Electronic Waste Products

FirstLink Investments Corporation Limited is an investment company, which also holds organizations in countries like Singapore, Australia, Malaysia and New Zealand.

Apart from investment it also has an active role in the following:

Electronic Contract Manufacturing Leisure and Salt Business Hospitality

GK Goh Holdings Group is an investment company in Singapore whose principal areas of activity include the following:

Futures and Foreign Exchange Brokerage Business Outsourcing Services Investing in Funds, Stocks, and Financial Instruments

Dubai Investment Company

Dubai Investment Company offers a wide variety of financial and investment services. These companies also invest in other commercial companies and programs. The investment companies of Dubai mostly invest in profitable entities. They are also exploring newer pastures like real estate and industrial sectors.The economy of UAE is a flourishing one and the investment companies in Dubai understand their responsibility of bringing further improvements in the economy.

The areas of investment of Dubai investment companies are as follows:Agriculture, food products and farmingManufacturing industriesPharmaceuticals and other health care facilitiesTrade, wholesale, retail and representationShipping and storageTransportationDistribution and clearingReal EstateCommercial and Industrial property development

Page 19

The Investment Trusts in Dubai are instrumental in attracting a considerable amount of new investors in Dubai. These investment trusts are also known as closed end mutual funds.

The companies, which are willing to establish collective investment funds and are working within the parameters of Dubai International Financial Center, have to work under the regulation and control of three laws.

They are:Investment Trust LawCollective Investment Law Amendment LawRegulatory Law Amendment Law

A major happening in the Dubai investment industry is its stock exchange promoting its companies to investors in New York. 14 companies have agreed to take part in this venture. Emaar Properties, the largest real estate development company in the country has associated themselves with this effort.

In order to understand the various investment activities that the Dubai investment company is involved in, a brief delineation of some of the top investment companies in Dubai is needed.

Dubai Investments PJSC: This is the biggest company in Dubai in this sector. With its investment partners, it invests in joint venture and assists the local companies by providing management and capital services.

Abu Dhabi Investment Company: They provide corporate finance and investment advisory services. Their divisions are asset management, capital markets, treasury and many others

Dubai Investors Group: They make residential property investments for their clients

Dubai Energy: They have investment in global energy on their portfolio.

Dubai World: They invest in hospitality, marine services, free zones, and commodities

Stock Investment Company

A stock investment company is a company dealing in stocks. These companies invest in stocks, which are also known as equities. Stock investment companies are different from companies that invest in bonds. A stock investment company is also known as stock funds.Some stock funds invest in well-established companies, which pay dividends on a regular basis. There may be other stock funds that would prefer to invest in new companies involved in technological services. These companies have higher potentials for growth though they may not be paying healthy dividends.

The companies investing in stocks have a certain amount of risk involved in them. The investment risks include the risk of fluctuation in prices of stocks of companies. The general economic condition, the state of the market and the financial condition of the company in which stock investments are made, influence the stock funds.

Page 20

In order to counter these risks, the stock investment companies invest in stocks of various companies. They spread and diversify their investment business in this way. The funds of these companies are held either in cash or in stocks.Stock Investment Company can be of following types:

Index Funds:The stock funds also invest in stocks of companies that belong to a specific market index. Such funds are known as index fund. They invest in the securities of those companies that are listed in a selected index. There are quite a few index funds, which make use of derivatives like futures or options.

Value Fund:They invest in value stocks. Such stock investment companies are generally conventional in nature.

Growth Funds:They invest in stocks of those companies, which show rapid growth and development. More than income, such funds seek to prompt capital gains.

Sector Fund:With a higher appreciation potential, these funds look to concentrate on a specific area of the industry. Technology funds, utility funds and gold funds are some of the examples of such funds.

Investment banks

Investment banks are financial groups set up to help governments and large enterprises raise money by issuing and selling securities in the primary market. Their main objective is to assist public and private corporations in raising capital. These banking firms generally act as an intermediary between the issuer of securities and the investors.Investment bankers handle the distribution of previously issued financial securities and also maintain the market for securities that are already distributed. They are an important source of advice on acquisitions, mergers and other types of financial transactions. There are very few banking firms that solely offer investment banking services – most provide additional services such as fixed income, trading of derivatives, equity securities, commodities and foreign exchange.

With the advent of the Internet, banking services around the world have become easier. The process of information exchange is now fast and hassle-free.

Online investment banking has made financial transactions easier than ever before, and online services such as investment plans and secure payment are changing the nature of the banking industry.A recent study on investment banking worldwide showed that revenue had increased to $52.8 billion in 2005, 14% higher than 2004. The US held a 51% share of the entire market in 2005, while Europe with the Middle East and Africa generated 31% and the Asian countries generated 18% of the total market share.

Page 21

Large Investment banking Firms

Bank Name Revenue

Net Income

Total assets

Assets under management (AUM)

1. Goldman Sachs $28.811B $4.442B $923.00B $828.00B

2. Morgan Stanley $32.406B $4.111B $807.69B $781.475B

3. JP Morgan $97.234B $18.976B $2,265.79B $1,923.88B

4. Credit Suisse $27.05B $2.074B $1,115.9B $1,307.7B

5. Bank of America Merrill Lynch

$94.426B $1.446B $2,129B 647.126B

6. Barclays Capital $50.2B $6.141B $2,431.48B $253.394B

7. Citigroup $78.353B $11.067B $1,873B

8. Deutsche Bank $42.999B $5.569B $2,802.71B $1,445.83B

9. UBS AG $29.585B $4.429B $1,510.95B $2,307.16B

10. Wells Fargo $86.08B $18.89B $1,422B $450B

Source: Equity-research

Goldman Sachs

The Goldman Sachs Group, Inc. is an American multinational investment banking firm that engages in global investment banking,investment management, securities and other financial services primarily with institutional clients.

Goldman Sachs was founded in 1869 and is headquartered at 200 West Street in the Lower Manhattan area of New York City, with additional offices in other international financial centers.[2] The firm provides asset management, mergers and acquisitions advice,prime brokerage and underwriting services to its clients, which include corporations, governments and individuals. The firm also engages in market making and private equity deals, and is a primary dealer in the U.S. Treasury security market.

Goldman Sachs was hit hard by the 2008 economic crisis,[3] because of its involvement in subprime mortgages, and was subsequently rescued as part of a massive U.S. government bailout.

Page 22

Former Goldman executives who moved on to government positions include, but are not limited to, Robert Rubin and Henry Paulsonwho served as U.S. Secretaries of the Treasury under former Presidents Bill Clinton and George W. Bush, respectively; Mario Draghi, President of the European Central Bank, and Mark Carney, Governor of the Bank of Canada from 2008–13 and Governor of the Bank of England since July 2013.

Morgan Stanley

Morgan Stanley is an American multinational financial services corporation headquartered in the Morgan Stanley Building, Midtown Manhattan, New York City.[4] Morgan Stanley operates in 42 countries and has more than 1300 offices and 60,000 employees.[5] According to the Scorpio Partnership Global Private Banking Benchmark the company had 1,454 USD Bn of assets under management (AuM) in 2014, an increase of 17.5% on the 2013 figure.[6]

The corporation, formed by J.P. Morgan & Co. partners Henry S. Morgan (grandson of J.P. Morgan), Harold Stanley and others, came into existence on September 16, 1935, in response to the Glass-Steagall Act that required the splitting of commercial and investment banking businesses. In its first year the company operated with a 24% market share (US$1.1 billion) in public offerings and private placements. The main areas of business for the firm today are Global Wealth Management, Institutional Securities, andInvestment Management.

JPMorgan Chase

JPMorgan Chase & Co. is an American multinational banking and financial services holding company headquartered in New York City. It is the largest bank in the United States, and the world's sixth largest bank by total assets, with total assets of US$2.35 trillion. Moreover, it is the sixth largest public company in the world according to the Forbes Global 2000. It is a major provider of financial services, and according to Forbes magazine is the world's sixth largest public company based on a composite ranking. The hedge fund unit of JPMorgan Chase is the second largest hedge fund in the United States. The company was formed in 2000, when Chase Manhattan Corporation merged with J.P. Morgan & Co.

The J.P. Morgan brand, historically known as Morgan, is used by the investment banking, asset management, private banking, private wealth management, and treasury & securities services divisions. Fiduciary activity within private banking and private wealth management is done under the aegis of JPMorgan Chase Bank, N.A.—the actual trustee. The Chase brand is used forcredit card services in the United States and Canada, the bank's retail banking activities in the United States, and commercial banking. The corporate headquarters is located at 270 Park Avenue in Midtown Manhattan, New York City. The retail andcommercial bank is headquartered in Chase Tower, Chicago Loop, Chicago, Illinois, U.S.[6] JPMorgan Chase & Co. is considered to be a universal bank.

Page 23

JPMorgan Chase is one of the Big Four banks of the United States, along with Bank of America, Citigroup, and Wells Fargo. According to Bloomberg, as of October 2011, JPMorgan Chase had surpassed Bank of America as the largest U.S. bank by assets.

