In fact, any company trying to price its public issue higher than its market price is being silly. For that matter any company trying to price any of its products higher than the market price is being silly. It should be obvious, that in such a case the investor (or the customer) will eject the offered share (or the product) outright, unless the higher price is qualitatively justified or he is ill informed. True, there have been many instances following the free pricing policy where companies have priced their issues higher than the market price. But these are errors of judgment, which a company soon comes to learn and learns to correct. However, one important reason for the propensity of companies to price their shares unduly high may be attributed to their mistaken notion that the higher the price at which a company issues its Continue reading
Investment Management
Investment – Meaning, Definition and Types
What is Investment? Investment is the activity, which is made with the objective of earning some sort of positive returns in the future. It is the commitment of the funds to earn future returns and it involves sacrificing the present investment for the future return. Every person makes the investment so that the funds he has increases as keeping cash with himself is not going to help as it will not generate any returns and also with the passage of time the time value of the money will come down. As the inflation will rise the purchasing power of the money will come down and this will result that the investor who does not invest will become more poor as he will not have any funds whose value have been increased. Thus every person whether he is a businessman or a common man will make the investment with the objective Continue reading
Commodity Futures – Meaning, Objectives and Benefits
What is “Commodity” and “Commodity Exchange”? Any product that can be used for commerce or an article of commerce which is traded on an authorized commodity exchange is known as commodity. The article should be movable of value, something which is bought or sold and which is produced or used as the subject or barter or sale. In short commodity includes all kinds of goods. Indian Forward Contracts (Regulation) Act (FCRA), 1952 defines “goods” as “every kind of movable property other than actionable claims, money and securities”. A commodity exchange is an association or a company or any other body corporate organizing futures trading in commodities for which license has been granted by regulating authority. In current situation, all goods and products of agricultural (including plantation), mineral and fossil origin are allowed for commodity trading recognized under the FCRA. The national commodity exchanges, recognized by the Central Government, permits commodities Continue reading
Mutual Fund Performance Benchmarks
Benchmarks are independent portfolios and a representation of behavior of returns from the market. Benchmarks are not managed by fund managers. In simple words, a standard for evaluating the performance of mutual fund investments. To better understand the concept of benchmark it is very important to know the job of a mutual fund. For example, the S&P CNX Nifty is a portfolio of 50 securities traded on the National Stock Exchange. The BSE Sensitive index is a portfolio of 30 securities traded on Bombay Stock Exchange. The movement of these indices represents the movement in prices and returns on the stock traded in the equity market. Suppose an investor invests in an index fund -he will compare the return from index fund with the return from the equity market. If the fund manager is managing an equity portfolio, which invests only in equity but is not an index fund, investors Continue reading
Portfolio Revision Strategies in Investment Portfolio Management
Meaning of Portfolio Revision A portfolio is a mix of securities selected from a vast universe of securities. Two variables determine the composition of a portfolio; the first is the securities included in the portfolio and the second is the proportion of total funds invested in each security. Portfolio revision involves changing the existing mix of securities. This may be effected either by changing the securities currently included in the portfolio or by altering the proportion of funds invested in the securities. New securities may be added to the portfolio or some of the existing securities may be removed from the portfolio. Portfolio revision thus leads to purchases and sales of securities. The objective of portfolio revision is the same as the objective of portfolio selection, i.e. maximizing the return for a given level of risk or minimizing the risk for a given level of return. The ultimate aim of Continue reading
Balanced Mutual Funds
Mutual funds that invest both in debt and equity markets are called balanced mutual funds or simply balanced fund. A typical balanced fund would be almost equally invested in both the markets. The variations are equity funds that invest predominantly in equity (about 70%) and keep a smaller part of their portfolios in debt securities. These funds seek to enhance the income potential of their equity component, by bringing in debt. Similarly, there are predominantly debt funds (over 70% in debt securities) which invest in equity, to provide some growth potential to their funds. A balanced fund also tends to provide investors exposure to both equity and debt markets in one product. Therefore, the benefits of investment diversification get further enhanced as equity and debt markets have different risk and return profiles.