SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT - 2ND EDN

SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT - 2ND EDN
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SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT - 2ND EDN

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Publisher: Vikas Publishing
ISBN: 9789325963085
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CHAPTER
1
INTRODUCTION TO INVESTMENT AND SECURITIES
T
he government, corporate entities, financial institutions and individuals alike, invest their money fruitfully. Invest or perish is the adage of the day. What, therefore, is investment
CHAPTER OBJECTIVES To understand the meaning of investment To describe the nature of securities market To explain the process of investment To get an idea of investment planning and various types of securities Investing in various types of assets is an interesting activity that attracts people from all walks of life, irrespective of their occupation, economic status, education and family background. A person who has more money than he needs for immediate consumption can be said to be a potential investor. The investor who has extra cash can invest it in securities or in other assets like gold or real estate, or he could simply deposit it in his bank account. Companies that have extra income may invest their money to expand existing firms or undertake new ventures. All these activities, in a broader sense, mean investment.
INVESTMENT Investment is the employment of funds on assets with the aim of earning income or capital appreciation. Investment has two attributes, namely, time and risk. In the process of investment, the present consumption is sacrificed to get a return in the future. The sacrifice that has to be borne is certain but the return in the future may be uncertain. This attribute of investment indicates the risk factor. The risk is undertaken with a view to reaping returns from investment. For the layperson, investment means a monetary commitment. A person s commitment to buy a flat or a house for his personal use may be an investment from his point of view. This, however, cannot be considered as actual investment because it involves sacrifice but does not yield any financial return. To the economist, investment is the net addition made to the nation s capital stock that consists of goods and services that are used in the production process. A net addition to the capital stock means an increase in buildings, equipment or inventories. These capital stocks are used to produce other goods and services. Financial investment is the allocation of money to assets that are expected to yield some gains over a period of time. It is an exchange of financial claims such as stocks and bonds for money. They are expected to yield returns and experience capital growth over the years.
2 Security Analysis and Portfolio Management
Financial and economic meanings are related to each other. Because, the savings of the individual flow into the capital market as financial investments to be used in economic investment. Even though they are related to each other, we are concerned only with the financial investment made on securities.
SPECULATION Speculation is about taking up the business risk in the hope of achieving short-term gain. Speculation essentially involves buying and selling activities with the expectation of making a profit from price fluctuations. This can be explained with an example. If a person buys a stock for its dividend, he may be termed as an investor. If he buys with the anticipation of a price rise in the near future and the hope of