Credit Suisse

Credit Suisse Group is a Switzerland-based multinational financial services holding company, headquartered in Zürich, that operates the Credit Suisse Bank and other financial services investments. The company is organized as a stock corporation with four divisions: Investment Banking, Private Banking, Asset Management, and a Shared Services Group that provides marketing and support to the other three divisions.

Credit Suisse was founded by Alfred Escher in 1856 under the name Schweizerische Kreditanstalt (SKA, English: Swiss Credit Institution) in order to fund the development of Switzerland's rail system. It issued loans that helped create Switzerland's electrical grid and the European rail system. It also helped develop the country's currency system and funded entrepreneurship. In the 1900s Credit Suisse began shifting to retail banking in response to the elevation of the middle-class and the growing popularity of savings accounts. Credit Suisse partnered with First Boston in 1978. After a large failed loan put First Boston under financial stress, Credit Suisse bought a controlling share of the bank in 1988. In the 1990s, Credit Suisse acquired the Winterthur Group, Swiss Volksbank, Swiss American Securities Inc. (SASI) and Bank Leu among others. In the year 2000, it added the U.S. investment firm Donaldson, Lufkin & Jenrette.

The company restructured itself in 2002, 2004 and 2006. It was one of the least affected banks during the global financial crisis, but afterwards began shrinking its investment business, executing layoffs and cutting costs. During the period between 2008 and 2012,Germany, Brazil, and the United States began a series of investigations into the use of Credit Suisse accounts for tax evasion. In May 2014, the company pleaded guilty to decades of conspiring to help US citizens "hide their wealth" in order to avoid taxes, and agreed to pay $2.6 billion in fines.

In 2014, Credit Suisse had 888.2 USD Bn of assets under management (AuD) according to the Scorpio Partnership (an increase of 9.5% on 2013).

Bank of America Merrill Lynch

Bank of America Merrill Lynch is the corporate and investment banking division of Bank of America. It provides services in mergers and acquisitions, equity and debt capital markets, lending, trading, risk management, research, and liquidity and payments management. It was formed through the combination of the corporate and investment banking activities of Bank of America andMerrill Lynch following the acquisition of the latter by the former in January 2009.

Barclays Investment Bank

Barclays Investment Bank (trading as Barclays, formerly Barclays Capital or BarCap) is the investment banking division of theBritish multinational Barclays bank headquartered

Page 24

in London. It provides financing and risk management services to large companies, institutions and government clients. It is a primary dealer in U.S. Treasury securities and various European Government bonds.

Barclays Investment Bank has offices in over 29 countries and since the acquisition of Lehman Brothers' main U.S. division in September 2008, employs over 20,000 people, with over 7,000 people working in the IT division. This has significantly increased Barclays' presence in North America.

Citigroup

Citigroup Inc. or Citi is an American multinational investment banking and financial services corporation headquartered inManhattan, New York City. Citigroup was formed from one of the world's largest mergers in history by combining the banking giantCiticorp and financial conglomerate Travelers Group in October 1998 (announced on April 7, 1998).As of January 2015, it is the third largest bank holding company in the US by assets. Its largest shareholders include funds from the Middle East andSingapore.At its height until the global financial crisis of 2008, Citigroup was the largest company and bank in the world as measured by total assets, with 357,000 employees. In 2007, Citigroup was one of the primary dealers in US Treasury securities.Citigroup had the world's largest financial services network, spanning 140 countries with approximately 16,000 offices worldwide. It holds over 200 million customer accounts in more than 140 countries

Deutsche Bank

Deutsche Bank AG is a German global banking and financial services company with its headquarters in the Deutsche Bank Twin Towers in Frankfurt. It has more than 100,000 employees in over 70 countries, and has a large presence in Europe, the Americas, Asia-Pacific and the emerging markets. In 2009, Deutsche Bank was the largest foreign exchange dealer in the world with a market share of 21 percent.The company is a component of the Euro Stoxx 50 stock market index.

The bank offers financial products and services for corporate and institutional clients along with private and business clients. Services include sales, trading, research and origination of debt and equity; mergers and acquisitions (M&A); risk managementproducts, such as derivatives, corporate finance, wealth management, retail banking, fund management, and transaction banking

On 26 July 2011, along with its second quarter earnings report, Deutsche Bank reported that Anshu Jain, head of investment banking and Juergen Fitschen, head of the German business, would replace Josef Ackermann as co-CEOs starting in 2012. Fears that Deutsche Bank could neglect its German roots and expand risk-taking activities prompted key members of the supervisory board to opt for the dual CEO model.Deutsche Bank is listed on both the Frankfurt (FWB) and New York stock exchanges (NYSE).

Page 25

On 7 June 2015, the co-CEOs, Juergen Fitschen and Anshu Jain, both offered their resignations

to the bank's supervisory board, which resignations were accepted. Anshu Jain's resignation took effect on 30 June 2015, but he provided consultancy to the bank until January 2016. Juergen Fitschen will temporarily continue as joint CEO until 19 May 2016. The appointment of John Cryan as joint CEO was announced, effective 1 July 2015; he will become sole CEO at the end of Juergen Fitschen's term.

In January 2014 Deutsche Bank reported a €1.2 billion ($1.6 billion) pre-tax loss for the fourth quarter of 2013. This came after analysts had predicted a profit of nearly €600 million, according to FactSet estimates. Revenues slipped by 16% versus the prior year.

According to the Scorpio Partnership Global Private Banking Benchmark 2014 the company had US$384.1bn of assets under management, an increase of 13.7% on 2013.

UBS

UBS AG is a Swiss global financial services company, incorporated in the Canton of Zurich,[2] and co-headquartered in Zurich andBasel.[3] The company provides wealth management, asset management, and investment banking services for private, corporate, and institutional clients worldwide, and is generally considered to be a bulge bracket bank. In Switzerland, these services are also offered to retail clients.[4] The name UBS was originally an abbreviation for the Union Bank of Switzerland, but it ceased to be a representational abbreviation after the bank's merger with Swiss Bank Corporation in 1998.[5] The company traces its origins to 1856, when the earliest of its predecessor banks was founded.[6]

UBS is considered the world's largest manager of private wealth assets, with over CHF2.2 trillion in invested assets,[7] and remains a leading provider of retail banking and commercial banking services in Switzerland. In 2014, UBS' assets under management (AuM) amounted to US$1,966.9 billion, representing a 15.4% increase in AuM compared to the equivalent data of 2013.[8] It is the biggest bank in Switzerland, operating in more than 50 countries with about 60,000 employees around the world, as of 2014.[9]

In comparison to other European banks, UBS suffered among the largest losses during the subprime mortgage crisis, and the bank was required to raise large amounts of outside capital. In 2007, the bank received a US$9.7 billion capital injection from theGovernment of Singapore Investment Corporation (currently GIC Private Limited effective from July 2013), which remains one of the bank's largest shareholders.[10] The bank also received capital from the Swiss government, further complemented by a series of equity offerings in 2007, 2008, and 2009.

Wells Fargo

Page 26

Wells Fargo & Company is an American multinational banking and financial services holding company headquartered in San Francisco, California, with "hubquarters" throughout the country.[5] It is the third largest bank in the U.S. by assets and the largest bank by market capitalization.[6]

[7] Wells Fargo surpassed Citigroup Inc. to become the third-largest U.S. bank by assets at the end of 2015. Wells Fargo is the second largest bank in deposits, home mortgage servicing, and debit cards. Wells Fargo ranked 10th among the Forbes Global 2000 (2015) and the 30th largest company in the United States, according to Fortune 500 (2015).[8]

In 2007 it was the only bank in the United States to be rated AAA by S&P,[9] though its rating has since been lowered to AA-[10] in light of the financial crisis of 2007–08. The firm's primary U.S. operating subsidiary is national bank Wells Fargo Bank, N.A., which designates its main office as Sioux Falls, South Dakota.

Wells Fargo in its present form is a result of a merger between San Francisco–based Wells Fargo & Company and Minneapolis-based Norwest Corporation in 1998 and the subsequent 2008 acquisition of Charlotte-based Wachovia. Following the mergers, the company transferred its headquarters to Wells Fargo's headquarters in San Francisco and merged its operating subsidiary with Wells Fargo's operating subsidiary in Sioux Falls.

Wells Fargo is one of the "Big Four Banks" of the United States, along with JPMorgan Chase, Bank of America, and Citigroup—its main competitors.[11][12] The company operates across 35 countries and has over 70 million customers globally.[13] In 2012, it had more than 9,000 retail branches and over 12,000 automated teller machines in 39 states and the District of Columbia. In July, 2015, Wells Fargo became the world's largest bank by market capitalization, edging past ICBC.[7]

In February 2014 Wells Fargo was named the world's most valuable bank brand for the second year running[14] in The Banker andBrand Finance study of the top 500 banking brands.[15]

Wells Fargo has various divisions that finance and lease equipment to all manners of companies. One venture is Wells Fargo Rail, which in 2015 completed the purchase of GE Capital Rail Services and merged in with First Union Rail

Page 27

Planning

Planning (also called forethought) is the process of thinking about and organizing the activities required to achieve a desired goal. It involves the creation and maintenance of a plan, such as psychological aspects that require conceptual skills. There are even a couple of tests to measure someone’s capability of planning well. As such, planning is a fundamental property of intelligent behavior.

