NATURE AND SCOPE OF INVESTMENT

MANAGEMENT
 NATURE AND SCOPE OF INVESTMENT MANAGEMENT
FUNDAMENTAL OF INVESTMENT
SAPM
MEANING OF INVESTMENT MANAGEMENT
1.     INVESTMENT PORTFOLIO MANAGEMENT IS CONCERNED WITH EFFICIENT MANAGEMENT OF
INVESTMENT IS SECURITIES.
2.     ALSO KNOWN AS PORTFOLIO MANAGEMENT
3.     PORTFOLIO MANAGEMENT HAS BEEN PRACTICED AS AN INVESTMENT MANAGEMENT
COUNSELLING IN WHICH THE INVESTOR HAS BEEN ADVISED TO SEEK ASSETS THAT WOULD
GROW IN VALUE AND PROVIDE INCOME
4.     PORTFOLIO: IS THE COMBINATION OF SECURITIES. IT IS LIST OF SECURITIES THAT BELONG
TO AN INDIVIDUAL INVESTORS HAVING CERTAIN GOALS.
5.     MANAGEMENT:- CONSIST OF ALL THE ACTIVITIES CONCERNED WITH TRYING TO
ACCOMPLISH THE PARTICULAR GOALS OF THE PORTFOLIO IN AN EXPEDIENT MANNER
6.     PORTFOLIO MANAGEMENT
7.     A PROPER INVESTMENT DECISION MAKING REGARDING WHAT TO BUY AND SELL
8.     PROPER MONEY MANAGEMENT IN TERMS OF INVESTMENT IN BASKET OF ASSETS  SO AS TO
SATISFY THE ASSET PREFERENCE OF THE INVESTORS
9.     REDUCE THE RISK AND MAXIMIZE THE RETURN
10.  PORTFOLIO MGMT MAY BE THOUGH OF AS A DECISION MAKING PROCESS WHICH HAS TO DO
AWAY WITH CHOOSING AND REVISING PORTFOLIO OF SECURITIES SO AS TO SATISFY
INVESTOR OBJECTIVE
 PRINCIPLES OF PORTFOLIO MANAGEMENT
1. IDENTIFICATION OF COLLECTIVE IMPORTANCE OF ALL HOLDING. INDIVIDUAL
SECURITIES ARE IMPORTANT ONLY TO THE EXTENT THEY AFFECT THE AGGREGATE
PORTFOLIO
2. EVERY PORTFOLIO SHOULD CATER TO THE PARTICULAR NEEDS OF THE INVESTOR
3. DECISION REGARDING THE AMOUNT OF TAKING DECISIONS
4. LARGER RETURN ON INVESTMENT WITH LARGER RISK
5. THE RISK ASSOCIATED WITH A SECURITY DEPENDS UPON WHEN THE INVESTMENT
WILL BE LIQUIDATED
6. CAREFUL EVALUATION OF THE RISK AND RETURN
 OBJECTIVE OF INVESTMENT MANAGEMENT
1. IT SHOULD YIELD A STEADY CURRENT INCOME
2.  A GOOD PORTFOLIO SHOULD BE FLEXIBLE
AND CONSISTS OF INVESTMENT WHICH CAN BE MARKETED WITHOUT DIFFICULTY
3. SHOULD PROVIDE TAX SHIELD
4. PORTFOLIO SHOULD BE BALANCED AND SHOULD YIELD GOOD RETURN
5. SHOULD ENSURE THAT THERE ARE SUFFICIENT LIQUIDITY
6. INVESTMENT SAFE
 SCOPE OF INVESTMENT MANAGEMENT
 IDENTIFICATION OF THE INVESTOR’S REQUIREMENTS
  FORMULATION OF INVESTMENT POLICY AND STRATEGY
                      i.    LAY DOWN THE DIFFERENT ASSET CLASSES OF INVESTMENT
                    ii.    PROPORTION OF THE FUNDS
                   iii.    PREPARE THE INVESTMENT STRATEGY FOR INCOME AND CAPITAL APPRECIATION

b.    WILL HAVE TO BE CORRELATED WITH THE EXPECTATION OF THE CAPITAL MARKET

AND THE INDIVIDUAL SECTORS OF THE INDUSTRY
 EXECUTION OF THE STRATEGY:
1. REQUIRES LOT OF RESEARCH ANALYSIS AND JUDGMENT
2. CONSTRUCTION OF PORTFOLIO MAY RELATE TO THE NEEDS OF GIVEN LEVEL OF
INCOME,LIQUIDITY,SAFETY ETC
3. SUCCESS DEPENDS UPON THE INITIATIVE,INNOVATION AND JUDGMENT

 MONITORING OF PORTFOLIO:-
1. EVALUATION AND ADJUSTMENT OF COMPOSITION OF PORTFOLIO FROM TIME TO
TIME
2. DONE WITH THE OBJECTIVE OF MAKING IT MORE OPTIMAL AND EFFICIENT
 FACTORS AFFECTING INVESTMENT DECISION
1. AMOUNT OF INVESTMENT
2. PURPOSE OF THE INVESTMENT
3. FOR SAVING TAX
4. FIXED RETURN
5. APPRECIATION IN THE VALUE OF SECURITIES
6. SELECTION OF THE SECURITIES
7. TIMING OF PURCHASE
 PROCESS OF INVESTMENT DECISIONS
 INVESTMENT POLICY:-
1. DETERMINATION OF INVESTIBLE FUNDS OR THE AMOUNT TO BE INVESTED
2. DETERMINATION OF INVESTMENT OBJECTIVE
3. IDENTIFICATION OF THE POTENTIAL INVESTMENT ASSETS
4. CONSIDERATION OF THE ATTRIBUTES OF VARIOUS INVESTMENTS
 INVESTMENT ANALYSIS:-HELPS IN GENERATING THE EFFICIENT
PORTFOLIO.INVESTMENT ANALYSIS IS CONCERNED WITH DETERMINATION OF THE FUTURE
RISK AND RETURN IN HOLDING BLENDS OF VARIOUS INDIVIDUAL SECURITIES
 VALUATION OF SECURITIES:-IS THE PRESENT WORTH OF THE FUTURE BENEFITS
FROM THE INVESTMENTS
 PORTFOLIO CONSTRUCTION:-
1. DECIDING THE DIVERSIFICATION LEVEL
2. CONSIDERATION THE INVESTMENT TIMING
3. SELECTION OF THE INVESTMENT TIMING
4. ALLOCATION OF ASSETS/SECURITIES
 PORTFOLIO EVALUATION AND REVISIONS:-REQUIRES AN INVESTOR TO BALANCE
WHAT HE HAS AGAINST THE AVAILABLE ALTERNATIVES.

