Investment analysis and management book pdf

Therefore, the forward rate will exceed the expected short rate, i. They are statutorily required to maintain a certain portion of the deposits as cash and another portion in the form of liquid and safe assets generally Government securities , which yield a lower rate of return. It can only be for a limited number of years. The second component, called the asset turnover ratio, measures the efficiency in usage of assets by the firm and the third component measures the financial leverage of the firm through the equity multiplier. The real payoff is Rs.

Much more than documents.

We are constantly engaged in providing a unique educational solution through continuous innovation. Ravi Malhotra B. Kavita Malhotra M. Stocks B. Bonds C. Houses D.

Stay ahead with the world’s most comprehensive technology and business learning platform.

To browse Academia. Skip to main content. You’re using an out-of-date version of Internet Explorer. Log In Sign Up. Investment Analysis and Portfolio Management. Tamanna Katiyar.

To browse Academia. Skip to main content. You’re using an out-of-date version of Internet Explorer. Log In Sign Up. Investment Analysis and Portfolio Management. Tamanna Katiyar. Test Details Sr. Name of Module Fees Test No. Revision in test fees and test parameters with effect from April 01, PDF analysiz with pdfFactory trial version www. Passive Portfolio Management This book or any part thereof should not be copied, reproduced, duplicated, sold, resold or exploited for any commercial purposes.

Furthermore, the book in its entirety or any part cannot be stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or. Savings arise from deferred consumption, to be invested, in anticipation of future returns. Investments could be made into financial assets, like stocks, bonds, and similar instruments or into real assets, like houses, land, analysia commodities.

Our aim in this book is to provide a brief overview of three aspects of investment: the managemnet options available to an investor in financial instruments, the tools used in modern finance to optimally manage the financial portfolio and lastly the professional asset management industry as it exists today. Returns more often than not differ across their risk profiles, generally rising with the expected risk, i.

The underlying objective of portfolio management is therefore to create a balance between the trade-off of returns and risk across multiple asset classes. Portfolio management is the art of managing the expected return requirement for the corresponding risk tolerance. In our first chapter, we start with the various types of investors in the markets today, their return requirements and the various constraints that an investor faces.

Primarily, investors bokk either individuals, in that they invest for themselves or institutions, where they invest on behalf of. Risk appetites and return requirements greatly vary across investor classes and are key boko of the investing styles and strategies followed as also the bolk faced. A quick look at the broad groups of investors in the market illustrates the point.

Individuals differ across their risk appetite and return requirements. Requirements of individuals also evolve according to their life-cycle positioning. The investment portfolio then changes depending on the capital needed for these requirements. As mentioned earlier, institutions are representative organizations, i. Assets under management are generally large and managed professionally by fund managers. Examples of such organizations are mutual funds, pension funds, insurance companies, hedge funds, endowment funds, banks, private equity and mmanagement capital firms investment analysis and management book pdf other financial institutions.

We briefly describe some of them. Box No. Over the years the share of institutions has risen in share ownership of companies. Given the small portfolio size to manage, it may not be optimal for an individual to spend his or her time analyzing various possible investment strategies and devise investment plans and strategies accordingly.

Instead, they could rely manwgement professionals who possess the necessary expertise to managemen thier funds within a broad, pre-specified plan. These funds are managed and operated by investment analysis and management book pdf whose remunerations are linked to the performance of the funds.

The managrment or capital gain from the funds, after paying the management fees and commission is distributed among the individual investors in proportion to their holdings in the fund. Mutual funds vary greatly, depending on their investment objectives, the set of asset classes they invest in, and the overall strategy they adopt towards investments. Funds are contributed by the employers and employees during the working life of the employees and the objective is to provide benefits 7 PDF created with pdfFactory trial version www.

The management of pension funds may be in-house or through some financial intermediary. Pension funds of large organizations are usually very large and form a substantial investor group for various financial instruments. Endowment funds are usually initiated by a non-refundable capital contribution. The contributor generally specifies the purpose specific or general and appoints trustees to manage the funds. Such funds are usually managed by charitable organizations, educational organization, non-Government organizations, ijvestment.

The investment policy of endowment funds needs to be approved by the trustees of the funds. There are many different kinds of insurance polices and the premiums differ accordingly. For example, unlike term insurance, assurance or endowment policies ensure a return of capital to the policyholder on maturity, along with the death benefits.

The premium for such poliices may be higher than term policies. The investment strategy of insurance companies depends on actuarial estimates of timing and amount of future claims. Insurance companies are generally conservative in their attitude towards risks and their asset investments are geared towards meeting current cash flow needs as well as meeting perceived future liabilities.

Their main source of income is from what is called as the interest rate spread, which is the difference between the lending rate rate at which banks earn and the deposit rate rate at which banks pay.

They are statutorily required to maintain a certain portion of the deposits as cash and another portion in the form of liquid and safe assets generally Government securitieswhich yield a lower rate of return. In addition to the broad categories mentioned above, investors in the markets are also classified based on the objectives with which they trade.

