Course Outcomes

of
Security Analysis and portfolio management

1. Understand the Indian financial system and also about

Investment.

2. Learn the relevance of risk and returns.

3. Learn various influences bond valuation and

management.

4. Understand the relevance of equity valuation of cash

market and derivatives.

5. Identify the need for mutual funds in India.

Introduction to SAPM

https://youtu.be/YBcHCn6P6uM
 Learning Objectives
 To Know the investment environment India
 Describe the Investment Management
Process
 To Know the different avenues of Investment
 Unit-I
Introduction to investment
 Indian Financial System and structure
 Investment
 Speculation and Gambling
 Features of Investment
 Investment Avenues
 Investment Process
 The Investment Environment
 Securities Market of India
 Securities Trading and Settlement
 Types of Orders
 Margin Trading
 Roles and Responsibilities of SEBI.
Introduction To Investment

Dr P Alekhya, Professor, MBA, CMRCET

Saving and Investment

Dr P Alekhya, Professor, MBA, CMRCET

 Introduction to Investment

 It is the commitment of funds made in the

expectation of some positive rate of return

 It is a sacrifice of current money or other

resources for future benefits.

Dr P Alekhya, Professor, MBA, CMRCET

 Characteristics of

Investment
Rate of return – It is income on investment. It depends on nature of
investment, maturity period.
 Risk – Variability in returns is called risk. It depends on credit
worthiness, maturity period and nature of investment
 Marketability or Liquidity – An investment is highly liquid if -
 It can be transacted quickly
 The transaction cost if low
 The price change between two transactions is negligible
 Tax shelter – some investments provide tax benefit. Tax benefits are of
three kinds :
 Initial tax benefit
 Continuing tax benefit
 Terminal tax
 Convenience – the ease with which the investment can be made and
looked after.
 Capital Growth-
 Stability of income or Safety
Dr P Alekhya, Professor, MBA, CMRCET
 Objectives of investment
 Maximizing the return
 Minimizing the risk
 Maintaining Liquidity
 Hedging Against inflation
 Increasing safety
 Saving tax

Dr P Alekhya, Professor, MBA, CMRCET

 Investment, Speculation & Gambling

Speculation:

Gambling:
Points of Investor Speculator
difference

Planning horizon An investor has a relatively A speculator has a very short

longer planning horizon. His planning horizon. His holding
holding period is usually at least may be a few days to a few
one year. months. A speculator is
ordinarily willing to assume high
risk.

Risk disposition An investor doesn’t take more A speculator ordinarily takes

than moderate risk. Rarely does high risk.
he takes high risk.

Return expectation An investor usually seeks a A speculator looks for a high

modest rate of return which is rate of return in exchange for the
equal to the limited risk assumed high risk borne by him.
by him

Basis for decisions An investor gives greater A speculator relies more on

importance to fundamental hearsay. Technical charts and
factors and careful evaluation of market.
the prospects of the firm.

Leverage (Funds) An investor uses his own A speculator normally

funds and eschews borrowed resorts to borrowings, which
funds can be very substantial to
supplement his personal
Dr P Alekhya, Associate Professor, MBA, resources.
CMRCET
 Investment Gambling

Investment is planned and scientific Gambling is unplanned and non

- scientific

Investment involves taking calculated Gambling involves taking high risks

risk with the expectation of moderate not only for high returns but also for
thrill and excitement.
and continuous return over a long
period of time
In investment there is no artificial risks In gambling artificial risks are created
for increasing the returns

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 The Indian Financial System

Financial Financial
Financial Financial
Assets Markets
Institutions Services

 Capital Market
 Call Money  Banking (a)Corporate
 Notice Services Securities

 Banking Money  Insurance Market
Banking  Term
Institutions
Institutions Services (b)Government

 Non-Banking Money  Investment Securities
Non-Banking  Treasury
Institutions
Institutions Services Market

 Regulatory Bills  Foreign (c)Long Term
Regulatory  Certificate

 Intermediates
Intermediates Exchange Loan Market

 Non of Deposits Services  Money Market
Non  Commercial
Intermediates
Intermediates  Foreign
Paper exchange
Market
Dr P Alekhya, Professor, MBA, CMRCET
 Credit Market
 Investment Management Process

Investment Process

Investment Portfolio Portfolio

Analysis Valuation
Policy Construction Evaluation

••Investment
Investment • Intrinsic •Diversification
•Market
Fund
Fund Value •Selection and •Appraisal
•Industry
••Objectives
Objectives •Future allocation •Revision
•company
••Knowledge
Knowledge Value
Dr P Alekhya, Associate Professor, MBA,
CMRCET
 INVESTMENT AVENUES

