CHAPTER – 1
INVESTMENT - INTRODUCTION
Investment is the employment of funds with the aim of achieving additional income or growth in value. The essential quality of an investment is that it involves "waiting" for a reward. It involves the commitment of resources, which have been saved or put away from current consumption in the hope that some benefits accrue in future.
Broadly speaking, an investment decision is a trade off between risk and return. All investment choices are made at points of time in accordance with the personal investment ends and in contemplation of uncertain future.
Investment choices or decision are found to be the outcome of three different but related classes of factors. They are:
The factual premises of investment decision are provided by many streams of data which taken together, represent to an investor the observable environment and general as well as particular features of the securities and firms in which he may invest.
Expectation relating to the outcomes of alternative investment is subjective and hypothetical in any case but their foundations are necessarily provided by the environmental and financial facts available to investors.
For investor generally these comprise the structure of subjective preferences for the size and regularity of the income to be received from and for the safety and negotiability of specific investments or combinations of investments, as these are appraised from time to time.
Features of investment:
➢ Safety of principal
➢ Income stability
➢ Appreciation and purchasing power stability
➢ Legality and freedom from care
Safety of principal
The investor to be certain of safety of principal should carefully review the economic and industry trends before choosing the types of investment. Adequate diversification, mixing investment commitments by industry, geographically, by management, by financial type and by maturities, proper combination of these factors would reduce losses. Diversification helps to a great extent in proper investment programming. But it must be reasonably accomplished and should not be carried out to extremes.
Every investor requires a minimum liquidity in his investment to meet emergencies. Liquidity will be ensured if the investor buys a Proportion of readily saleable securities out of his total portfolio. He may therefore keep a small proportion of cash, fixed deposit and units, which can be immediately made liquid. Investment like stocks, property or real estate cannot ensure immediate liquidity.
Regularity of income at a consistent rate is necessary in any investment pattern. Not only stability, it is also important to see that the income is adequate after taxes. It is possible to find out some good securities, which pay practically all their earnings in dividends.
Appreciation and purchasing power stability:
Investor should balance their portfolio to fight against any purchasing power instability. Investors should judge price level inflation; explore the possibility of gain and loss in the investment available to them, limitations of personal; and family considerations. The investors should also try and forecast which securities will possibly appreciate. Purchase of property at the right time will lead to appreciation in time. Growth stock will also appreciate over time. These, however, should be done thoughtfully and not in a manner of speculation or gamble.
Legality and freedom from care:
Law should approve all investment. Law relating to minors, estates, trusts, shares and insurance should be studied. Illegal securities will bring out many problems for the investor. One...
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