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INVESTMENT
ALTERNATIVE WITHRESPECT TO TIMEVALUE OF MONEY
Alka Dhingra
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GROUP MEMBERSName Roll Number
Ganesh Bangar 10B706
Bhaskar Chityala 10B709
Harish Jain 10B722
Pratik Lawana 10B729
Arpita Mayekar 10B731
Suraj Mohite 10B734Vinayak Bandi 10B409
Aakash Choudhary 10B412
Sandeep Chaurasia 10B414
Hiren Rathod 10B461
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INVESTMENT
Investment refers to current commitment of funds for a specified time period to dfuture.
The future benefits derived from an investment are known as returns
Giving loan: with an expectation to get the principal back along with the interest a
Buying gold: with an expectation of appreciation in its value in future
Buying an insurance plan: for various benefits derivable in future &/or in case of a
Buying shares of companies: for dividend &/ or capital appreciation
CURRENT SACRIFICE FUTURE REWARD
As the reward would accrue only in future, it involves risk (of realized return bein
expected)
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OBJECTIVE OF INVESTORS
Maximization of return Minimization of risk
Safety
Income
Growth of Capital
Tax Minimization
Marketability / Liquidity
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INVESTMENT ALTERNATIVES
FINANCIAL ASSETS
Equity shares
Bonds
Preference shares
Non- marketable financial assets
Money market instruments
Mutual funds
Life insurance
REAL ASSETS
Real estate
Precious objects
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EQUITY SHARES Represents ownership capital
- They elect the board of directors and have a right to vote onevery resolution placed before the company
- They enjoy the pre-emptive right which enables them tomaintain their proportional ownership
Risk: residual claim over income Reward: partners in progress The amount of capital that a company can issue as per its
memorandum represents authorized capital The amount offered by the company to the investors is called
issued capital The part of issued capital that is subscribed to by the investors is
called subscribed capital / paid up capital
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EQUITY SHARESPar / Face / Nominal valueof a share is stated in the
memorandum and written on the share scrip
Issue of shares at a value above its par value is calledissue at apremium
Issue of shares at a value below its par value is calledissue at adiscount
The price at which the share currently trades in the market is called
themarket value
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EQUITY SHARES Blue chip shares
Shares of large, well established and financially strong companies with impressive record ofearnings and dividend Growth shares
Shares of companies having fairly strong position in the growing market and having an aboveaverage rate of growth and profitability
Income shares
Shares of companies having fairly stable operations, limited growth opportunities and highdividend payouts
Cyclical shares
Shares of companies performing as per the business cycles Defensive shares
Shares of companies relatively unaffected by the ups and downs in the general economicconditions
Speculative shares
Shares of companies whose prices fluctuate widely because of a lot of speculative tradingbeing done on them
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BONDS
They are long term debt instruments issued for a fixed time period. Bondsare debt securities issued by the government or PSUs.
Debenturesare debt securities issued by private sector companies.
They comprise of periodic interest payments over the life of the instrumprincipal repayment at the time of redemption.
Debt securities issued by the central government , state government and
government agencies are referred to as gilt-edged securities. Callable bondsare the ones that can be called for redemption earlier th
maturity. This right to call is available with the company
Convertible bonds are the ones that can be converted into equity shareseither fully or partly. This option is available with the bond holder.
Coupon rate is the nominal rate of interest fixed and printed on the bonis calculated on the face value and is payable by the company till maturit
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PREFERENCE SHARES Represents a hybrid securitythat has attributes of both eq
and debentures. They carry afixed rate of dividend. However it is payable o
distributable profits.
Dividend on preference shares is generally cumulative. Div
skipped in one year has to be paid subsequently before eq
can be paid.
Only redeemable preference sharescan be issued.
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NON-MARKETABLE SECURITIES
These represent personal transactions between the investoissuer.
