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Presentation

on
Basic Concepts of
Investment
BY
N. DURGA CHAITANYA PRASAD
Research Scholar, SOM

ational Institute of Technology, Waranga


WHAT IS INVESTMENT
Employment of funds on assets with
the aim of earning income or capital
appreciation
Investment means a monetary
commitment- lay person
Investment is the net addition made to
the nations capital stock that consists of
goods and services that are used in
production process - Economist
Investment is the allocation of money to
assets that are expected to yield some
gains over a period of time -
Finance
WHAT IS INVESTMENT
Investment involves employment of funds with the
aim of achieving additional income or growth in
values.
Lending money to another [interest]
Purchasing of gold[value appreciation]
Purchase of insurance plan[promised future benefits]

DEFINITIONS:
A commitment of funds made in the
expectation of some positive rate of return

A sacrifice of current money or other


resources for future benefits.
OBJECTIVES OF
Return
INVESTMENT
Risk (Bank Deposits, Govt. Bonds, UTI units,
non-convertible bonds, convertible
debentures, equity shares etc.)
Maintain liquidity
Increasing safety
Tax benefits
OBJECTIVES OF
INVESTMENT
Primary objectives are:
Maximizing the return

If the share value is 50/- initially. We hold it


up to one year. The divided for month is 5/-
and at the end the year we sold that share at
60/-. What is our return on investment?
TYPES OF INVESTMENT
TYPES OF FINANCIAL
Investment isINVESTMENTS
something that is purchased
with money that is expected to produce
income or profit
Equity Shares
It commonly referred to as common stock or ordinary
shares.
Equity shares are the main source of finance of a firm.
It is issued to the general public.
Equity shareholders do not enjoy any preferential
rights with regard to repayment of capital and dividend.
FEATURES:
They are permanent in nature
Equity shareholders are the actual owners of
the company and they bear the highest risk
Equity shares are transferable
Equity shareholders do not get fixed rate of
dividend
Equity shareholders have the right to control
the affairs of the company
The liability of equity shareholders is limited
to the extent of their investment.
Types of Equity Shares
New issue(IPO).
Bonus issue.
Right issue.(Sec 81 of Companies Act, 1956)
Sweat issue(Sec 79A of Companies Act, 1956 &
SER 2002 SEBI)
Preference Shares
Preferred stock is hybrid in nature
It receives fixed amount of income as dividend
It is perpetual liability of the corporate
These shares holders do not enjoy any of the voting powers.
Return of preference share capital before the return
ofequity sharecapital at the time of winding up ofthe
company.

TYPES:
Cumulative Preference Shares
Non-Cumulative Preference Shares
Redeemable Preference Shares
Non-Redeemable Preference Shares
Convertible Preference Shares
Non-Convertible Preference Shares
Cumulative Convertible Preference Shares
Bonds
A Bond is a long-term debt instrument that promises to pay a
fixed annual sum as interest for a specified period of time.
Bonds have a face value and interest rate.
The maturity date of the bond is usually specified at the time
of issue.
The redemption value is also stated in the bonds. Bonds are
traded in the stock market

TYPES:
Secured Bonds and Unsecured Bonds
Perpetual bonds and redeemable bonds
Fixed interest rate bonds and floating
interest rate bonds
Zero coupon bonds
Debentures
Debentures are generally issued by the private
sector companies as a long term promissory
note for raising loan capital.
The company promises to pay interest and
principal as stipulated.

FEATURES:
Debenture holders are the creditors of the
company carrying a fixed rate of interest.
Debenture is redeemed after a fixed period of
time.
Debentures may be either secured or
unsecured.
Interest payable on a debenture is a charge
against profit and hence it is a tax deductible
expenditure.
Debenture holders do not enjoy any voting
Debentures
Ordinary Debenture
Mortgage Debenture
Non-convertible Debentures
Partly Convertible Debentures
Fully Convertible Debenture
Redeemable Debentures
Irredeemable Debenture

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