The capital market in India is a market for securities, where companies and governments can raise long term funds. It is a market designed for the selling and buying of stocks and bonds. Stocks and bonds are the two major ways to generate capital and long term funds. Thus, the bond markets and stock markets are considered as capital markets. The Indian securities market consists of primary (new securities) market and secondary (stock) market in both equity and debt. The primary market provides channel for sale of new securities while the secondary market deals in trading of previously issued securities. The issuers of securities issue new securities in the primary market to raise funds for investment. They do either through the public issue or private placement. There are mainly two types of issuer who issue securities. The corporate entities mainly issue equity and debt instruments (Shares and debentures) while Continue reading
Investment Analysis
Bond Duration and Portfolio Immunization
Bond Duration Duration is a significant measurement of how sensitivity the change in price of a bond in the change of interest rate. It is broadly linked to the length of time before the bond is mature. Duration assists investors during the investment decision making process by expressing the relation between interest rate and price variables of the bond. Therefore, duration is useful measurement for investors because it protects investment from interest rate risk. When the duration of bond is lower that means investors can obtain the cash earlier and reinvest it at prevailing interest rate. As a result, the lower the duration of a bond, the lesser sensitive changes in the interest rate. Majority of investors are familiar with maturity which is the point of time when investors get back the principal of bond. However, duration is defined as the length of time before the maturity of the bond. Therefore, the 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
Portfolio Performance Evaluation in Investment Portfolio Management
Portfolio evaluating refers to the evaluation of the performance of the investment portfolio. It is essentially the process of comparing the return earned on a portfolio with the return earned on one or more other portfolio or on a benchmark portfolio. Portfolio performance evaluation essentially comprises of two functions, performance measurement and performance evaluation. Performance measurement is an accounting function which measures the return earned on a portfolio during the holding period or investment period. Performance evaluation, on the other hand, address such issues as whether the performance was superior or inferior, whether the performance was due to skill or luck etc. The ability of the investor depends upon the absorption of latest developments which occurred in the market. The ability of expectations if any, we must able to cope up with the wind immediately. Investment analysts continuously monitor and evaluate the result of the portfolio performance. The expert portfolio Continue reading
An Introduction to Hedge Funds
What are Hedge Funds? A hedge fund is a type of private placement investment that is managed by investment management firms and is made up of sophisticated or institutional investors. The fundamental reason why various individuals participate in hedge funds is to protect themselves from losses in other assets. Managers of investment pools employ a variety of tactics, including leverage and esoteric asset trading, in an attempt to outperform the markets in terms of returns. Hedge funds invest in portfolios built with high risk management strategies in order to produce large returns even in the worst-case scenarios. Hedge funds displays multiple characteristics which are discussed below: Hedge funds are financial instruments which requires investment of large amount of capital and thus is not available to general public just as mutual funds are. Hedge funds are not regulated like mutual funds are which makes them highly risky asset acting as the Continue reading
Basic Investment Objectives
Investing is a wide spread practice and many have made their fortunes in the process. The starting point in this process is to determine the characteristics of the various investments and then matching them with the individuals need and preferences. All personal investing is designed in order to achieve certain objectives. These objectives may be tangible such as buying a car, house etc. and intangible objectives such as social status, security etc. similarly; these objectives may be classified as financial or personal objectives. Financial objectives are safety, profitability, and liquidity. Personal or individual objectives may be related to personal characteristics of individuals such as family commitments, status, dependents, educational requirements, income, consumption and provision for retirement etc. The basic objectives of investment can be classified on the basis of the investors approach as follows: Short term high priority objectives: Investors have a high priority towards achieving certain objectives in a Continue reading