Investment

Investment or investing is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it.The basic meaning of the term being an asset held to have some recurring or capital gains. The term "investment" is used differently in economics and in finance. Economists refer to a real investment (such as a machine or a house), while financial economists refer to a financial asset, such as money that is put into a bank or the market, which may then be used to buy a real asset.

Types of investments
Business Management
The investment decision (also known as capital budgeting) is one of the fundamental decisions of business management: managers determine the assets that the business enterprise obtains. These assets may be physical (such as buildings or machinery), intangible (such as patents, software, goodwill), or financial (see below

Economics
In economics, investment is the production per unit time of goods which are not consumed but are to be used for future production. Examples include tangibles (such as building a railroad or factory) and intangibles (such as a year of schooling or on-the-job training). In measures of national income and output, gross investment I is also a component of Gross domestic product (GDP), given in the formula GDP = C + I + G + NX, where C is consumption, G is government spending, and NX is net exports. Thus investment is everything that remains of production after consumption, government spending, and exports are subtracted.

Finance
In finance, investment=cost of capital, like buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold, real estate, or collectibles. Valuation is the method for assessing whether a potential investment is worth its price. Returns on investments will follow the risk-return spectrum. Types of financial investments include shares, other equity investment, and bonds (including bonds denominated in foreign currencies). These financial assets are then expected to provide income or positive future cash flows, and may increase or decrease in value giving the investor capital gains or losses.

Personal finance
Within personal finance, money used to purchase shares, put in a collective investment scheme or used to buy any asset where there is an element of capital risk is deemed an investment. Saving within personal finance refers to money put aside, normally on a regular basis. This distinction is important, as investment risk can cause a capital loss when an investment is realized, unlike saving(s) where the more limited risk is cash devaluing due to inflation.

Real estate
In real estate, investment is money used to purchase property for the sole purpose of holding or leasing for income and where there is an element of capital risk. Unlike other economic or financial investment, real estate is purchased. The seller is also called a Vendor and normally the purchaser is called a Buyer. Two type of real estate Residential real estate, Commercial real estate

Financial market
In economics, a financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient market hypothesis In Finance, Financial markets facilitate-

The raising of capital (in the capital markets); The transfer of risk (in the derivatives markets); International trade (in the currency markets)

--and are used to match those who want capital to those who have it. Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are securities which may be freely bought or sold. In return for lending money to the borrower, the lender will expect some compensation in the form of interest or dividends.

Types of financial markets

The financial markets can be divided into different subtypes: 1. Capital markets which consist of: a)Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof. b)Bond markets, which provide financing through the issuance of Bonds, and enable the subsequent trading thereof. 2. Commodity commodities. markets, which facilitate the trading of

3. Money markets, which provide short term debt financing and investment. 4. Derivatives markets, which management of financial risk. provide instruments for the

Futures markets, which provide standardized forward contracts for trading products at some future date; see also forward market. 5. Insurance markets, which facilitate the redistribution of various risks. 6. Foreign exchange markets, which facilitate the trading of foreign exchange. Money Market
The money market is a subsection of the fixed income market. Many people think of the term "fixed income" as synonymous with bonds, but technically, a bond is just one type of fixed income security. The difference between the money market and the bond market is that the money market specializes in very short term debt securities (debt that matures in less than one year). Money market investments are also called cash investments because of their short maturities. One of the main differences between the money market and the stock market is that most money market securities trade in very high denominations and so individual investors have limited access to them. Also, the money market is a dealer market,which means that firms buy and sell securities in their own accounts, at their own risk. Compare this to the stock market where brokers usually act as agents, making money on commissions, while investors takes the risk of holding the stock. One other characteristic of a dealer market is there is no central trading floor or exchange. Deals are transacted over the phone or through electronic systems. The easiest way for us to gain access to the money market is with a money market. Various tools in Money Market : Treasury Bills (T-bills):

