Investment Analysis and

Portfolio Management
Prof Rajiv U K
 Saving Vs Investment
• Saving, by definition, involves the protection and
preservation of money from loss. Parking your
money in insured saving bank accounts, T-bill
etc.

• Investing, on the other hand, means to make a

long-term commitment of putting money away
and letting it grow with variable return. 
 Continued
• In an economy, people indulge in economic activity to support their
consumption requirements.

• Savings arise form deferred consumption, to be invested, in anticipation

of future returns.

• Investment could be made into financial assets, like stocks, bonds,

and similar instruments or into real assets, like houses, land or
commodities.
 What we going to learn today
Investment

• What

• Why

• Were

• How
Why Savings or investment
 Inflation, Savings and
Investments

Today, a large soft drink at your favorite fast-

food place costs Rs10.00. You buy the soft drink
but also decide to save some money for the
future as well. So you put a Rupee in your
savings account, where it earns 5%.
 Inflation, Savings and
Investments

One year later, the Rupee in your saving

account is worth Rs10.50. You take the
money out and visit your favorite
convenience store, hoping to buy another
delicious beverage. Unfortunately, drinks
now cost Rs11.00/-
 Inflation, Savings and
Investments
The point? Inflation can work against your
money. You need to learn to invest wisely,
follow the rate of inflation, and make sure
your investment rates are higher than those
of inflation.
 WHY

• To Meet future expected and unexpected expenses.

as
 Wider opportunity to do what one likes.
 Increased cost of leaving
 Frequent Job changing has created less focus on long term savings.
 Increase in Middle class population.
Resulted in
 Increase of Nuclear Family has decreased insurance.
 Which are future expected and unexpected
expenses?
• Each person needs to save for

1) Children’s education

2) Marriage

3) Retirement (maintain same standard of leaving)

4) Medical expenses

5) Saving increases confidence

Bank of India- 1st bank to open a branch outside India in London in 1946
 Risk, Return, and Liquidity
• Risk
– The chance that the value of an investment will
decrease.
• Return
– The profit or yield from an investment.
• Liquidity
– The ability of an investment to be converted into cash
quickly without loss of value.
 Criteria of Evaluation
• Rate of Return {Annual Income + ( Ending – Beginning Prices)}/ Beginning
Prices

• Risk

• Marketability (It can be transacted quickly, the transaction cost is low

• Tax Shelter (Initial Tax Benefit - NPS

/ Continuing tax benefits – dividend / Terminal tax benefits PPF)

• Convenience
 Risk, Return, and Liquidity

• Savings • Investments
– Low risk – High risk
– Low return – High return
– High liquidity – Low liquidity
 Where
Saving and Investment Avenue
• Bank - Fixed Income Deposits
Deposit Insurance and
Credit Guarantee
Corporation (DICGC).
• Post office schemes - Small Savings

• Pension and Provident funds

• Gold – Alternative Investments

• Real Estate

• Equity

• Mutual Funds

• Art

Western India Vegetable Products- The former name of Wipro Ltd

Inv vs, Spec vs Gamb Vs
Trader
   Investor Speculator Gambling Trader
Long Term. Usually more I day, 1week or
Planning Few Day to few Months  
than 1 year 1 month

Risk Moderate Risk Willing to assume high risk Very High 

Modest Rate of Return for High Return in exchange of

Return X principle
the limited risk assumed high risk

Greater significance to Not involve a bet on

Relies more on hearsay,
Basis for fundamental factors, economic activity.
Technical and Market
decisions evaluation of the prospects Based on risk created
psychology
of the firms artificially

Leverage Typically uses own funds Resorts to borrowings   Margin

       

Result     Much faster

Capital Appreciation in Rational people G

Purpose High return on short time
long term for fun
• Investment Alternatives

Non Marketable Financial Assets -

Bonds -

Mutual funds Schemes –

Real estates –

Equity Shares -

Money Market Instruments -

Life Insurance Policies

Precious Commodities –

Financial Derivatives -
• Saving / Investment Alternatives

Non Marketable Financial Assets - Bank, Post Office, and PF deposits.

Bonds - Govt Securities, Savings Bonds, PSU Bonds, Debentures of Private Sector
Companies
Mutual funds Schemes – Equity, Debt and Balanced Schemes

Real estates – Residential house, Agri land, Commercial property, resort home, second
house

Equity Shares - Blue Chip, Growth, Income, Cyclical and Speculative Shares

Money Market Instruments - Debt instrument less than year. Treasury Bills,

Commercial Paper, Certificate of Deposit

Life Insurance Policies – Endowment assurance , Money back, Whole life, Term
assurance policy

Precious Commodities – Gold , Silver and Arts

Financial Derivatives - Futures and Options

• Different types of asset class held by a
investor

Portfolio
 Constraints
Every Investor has some constraints (Limits) within which
one wants the portfolio lie, Typical example being the

•Risk profile,
•Time horizon,
•Liquidity
•Choice of securities
•Use of Tax Rules etc
Classification of Markets
 Seasoning of Claim

Maturity of Claim
Timings of Delivery

Organizational Structure

Nature of Claim
 Portfolio Management Process
• Specification of Investment objectives and constraints
• Quantification of capital market expectations
• Choice of the asset mix
• Formulation of portfolio strategy selection of securities
• Portfolio execution
• Portfolio revision
• Performance evaluation
 Risk
• Systematic Risk
• Non – Systematic Risk
 Systematic Risk
(Market Risk)
• Inflation
• Interest
• Political (US Immigrations)
• Changing Govt Polices
• Natural Calamities
• Scams and Malpractices
• Monsoon
• Industrial performance
• International Events

Non -Systematic Risk

(Business Risk)
• Financial Risk
• Risk Due to Industry Specific
Risk
• Disputes
   Investor Speculator Gambling

Long Term. Usually more

Planning than 1 year Few Day to few Months  

Risk Moderate Risk Willing to assume high risk  

Modest Rate of Return for the High Return in exchange of

Return limited risk assumed high risk  

Greater significance to fundamental Relies more on hearsay, Not involve a bet on

Basis for factors, evaluation of the prospects Technical and Market economic activity. Based on
decisions of the firms psychology risk created artificially

Leverage Typically uses own funds Resorts to borrowings  

       

Result     Much faster

Capital Appreciation in Rational people G
Purpose long term High return on short time for fun
 Investment Avenues
Security Form (B) Non – Security Form
MM Securities 1) Bank Deposit
1) T Bills 2) Post office
2) CP and COD 3) Insurance Schemes
3) Others 4) MF
5) Schemes of NBFC
Capital Market Securities
1) Equity Shares
2) Preference Shares
3) Debentures