Also, planning has a specific process and is necessary for multiple occupations (particularly in fields such as management, business, etc.). In each field there are different types of plans that help companies achieve efficiency and effectiveness. An important, albeit often ignored aspect of planning, is the relationship it holds to forecasting. Forecasting can be described as predicting what the future will look like, whereas planning predicts what the future should look like for multiple scenarios. Planning combines forecasting withpreparation of scenarios and how to react to them. Planning is one of the most important project management and time management techniques. Planning is preparing a sequence of action steps to achieve some specific goal. If a person does it effectively, he can reduce much the necessary time and effort of achieving the goal. A plan is like a map. When following a plan, he can always see how much he have progressed towards his project goal and how far he is from his destination.

Page 28

A basic management function involving formulation of one or more detailed plans to achieve optimum balance of needs or demands with the available resources.

The planning process 

(1) identifies the goals or objectives to be achieved,

(2) formulates strategies to achieve them,

(3) arranges or creates the means required, and

(4) implements, directs, and monitors all steps in their proper sequence.

2.The control of development by a local authority, through regulation and licensing for land use changes and building

Definitions of Planning

Different authors have given different definitions of planning from time to time. The main

definitions of planning are as follows:

According to Alford and Beatt, “Planning is the thinking process, the organized foresight, the

vision based on fact and experience that is required for intelligent action.”

According to Theo Haimann, “Planning is deciding in advance what is to be done. When a

manager plans, he projects a course of action for further attempting to achieve a consistent co-

ordinate structure of operations aimed at the desired results.

According to Billy E. Goetz, “Planning is fundamentally choosing and a planning problem arises

when an alternative course of action is discovered.”

According to Koontz and O’ Donnell, “Planning is an intellectual process, conscious

determination of course of action, the basing of decision on purpose, facts and considered

estimates.”

According to Allen, “A plan is a trap laid to capture the future.”

Nature / Characteristics of Planning

Page 29

The main characteristics or nature of planning is given below:

Planning is an Intellectual Process

Planning is an intellectual process of thinking in advance. It is a process of deciding the future on

the series of events to follow. Planning is a process where a number of steps are to be taken to

decide the future course of action. Managers or executives have to consider various courses of

action, achieve the desired goals, go in details of the pros and cons of every course of action and

then finally decide what course of action may suit them best.

Planning Contributes to the Objectives

Planning contributes positively in attaining the objectives of the business enterprise. Since plans

are there from the very first stage of operation, the management is able to handle every problem

successfully. Plan try to set everything right. A purposeful, sound and effective planning process

knows how and when to tackle a problem. This leads to success. Objectives thus are easily

achieved.

Planning is a Primary Function of Management

Planning precedes other functions in the management process. Certainly, setting of goals to be

achieved and lines of action to be followed precedes the organization, direction, supervision and

control. No doubt, planning precedes other functions of management. It is primary requisite

before other managerial functions step in. But all functions are inter-connected. It is mixed in all

managerial functions but there too it gets precedence. It thus gets primary everywhere.

A continuous Process

Planning is a continuous process and a never ending activity of a manager in an enterprise based

upon some assumptions which may or may not come true in the future. Therefore, the manager

has to go on modifying revising and adjusting plans in the light of changing circumstances.

According to George R. Terry, “Planning is a continuous process and there is no end to it. It

involves continuous collection, evaluation and selection of data, and scientific investigation and

analysis of the possible alternative courses of action and the selection of the best alternative.

Planning Pervades Managerial Activities

Page 30

From primary of planning follows pervasiveness of planning. It is the function of every

managerial personnel. The character, nature and scope of planning may change fro personnel to

personnel but the planning as an action remains intact. According to Billy E. Goetz, “Plans

cannot make an enterprise successful. Action is required, the enterprise must operate managerial

planning seeks to achieve a consistent, coordinated structure of operations focused on desired

trends. Without plans, action must become merely activity producing nothing but chaos.”

Role, Significance, Importance & Advantages of Planning

An organisation without planning is like a sailboat minus its rudder. Without planning,

organisation, are subject to the winds of organizational change. Planning is one of the most

important and crucial functions of management. According to Koontz and O’Donnell, “Without

planning business becomes random in nature and decisions become meaningless and adhoc

choices.” According to Geroge R. Terry, “Planning is the foundation of most successful actions

of any enterprise.” Planning becomes necessary due to the following reasons:

Reduction of Uncertainty

Future is always full of uncertainties. A business organisation has to function in these

uncertainties. It can operate successfully if it is able to predict the uncertainties. Some of the

uncertainties can be predicted by undertaking systematic. Some of the uncertainties can be

predicted by undertaking systematic forecasting. Thus, planning helps in foreseeing uncertainties

which may be caused by changes in technology, fashion and taste of people, government rules

and regulations, etc.

Better Utilization of Resources

An important advantage of planning is that it makes effective and proper utilization of enterprise

resources. It identifies all such available resources and makes optimum use of these resources.

Increases Organizational Effectiveness

Planning ensures organizational effectiveness. Effectiveness ensures that the organisation is in a

position to achieve its objective due to increased efficiency of the organisation.

Page 31

Reduces the Cost of Performance

Planning assists in reducing the cost of performance. It includes the selection of only one course

of action amongst the different courses of action that would yield the best results at minimum

cost. It removes hesitancy, avoids crises and chaos, eliminates false steps and protects against

improper deviations.

Concentration on Objectives

It is a basic characteristic of planning that it is related to the organizational objectives. All the

operations are planned to achieve the organizational objectives. Planning facilitates the

achievement of objectives by focusing attention on them. It requires the clear definition of

objectives so that most appropriate alternative courses of action are chosen.

Helps in Co-ordination

Good plans unify the interdepartmental activity and clearly lay down the area of freedom in the

development of various sub-plans. Various departments work in accordance with the overall

plans of the organisation. Thus, there is harmony in the organisation, and duplication of efforts

and conflict of jurisdiction are avoided.

Makes Control Effective

Planning and control are inseparable in the sense that unplanned action cannot be controlled

because control involves keeping activities on the predetermined course by rectifying deviations

from plans. Planning helps control by furnishing standards of performance.

Encouragement to Innovation

Planning helps innovative and creative thinking among the managers because many new ideas

come to the mind of  a manager when he is planning. It creates a forward-looking attitude among

the managers.

Increase in Competitive Strength

Effective planning gives a competitive edge to the enterprise over other enterprises that do not

have planning or have ineffective planning. This is because planning may involve expansion of

capacity, changes in work methods, changes in quality, anticipation of tastes and fashions of

people and technological changes etc.

Page 32

Delegation is Facilitated

A good plan always facilitates delegation of authority in a better way to subordinates.

Steps involved in Planning

Planning is a process which embraces a number of steps to be taken. Planning is an intellectual

exercise and a conscious determination of courses of action. Therefore, it requires courses of

action. The planning process is valid for one organisation and for one plan, may not be valid for

other organizations or for all types of plans, because various factors that go into planning process

may differ from organisation to organisation or from plan to plan. For example, planning process

for a large organisation may not be the same for a small organisation. However, the major steps

involved in the planning process of a major organisation or enterprise are as follows:

Page 33

Establishing objectives

The first and primary step in planning process is the establishment of planning objectives or

goals. Definite objectives, in fact, speak categorically about what is to be done, where to place

the initial emphasis and the things to be accomplished by the network of policies, procedures,

budgets and programmes, the lack of which would invariably result in either faulty or ineffective

planning.

It needs mentioning in this connection that objectives must be understandable and rational to

make planning effective. Because the major objective, in all enterprise, needs be translated into

derivative objective, accomplishment of enterprise objective needs a concrete endeavor of all the

departments.

Establishment of Planning Premises

Planning premises are assumptions about the future understanding of the expected situations.

These are the conditions under which planning activities are to be undertaken. These premises

may be internal or external. Internal premises are internal variables that affect the planning.

These include organizational polices, various resources and the ability of the organisation to

withstand the environmental pressure. External premises include all factors in task environment

like political, social technological, competitors’ plans and actions, government policies, market

conditions. Both internal factors should be considered in formulating plans. At the top level

mainly external premises are considered. As one moves downward, internal premises gain

importance.

Determining Alternative Courses

The next logical step in planning is to determine and evaluate alternative courses of action. It

may be mentioned that there can hardly be any occasion when there are no alternatives. And it is

most likely that alternatives properly assessed may prove worthy and meaningful. As a matter of

fact, it is imperative that alternative courses of action must be developed before deciding upon

the exact plan.