•Monthly Income
•Stocks •Bank Deposits •Life insurance
Schemes •Real estate
•Bonds/ •Non-Banking policies
•National Savings •Precious Met
Debentures financial •ULIP
Schemes (NSC) •Art and
•G-Securities company •Vikas patras Antiques
•Money market Deposits(NBFC) •Public provident
instruments
•Derivatives Funds(PPF)
Dr P Alekhya, Associate Professor, MBA,
•Mutual Funds CMRCET
 Securities
Equity Shares:
 Equity share holders have a residual claim to the income of the firm

 Equity share holders elect the board of directors and have the right to vote
on every resolution placed before the company

 They enjoy the pre-emptive right which enables them to maintain their
proportional ownership by purchasing the additional equity shares issued
by the firm.

 They have the residual claim over the assets of the company in the event of
liquidation

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Stock market classification of equity shares

 Blue-chip shares – shares of large well established and financially strong

companies with an impressive record of earnings and dividends
 Growth shares – shares of companies that have a fairly stable position in
the market and have an above average rate of growth and profitability
 Income shares – shares of companies that have stable operations,
relatively limited growth opportunities and high dividend payout
 Cyclical shares – shares of the company that have a pronounced
cyclicality in their operations
 Defensive shares – shares of the companies that are relatively unaffected
by the ups and downs in the general business conditions
 Speculative shares – shares that tend to fluctuate widely because there is
a lot of speculative trading in them.

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Fixed income securities
 Preference Shares:
 Bonds/Debentures
 Government Securities
 Money Market Securities
 Mutual Funds

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Fixed income securities
 Bonds:
 Bonds are debentures are long term debt instruments

 A periodic interest is paid over the life of the bond and principle is paid at
the time of redemption
 Government securities:
 Debt securities issued by the central government, state government, and
quasi-government agencies are referred to as government securities or
gilt-edged securities.
 Have maturity period of 3 to 20 years
 Carry interest rate of 8 % to 10 %

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Fixed income securities
• Money Market instruments
 Debt instruments which have a maturity period of less than one year at the
time of issue are called money market instruments.
 Highly liquid and negligible risk
 Major players in the money market are government, financial institutions,
banks and corporates.
 The different types of money market instruments are –
 Treasury bills
 Certificates of deposits
 Commercial paper

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Fixed income securities
 Treasury bills :
 Sold on auction basis every week by the Reserve bank of India
 Maturity period of 91 days to 364 days
 Sold at discount and redeemed at par
 Easy available
 Have nil credit risk
 Certificates of deposits
 Short term deposits which are transferable from one party to another
 Banks and financial institutions are major issuers
 Principle investors in CDs are banks, financial institutions, corporates and
mutual funds.
 Maturity period of 3 months to 1 year
 Carry interest rate higher than that of treasury bills and term deposits
 Risk free

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Fixed income securities
 Commercial papers

 Short term unsecured promissory note issued by the financially

strong firms
 Has maturity period of 90 to 180 days
 Sold at discount and redeemed at par

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Fixed income securities
 Mutual Funds:
 Till 1986 Unit Trust of India was the only mutual fund in India
 After 1986 public sector banks and insurance companies were allowed into
the mutual fund industry.
 SBI, Canara bank, LIC,GIC and a few other public sector banks entered
the mutual fund industry
 In 1992 the mutual fund industry was opened to the private sector mutual
funds such as Birla Mutual Fund, DSP Merrill Lynch Mutual fund, HDFC
Mutual Fund, IDBI-Principal Mutual Fund, JM Mutual Fund, Kotak
Mahindra Mutual Fund etc..
 At present there are about 40 mutual funds managing nearly 2000+
schemes.

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Deposits
 Bank Deposits:
 Deposits in schedules banks are very safe because of the regulations of the
Reserve Bank of India and the guarantee provided by the Deposits
Insurance Corporation, which gurantees deposits up to Rs.1,00,000. per
depositor of a bank.
 There is a ceiling on the interest rate payable on deposits in savings
account.
 The interest rate on fixed deposits varies with the term of the deposit. In
general, it is lower for fixed deposits of shorter term and higher for fixed
deposits of longer term.
 If the deposit period is less than 90 days the interest is paid on maturity;
otherwise it is paid quarterly
 Bank deposits are highly liquid as they can be enchased prematurely by
incurring a small penalty
 Loans can be raised against bank deposits
 Most banks calculate interest on the minimum deposit between 10 th and the
last date of the month. Dr P Alekhya, Associate Professor, MBA,
CMRCET
 Deposits
 NBFC Deposits
• Non-banking financial companies, or NBFCs, are
financial institutions that provide banking
services, but do not hold a banking license. These
institutions are not allowed to take deposits from
the public. Nonetheless, all operations of these
institutions are still covered under banking
regulations.
• Examples of NBFC’s Reliance Capital, Bajaj Holdings, LIC
Housing Finance