Bank deposits- There are various kinds of bank accounts current, sav
fixed deposit- While a deposit in a current account does not earn any
deposit made in others earn an interest- Liquidity, convenience and low investment risks are the
features of the bank deposits- Deposits in scheduled banks are safe because of the re
RBI and the guarantee provided by the Deposit InsuranCorporation on deposits up to Rs.1,00,000 per deposito
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NON-MARKETABLE SECURITIES
Company deposits- Deposits mobilized by companies are governed by the
section 58A of Companies Act, 1956- The interest offered on this fixed income deposits is hig
what investors would normally get from the banks- Manufacturing and trading companies are allowed to p
maximum interest of 12.5%.- The rates vary depending on the credit rating of the co
offering the deposit
Post Office Monthly Income Scheme- Meant for investors who want to invest a lump sum am
and earn interest on a monthly basis.- Minimum investment is Rs.1000 in multiples of Rs. 1,00- The maximum deposits in all the accounts taken togeth
not exceed Rs.3 lakh in a single account and Rs.6 lakh in
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MONEY MARKET INSTRUMENTS
Debt instruments which have a maturity of less than a year at the timecalled money market instruments
These are highly liquid instruments
Treasury bills- Issued by GOI
- They are of two durations 91 days and 364 days
- Are negotiable instruments and can be rediscounted with GOI- They are sold on an auction basis every week in certain minimum
by the RBI
- They do not carry an explicit interest rate. Instead they are issued
be redeemed at par. The implicit return is a function of the size of
the period of maturity
- They have zero default risk, assured return, are easily available
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MONEY MARKET INSTRUMENTS
Certificate of deposits- Negotiable instruments issued by banks / financial institutions wit
ranging from 3 months to 1 year- These are bank deposits transferable from one party to another- The principal investors are banks, financial institutions, corporate
funds- These carry an explicit rate of interest- Banks normally tailor make their denominations and maturities to
of the investors
Commercial papers- Issued in form of promissory notes redeemable at par by the hold- Usually has a maturity period of 90 to 180 days- They are sold at a discount to be redeemed at par- CPs can be issued by corporates having a minimum net worth of R
an investment grade from credit rating agencies- Minimum issue size is Rs. 25 lakhs
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MUTUAL FUNDS
Also known as an instrument for collective investment
Investment is done in three broad categories of financial asstocks, bonds and cash
Depending on the asset mix, mutual fund schemes are clasEquity schemes, hybrid schemes and debt schemes
On the basis of flexibility, Mutual fund schemes may be: Oor Close ended
- Open ended schemes are open for subscription and redemption tyear
- Close ended schemes are open for subscription only for a specifiecan be redeemed only on a fixed date of redemption
On the basis of objective, mutual funds may be growth funfunds, or balanced funds
NAVof a fund is the cumulative market value of the assets
net of its liabilities
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LIFE INSURANCE
Form of risk management primarily used to hedge against contingent loss.
Equitable transfer of the risk of a loss, from one entity to aexchange for a premium.
Guaranteed small loss to prevent a large, possibly catastro Only thing certain during uncertain times Policy contract binds the insurer to the insured on an agre
protection that will be realized upon an agreed event provthat insured keeps his end of the contract : pay the premiu
The only investment that does not rely on time and is therCOMPLETING.
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REAL ESTATE
Real estate investing involves the purchase, ownership, marental and/or sale ofreal estate for profit.
Improvement of realty property as part of a real estate invstrategy is generally considered to be a sub-specialty of reinvesting called real estate development.
Real estate markets in most countries are not as organizedas markets for other, more liquid investment instruments.
Individual properties are unique to themselves and not dirinterchangeable, which presents a major challenge to an inseeking to evaluate prices and investment opportunities.
Real estate is an asset form with limited liquidity relative toinvestments, it is also capital intensive (although capital mthrough mortgage leverage) and is highly cash flow depen
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PRECIOUS METAL
A precious metal is a rare, naturally occurring metallicelement of high economic value.
Chemically, the precious metals are less reactive thanelements.
Historically, precious metals were important as currennow regarded mainly as investment and industrial com
Gold, silver, platinum, and palladium each have an cuin the market.
The demand for precious metals is driven not only by practical use but also by their role as investments andvalue.
Historically, precious metals have commanded much h
than common industrial metals.
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THE TIME VALUE OF MONEY
Would you prefer to have Rs.1 million now omillion 10 years from now?
Of course, we would all prefer the money n
You already recognize that there isTIME VALUE TO MONEY!!
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TIME
Why is TIME such an important element in ydecision?
TIME allows you the opportunity to post
consumption and earn INTEREST.
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IMPORTANCE OF TIME VALVE OF MONE
The concept of time value of money involves in arriving at the compar
the different rupee amount which is arising at different points of time iequivalent values of a particular point of time either present or future.
The cash flows arising at different periods of time can be made compar
any one of the following two ways:
By compounding the present money to a future date i.e., by finding out
the present money.
By discounting the future money to present date i.e., by finding out pre
(PV) of the future money.
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Formulae
Present Value (PV) of a Single Cash Flow: = (
+)
Present Value of an Annuity: = [
+
+ ]
Future Value (FV) of a Single Cash Flow: = (1 )
Future Value of an Annuity: = A[+
]
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Best Investment Alternative Over Past 5
Mutual Funds (UTI - FLOATING RATE STP Growth of 168.2%)
Gold (Growth of 235%) Silver (Growth of 233%)
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MUTUAL FUN
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GOLD
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SILVER
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GIVE ME TIME OR MOBOTH ARE EQUAL
THANK YOU
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