Treasury Bills (T-bills) are the most marketable money market security. Their popularity is mainly due to their simplicity. T-bills are basically a way for the U.S. government uses to raise money from the public. T-bills are short-term securities that mature in one year or less from their issue date. T-bills are issued with 3 month, 6 month, and 1 year maturities. You buy T-bills for a price less than their par (face) value, and when they mature, the government pays you their par value. Your interest is the difference between the purchase price of the security and what you get at maturity. If a bought a 90 day T-bill at $9,800 and held it until maturity, your interest would be $200. Treasury bills (as well as notes and bonds) are issued through a competitive bidding process at auctions. One of the biggest reasons that T -Bills are so popular is because they are one of the few money market instruments that are affordable to the individual investors. T-bills are usually issued in denominations of $1,000, $5,000, $10,000, $25,000, $50,000,$100,000, and $1 million. Other positives are that T-bills (and all treasuries) are considered to be the safest investments in the world because they are backed by the U.S. government. In fact, they are considered risk-free. Also, they are except from state and local taxes. Certificate of Deposit (CD) A certificate of deposit (CD) is a time deposit with a bank. Time deposits may not be withdrawn on demand like a check account. CDs are generally issued by commercial banks but they can be bought through brokerages. They bear a specific maturity date (from 3 months to 5 years), a specified interest rate, and can be issued in any denomination, very similar to bonds. CDs offer a slightly higher yield than T-Bills because of the slightly higher default risk for a bank, but overall the likeliness of a large bank going broke is pretty slim. Of course, the amount of interest you earn depends on a number of factors such as the current interest rate environment, how much money you invest, the length of time,and your specific bank. An important concept to understand when buying a CD is the difference between annual percentage yield (APY) and annual percentage rate (APR). APY is the total

amount of interest you earn in one year taking into account compound interest. APR is simply the stated interest you earn in one year, without taking into account compounding. The difference results from when interest is paid. The more frequently interest is calculated, the greater the yield will be. When an investment pays interest annually,its rate and yield are the same. There are two main disadvantages to CDs. 1.The returns are paltry and your money is tied up for the length of the CD. You can't get your money out without paying a harsh penalty.

Derivative
.

In finance, a security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage. Futures contracts, forward contracts, options and swaps are the most common types of derivatives. Because derivatives are just contracts, just about anything can be used as an underlying asset. There are even derivatives based on weather data, such as the amount of rain or the number of sunny days in a particular region. Derivatives are generally used to hedge risk, but can also be used for speculative purposes. For example, a European investor purchasing shares of an American company off of an American exchange (using American dollars to do so) would be exposed to exchange-rate risk while holding that stock. To hedge this risk, the investor could purchase currency futures to lock in a specified exchange rate for the future stock sale and currency conversion back into euros.

capital market
The capital market is the market for securities, where companies and governments can raise long-term funds. The capital market includes the stock market and the bond market. Financial regulators, such as the U.S. Securities and Exchange Commission, oversee the capital markets in their designated countries to ensure that investors are protected against fraud. The capital markets consist of the primary market, where new issues are distributed to investors, and the secondary market, where existing securities are traded. The capital markets consist of primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets. Secondary markets allow investors to sell securities that they hold or buy existing securities.

Stock Market
The following table illustrates where financial markets fit in the relationship between lenders and borrowers:
Relationship between lenders and borrowers
Lenders Financial Intermediaries Banks Insurance Companies Pension Funds Mutual Funds Financial Markets Interbank Stock Exchange Money Market Bond Market Foreign Exchange Borrowers Individuals Companies Central Government Municipalities Public Corporations

Individuals Companies

Foreign Exchange Foreign Exchange means buying or exchanging one currency for another. Banks generally quote two rates, one for buying and one for selling a particular currency A quoted exchange rate has three elements The two currencies involved The rate at which bank will buy - the bid rate The rate at which bank will sell - the offer rate

Foreign exchange is the act of selling one currency for another. This activity can be caused by a number of factors, including, but not limited to: _ Tourism _ Trade _ Investment _ Speculation _ Central Bank operations. These factors will govern the size of transactions, the means of settlement, the timing and value date of transactions, and the means of processing them. Who Uses Foreign Exchange Foreign exchange is used by the entire range of customers: _ Commercial Banks _ Merchant and Investment Banks _ Central Banks _ Manufacturing industry _ Import/Export industry _ Transport industry _ Wholesale/Retail businesses _ Investment companies _ Business travelers _ Holiday travelers In a world which has fewer barriers to the movement of funds, either in the form of cash or 'valuable' goods, or commodities, foreign exchange activity is a constant factor in financial institutions, regardless of their customer base or the basic nature of their business

capital market
The capital market is the market for securities, where companies and governments can raise long-term funds. The capital market includes the stock market and the bond market. Financial regulators, such as the U.S. Securities and Exchange Commission, oversee the capital markets in their designated countries to ensure that investors are protected against fraud.

primary market & secondary market The capital markets consist of the primary market, where new issues are distributed to investors (Newly formed (issued) securities are bought or sold in primary markets.), and the secondary market, where existing securities are traded.Secondary markets allow investors to sell securities that they hold or buy existing securities.

Stocks and Bonds

Stock
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders' meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated.