Under this classification, there are hedgers, speculators and arbitrageurs. Ahd invest to provide a cover for risks on a portfolio they already hold, speculators take additional risks to earn supernormal returns and arbitrageurs take simultaneous positions say in two equivalent assets or same asset in two different 8 PDF created with pdfFactory trial version www.

Another category of investors include day-traders who trade in order to profit from intra-day price changes. They generally take a position at the beginning of the trading session and square off their position later during the day, ensuring that they do not carry any open position to the next trading day.

Traders in the markets not only invest directly in securities in the so- called cash markets, they also invest in derivatives, instruments that derive their value from the underlying securities. The professional portfolio advisor or manager also needs to consider the constraint set of the investors while designing the portfolio; besides having some constraints of his or analyeis own, like liquidity, market risk, cash levels mandated across certain asset classes.

We provide a quick outline of the various constraints and limitations that are faced by the broad categories of investors mentioned.

It is generally measured across two different parameters, viz. Adequate liquidity is usually characterized by high levels of trading activity. High demand and supply of the security would generally result in low impact costs of trading and reduce liquidity risk. In general, investors with shorter investment horizons prefer assets with low risk, like fixed-income securities, whereas for longer investment horizons investors look at riskier assets like equities.

Risk-adjusted returns for equity are generally found to be higher for longer investment horizon, but lower in case of short investment horizons, largely due to the high volatility in the equity markets. Further, certain securities require commitment 9 PDF created with pdfFactory trial version www. Investment horizon also facilitates in making a decision between investing in a liquid or relatively illiquid investment. If an investor wants to invest for a longer period, liquidity costs may not be a significant factor, whereas if the investment horizon is a short period say 1 month then the impact cost liquidity becomes significant as it could form a meaningful component of the expected return.

Investors are always concerned with the net and not gross returns and therefore tax-free investments or investments subject to lower tax rate may trade at a premium as compared to investments with taxable returns.

The following example will give a better understanding of the concept: Table 1. In some cases taxation benefits on certain types of income are available on specific investments. Such boom benefits investmnt also be considered before deciding the investment portfolio. Similarly, there are certain specific needs for institutional investors managemejt.

In addition to the few mentioned here, there are other constraints like the level of requisite knowledge investors may not be aware of certain financial instruments and their pricinginvestment size e. In this chapter, we take a look at different financial markets and try to explain the various instruments where investors can potentially park their funds. Financial markets can mainly be classified into money markets and capital markets.

Instruments in the money markets include mainly short-term, marketable, liquid, low-risk debt securities. Capital markets, in contrast, include longer-term and riskier securities, which include bonds and equities. There is also a wide range of derivatives instruments that are traded in the capital an.

Both bond market and money market instruments are fixed-income securities but bond market instruments are generally of longer maturity period as compared to money market instruments.

Money market instruments are of very short maturity period. The equities market can be further classified into the primary and the secondary market.

Derivative market instruments are mainly futures, forwards and options on the underlying instruments, usually equities and bonds. When an issuer wants to issue more securities of a category that is already in existence in the market it is referred to as Follow-up Offerings. Example: Reliance Power Ltd. It is generally invfstment to price a security during a Follow-up Offering since the market price of the security is actually available before the company comes up with the offer, whereas in the case of an IPO it is very difficult to price the offer since there is no prevailing market for the security.

It is in the interest of the company to estimate qnd correct price of the offer, since there is a risk of failure of the issue in case of non-subscription if the offer is overpriced. If the issue is underpriced, the company stands to lose notionally since the securities will be sold at a price lower than its intrinsic value, resulting in lower realizations.

The secondary market helps in bringing potential buyers and sellers for a particular security together and helps in facilitating the transfer of the security between the parties. Thus the primary market facilitates capital formation in the economy and secondary market provides liquidity to the securities. There is another market place, which is widely referred to as the third market in the investment world.

It is called the over-the-counter market or OTC market. The OTC market refers to all transactions in securities that are not undertaken on an Exchange. Securities traded on an OTC market may or may not be traded on a recognized stock exchange. Trading in the OTC market is generally open to all registered broker-dealers.

There may be regulatory restrictions on trading some products in the OTC markets. For example, in India equity derivatives is one of the products which is regulatorily not allowed to be traded in the OTC markets. In addition to these three, direct transactions between institutional investors, undertaken primarily with transaction costs in mind, are referred to as the fourth market. Orders refer to instructions provided by a customer to a brokerage firm, for buying or selling a security with specific conditions.

These conditions may be related to the price of the security limit order or market order or stop loss orders or related to time a day order or immediate or cancel order.

Investment analysis and portfolio management

Stay ahead with the world’s most comprehensive technology and business learning platform. In many countries, the central bank provides insurance e. In its simplest form, revenue generation or sales accrues from selling the products manufactured, or services rendered by the company. Arbitrage in the market ensures that portfolios with equal analysiss to a fundamental risk factor are equally priced. The forward interest rate is interpreted as indicating market expectations of the time- path of future interest rates, future inflation rates and future currency depreciation rates. Absence of serial correlation indicates investment analysis and management book pdf weak-form efficient analyiss.