The Concept of Investment:
□ An investment is the current commitment of funds for a period of time in order to derive future benefits. □ Investing involves making a sacrifice in the present consumption in the hope of deriving benefits in the future. □ Every investment decision has two aspects;
Risks and Returns:
□ Every investor looks to be compensated for;
i) Time the funds are committed
ii) The expected rate of inflation
iii) The uncertainty about the future
□ Investment management is the process by which resources (money) are managed. The resources may be referred to as assets □ The investor is usually confronted with a number of investment avenues which can be classified as; i) Financial securities / financial assets
ii) Non-securitized financial investments
iii) Mutual fund schemes
iv) Real Assets / Physical Assets
□ A combination of different investments or assets creates a portfolio of assets
1. Financial Securities:
These represent a financial investment that is transferable and/ negotiable. □ The major financial securities available are;
a) Equity shares (common stock)
b) Preference shares (preference stock)
c) Debentures (corporate bonds)
d) Savings certificates
e) Gilt edge securities
f) Money market securities
2. Non-Securitized Financial Instruments.
These represent a financial investment that is not transferable or negotiable.
The major non-securitized financial investments available include; a) Bank Deposits
b) Post Office Deposits
c) Providend Fund Schemes
d) National Savings Schemes (e.g. NSSF)
e) Life Insurance
3.Mutual Fund Schemes:
□ These represent a collective investment device
□ Instead of directly buying financial securities, the investor buys shares (units) of various schemes floated by mutual funds The common types of these schemes are;
a) Growth Schemes
b) Income Schemes
c) Balance (Growth / Income) Schemes
These represent physical investments. The important categories of real assets include; a) Real Estate
b) Gold and Silver and other precious stones
c) Art objects.
In order to evaluate the various investment avenues, the following attributes have to be taken into account a) Rate of Return
e) Tax shield
f) Rate of Return
i) Rate of Return:
Return is a major consideration in evaluation of any investment. Given two investments with the same risk levels, but with different returns, the investor will prefer to investment with a higher return.
Asset A would be more preferable because with the same level of risk, has generates a higher return.
The risk of an investment refers to the variability of its return.
A B Return
Asset A would be more preferred because with the same level of return, A has a lower level of risk than Asset B.
Measures of risk include;
Beta coefficient (systematic risk)
Range of values
An investment is marketable if;
□ It can be transacted quickly
□ Transaction cost is low...