Bonds

A bond is a generic name for a debt instrument issued by Government/Corporations as a means of raising capital. A bond is an acknowledgement of a debt taken by the issuer So, A debt instrument is a promise in writing to repay a loan. It is offered by a borrower to lender to safeguard the loan. a bond is nothing more than a loan of which you are the lender The organization that sells a bond is known as the issuer The issuer of a bond pays the investor something extra for the privilege of using his or her money This "extra" comes in the form of interest payments, which are made at a predetermined rate and schedule The interest rate is often referred to as the coupon .

The date on which the issuer has to repay the amount borrowed, known as face value, is called the maturity date. Bonds are also known as fixed-income securities because you know the exact amount of cash you'll get back, provided you hold the security until maturity. For example you buy a bond with a face value of $1000, a coupon of 8%, and a maturity of ten years. This means you'll receive a total of $80 ($1000*8%) of interest per year for the next 10 years. Actually, because most bonds pay interest semi-annually, you'll receive two payments of $40 a year for ten years. When the bond matures after a decade you'll get your $1000 back

Issuance

In financial markets, an Equity Issuance is the sale of new equity or "stocks" by a firm to investors. Equity Issuance can involve a private sale, in which the transaction between investors and the firm takes place directly, or publicly, in which case the firm has to register the securities with the authorities and the sale takes place in an organized market, open to any registered investor, a process more akin to an auction. Two common types of public

Type Of issuance

Equity Issuance are Initial Public Offerings (IPOs) and Seasoned Equity Offerings(SEOs). This is one of the ways firms Corporate Finance themselves, that is, they obtain funds from investors in order to engage in business.
Initial Public Offerings (IPOs) The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. Seasoned Equity Offerings(SEOs) An issue of securities from an established company, whose existing shares have exhibited stable price movements and substantial trading volume over time, thereby earning a good reputation. This is also known as a "seasoned equity offering" (SEO). These types of stocks have high liquidity within the secondary market.

Exchange
A marketplace in which securities, commodities, derivatives and other financial instruments are traded. The core function of an exchange - such as a stock exchange - is to ensure fair and orderly trading, as well as efficient dissemination of price information for any securities trading on that exchange. Exchanges give companies, governments and other groups a platform to sell securities to the investing public. An exchange may be a physical location where traders meet to conduct business or an electronic platform.

Depository
Depository can in many ways be compared to a bank. Securities of the investors are held in electronic / book entry form by the Depository. Apart from holding the securities, Depository also provides services related to transactions in securities. Several consider the Depository to be another custodian.

But the depository has an advantage over the custodian- the Depository can transfer the Beneficial Ownership of the Securities, legally, which a custodian cannot do.

How do Depository operate

Depository interacts with its clients / investors through its agents, called Depository Participants normally known as DPs.
For any investor / client, to avail the services provided by the Depository, has to open Depository account, known as Demat A/c, with any of the DPs.

Services provided by Depository

Dematerialisation (usually known as demat) is converting physical certificates to electronic form Rematerialisation, known as remat, is reverse of demat, i.e. getting physical certificates from the electronic securities Transfer of securities, change of beneficial ownership Settlement of trades done on exchange connected to the Depository

Pledge / Hypothecation of demat shares, viz. Loan against shares Electronic credit in public offering of the Companies
Non - Cash corporate benefits, viz. Bonus / Rights - direct credit into electronic form

Dematerialization
The move from physical certificates to electronic book keeping. Actual stock certificates are slowly being removed and retired from circulation in exchange for electronic recording.

CORPORATE ACTIONS
Any event initiated by a corporation which impacts its shareholders. Examples include Mergers, Stock splits , Rights , Bonus A corporate action is any event which has a material effect on the share price or a shareholders rights A Corporate Action is a business event announced by the Company, resulting into certain entitlement to the holders of the underlying Security

Corporate Action Classification

1. Voluntary Corporate Action 2. Mandatory Corporate Action(Involuntary Corporate Action)

Voluntary Corporate Action Definition

Voluntary CA are the Corporate Actions performed by the Company which involves active (response) participation of the Clients or the Security Holders

Examples of Voluntary CA
1. 2. 3. 4. 5. Rights Cash/Tender Offer Conversion Dividend with Options Proxy Voting

Involuntary Corporate Action Definition

Involuntary CA are performed by the Company without much of Clients Participation(response). But Client Should be informed on this

Examples of Involuntary CA
1. 2. 3. 4. 5. 6. Cash Dividend Bonus Interest Collection Redemption Merger Privatization

7. Subdivision/Consolidation

I ) Stock Split Corporate Action (Not in NCS)

