The document discusses investment planning and provides guidance on setting investment goals, evaluating investment alternatives and risks, and formulating a personal investment portfolio. It explains the importance of matching financial goals and objectives with resources through investment planning. The key aspects of an investment plan include stability, growth, liquidity, safety, and tax implications. Various investment opportunities and markets are described, including the primary and secondary markets and money/capital markets.
2. At the end of this topic, the students are expected to:
Set investment goals
Assess investment environment and its effects on investment
decisions
Evaluate investment alternatives
Discuss the relationship between risk and return
Formulate a personal investment portfolio
3. Investment Planning
Investment planning is the process of matching your
financial goals and objectives with your financial resources
involves identifying financial goals throughout life, and
prioritizing them
helps to derive the maximum benefit from investments
The success of an investor depends upon his ability to choose the right investment options.
This, in turn, depends on his requirements, needs and goals. The choice of the best
investment options will depend on personal circumstances as well as general market
conditions
4. Investment Planning
Essential Features of an Investment Plan/Program
Stability of
purchasing power
Capital Growth
Liquidity and
Collateral Value
Safety of Principal
Stability of
Income
Tax Implications
Legality
5. Investment Planning
exchange of money
wealth into some
tangible wealth
Money wealth
- the money (savings) which an
investor has
Tangible wealth
- the assets the investor acquires by
sacrificing the money wealth
By investing, an investor commits the present funds
to one or more assets to be held for some time
in expectation of some future return
in terms of interest or capital gain.
commitment of funds
that is expected
to generate
additional money
6. Investment Planning
Encompasses all types of investment opportunities
and the market structure that facilitates buying
and selling of these investments
Components of the Investment Environment
Different types of securities
Institutional set-up
Market intermediaries
9. Investment Planning
Refers to a marketplace, where
creation and trading
of financial assets
such as shares, debentures,
bonds, derivatives,
currencies, etc. take place
10. Primary Market
The primary market is where securities are
created. It's in this market that firms sell (float)
new stocks and bonds to the public for the first
time. An initial public offering, or IPO, is an
example of a primary market.
Secondary Market
A secondary market is a marketplace where
already issued securities – both shares and debt
– can be bought and sold by the investors. It is a
market where investors buy securities from other
investors, and not from the issuing company.
Money Market
Money Market refers to all institutions and
procedures that provide for transactions in short-
term debt instruments that are generally issued by
borrowers with good credit ratings
Include
Capital Market
Capital market refers to all institutions and
procedures that provide for transactions in long
term financial instruments d any structures
that are on it, or family owns
Investment Planning
11. .
Investment Planning
CAPITAL MARKET
Primary Market
• Primary beneficiary is the issuing
corporation
• Objective is to raise funds
• Includes new securities such as
Initial Public Offerings (IPOs)
Secondary Market
• Primary beneficiary is the
investor/shareholder
• Objective is capital appreciation
• Includes the trading of securities
already offered to the marketplace
12. .
Investment Planning
Financial Institutions
Banking Institutions
Financial institutions engaged in the
lending of funds obtained from the
public primarily through the receipt of
deposits of any kind
Non-banking Institutions
Financial institutions other than banks
whose principal functions include
lending, investing or placement of
funds or evidence of indebtedness or
equity deposited with or otherwise
acquired by them, either for their own
account or for the account of others
14. .
Investment Planning
The basic idea of investing is that money is into
something and, if all goes well, end up with more
money than what was invested.
16. .
Investment Planning
Individual assets can be voided completely
If a company goes into liquidation, its shares may become
worthless
If a country ceases to exist, bonds issued by its government will
often become worthless.
Generated ROI may not be sufficient to keep pace with inflation
Unsystematic risk is a firm-specific risk that affects
only one company or a small group of companies
Systematic risk which is the risk associated with the
collapse or failure of a company, industry, financial
institution or an entire economy because the risk is a
market risk affecting all companies in the market
20. DISADVANTAGES
Reduces Quality
Too Complicated
Indexing
Market Risk
Below Average Returns
Lack of Focus or Attention to the Portfolio
21. Investment Planning
What makes a diversified portfolio?
Diversified portfolio means spreading risk by investing:
Across different asset classes such as cash, fixed
interest, property, etc.
Within asset classes such as purchasing shares
across different industry sectors
Across different fund managers if investing in
managed funds.
22. Investment Planning
Diversification does not usually affect the
systematic risk because the risk is a market risk
affecting all companies in the market.
Diversification is primarily used to eliminate or smooth
unsystematic risk. Therefore, when the portfolio is
well-diversified, the investments with a strong
performance compensate the negative results from
poorly performing investments.