Risk
Risk refers to the loss of principal amount of an investment. It is one of the major characteristics
of an investment.The risk depends on the following factors:When investment maturity period is
longer; investor will take larger risks.•
Government or Semi-Government bodies issue securities, which have lesser risks.
In the case of the debt instrument or fixed deposit, the risk of aboveinvestment is less due to their
secured and fixed interest payable.
For instance, debentures. In the case of ownership instrument like equity or preference shares,
the risk is more due to their unsecured nature and variability of their return and ownership
character.
The risk of degree of variability of returns is more in the case of ownership capital as compared
to debt capital. The tax provisions would influence the return of risk.
Return
Return refers to expected rate of return from an investment. Return is an important characteristic
of investment.
Return is the major factor which influences the pattern of investment that is made by the
investor. Investor always prefers high rate of return for his investment.

Types of Fixed RETURN/ Income Products

As stated earlier, the most common example of a fixed-income security is a government or
corporate bond. The most common government securities are those issued by the U.S.
government and are generally referred to as Treasury securities. However, many fixed income
securities are offered from non U.S. governments and corporations as well.

Here are the most common types of fixed income products:

 Treasury bills (T-bills) are short-term fixed-income securities that mature within one
year that do not pay coupon returns. Investors buy the bill at a price less than its face
value and investors earn that difference at the maturity.2
 Treasury notes (T-notes) come in maturities between two and 10 years, pay a fixed
interest rate, and are sold in multiples of $100. At the end of the maturity, investors are
repaid the principal but earn semiannual interest payments until maturity.3
 The Treasury bond (T-bonds) are similar to the T-note except that it matures in 20 or
30 years. Treasury bonds can be purchased in multiples of $100.4
 Treasury Inflation-Protected Securities (TIPS) protects investors from inflation. The
principal amount of a TIPS bond adjusts with inflation and deflation.5
 A municipal bond is similar to a Treasury since it is government-issued, except it is
issued and backed by a state, municipality, or county, instead of the federal government,
and is used to raise capital to finance local expenditures. Muni bonds can have tax-free
benefits to investors as well.6
 Corporate bonds come in various types, and the price and interest rate offered largely
depends on the company’s financial stability and its creditworthiness. Bonds with higher
credit ratings typically pay lower coupon rates.
 Junk bonds—also called high-yield bonds—are corporate issues that pay a greater
coupon due to the higher risk of default. Default is when a company fails to pay back the
principal and interest on a bond or debt security.
  A certificate of deposit (CD) is a fixed income vehicle offered by financial institutions
with maturities of less than five years. The rate is higher than a typical saving account,
and CDs carry FDIC or National Credit Union Administration (NCUA) protection. 7  8
 Fixed-income mutual funds (bond funds)—such as those offered by Vanguard—invest
in various bonds and debt instruments. These funds allow the investor to have an income
stream with the professional management of the portfolio. However, they will pay a fee
for the convenience.
 Asset-allocation or fixed income ETFs works much like a mutual fund. These funds
target specific credit ratings, durations, or other factors. ETFs also carry a professional
management expense.
 Classification of Investment
The classification of investments into various groups is explained in the paragraphs given
below:
On the basis of physical investments
 Physical investments are as follows:
 House•
 Land•
 Building•
 Gold and silver•
 Precious stones•
On the basis of financial investment
 Financial investments are further classified on the basis of:
 Marketable and transferable investments•
 Non-marketable investments•
 Marketable investments are as follows:
 Shares•
 Debentures of Public Limited Companies, particularly the listed company in Stock
Exchange•
 Bonds of Public Sector Units•
 Government Securities, etc.•
 Non-marketable investments are as follows:
 Bank deposits•
 Provident and pension funds•
 Insurance certificates•
 Post office deposits•
 National saving certificates•
 Company deposits•
 Private company shares, etc.

Investment Activity
Investment activity includes buying and selling of the financial assets, physical assets and
marketable assets in primary and secondary markets. Investment activity involves the use of
funds or saving for further creation of assets or acquisition of existing assets.
Accordingly, investment activity refers to acquisition of assets like:
 Financial assets•
  Physical assets•
 Marketable assets from the primary and secondary market•
Financial assets are as follows:
 Cash•
 Bank deposits•
 P.F.•
 LIC schemes•
 Pension scheme•
 Post office certificates and deposits•
Physical assets are as follows:
 House, land, building and flats•
 Gold, silver and other metals•
 Consumer durables•
Marketable assets are as follows:
 Shares•
 Bonds•
 Government securities•
 M.F schemes•
 UTI units, etc.•
Investment activity involves the use of funds or saving for further creation of assets or
acquisition of existing assets.