INVESTMENT

MANAGEMENT: AN
INTRODUCTION
 Investment means…
 Commitment of money that is expected to generate
additional money
 Current commitment of money for a period of time to
desire future payments that will compensate the investor
for
 The time the funds are committed
 The expected rate of inflation, and
 The uncertainty of the future payments
 The investor can be an individual, a government, and/or a
corporation
 Investment must be distinguished from Speculation and
Gambling
Why Invest?

To achieve a higher level of consumption in

the future by forgoing consumption today
and maintain tradeoff between current
consumption and future consumption.
Why study ‘Investment
Management’?
 The Personal Aspects
◦ To earn better returns in relation to the risk we assume when
we invest
◦ Knowledge of investments help investors understand the
relationship between risk and return
 Investment as a Profession
◦ Investment consultancy
◦ Assignments in Investment Banking organizations
Basic features of Investment
Risk:Attempts to minimize
Return: Attempts to maximize
Time: Attempts to encash in time.
Tax: Attempts to manage
Risk-return equation:
Positively correlated

Stocks

ER
Bonds

Risk-free Rate

Risk
Making Investment Decisions on the Basis of
Expected Return and Risk

Investors should choose dominant assets

Dominant Assets—assets that promise
higher expected return at any selected
level of risk or assets that promise
minimum risk of all assets at any selected
level of expected return.
Example of Dominant Assets
Example
Assets Expected Return Risk
M 10% 10%
B 5% 10%
C 5% 20%
A 15% 20%
E 15% 30%
T 5% 5%

Which of these assets is dominant over others? Which of these assets is not being
dominated by any other asset?
 Return
M

15% A E

10% M

5% T B C
T
RISK
5% 10% 15% 20% 25% 30%
A, M, and T are dominant investments
 INVESTMENT AVENUES

REAL ASSET FINANCIAL ASSET OTHER

AVENUES AVENUES AVENUES

-REAL ESTATE -OWNERSHIP SECURITIES -INVESTMENT IN

OWN BUSINESS
-GOLD & SILVER -CREDITORSHIP SECURITIES
-OTHERS
-BUILDINGS, -EMERGING INSTRUMENTS
AUTOMOBILES,
-COMMODITIES
ETC.
-DERIVATIVES
-OTHER REAL
ASSETS -OTHERS