Evaluation of Alternatives

Page 34

Having sought out the available alternatives along with their strong and weak points, planners

are required to evaluate the alternatives giving due weight-age to various factors involved, for

one alternative may appear to be most profitable involving heavy cash outlay whereas the other

less profitable but involve least risk. Likewise, another course of action may be found

contributing significantly to the company’s long-range objectives although immediate

expectations are likely to go unfulfilled.

Evidently, evaluation of alternative is a must to arrive at a decision. Otherwise, it would be

difficult to choose the best course of action in the perspective of company needs and resources as

well as objectives laid down.

Selecting a Course of Action

The fifth step in planning is selecting a course of action from among alternatives. In fact, it is the

point of decision-making-deciding upon the plan to be adopted for accomplishing the enterprise

objectives.

Formulating Derivative Plans

To make any planning process complete the final step is to formulate derivative plans to give

effect to and support the basic plan. For example, if Indian Airlines decide to run Jumbo Jets

between Delhi an Patna, obliviously, a number of derivative plans have to be framed to support

the decision, e.g., a staffing plan, operating plans for fuelling, maintenance, stores purchase, etc.

In other words, plans do not accomplish themselves. They require to be broken down into

supporting plans. Each manager and department of the organisation is to contribute to the

accomplishment of the master plan on the basis of the derivative plans.

Establishing Sequence of Activities

Timing an sequence of activities are determined after formulating basic and derivative plans, so

that plans may be put into action. Timing is an essential consideration in planning. It gives

practical shape and concrete form to the programmes. The starting and finishing times are fixed

for each piece of work, so as to indicate when the within what time that work is to be

commenced and completed. Bad timing of programmes results in their failure. To maintain a

symmetry of performance and a smooth flow of work, the sequence of operation shaped be

Page 35

arranged carefully by giving priorities to some work in preference to others. Under sequence it

should be decided as to who will don what and at what time.

Feedback or Follow-up Action

Formulating plans and chalking out of programmes are not sufficient, unless follow-up action is

provided to see that plans so prepared and programmes chalked out are being carried out in

accordance with the plan and to see whether these are not kept in cold storage. It is also required

to see whether the plan is working well in the present situation. If conditions have changed, the

plan current plan has become outdated or inoperative it should be replaced by another plan. A

regular follow-up is necessary and desirable from effective implementation and accomplishment

of tasks assigned.

The plan should be communicated to all persons concerned in the organisation. Its objectives and

course of action must be clearly defined leaving no ambiguity in the minds of those who are

responsible for its execution. Planning is effective only when the persons involved work in a

team spirit and all are committed to the objectives, policies, programmes, strategies envisaged in

the plan

What is the Importance of Planning in Management?

Planning has again gained importance because of uncertain and constantly changing business

environment. In the absence of planning, it may not be impossible but certainly difficult to guess

the uncertain events of future.

The following facts show the advantages of planning and its importance for a business

organisation:

(1) Planning Provides Direction:

Under the process of planning the objectives of the organisation are defined in simple and clear

words. The obvious outcome of this is that all the employees get a direction and all their efforts

Page 36

are focused towards a particular end. In this way, planning has an important role in the

attainment of the objectives of the organisation.

For example, suppose a company fixes a sales target under the process of planning. Now all the

departments, e.g., purchase, personnel, finance, etc., will decide their objectives in view of the

sales target.

In this way, the attention of all the managers will get focused on the attainment of their

objectives. This will make the achievement of sales target a certainty. Thus, in the absence of

objectives an organisation gets disabled and the objectives are laid down under planning.

(2) Planning Reduces Risks of Uncertainty:

Planning is always done for future and future is uncertain. With the help of planning possible

changes in future are anticipated and various activities are planned in the best possible way. In

this way, the risk of future uncertainties can be minimised.

For example, in order to fix a sales target a survey can be undertaken to find out the number of

new companies likely to enter the market. By keeping these facts in mind and planning the future

activities, the possible difficulties can be avoided.

(3) Planning Reduces Overlapping and Wasteful Activities:

Under planning, future activities are planned in order to achieve objectives. Consequently, the

problems of when, where, what and why are almost decided. This puts an end to disorder and

suspicion. In such a situation coordination is established among different activities and

departments. It puts an end to overlapping and wasteful activities.

Consequently, wastages moves towards nil, efficiency increases and costs get to the lowest level.

For example, if it is decided that a particular amount of money will be required in a particular

month, the finance manager will arrange for it in time.

In the absence of this information, the amount of money can be more or less than the requirement

in that particular month. Both these situations are undesirable. In case, the money is less than the

Page 37

requirement, the work will not be completed and in case it is more than the requirement, the

amount will remain unused and thus cause a loss of interest.

(4) Planning Promotes Innovative Ideas:

It is clear that planning selects the best alternative out of the many available. All these

alternatives do not come to the manager on their own, but they have to be discovered. While

making such an effort of discovery, many new ideas emerge and they are studied intensively in

order to determine the best out of them.

In this way, planning imparts a real power of thinking in the managers. It leads to the birth of

innovative and creative ideas. For example, a company wants to expand its business. This idea

leads to the beginning of the planning activity in the mind of the manager. He will think like this:

Should some other varieties of the existing products be manufactured?

Should retail sales be undertaken along with the wholesales?

Should some branch be opened somewhere else for the existing or old product?

Should some new product be launched?

In this way, many new ideas will emerge one after the other. By doing so, he will become

habituated to them. He will always be thinking about doing something new and creative. Thus, it

is a happy situation for a company which is born through the medium of planning.

(5) Planning Facilitates Decision Making:

Decision making means the process of taking decisions. Under it, a variety of alternatives are

discovered and the best alternative is chosen. The planning sets the target for decision making. It

also lays down the criteria for evaluating courses of action. In this way, planning facilitates

decision making.

(6) Planning Establishes Standards for Controlling:

Page 38

By determining the objectives of the organisation through planning all the people working in the

organisation and all the departments are informed about ‘when’, ‘what’ and ‘how’ to do things.

Standards are laid down about their work, time and cost, etc. Under controlling, at the time of

completing the work, the actual work done is compared with the standard work and deviations

are found out and if the work has not been done as desired the person concerned are held

responsible.

For example, a labourer is to do 10 units of work in a day (it is a matter of planning), but actually

he completes 8 units. Thus there is a negative deviation of 2 units. For this, he is held

responsible. (Measurement of actual work, knowledge of deviation and holding the labourer

responsible falls under controlling.) Thus, in the absence of planning controlling is not possible.

What is Investment planning and why you need it

Planning is one of the most important project management and time management techniques. Planning is preparing a sequence of action steps to achieve some specific goal. If you do it effectively, you can reduce much the necessary time and effort of achieving the goal.

A plan is like a map. When following a plan, you can always see how much you have progressed towards your project goal and how far you are from your destination. Knowing where you are is essential for making good decisions on where to go or what to do next.

Page 39

One more reason why you need planning is again the 80/20 Rule. It is well established that for unstructured activities 80 percent of the effort give less than 20 percent of the valuable outcome. You either spend much time on deciding what to do next, or you are taking many unnecessary, unfocused, and inefficient steps.

Planning is also crucial for meeting your needs during each action step with your time, money, or other resources. With careful planning you often can see if at some point you are likely to face a problem. It is much easier to adjust your plan to avoid or smoothen a coming crisis, rather than to deal with the crisis when it comes unexpected.

So it is one of the most important project management and time management techniques. Planning is preparing a sequence of action steps to achieve some specific goal. If you do it effectively, you can reduce much the necessary time and effort of achieving the goal.

A plan is like a map. When following a plan, you can always see how much you have progressed towards your project goal and how far you are from your destination. Knowing where you are is essential for making good decisions on where to go or what to do next.

Reason why you need planning is again the 80/20 Rule. It is well established that for unstructured activities 80 percent of the effort give less than 20 percent of the valuable outcome. You either spend much time on deciding what to do next, or you are taking many unnecessary, unfocused, and inefficient steps.

Planning is also crucial for meeting your needs during each action step with your time, money, or other resources. With careful planning you often can see if at some point you are likely to face a problem. It is much easier to adjust your plan to avoid or smoothen a coming crisis, rather than to deal with the crisis when it comes unexpected.

Your financial goals are simply personal goals that have a financial cost attached. Not every personal goal is a financial goal, but many personal goals require some money to accomplish.

Page 40

Certain personal goals cannot be accomplished without meeting specific financial targets, such as saving for the down payment on a house or saving for a child’s education or mission. If you do not calculate and plan for the costs of many of your personal goals, it is likely that you will not be able to accomplish them. The processes for setting personal goals and setting financial goals are the same

Identify your goals and write them down.

Prioritize your goals, and list them in order from most important to least important.

Calculate the financial costs of each goal that requires financing.

Set a completion date for each goal and record the total amount needed to complete the goal.

Determine how much you must save each month (and which accounts you will use to save that money) to meet your goals.

Begin saving now.

Periodically evaluate your progress toward achieving your goals.

