1. Introduction to SAPM
1. Objectives of Financial Investment
2. Investment Alternatives
--Arti Pradhan

2. Investment
• Employment of funds on assets with aim of
earning income or capital appreciation.
• Two attributes- time and risk
• Economist definition- net addition made to
nation’s capital stock
• Financial Manager’s definition- allocation
of money to assets that are expected to yield
some gains over a period

3. Difference between investment,
speculation and gambling
Basis Investment Speculation
Basis of
acquisition
Usually by
outright purchase
Often- on-
margin
Length of
commitment
Comparatively
long term
For a short time
only
Source of
income
Earnings of
enterprise
Change in
market price
Quantity of
risk
Small Large
Stability of
income
Very stable Uncertain and
erratic
Psychological
attitude of
Participants
Cautious and
conservative
Daring and
careless

4. Investment Objectives
• Return
• Risk
• Liquidity/Marketability/Tradability
• Hedge against inflation
• Safety

5. Investment Process
• Investment Policy – investible funds,
objectives, knowledge
• Analysis – market, industry and company
• Valuation- intrinsic value, future value
• Portfolio Construction – diversification,
selection and allocation
• Portfolio Evaluation- appraisal and revision

6. Investment Alternatives
• On the basis of return- fixed income
securities and variable income securities
• On the basis of Source- corporate, Semi-
government and government
• On the basis of tangibility- Real, financial

7. Broad classification of
investment avenues
• Corporate securities
. Equity shares. Preference shares
. Debentures/Bonds
. GDRs /ADRs
. Warrants
. Derivatives
• Deposits in banks and non-banking companies
• Post office deposits and certificates
• Life insurance policies
• Provident fund schemes
• Government and semi government securities
• Mutual fund schemes
• Real assets

8. What is Security?
Term ‘securities’ used in the broadest sense consists of those
papers, which are quoted and are transferable.
Under section 2 (h) of the Securities Contract (Regulation)
Act, 1956 (SCRA) ‘securities’ include:
i) Shares., scrip’s, stocks, bonds, debentures, debenture stock
or other marketable securities of a like nature in or of any
incorporated company or other body corporate.
ii) Government securities.
iii) Such other instruments as may be declared by the central
Government as securities, and,
iv) Rights of interests in securities.

9. Corporate Securities
Equity Shares – buying of ownership right in the
company. Based on investor’s terminology, can be
named as
• Blue Chips (also called Stalwarts)
• Growth Stocks (Glamour stocks and high flyers)
• Income Stocks (defensive stocks)
• Cyclical Stocks
• Discount Stocks
• Under Valued Stock
• Turn Around Stocks

10. • Preference Shares
• Debentures and Bonds
• Depository Receipts (GDRs/ADRs)
• Warrants
• Derivatives
• Non-Voting Shares

11. Deposits
• Savings Bank Account with Commercial Banks
• Company Fixed Deposits
• Post Office Deposits and Certificates
• Life Insurance Policies
• Provident Fund Scheme
• Equity Linked Savings Schemes (ELSSs )
• Pension Plan
• Government and Semi-Government Securities
• Mutual Fund Schemes

12. REAL ASSETS
• Real Estate
• Bullion Investment

13.
MONEY MARKET
INSTRUMENTS
• Treasury Bills (T-Bills)
• Repurchase Agreements
• Commercial Papers
• Certificate of Deposit
• Banker’s Acceptance

14. Money Market Funds
• Invests in low risk and low return bucket of
securities viz. money market instruments
• Similar to mutual funds but invest in money
market instruments
• Money Market Account
• Money Market Index
-Smart Money Market Index
-Salomon Smith Barney’s World Money Market
Index
-Banker’s Acceptance Rate
-LIBOR/MIBOR