Some of the major sub categories of the two major style of active equity management (top down and bottom up) are listed below; Growth managers: Growth managers can be classified as either top-down or bottom-up. The growth managers are either divided into large capitalization or small capitalization. The growth managers buy securities that are typically selling at relatively high P/E ratios, due to high earnings growth rate, with the expectation of continued high earnings growth. The portfolios are characterized by high P/E ratios, high returns, and relatively low dividend yields. Market timers: The market timer is typically a set category of top-down investment style and comes in many varieties. The basic assumption is that he can forecast the market i.e. when it will go up or down. In the sense he market timer is not too distant than the technical analyst. The portfolio is not fully invested in equities. Rather Continue reading
Investment Options
Introduction to Mutual Funds and Net Asset Value (NAV)
A Mutual Fund is a special type of investment institution which collects or pools the savings of the community and invests large funds in variety of Blue-chip Companies which are selected from a wide range of industries with the objects of maximizing returns/incomes on investments. Mutual Funds are basically a trust which mobilize savings from the people and invest them in a mix of corporate and government securities. Money collected by the investors is invested in various issues of primary and secondary markets in order to gain profits on such investments. A Mutual Fund is a Trust, which combines the investments of various investors having similar financial goals. The Trust issues units to the investors in the proportion of their investments. A fund manager then invests these funds in different types of assets, which provide returns in the form of dividends, interests, and capital appreciation. This is distributed to the Continue reading
Commercial Paper – Definition, Features and Advantages
What is a Commercial Paper? A commercial paper is an unsecured promissory note issued with a fixed maturity by a company approved by RBI, negotiable by endorsement and delivery, issued in bearer form and issued at such discount on the face value as may be determent by the issuing company. Features of Commercial Paper Commercial paper is a short-term money market instrument comprising usince promissory note with a fixed maturity. It is a certificate evidencing an unsecured corporate debt of short term maturity. Commercial paper is issued at a discount to face value basis but it can be issued in interest bearing form. The issuer promises to pay the buyer some fixed amount on some future period but pledge no assets, only his liquidity and established earning power, to guarantee that promise. Commercial paper can be issued directly by a company to investors or through banks/merchant banks. Advantages of Commercial Continue reading
Organization of Mutual Fund
Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is thus “Mutual”, i.e. the fund belongs to all investors. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. A Mutual Fund is an investment tool that allows small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates Continue reading
Commodity Derivatives
In the last 25 years, derivatives have become increasingly important in the world of trading. Futures and Options are now traded actively on many exchanges. A derivative can be defined as a financial instrument whose value depends upon (or derives from) the value of other basic underlying variables. Very often, the variables underlying derivatives are the prices of traded assets. For example, a commodity option is a derivative whose value is dependent on the price of a stock. The underlying variable can be anything. Active trading is happening in credit derivatives, electricity derivatives, weather derivatives, insurance derivatives etc. many new types of interest rate, foreign exchange and equity derivative products have been created. A commodity derivatives market (or exchange) is, in simple terms, nothing more or less than a public market place where commodities are contracted for purchase or sale at an agreed price for delivery at a specified date. Continue reading
Features of Life Insurance Contract
Human life is an income generating asset. This asset can be lost through unexpected death or made non functional through sickness or disability caused by an accident. On the other hand there is a certainty that death will happen, but its timing is uncertain. Life insurance protects against loss. Life insurance contract may be defined as the contract, whereby the insurer in consideration of a premium undertakes to pay a certain sum of money either on the death of the insured or on the expiry of a fixed period. The definition of the life insurance contract is enlarged by Section 2(ii) of the Insurance Act 1938 by including annuity business. Since, the life insurance contract is not an indemnity contract; the undertaking on the part of the insurer is an absolute one to pay a definite sum on maturity of policy at the death or an amount in installment for Continue reading