Investment Process

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Investment Process

Investment:
Investment is the employment of funds on assets with the aim of earning income or capital appreciation. Investment has two attributes namely time and risk. Present consumption is sacrificed to get a return in the future. The sacrifice that has to be borne is certain but the return in the future may be uncertain. This attribute of investment indicates the risk factor. The risk is undertaken with a view to reap some return from the investment. For a layman, investment means some monetary commitment. A person’s commitment to buy a house form his personal use may be an investment from his point of view. This cannot be considered as an actual investment as it involves sacrifice but does not yield any financial return.

To the economist, investment is the net addition made to the nation’s capital stock that consists of goods and services that are used in the production process. A net addition to the capital stock means an increase in the buildings, equipments or inventories. These capital stocks are used to produce other goods and services.

Financial investment is the allocation of money to assets that are expected to yield some gain over a period of time. It is an exchange of financial claims such as stocks and bonds for money. They are expected to yield returns and experience capital growth over the years.

Investment Process:
The investment process involves a series of activities leading to the purchase of securities or other investment alternatives. The investment process can be divided into five stages 1. Framing of investment policy

2. Investment analysis
3. Valuation
4. Portfolio construction portfolio evaluation

Investment policy: The investor before proceeding into investment formulates the policy for the systematic functioning. The essential ingredients of the policy are investible funds, objective the knowledge about the investment alternative and market. * Investible funds: The entire investment...
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