Investment – Know How

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By,Rakesh Murthy K G, CFA

What is Investment ?Is it Savings ?

Or something more ??

What do you think ???

InvestmentIt is the process of,

‘Sacrificing something now for the prospect of gaining something later’

3 DimensionsTimeToday’s SacrificeProspective gains

Few Transactions 1. In order to settle down, a young couple buys a house for Rs. 30

lacs in Bangalore2. A wealthy farmer pays Rs. 1 lac for a piece of land in his village3. A cricket fan bets Rs. 1000 on the outcome of a test match in

New Zealand4. A college professor buys, in anticipation of good returns, 10

shares of RIL for Rs. 95005. A clerk deposits Rs. 5000 in postal savings account6. Based on a rumor that the ongoing IPO of ‘DAMAKA Software

ltd.’ will fetch astounding gains, Suntachari applies for 600 shares

InvestmentVs

Speculation

What is Speculation ?There’s an element of Speculation involved in

all Investment DecisionSpeculations are :

Not so thought out decisions – Gut FeelingsOut of Greed & FearNot Asset but ProfitRisk Taker

Are all Investments Speculative?

Well Investments can be Separated on the following grounds

Planning HorizonRisk DispositionReturn ExpectationBasics of DecisionsLeverage

Positioning• Striking the Right Chord

Your Intention makes the difference

In the above example – Professor Investing in RIL is for a long term. On the Contrary, if he’s investing for the Day?

Life Gyan Everyone have everything, your Thinking makes the difference

Objectives

Financial Goals are Life Goals

Goals in LifeFinancial Goals are Life goals

Based on :Time Importance

Near Term High Priority Buying Car Buying House

Long term High Priority Retirement Planning Children Education

Low Priority Vacation Charity

Money Making Goals Increase Wealth Buy Businesses

Investment Constraints

Need to ConsiderLiquidityAgeTime HorizonNeed for Regular IncomeRisk ToleranceTax Liability

ApproachesWhat makes you Buy ?!?!?!

Fundamental ApproachInvest at their Intrinsic Value

Sooner or later the Market price falls in line with Intrinsic Value

Buying undervalued items

Psychological ApproachGreed & Fear

Guided by Emotions

Emotions out weigh the Intrinsic Value

Technical Analysis

Academic ApproachTheories of all the Academicians

They correspond to Fundamental Approach

Market Price = Intrinsic Value

Eclectic ApproachDiverse Approach

Combination of all the above

It’s a mix - Fundamental shows what & Technical's states when

Investment ClassificationThoda Financial Markets,

Thoda Others

Investment

Financial Investme

nt

Fixed Income

Variable IncomeReal

Investment

Fixed Income Instruments

Gilt Postal DepositsBank DepositsCorporate DebenturesCorporate FD’sCD’s & CP’sPPF

Gilt Securities

Debt Securities issued by Govt. & semi Govt.

They are the Public borrowings

Largest Public Debt Country????

Treasury Bills

Issued by RBIMATURITY

91 Days364 Days

Sold at auctionEnd of Maturity, Receives Face Value

Govt. Dated Securities

Maturity Period over 1 yrInterest is payable Semi AnnuallySecurity can be Stock Certificate or

Promissory Note All the FI’s need to invest certain portion

Assignment

Find the list of Bank FD’s & choose the best one to be invested.

Mistakes & SuccessHum Honge kaamiyaab !!!

Common ErrorsInadequate comprehension of Risk &

ReturnVaguely Formulated Investment PolicyPast ExperiencesHurry burry, Sue's the curryLove for cheap stocksOver / Under Diversification Wrong Attitudes towards LossesTendency to Time the Market

Successful InvestingContrary Thinking

Out of the BoxPatienceComposureFlexibilityDecisivenessInvest never SpeculateAvoid Derivatives

BuyBusinesses,

NotStocks

ANY QUESTIONS

Thank You

“Be the change you want to see in this world”

- Mahathma Gandhi