As the name implies, a stock split divides each of the outstanding shares of a company, thereby lowering the price per share--the market will adjust the price on the day the action is implemented. A stock split, however, is a non-event, meaning that it does not affect a company's equity, or its market capitalization. Only the number of shares outstanding change, so a stock split does not directly change the value or net assets of a company. A company announcing a 2-for-1 (2:1) stock split, for example, will distribute an additional share for every one outstanding share, so the total shares outstanding will double. If the company had 50 shares outstanding, it will have 100 after the stock split. At the same time, because the value of the company and its shares did not change, the price per share will drop by half. So if the pre-split price was $100 per share, the new price will be $50 per share

Corporate Benefits on Announcing a Stock-Split Corporate Action

1. The drop in share price will make the stock more attractive to a wider pool of investors 2 The increase in available shares outstanding on the stock exchange will make the stock more available to interested buyers. So do keep in mind that the value of the company, or its market capitalization (shares outstanding x market price/share), does not change, but the greater liquidity and higher demand on the share will typically drive the share price up, thereby increasing the company's market capitalization and value

II ) Reverse Split Corporate Action (Not in NCS)

A reverse split might be implemented by a company that would like to increase the price of its shares. If a $1 stock had a reverse split of 1 for 10 (1:10), holders would have to trade in ten of their old shares for one new one, but the stock would increase from $1 to $10 per share (retaining the same market capitalization).

Corporate Benefits on Announcing a Reverse -Split Corporate Action 1. A company may decide to use a reverse split to shed its status as a Penny stock 2. Companies may use a reverse split to drive out small investors

III ) Cash Dividend Corporate Action

There are two types of dividends a company can issue: cash and stock dividends. Typically only one or the other is issued at a specific period of time (either quarterly, bi-annually, or yearly) but both may occur simultaneously. When a dividend is declared and issued, the equity of a company is affected because the distributable equity (retained earnings and/or paid-in capital) is reduced.

A cash dividend is straightforward. For each share owned, a certain amount of money is distributed to each shareholder. Thus, if an investor owns 100 shares and the cash dividend is $0.50 per share, the owner will receive $50 in total.

An event where an issuer distributes reserves in cash only to the registered owners (and where applicable for the benefit of beneficial owners). According to the companies act a dividend must be paid out of the current years profits or out of retained income.Cash payment made as a return on investment to shareholders out of a company's profits after taxation and transfer to reserves and prior charges have been met. The receipt of a dividend is one of the reasons that shareholders invest in the Stock Market. The declared size of the dividend sometimes reflects the success of a company and the payment thereof contributes to the continued investment by the shareholder. The dividend is however determined by the directors but no dividend has to be declared. Sometimes some of the profits of a company are retained, which obviates the need to raise further capital through the issue of shares. Dividends are normally paid twice a year. The first one - the Interim Dividend - of the financial year is paid after six months and the Final one at the end of the financial year

IV ) Stock Dividend Corporate Action

A stock dividend also comes from distributable equity but in the form of stock instead of cash. A stock dividend of 10%, for example, means that, for every ten shares owned, the shareholder receives an additional share. If the company has 1,000,000 shares outstanding (common stock), the stock dividend would increase the company's outstanding shares to a total of 1,100,000. The increase in shares outstanding, however, dilutes the earnings per share, so the stock price would decrease

Benefits on Announcing a Cash Dividend and a Stock Dividend Corporate Action The distribution of a cash dividend can signal to an investor that the company has substantial retained earnings from which the shareholders can directly benefit. By using its retained capital or paid-in capital account, a company is indicating that it can replace those funds in the future. At the same time, however, when a growth stock starts to issue dividends, the company may be changing: if it was a rapidly growing company, a newly declared dividend may indicate that the company has reached a stable level of growth that it is sustainable into the future

V ) Rights Issue Corporate Action

A company implementing a rights issue is offering additional and/or new shares but only to already existing shareholders. The existing shareholders are given the right to purchase or receive these shares before they are offered to the public.