There are several important questions you should ask yourself about each of your financial goals to see if you are really committed to attain them.

First, how important is the goal to you? Another way to phrase this question is to ask how much you are willing to sacrifice to pursue the goal. Most goals require sacrifice to achieve. If you are not willing to make the sacrifices necessary to achieve a particular goal, you probably will not be able to achieve it.

Some of the “goals” on your list may really just be wishes—things that you dream of having or achieving, but things that you are not really committed to working towards. So ask yourself, is this truly a goal, or is it just a wish? Wishes do not count—eliminate them from your list.

Second, how much money do you need to accomplish the goal? Once you have calculated the financial cost of each goal, determine whether the amount you need is before-tax or after-tax money, and whether it is before-inflation or after-inflation money. This is important to determine because the differences between these amounts may be substantial. Do not let inflation or taxes keep you from achieving your goals.

Page 41

Finally, when do you need the money? Is the goal feasible with your current financial plan? Good financial plans require you to sacrifice—to stretch—but they are also reasonable for your individual financial situation.

Why Financial Planning?

No one goes through life without confronting financial issues. How you face up to the real life problems you encounter can affect the quality of your life and the lives of family and friends.

Some financial issues can be anticipated, some other cannot be anticipated.  Financial Planning can minimize the effects of these and other crises -- big and small -- and help keep your life on an even keel.

The first step toward sound financial planning is recognizing that you need expert financial help.

The second step is developing a systematic, integrated plan which gives due consideration to all of the areas represented above.

Importance of Financial planning

Financial Planning involves identifying your financial goals throughout your life, and prioritizing them. For example, if you want to invest for funding your vacation next year, don't choose an investment vehicle that has a three-year lock-in. Similarly, if you want to invest for your daughter's marriage after 10 years, don't invest in 1yr bonds for the next 10 years. Instead, choose an option that matches your investment horizon.

Investment means putting your money to work to earn more money. Done wisely, it can help you meet your financial goals.  Investment Planning is important because it helps you to derive the maximum benefit from your investments. Your success as an investor depends upon your ability to choose the right investment options. This, in turn, depends on your requirements, needs and goals. The choice of the best investment options for you will depend on your personal circumstances as well as general market conditions. For example, a good investment for a long-term retirement plan may not be a good investment for higher education expenses. 

Page 42

The right investment should satisfy the following basic principles of investments:1.    Safety2.    Liquidity3.    Risk level4.    Transparency5.    Return on investment6.    Exit route

Investment Planning also helps you to decide upon the right investment strategy. Besides your individual requirement, your investment strategy would also depend upon your age, personal circumstances and your risk appetite. These aspects are typically taken care of during investment planning. Investment Planning further helps you to strike a balance between risk and returns. By prudent planning, it is possible to arrive at an optimal mix of risk and returns, which suits your particular needs and requirements.

Apart from financial goals, the most important thing in financial-planning is investment plan.  An investment plan is important because it creates a framework for every investment activity in which you will participate. It states what you will invest in, how you will invest, why you will invest, what percentage of your money you will invest, and so on. In short, your investment plan significantly affects your investment returns. Frame a investment plan well and then follow it carefully. Your investment plan is a detailed description of all the major components of your investment strategy. It will help you to do the following:

Represent yourself. It explains your personal investment characteristics, such as your risk tolerance and your personal constraints, and how those relate to your asset allocation and targets.

Articulate what you will and will not do. This plan clearly states what you will and will not invest in and how you will invest, and also includes investment guidelines that will help you invest your money wisely and achieve your goals.

Provide an investment framework and guidelines for making wise investment choices. If you clearly think through and plan how you will invest now that you have few assets (and are not influenced by "fear and greed"), it will give you an investment framework and guidelines to help you reason through decisions which could have a major impact on future financial goals and retirement. If followed carefully, it will help you avoid poor

Page 43

investment decisions that could have major repercussions for your financial life, but only if you follow the plan.

You can place yourself in a great position, if you frame a good financial plan.  It is normal and human to become isolated and depressed when we see our investments going down and there seems to be no answer.  No matter, with all that is going on with the economy, there is always opportunity's in the investment world. Even if the market is going up, down, or sideways, there is always money to be made

Investing even a small amount can produce considerable rewards over the long-term, especially if you do it regularly. But you need to decide about how much you want to invest and where. Investing in your financial future is the greatest gift you can give yourself by far. If you aren't sure where to begin or how, perhaps it's time to seek the services of a qualified financial advisor. His advice may prove invaluable and may give you a much more comfortable future than you would have ever imagined left to your own devices.  The financial planning advisor plays a very important role in the investment planning.  The important thing is to hire the service of a good financial planning advisor and at reasonable place.

Planning is not only a one-time event. It is a continuous process and may vary depending on many circumstances. Working with a professional retirement consultant will prepare you for your future, and allow you to feel safer knowing that it is secure. You will have to come to the conclusion about what you are planning to do in those years and how you are going to have the money to make all of your dreams come true. It's that much needed 'bridge' between your financial goals and the qualified financial advisor who can help you Today!

Most people are well aware that they need to invest and most are keen to do it. After all the prospect of seeing your money grow is appealing to almost everybody. The problem is that few people actually take the time to create an investment plan. Instead the just make random investments, this rarely works out well. Having a plan will make sure that you stay on track and that you are able to reach your financial goals.The first thing that you have to do if you are going to create an investment plan is to determine what your goals are. There is no way that you can have a plan unless you know what you are trying to achieve. It is important that the plan be as specific as possible. Most people just have a vague idea that they want to see their money grow, this is not nearly enough. You need to decide on what you are saving money for and determine how much you are going to need. You will

Page 44

have to think about both the short term and the long term, it is all well and good to want to buy a house but your plan does have to include saving for retirement as well.Once you know what your goals are you will also need to set a time frame for achieving them. This is important because the amount of risk that you will be able to take with your investments will depend on how soon you will need the money. David rocker atlanta recommends that any money that will be needed in the next ten years should be in investments that are fairly low risk, money that you will not need for more than ten years can be in riskier investments since you will have time to ride out the ups and downs of the market. In general safe investments would include things like bonds and certificates of deposits, things like stocks are in the risky category even if you are investing in large stable companies.The next thing that you are going to have to make sure of when you are creating your investment plan is that you are building a diversified investment portfolio. This is where a lot of people get it wrong as they don't really have nearly the diversification that they need. You need to have your money spread out in investments that are not related so that if one investment goes down you will not lose all of your money. One of the challenges that a lot of smaller investors face is that it can be hard to get enough diversification if you don't have a lot of money to invest, mutual funds can be a good solution to that problem.Ten reasons why financial planning is important

1. Income: It's possible to manage income more effectively through planning. Managing income helps you understand how much money you'll need for tax payments, other monthly expenditures and savings.

2. Cash Flow: Increase cash flows by carefully monitoring your spending patterns and expenses. Tax planning, prudent spending and careful budgeting will help you keep more of your hard earned cash.

3. Capital: An increase in cash flow, can lead to an increase in capital. Allowing you to consider investments to improve your overall financial well-being.

4. Family Security: Providing for your family's financial security is an important part of the financial planning process. Having the proper insurance coverage and policies in place can provide peace of mind for you and your loved ones.

Page 45

5. Investment: A proper financial plan considers your personal circumstances, objectives and risk tolerance. It acts as a guide in helping choose the right types of investments to fit your needs, personality, and goals.

6. Standard of Living: The savings created from good planning can prove beneficial in difficult times. For example, you can make sure there is enough insurance coverage to replace any lost income should a family bread winner become unable to work.

7. Financial Understanding: Better financial understanding can be achieved when measurable financial goals are set, the effects of decisions understood, and results reviewed. Giving you a whole new approach to your budget and improving control over your financial lifestyle.

8. Assets: A nice 'cushion' in the form of assets is desirable. But many assets come with liabilities attached. So, it becomes important to determine the real value of an asset. The knowledge of settling or canceling the liabilities, comes with the understanding of your finances. The overall process helps build assets that don't become a burden in the future.

9. Savings: It used to be called saving for a rainy day. But sudden financial changes can still throw you off track. It is good to have some investments with high liquidity. These investments can be utilized in times of emergency or for educational purposes.

10. Ongoing Advice: Establishing a relationship with a financial advisor you can trust is critical to achieving your goals. Your financial advisor will meet with you to assess your current financial circumstances and develop a comprehensive plan customized for you.

Page 46

What is 'Portfolio Management'

Portfolio management is the art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance.

Portfolio management is the art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance.

Portfolio management is all about strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and many other tradeoffs encountered in the attempt to maximize return at a given appetite for risk.

Page 47

The art of selecting the right investment policy for the individuals in terms of minimum risk and maximum return is called as portfolio management.

Portfolio management refers to managing an individual’s investments in the form of bonds, shares, cash, mutual funds etc so that he earns the maximum profits within the stipulated time frame.

Portfolio management refers to managing money of an individual under the expert guidance of portfolio managers.

In a layman’s language, the art of managing an individual’s investment is called as portfolio management.