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Postal Schemes
 Monthly Income Scheme:
 It is a popular scheme of the post office meant to provide regular monthly
income to the depositors.
 The term of the scheme is 5 years
 The minimum amount of investment is Rs.1000. The maximum investment
can be Rs.4.5 lakhs in a single account or Rs 9 lakhs in a joint account.
 The interest rate is 6.6% payable monthly. A bonus of 10% is payable on
maturity.
 There is no tax deduction at source-80C
 There is a facility of premature withdrawal after one year, with 2%
deduction before 3 years. Between 3rd and 5th year-corpus refunded with
1% penality

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Postal Schemes
 National Savings Certificate:
 NSCs are issued at the post offices
 It comes in denominations of Rs.100,Rs.500, Rs.1000,Rs.5000 and
Rs.10000
 It has a term of 5 years. Interest rate per annum 6.8%
 Investment in NSC can be deducted before computing the taxable income
under section 80 C.
 There is no tax deduction at source only 1.5 lakhs (Tax Benefit)80C
 It can be pledged as a collateral for raising loans.

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Postal Schemes
 Kisan Vikas Patra:
 The minimum amount of investment is Rs.1000.There is no maximum
limit.
 The investment doubles in 10 years & 4 months. Hence the compound
interest rate works out to 6.9 %
 There is no tax deduction at source
 KVPs can be pledged as a collateral security for raising loans
 There is a withdrawal facility after 21/2 years ( 30Months)

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Postal Schemes
• Public Provident Fund Scheme:
 Individuals and HUFs can participate in this scheme. A PPF account may
be opened at any branch of the State Bank of India or its subsidiaries or at
specified branches of other nationalized banks
 The Duration of the scheme is 15 years but can be extended for1-5 years.
 The minimum deposit in PPF is Rs. 500 per year and maximum deposit is
Rs.100000 per year.
 Deposits in PPF are subject to deduction under section 88.
 A compound interest of 8 % per annum is paid on PPF which is totally
exempt from taxes. The interest is accumulated in the PPF account and not
paid annually to the subscriber.

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Postal Schemes
 The balance in PPF is fully exempt from wealth tax.
 The subscriber of PPF is eligible to take loan from 3 rd to 6 th year after
opening PPF account. The amount of loan cannot exceed 25% of the
balance in PPF account. The interest on loan is 1% higher than PPF
account interest rate.
 The limitations is that the investor cannot withdraw it until seven years
are completed, after which 50 percent of the deposits can be withdrawn,
if needed.
 On maturity the credit balance in PPF account can be withdrawn however
at the option of the subscriber the account can be continued.

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Insurance
 Insurance = Investment + Assurance
The major advantages of life insurance are as
below:
Protection
Easy Payments
Liquidity
Tax relief

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Endowment Policy
 An endowment Policy covers the risk for a period
specified by the insurer.
 This policy is a combination of insurance and investment.
 A certain portion of the premium gets invested and
generates a certain return every year. This return is
declared as a bonus.
 At the end of the specified period , the sum assured is
paid back to the policy holder,along with the bonus
accumulated during the term of the policy.

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Endowment Policy
• The various types of endowment policies are
as described below:
 Unit-linked endowment: This is a popular form of the
endowment policy. Under this, the insurance premium is
invested in several units of a specified unitized insurance fund.
Often, the insurance holder can select the funds in which he
prefers to invest the premium.
 Full endowment: This is usually with-profits endowment. The
basic amount assured is equivalent to the death benefit from
the beginning of the policy. Based on the growth, the final
payout is higher than the initial sum.
Dr P Alekhya, Associate Professor, MBA,
CMRCET
 Endowment Policy
Low-Cost endowment: A low-cost endowment is a
combination of a specific investment to meet the target amount and
a declining life insurance component. The entire target amount is
paid as a minimum if any kind of physical illness or death occurs.
 Whole Life Policy: a typical whole life policy remains in force as
long as the policy holder is alive. The risk is covered for the entire
life of the policy holder. Hence, it is known as whole life policy.
The whole life policy amount and the bonus are payable to the
nominee of the beneficiary upon the death of the policy holder. The
policy holder is not entitled to receive any money during his or her
own lifetime, i.e. there is no survival benefits. LIC provides whole
life policy, whole life policy with limited payment and whole life
policy with single premium. LIC ‘Jeevan Anand’ is a fusion of
whole life and endowment policy.
Dr P Alekhya, Associate Professor, MBA,
CMRCET
• Term life policy: Term insurance is said to be the purest form of life
insurance. If the insured person passes away, the family is protected
by a certain amount. The policy is taken for a chosen period and the
risk is covered for that period only.
• Money back plan: This is a portion of the sum assured is paid to the
policy holder in the form of survival benefits at fixed intervals,
before the maturity date. The risk cover on life continues for the full
sum assured even after payment of survival benefits, and bonus is
also calculated on the full sum assured. If the policy holder survives
till the end of the policy term , the survival benefits would be
deducted from the maturity value.
• Joint life Policy: Joint life policies are categorized separately as they
cover two lives simultaneously. These policies offer a unique
advantage for a married couple or for partners in a business firm.