Benefits on Announcing a Rights Issue Corporate Action A rights issue regularly takes place in the form of a stock split, and can indicate that existing shareholders are being offered a chance to take advantage of a promising new development

VI ) Mergers , Acquisitions and Reverse Merger Corporate Actions

A merger occurs when two or more companies combine into one while all parties involved mutually agree to the terms of the merge. The merge usually occurs when one company surrenders its stock to the other. If a company undergoes a merger, it may indicate to shareholders that the company has confidence in its ability to take on more responsibilities. On the other hand, a merger could also indicate a shrinking industry in which smaller companies are being combined with larger corporations In an Acquisition, however, a company seeks out and buys a majority stake of a target company's shares; the shares are not swapped or merged. Acquisitions can often be friendly but also hostile, meaning that the acquired company does not find it favorable that a majority of its shares was bought by another entity A Reverse Merger happens when a private company acquires an already publicly-listed company (albeit one that is not successful). The private company in essence turns into the publicly-traded company to gain trading status without having to go through the tedious process of the initial public offering (IPO). Thus, the private company merges with the public company, which is usually a shell at the time of the merger, and usually changes its name and issues new shares

VII ) Spin-Offs Corporate Action (Not in NCS)

A spin off occurs when an existing publicly-traded company sells a part of its assets or distributes new shares in order to create a newly independent company. Often the new shares will be offered through a rights issue to existing shareholders before they are offered to new investors (if at all).

Depending on the situation, a spin-off could be indicative of a company ready to take on a new challenge or one that is restructuring or refocusing the activities of the main business

VIII ) Capital Redemption Corporate Action

( a ) Redemption With Election An event where the issuer repays the (loan) redeemable preference share capital or the debenture securities in full to the registered owners (and where applicable for the benefit of beneficial owners). The registered owner, where applicable acting on the instructions of the beneficial owner, has the option to elect either a cash repayment or new securities

( b ) Redemption Without Election An event where an issuer repays the (loan) redeemable preference share capital or the debenture securities in full to the registered owners (and where applicable for the benefit of the beneficial owners). The registered owner, where applicable acting on the instructions of the beneficial owner does not have the option to elect either a cash repayment or new securities, the beneficial owner receives cash or new securities as stipulated by the issuer prior to the finalization date

IX ) Capital Reduction (Not in NCS)

( a ) Capital Reduction with Cash Payout An event where a payment of cash is made to registered owners (and where applicable for the benefit of beneficial owners) when excess capital held in the company is distributed

( b ) Capital Reduction with Scrip Payout An event where a distribution of new securities or a new class of securities is made to registered owners (and where applicable for the benefit of beneficial owners) when excess capital held in the company is distributed

Corporate Indications on a Capital Reduction Action The company is winding up operations.

The company returns excess working capital to shareholders.

The company wants to shrink its size. The reduction in capital follows an unbundling.

Will have the effect of lowering the Non-Distributable Reserves (NDR)

X ) Capitalization Awards (Not in NCS)

Capitalization award is a choice between scrip dividend and a cash dividend (also called a scrip div). It will be processed as SC (Scrip Dividend).It is the free issue of more shares by the company to existing shareholders in certain ratio out of the company's reserves. This means that a portion of the distributable or non-distributable reserves are capitalized. In theory, the increased number of shares now held by the investor is exactly counterbalanced by a decline in the market price of the share. No election required. The ratios and fractions might change during the week before the entitlement should be processed. This is usually done to give shareholders something in place of a dividend. A shareholder will not be better or worse off than before the issue. Shareholders will now have more shares and will receive dividends on all shares but his effective shareholding in the company stays the same

XI ) Capitalization Issue (Not in NCS)

Capitalization Issue also called a bonus issue, these do not involve the transfer of cash between the company and its members. They occur when a company feels it desirable to convert part of its reserves (profits from earlier years which have not been paid out as dividends) into new shares. This often arises when the number of shares in issue is small in relation to the total value of the business. This makes them too scarce or highly priced to be easily traded, from a members (shareholders) point of view, the effect is to give him a greater number of shares than he already has. As the company itself has not grown any larger or smaller in the process, the percentage of his holding has remained unchanged, his stake therefore consists of more shares, each representing less of the company

XII ) Bonus Issue

A term synonymous with scrip issue and capitalization issue which describes shares given without charge to existing shareholders in proportion to the shares already held

XIII ) Conditional Offer (Not in NCS)

An offer is made to the shareholders of a company conditional to the occurrence of some event. Typically, where a take over bid is being made, the predator will make an offer to shareholders conditional to it being accepted by more than 50% of the shareholders

XIV ) Consolidation
An event where the number of issued shares of a class is consolidated into a lesser quantity of shares of the same class with a corresponding increase in the par value of the resultant number of issued shares of the same class. The effect of a consolidation is that the number of shares of the same class in issue reduces but the total nominal value of the issued share capital in respect of that class remains the same.In a perfect market the price rises by the same ratio as the consolidation, i.e. on the first day of trading after the automated consolidation took place, the Market Capitalization (Number of Shares x Market Price) will be the same as before.There will always be a change in the Nominal Value of the share. The company will use this if the value of their shares is too low, in order to increase their trading value. As an example, on a 1 for 2 consolidation, the par value will double