NEED FOR PORTFOLIO MANAGEMENT:

Portfolio management is a process encompassing many activities of investment in assets andsecurities. It is a dynamic and flexible concept and involves regular and systematic analysis,  judgment and action. The objective of this service is to help the unknown and investors with theexpertise of professionals in investment portfolio management. It involves construction of a portfolio based upon the investor’s objectives, constraints, preferences for risk and returns and taxl i a b i l i t y . T h e p o r t f o l i o i s r e v i e w e d a n d a d j u s t e d f r o m t i m e t o t i m e i n t u n e w i t h t h e m a r k e t conditions. The evaluation of portfolio is to be done in terms of targets set for risk and returns. The changes in the portfolio are to be effected to meet the changing condition.Portfolio construction refers to the allocation of surplus funds in hand among a variety of financial assets open for investment. Portfolio theory concerns itself with the principles governingsuch allocation. The modern view of investment is oriented more go towards the assembly of  proper combination of individual securities to form investment portfolio.A combination of securities held together will give a beneficial result if they grouped in amanner to secure higher returns after taking into consideration the risk elements.The modern theory is the view that by diversification risk can be reduced. Diversification can  b e m a d e b y t h e i n v e s t o r e i t h e r b y h a v i n g a l a r g e n u m b e r o f s h a r e s o f c o m p a n i e s i n d i f f e r e n t regions, in different industries or those producing differenttypes of product lines.Moderntheory believes in the perspective of combination of securities under constraints of risk andreturns.

Portfolio management presents the best investment plan to the individuals as per their income, budget, age and ability to undertake risks.

Portfolio management minimizes the risks involved in investing and also increases the chance of making profits.

Portfolio managers understand the client’s financial needs and suggest the best and unique investment policy for them with minimum risks involved.

Page 48

Portfolio management enables the portfolio managers to provide customized investment solutions to clients as per their needs and requirements.

Types of Portfolio Management

Portfolio Management is further of the following types:

Active Portfolio Management: As the name suggests, in an active portfolio management service, the portfolio managers are actively involved in buying and selling of securities to ensure maximum profits to individuals.

Passive Portfolio Management: In a passive portfolio management, the portfolio manager deals with a fixed portfolio designed to match the current market scenario.

Discretionary Portfolio management services: In Discretionary portfolio management services, an individual authorizes a portfolio manager to take care of his financial needs on his behalf. The individual issues money to the portfolio manager who in turn takes care of all his investment needs, paper work, documentation, filing and so on. In discretionary portfolio management, the portfolio manager has full rights to take decisions on his client’s behalf.

Non-Discretionary Portfolio management services: In non discretionary portfolio management services, the portfolio manager can merely advise the client what is good and bad for him but the client reserves full right to take his own decisions.

Most investors have no investment philosophy, and the same can be said about many money managers and professional investment advisors. They adopt investment strategies that seem to work (for other investors) and abandon them when they do not. Why, if this is possible, you might ask, do you need an investment philosophy? The answer is simple. In the absence of an investment philosophy, you will tend to shift from strategy to strategy simply based upon a strong sales pitch from a proponent or perceived recent success. There are three negative consequences for your portfolio:

a. Lacking a rudder or a core set of beliefs, you will be easy prey for charlatans and pretenders, with each one claiming to have found the magic strategy that beats the market.

b. As you switch from strategy to strategy, you will have to change your portfolio, resulting in high transactions costs and you will pay more in taxes.

c. While there may be strategies that do work for some investors, they may not be appropriate for you, given your objectives, risk aversion and personal characteristics. In addition to having a portfolio that under performs the market, you are likely to find yourself with an ulcer or worse.

With a strong sense of core beliefs, you will have far more control over your destiny. Not only will you be able to reject strategies that do not fit your core beliefs about markets but also to tailor investment strategies to your needs.  In addition, you will be able to get much

Page 49

more of a big picture view of what it is that is truly different across strategies and what they have in common.

MEANING OF PORTFOLIO MANAGERSPortfolio manager means any person who enters into a contract or arrangement with a client.Pursuan t   to   such  a r rangement  he  adv ises   the c l i ent  or  under takes on  behal f o f   such  c l i ent management or administration of portfolio of securities or invests or manages the client’s funds.A discretionary portfolio manager means a portfolio manager who exercises or may under acontract relating to portfolio management, exercise any degree of discretion in respect of the investment or management of portfolio of the portfolio securities or the funds of the client, as thec a s e   m a y   b e .   H e   s h a l l   i n d e p e n d e n t l y   o r   i n d i v i d u a l l y   m a n a g e   t h e  f u n d s   o f   e a c h   c l i e n t   i n accordance with the needs of the client in a manner which does not resemble the mutual fund.A non d i sc re t ionary  por t fo l io  manager   sha l l  manage   the   funds   in  accordance  wi th   thedirections of the client.A portfolio manager by virtue of his knowledge, background and experience is expected tostudy the various avenues available for profitable investment and advise his client to enable the latter to maximize the return on his investment and at the same time safeguard the funds invested.

OBJECTIVES OF PORTFOLIO MANAGEMENT:The major objectives of portfolio management are summarized as below:-1)Security/Safety of Prinicpal:Security not only involves keeping the principalsum intact but also keeping intact its purchasing power intact.2)S t a b i l i t y   o f   I n c o m e :S o   a s   t o   f a c i l i t a t e   p l a n n i n g   m o r e   a c c u r a t e l y   a n d systematically the reinvestment consumption of income.3)Capital Growth:T h i s c a n b e a t t a i n e d b y r e i n v e s t i n g i n g r o w t h s e c u r i t i e s o r   through purchase of growth securities.4)Marketability:

Page 50

i.e. is the case with which a security can be bought or sold. This isessential for providing flexibility to investment portfolio.5)Liquidity i.e Nearness To Money:I t   i s d e s i r a b l e   t o   i n v e s t o r   s o   a s   t o   t a k e advantage of attractive opportunities upcoming in the market.6)Diversification:The basic objective of building a portfolio is to reduce risk of lossof capital and / or income by investing in various types of securities and over a wide rangeof industries.7)Favorable Tax Status:The effective yield an investor gets form his investmentd e p e n d s o n t a x t o w h i c h i t i s s u b j e c t . B y m i n i m i z i n g t h e t a x b u r d e n , y i e l d c a n b e effectively improved.

 BASIC PRINCIPLES OF PORTFOLIO MANAGEMENT:There are two basic principles for effective portfolio management which are given below:-I.Effectiveinvestment planningf o r   t h e   i n v e s t m e n t   i n   s e c u r i t i e s   b y   c o n s i d e r i n g   t h e following factors-a)F i s c a l ,   f i n a n c i a l   a n d   m o n e t a r y   p o l i c i e s   o f   t h e  G o v t .   o f   I n d i a   a n d   t h e Reserve Bank of India.b)I n d u s t r i a l   a n d   e c o n o m i c   e n v i r o n m e n t   a n d  i t s   i m p a c t   o n   i n d u s t r y . P r o s p e c t   i n   t e r m s   o f   p r o s p e c t i v e   te c h n o l o g i c a l   c h a n g e s ,   c o m p e t i t i o n   i n   t h e   m a r k e t , capacity utilization with industry and demand prospects etc.II.Constant Review of Investment:It requires to review the investment in securities and tocontinue the selling and purchasing of investment in more profitable manner. For this  purpose they have to carry the following analysis:a)To assess the quality of the management of the companies in which investment has beenmade or proposed to be made.b)To assess the financial andtrend analysisof companies Balance Sheet and Profit and LossAccounts to identify the optimum capital structure and better performance for the purposeof withholding the investment from poor companies.

Page 51

c)To analyze the security market and its trend in continuous basis to arrive at a conclusiona s   t o   w h e t h e r   t h e   s e c u r i t i e s   a l r e a d y   i n   p o s s e s s i o n   s h o u l d  b e   d i s i n v e s t e d   a n d   n e w securities be purchased. If so the timing for investment or dis-investment is also revealed

 CHAPTER - 4 RISK – RETURN ANALYSISRISK ON PORTFOLIO :The expected  returns   from individual  securi t ies  carry  some degree  of   r isk.  Risk on  the  portfolio is different from the risk on individual securities. The risk is reflected in the variabilityof the returns from zero to infinity. Risk of the individual assets or a portfolio is measured by thevariance of its return. The expected return depends on the probability of the returns and their weighted contribution to the risk of the portfolio. These are two measures of risk in this contextone is the absolute deviation and other standard deviation.Most investors invest in a portfolio of assets, because as to spread risk by not putting all eggsin one basket. Hence, what really matters to them is not the risk and return of stocks in isolation, but the risk and return of the portfolio as a whole. Risk is mainly reduced by Diversification.Following are the some of the types of Risk:1)Interest Rate Risk:This arises due to the variability in the interest rates from timeto time. A change in the interest rate establishes an inverse relationship in the price of thesecurity i.e. price of the security tends to move inversely with change in rate of interest, long term securi t ies show greater var iabi l i ty in the pr ice wi th respect to interes t ra te changes than short term securities.Interest rate risk vulnerability for different securities is as under:T Y P E S R I S K  E X T E N TC a s h   E q u i v a l e n t L e s s   v u l n e r a b l e   t o   i n t e r e s t  r a t e   r i s k . L o n g   T e r m   B o n d s M o r e   v u l n e r a b l e   t o   i n te r e s t   r a t e   r i s k .