Dr P Alekhya, Associate Professor, MBA,

CMRCET
• Children’s insurance policy: Children’s insurance policies
include those that parents or legal guardians provide as life
insurance for their children from their birth. The risk cover
commences from the time the child attains the age of
12\17\18\21 as per the policy document.
• Group policy: Life insurance protection under group policies
is provided to various groups such as employers, employees,
professionals, co-operatives, weaker sections of society,etc.
 Unit linked insurance plan: This is a market –linked
insurance plan .ULIPs provide life insurance combined with
savings at market linked returns.ULIPs premium is mainly
invested in risk-free securities like govt securities and fixed
income securities with high credit rating.
Dr P Alekhya, Associate Professor, MBA,
CMRCET
 Real Assets
 Gold: gold is the oldest form of investment in the world
and is popular across continents and cultures. There is a
wide range of reasons for the investor to seek gold as a
form of investment. These are:
o Expectations of growth in demand for gold
o Steady increase in the price of gold except for minor
fluctuations
o Ability to insure against uncertainty and stability.

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Real Assets
• Gold investment can take many forms those
are:
Gold Bars and coins
Gold Ornaments
Gold Securities:
o Exchange trade funds (ETFs)
o Gold Mining Companies’ stocks
o Gold options and futures
o Gold bullion Securities

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Real Assets
 Silver
 Platinum
 Real Estate: Real estate as an asset class has rewarded
investors with superior returns. Real estate refers to various
fixed assets which can be classified into three categories.
 Residential Property- flats, apartment, cottages and houses
 Commercial property- hotels, resorts, hospitals, educational
institutions and commercial premises
 Land-farmhouse plots, industrial plots, and agricultural land

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Investment Environment in India
 Securities:

 Characteristics of securities:
 Securities are tradable and represent a financial value
 Securities are fungible.

 Classification of Securities:
i. Debt securities
ii. Equity securities
iii. Derivatives

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Investment Environment in India
 Risk, Return and Diversification:
The Main Objectives of Investment Environment in India. They
are
i. Minimizing the Risk
ii. Maximizing the Returns
iii.Diversification of the company
 Debt and Equity diversification
 Industry Diversification
 Company Diversification
 Selection

Dr P Alekhya, Associate Professor, MBA,

CMRCET
 Investment Environment in India
Security Markets
Participants in the Securities Market:
 The Issuer
 The Buyer
 Market intermediaries
 The regulators
Financial intermediaries

Dr P Alekhya, Professor, MBA, CMRCET

Security Trading In Stock Market

Dr P Alekhya, Professor, MBA, CMRCET

Types of Orders In Stock Market

Dr P Alekhya, Professor, MBA, CMRCET

 Nature of Transaction in Security Trading
 Transactions in Cash Market
• Carry Forward Transactions(Badla system)
• Ready Forward Transactions(Repo )
 Forward Trading
 Rolling Settlement(Dematerialisation)
 Margin Trading(Collateral)
 Scrip less Trading
 Internet Trading and WAP Trading –(wireless
Application Protocal)
 Demat Trading
Dr P Alekhya, Associate Professor, MBA,
CMRCET
 Buying and Selling Shares
Mechanics Of Share Trading
 Procedure of Purchase of shares:
i. Purchase of Existing shares from the Market
a) Purchase the order with the Broker(Margin fund)
b) Receipt of Contract Note (Balance Payment, No, rate and date
of Purchase)
c) Intimation of Delivery(share certificate & transfer deed)
d) Sending Shares for Transfer
ii. Purchase of Shares being issued by a Company
Dr P Alekhya, Associate Professor, MBA,
CMRCET
 Buying and Selling Shares
ii. Purchase of Shares being issued by a Company
a)Filling Application Form with Application
Money
b)Receipt of allotment Letter/Refund Order
c) Payment of Allotment Money and Call Money
d)Endorsement of Payment on Share Certificate
 Procedure for selling of shares
i) Placement of Order
ii)Execution Of Order
Dr P Alekhya, Associate Professor, MBA,
CMRCET
Roles & Responsibilities of SEBI
FOR YOUR
PRECIOUS
ATTENTION