Investment portfolio is a composition of investments with the purpose, of maximizing return and minimizing risk. What individual investments would constitute the composition depends, in the first place, on the goals of the investment portfolio. One of the goal of the investment portfolio is return maximization. To achieve this, a choice of individual investment securities for inclusion in the portfolio is made and the return and risk of such individual investment securities are relevant inputs for investment portfolio construction. Thus, portfolio goal and return and risk of individual securities included in the portfolio are the inputs for investment portfolio construction. Read More: Portfolio investment process Portfolio construction phase in investment portfolio management Portfolio performance evaluation in investment portfolio management Portfolio selection and revision in investment portfolio management Portfolio analysis in investment portfolio management Security analysis phase in investment portfolio management Investment Portfolio Goals As investors differ like cornflakes, their portfolio Continue reading
Investment Management
Composition of Indian Capital Market
Capital market is the market for long term funds, just as the money market is the market for short term funds. It refers to all the facilities and the institutional arrangements for borrowing and lending term funds (medium-term and long-term funds).it does not deal in capital goods but is concerned with the raising of money capital for purposes of investment. The demand for long-term memory capital comes predominantly from private sector manufacturing industries and agriculture and from the government largely for the purpose of economic development. As the central and state governments are investing not only on economic overheads like transport, irrigation and power development but also on basic industries and sometimes even in consumer goods industries, they require substantial sums from the capital market. The supply of funds for the capital market comes largely from individual savers, corporate savings, banks, insurance companies specialized financing agencies and the government. Among Continue reading
Things to Know Before Investing in Mutual Funds
Most important of all, there are certain precautions investors should take while investing in mutual funds: Always the investor should keep a photo copy of the application form. This can be filed to know the manner in which application was made (single, joint ownership and order of ownership). Investors will also be able to see how they have signed the forms (many investors change their signatures over time; some investors have different signatures for banking and investment transactions). Investors will also know the choice they have exercised (dividend and redemption option). The investor must preserve the counterfoil/acknowledgement issued by the collecting agency. This acknowledgement has the application number. If account statement or certificate is not received, the acknowledgement is the proof of purchase, with which investors can approach the registrar and the transfer agent. It is preferable to have joint ownership so that investments will pass on to the joint Continue reading
Diversification of Securities in Portfolio Investments
Reduction of Risk through Diversification of Securities The process of combining securities in an investment portfolio is known as diversification. The aim of diversification of securities is to reduce total risk without sacrificing portfolio return. To understand the mechanism and power of diversification, it is necessary to consider the impact of co-variance or correlation on portfolio risk more closely. We shall examine three cases: (1) when security returns are perfectly positively correlated, (2) when security returns are perfectly negatively correlated and (3) when security returns are not correlated. Diversification means, investment of funds in more than one risky asset with the basic objective of risk reduction. The lay man can make good returns on his investment by making use of technique of diversification. Main forms of Diversification of Securities Simple Diversification, Over Diversification, Efficient Diversification. 1. Simple Diversification It involves a random selection of portfolio construction. The common man could Continue reading
Different Types of Investment Portfolios
The set of all securities held by an investor is called his investment portfolio. The investment portfolio may contain just one security. However, since in general no one puts all one’s eggs in one basket, it will contain several securities. Such an investment portfolio is knows as a diversified portfolio. An investment portfolio can be classified in the light of following factors such as objectives, risk levels and the level of diversification. Investment Portfolios based on Objectives On the basis of objectives sought, a portfolio can be income portfolio, growth portfolio, mixed portfolio, tax savings portfolio or liquidity portfolio. In income portfolio, the objective is maximum current income. Small investors, investors whose current income needs are high like pensioners and unemployed persons, persons with lower tax brackets prefer income portfolios. Here the portfolio generally consist of fixed income securities like debenture/bonds/income mutual fund/equity with continuous dividend-record. Growth portfolio stress on Continue reading
The Concept of Financial Research
Here, there are several distinctions between types of research–breaking it down by style, capital structure and firm. While the main focus will be on fundamental equity and fixed income research, it will also discuss the other types of research as well as the functional roles analysts play at different types of firms. 1. Research Styles Fundamental Research: Fundamental research takes a deep dive into a company’s financial statement as well as industry trends in order to extrapolate buy and sell investment decisions. There is no clear cut way in conducting fundamental research but it normally includes building detailed financial models, which project items such as revenue, earnings, cash flows and debt balances. Some asset managers may focus solely on earnings growth while others may focus on returns on invested capital (ROIC). It is important for the candidate to understand the firm’s investment philosophy. This can usually be achieved by Continue reading