 2)Purchasing Power Risk:It is also known as inflation risk also emanates from the very fact that inflation affects the purchasing power adversely. Nominal return contains boththe real return component and an inflation premium in a transaction involving risk of theabove type to compensate for inflation over an investment holding period. Inflation ratesv a r y   o v e r   t i m e   a n d   i n v e s t o r s   a r e   c a u g h t   u n a w a r e   w h e n   r a t e   o f  i n f l a t i o n   c h a n g e s unexpectedly causing erosion in the value of realized rate of return and expected return.Purchasing power risk is more in inflationary conditions especially in respect of bondsand f ixed   income securi t ies .   I t   is  not  desirable   to   invest   in  such 

Page 52

securi t ies  during inflationary periods. Purchasing power risk is however, less in flexible income securitieslike equity shares or common stock where rise in dividend income off-sets increase in therate of inflation and provides advantage of capital gains.3)Business Risk:Business risk emanates from sale and purchase of securities affected by business cycles, technological changes etc. Business cycles affect all types of securitiesi .e . there i s cheerful movement in boom due to bul l i sh t rend in s tock pr ices whereas  bearish trend in depression brings down fall in the prices of all types of securities duringdepression due to decline in their market price.4)Financial Risk:It arises due to changes in the capital structure of the company. Itis also known as leveraged risk and expressed in terms of debt-equity ratio. Excess of risk vis-à-vis  equity   in   the capi tal  s t ructure   indicates   that   the  company  is  highly  geared.A l t h o u g h   a   l e v e r a g e d   c o m p a n y ’ s   e a r n i n g s   p e r   s h a r e   a r e   m o r e   b u t  d e p e n d e n c e   o n  borrowings exposes it to risk of winding up for its inability to honor its commitmentstowards lender or creditors. The risk is known as leveraged or financial risk of whichinvestors should be aware and portfolio managers should be very careful.5)Systematic Risk or Market Related Risk:Systematic risks affected from theenti re  market  are   ( the  problems,   raw mater ia l  avai labi l i ty ,   tax  pol icy  or  government

  policy, inflation risk, interest risk and financial risk). It is managed by the use of Beta of different company shares.6)Unsystematic Risks:The unsystematic risks are mismanagement, increasing inventory,wrong financial policy, defective marketing etc. this is diversifiable or avoidable becauseit is possible to eliminate or diversify away this component of risk to a considerableextent by investing in a large portfolio of securities. The unsystematic risk stems frominefficiency magnitude of those factors different form one company to another.RISK RETURN ANALYSIS:A l l   i n v e s t m e n t   h a s   s o m e   r i s k .   I n v e s t m e n t   i n   s h a r e s   o f   c o m p a n i e s   h a s  i t s   o w n   r i s k   o r   uncertainty;   these  r isks ar ise  out  of  var iabi l i ty  of  yields  and uncertainty  of  appreciat ion  or  depreciation of share prices, losses of liquidity etcTherisk over timecan be represented by the variance of the returns while thereturn overtimeis capital appreciation plus payout, divided by the purchase price of the share. 

Page 53

 Normally, the higher the r i sk that the investor takes , the higher i s the return. There is ,however, a risk less return on capital of about 12% which is the bank, rate charged by the R.B.Ior long term, yielded on government securities at around 13% to 14%. This risk less return refersto lack of variability of return and no uncertainty in the repayment or capital. But other risks suchas loss of liquidity due to parting with money etc., may however remain, but are rewarded by thetotal return on the capital.Risk-return is subject to variation and the objectives of the portfolio manager are to reducethat variability and thus reduce the risk by choosing an appropriate portfolio.Traditional approach advocates that one security holds the better, it is according to the modernapproach diversification should not be quantity that should be related to the quality of scriptswhich leads to quality of portfolio.Experience has shown that beyond the certain securities by adding more securities expensive.RETURNS ON PORTFOLIO:Each security in a portfolio contributes return in the proportion of its investments insecurity. Thus the portfolio expected return is the weighted average of the expected return, fromeach of the securities, with weights representing the proportions share of the security in the totalinvestment. Why does an investor have so many securities in his portfolio? If the security ABCgives the maximum return why not he invests in that security all his funds and thus maximizer e t u r n ?   T h e   a n s w e r   t o   t h i s   q u e s t i o n s   l i e   i n   t h e   i n v e s t o r ’ s  p e r c e p t i o n   o f   r i s k   a t t a c h e d   t o investments, his objectives of income, safety, appreciation, liquidity and hedge against loss of  value of money etc. this pattern of investment in different asset categories, types of investment,etc., would all be described under the caption of diversification, which aims at the reduction or  even elimination of non-systematic risks and achieve the specific objectives of investors. CHAPTER – 6 PERSONS INVOLVED IN PORTFOLIO MANAGEMENT1)INVESTOR:Are the people who are interested in investing their funds?2)PORTFOLIO MANAGERS:Is a person who is in the wake of a contract agreement with a client, advices or directs or undertakes on behalf of the clients, the management or distribution or management of the funds of the client as the case may be.3)DISCRETIONARY PORTFOLIO MANAGER:Means a manager who exercise under a contract relating to a portfolio management exerciseany degree of discretion as to the investment or management of portfolio or securities or funds of clients as the case may be. The relationship between an investor and portfolio manager is of ahighly interactive nature.The portfolio manager carries out all the transactions pertaining to the investor under the  power of attorney during the last two decades, and increasing complexity was witnessed in thecapital market and its trading procedures in this context a key (uninformed) investor formed )investor found himself in a

Page 54

tricky situation , to keep track of market movement ,update hisknowledge, yet stay in the capital market and make money , therefore in looked forward to resuming help from portfolio manager to do the job for him . The portfolio management seeksto strike a balance between risk’s and return.The generally rule in that greater risk more of the profits but S.E.B.I. in its guidelines prohibits portfolio managers to promise any return to investor.P o r t f o l i o   m a n a g e m e n t   i s   n o t   a   s u b s t i t u t e   t o   t h e   i n h e r e n t   r i s k s  a s s o c i a t e d   w i t h   e q u i t y investment.

WHO CAN BE A PORTFOLIO MANAGER?Only those who are registered and pay the required l icense fee are e l igible to operate as  portfolio managers. An applicant for this purpose should have necessary infrastructure with professionally qualified persons and with a minimum of two persons with experience in this business and a minimum net worth of Rs. 50lakh’s. The certificate once granted is valid for threeyears. Fees payable for registration are Rs 2.5lakh’s every for two years and Rs.1lakh’s for the third year . From the fourth year onwards , renewal fees per annum are Rs 75000. These are subjected to change by the S.E.B.I.The S.E.B.I . has imposed a number of obl iga t ions and a code of conduct on them. The  portfolio manager should have a high standard of integrity, honesty and should not have beenconvicted of any economic offence or moral turpitude. He should not resort to rigging up of  pr ices,   ins ider   t rading or  crea t ing  false  markets ,  e tc .   thei r  books  of  accounts  are  subject   toinspect ion to inspect ion and audi t by S.E.B.I . . . The observance of the code of conduct and guidelines given by the S.E.B.I. are subject to inspection and penalties for violation are imposed.The manager has to submit periodical returns and documents as may be required by the SEBIfrom time-to- time.

 FUNCTIONS OF PORTFOLIO MANAGERS:Advisory role:Advice new investments, review the existing ones, identification of  objectives, recommending high yield securities etc.Conducting market and economic service:This is essential for recommending goodyielding securities they have to study the current fiscal policy, budget proposal; individual policies etc further portfolio manager should take in to account the credit policy, industrialgrowth, foreign exchange possible change in corporate law’s etc.Financial analysis:He should evaluate the financial statement of company in order tounderstand, their net worth future earnings, prospectus and strength.Study of stock market :He should observe the trends at various stock exchange andanalysis scripts so that he is able to identify the right securities for investment

Page 55

Study of industry:He should  study  the   industry   to  know i ts   future  prospects , technical changes etc, required for investment proposal he should also see the problem’sof the industry.Decide the type of port folio :Keeping in mind the objectives of portfolio a portfoliomanager has to decide whether the portfolio should comprise equity preference shares,debentures, convertibles, non-convertibles or partly convertibles, money market, securitiesetc or a mix of more than one type of proper mix ensures higher safety, yield and liquiditycoupled with balanced risk techniques of portfolio management.A portfolio manager in the Indian context has been Brokers (Big brokers) who on the basis of their experience, market trends, Insider trader, helps the limited knowledge persons.The one’s who use to manage the funds of portfolio, now being managed by the portfolio of Merchant Bank’s, professional’s like MBA’s CA’s And many financial institution’s have enteredthe market in a big way to manage portfolio for their clients.A c c o r d i n g   t o   S . E . B . I .   r u l e s   i t   i s   m a n d a t o r y   f o r   p o r t f o l i o   m a n a g e r s t o   g e t   t h e m   s e l f ’ s registered.Registered merchant bankers can act’s as portfolio managers. Investor’s must look forward,for qualification and performance and ability and research base of the portfolio managers.

Page 56

7 reasons why an annual financial review is important

You have worked hard to get to where you are today so you want to make sure you are getting the most from your money. But just as markets move and change so do your circumstances. Life takes twists and turns that we don’t always see coming and that is why it is so important to review your financial situation.  

7 reasons why an annual review is so important

1.     Your personal situation may have changed

What changes in your personal situation have occurred in the past year?  Changes like a job change, divorce, having a child, buying a home, retiring, getting married, losing a spouse, etc. can alter your spending and savings. 

 

2.     Your lifestyle and financial goals may have changed

As changes in your personal situation occur it is understandable that your goals may change. As such, it is important that you review your financial situation and plan to ensure you have the steps in place to achieve your changing goals. Your goals should be Specific, Measurable, Achievable, Realistic and Time-Targeted (S.M.A.R.T) and should be about your dreams and priorities. 

 

3.     You could be affected by changes in legislation (i.e. superannuation contribution limits)

Changing governments, the annual Federal Budget and passing of legislation throughout the year can affect your financial situation dramatically. By reviewing your financial situation we can identify what needs to be done to deal with the changes in legislation. Some of these changes may include superannuation contribution limits, tax rates, Centrelink deeming rules and Centrelink payment changes ieFamily Tax Benefit, Aged Pension etc.  

 

Page 57

4.     You could be paying more tax than necessary

Changes in legislation and also changes in your income situation could mean that you are paying more tax than necessary. By reviewing your financial situation on an annual basis we can identify if there are any tax efficient strategies that could help you pay less tax or boost your after-tax returns. Such strategies could include reviewing your superannuation, investments and even insurance solutions to ensure you have the right products to suit your current situation and goals.  

 

5.     Your estate plan may have fallen out of date

Reviewing your estate plan is generally something we don’t want to think about too often. However if done properly your estate plan can ensure your money is inherited by the right people at the right time. Have you got a binding death nomination on your superannuation? Is your Will up-to-date? Do you have a Power of Attorney and do you need a Testamentary Trust?  Even if you don’t have many assets the right estate plan can save your friends and family a lot of trouble and heartache.

 

6.     Your insurance needs may have changed

Insurance is really an investment in peace of mind.  Yes it is an expense that can sometimes feel unnecessary. But if the unexpected happens insurance can save a lot of additional heartache that could be caused by the financial stress of dealing with the aftermath. Do you have enough life insurance to cover your debts and current family situation? Is your income protection sufficient to cover your lifestyle expenses if you were unable to work due to sickness or injury? Changes to your personal, family or work situation can all impact your insurances.

 

7.     Your debts may be growing

Are you in control of your debts?  Or are you struggling to make a dent in your credit card, personal loans and house mortgage? Sometimes it isn’t even a matter of your debts increasing but more so the frustration that you work so hard and that your debts just don’t seem to get smaller. By reviewing your financial situation we may be able to identify ways you can pay off more debt and free up cashflow by looking at how your debt is structured.

Why is it important to review your financial plan?     (30-Jul-2013 )

Page 58

Today, almost everyone gets a medical check-up done at regular intervals. Yes, it is extremely important to remain in the pink of health to achieve our dreams in life. Most of us also get our personal assets (such as car, air-conditioner, refrigerator etc.) serviced atleast once in a year in order to avoid them getting out of use. Well, but what many forget is that the same principle applies to our financial plans as well. Without a timely review of your financial plans, you are most probably bidding a goodbye to your financial goals! 

The following points would help you recognise why reviewing your financial plan is necessary: 

Achievable Goals: While preparing financial plans, one defines certain set of goals and objectives thereto that he/she anticipates to achieve in a given time frame. For example, you could be saving for buying a new home, or for higher education of your children. But you may need to revisit all your goals after certain points in time to adjust the amounts (investment and target) based on the on-going financial conditions (such as inflation rate and economic environment). You see, it may so happen some times that you have not at all progressed or moved very little towards your financial goal since the time the plan was created. Here it is important to revise your investments and alter investment avenues/instruments. In such cases, it may also be prudent to push your goal further away, if possible. For example, if you are planning to retire at 50, consider retiring at 55 instead, giving yourself more earning years. You can also reduce the goal corpus that is required. For instance, if you wanted to buy a house for 75 lakhs, consider a house for 60 lakhs. Review of your financial plan enables you to determine whether your pre-determined goals are achievable, given the present circumstances, and also allows you to make them more realistic. 

<Change in income: You may have received a raise in salary recently or may receive it soon. Any big change in income would directly impact your financial plans. It may not only lead to the early maturity of your goals but also let you dream bigger in life. Many companies maintain an Employee Provident Fund (EPF) account which helps employees to save for their retirement. Many a times, people switch jobs and their EPF balance lies idle with their previous company. You must attempt to retrieve this and also take it into account while reviewing financial plans. Given the present market conditions, it is also possible that many people witness a cut in their monthly salary. In such cases, review of financial plans becomes mandatory to revise the investment amount and investment objectives. Investors might need to generate another source of income to maintain their monthly investments. 

Contingencies and Expenses: Any kind of medical emergencies may burn a big hole in your monthly savings, especially if no provisions are made in your financial plan for such contingencies. The number of accidents and medical costs associated with them are continually rising. Even if you claim medical insurance for meeting these expenses, the subsequent premiums that you pay may be higher. Apart from this, there could be some other additional expenses that may have increased since the last time you reviewed your financial plan. For example, you may have purchased a car in the previous year, for which you need to pay monthly EMIs and fuel expenses. Or your household expenses may have

Page 59

risen due to the general rise in price levels. Such unplanned expenses will have a direct bearing on your financial goals. 

Number of dependents: Change in marital status, birth of a child or the death of a loved one can largely impact cash flows and thereby affect your financial plans. For example, if your family is growing you will need to raise your life insurance cover, so that the financial requirements of your dependents are covered even in your absence. However, if your children are grown up adults and are no longer financially dependent on you, then you need to re-consider your insurance portfolio as well, and take a greater coverage in health insurance and also reset life priorities. Also, it is important to write a will and select nominees for your assets in order to avoid any disputes after you. In case there is a change in your family or beneficiaries, the same should be reflected in your will as well. 

Change in tax status: From the time you constructed your financial plan and till now, there could have been change(s) in the income tax laws in the country or the amount of income you earn. This might result in you falling in a different tax bracket and thus paying tax at a higher or lower rate. In such circumstances, you will need to revise your financial plans in order to plan your investments and expenses efficiently to reduce the tax liability. For example, if you fall in the highest tax bracket currently, then it would be sensible to undertake your tax planning activity prudently in order to optimally save tax, which enable you plan for your financial goals efficiently. Remember; when you are aiming to save tax, it is important to recognise that tax planning goes beyond the section 80C of the Income Tax Act and it is important to take benefit of the other provisions as well, in order to optimally save tax. 

New goals: Priorities change over a period of time. For example, when you are in early 20s, your priorities would include going for a holiday every half year and spending heavily on your lifestyle etc. But your spending habits and goals would change once you have kids and have a family to support. Similarly, you might have new goals and other added responsibilities apart from existing ones which may not be updated in your old financial plan. New strategies and investments might be needed to be framed in the plan to meet these objectives. 

Change in Risk Appetite and Risk Tolerance: Risk Appetite (which is a function of Age, Past Experience, Knowledge etc.) and Risk Tolerance level (which is a function of Income, Expenses, Financial Responsibilities and Nearness to Goals amongst others) act as an important determinant while framing your financial plan. However, these determinants are not static and may change as you progress in life. For example, if you are a young investor, you would be willing to take more risk. Hence your portfolio will be skewed towards risky asset classes such as Equities or Real Estate. But if you are close to retirement, your risk tolerance level might be lower, which would need to be revised in your asset allocation. Similarly, if you are close to realisation of a certain goal, the asset mix for that goal will need to be shifted to less volatile asset classes such as debt and fixed income instruments. 

An annual review (or bi-annually in some cases) will increase the possibility of fulfilling your financial goals by allowing you to incorporate any personal or economic changes in your financial plan. 

Page 60

A review also allows you to analyse your individual investments and determine if they are worth keeping. For example, if you have invested in equities, then it would be prudent to check the current standing and potential of stocks and equity mutual funds in your portfolio from time to time. It could be possible that a stock or equity mutual fund may not be performing well; and in case of an equity mutual fund scheme there could be a change in its investment objective or style, which no longer meets your purpose of investment. 

Page 61