INTRODUCTION

Investment is the sacrifice of certain present value for the uncertain n future reward. It entails
arriving at numerous decisions such as type, mix, amount, timing, grade etc of investment
and disinvestments. Further such decision making has not only to be continuous but rational
too. Instead of keeping the savings idle you may like to use savings in order to get return on
it in the future, which is known as investment. There are various investment avenues such
as Equity, Bonds, Insurance and Bank Deposits etc. A portfolio is a combination of different
investment assets mixed and matched for the purpose of achieving an investors goal. There
are various factors which affects investors portfolio such as annual income, government
policies, natural calamities, economical changes etc.

What is Investment?

An investment is an asset or item that is purchased with the hope that it will generate income
or will appreciate in the future. In an economic sense, an investment is the purchase of goods
that are not consumed today but are used in the future to create wealth. In finance, an
investment is a monetary asset purchased with the idea that the asset will provide income in
the future or will be sold at a higher price for a profit.

According to economist investment refers to any physical or tangible asset, for example, a
building or machinery and equipment.

On the other hand, finance professionals define an investment as money utilized for buying
financial assets, for example, stocks, bonds, real properties and precious items.

According to finance, the practice of investment refers to the buying of a financial product or
any valued item with the anticipation that positive returns will be received in the future.

The most important feature of financial investments is that they carry high market liquidity.
The method used for evaluating the value of a financial investment is known as valuation.

Business theories define investment as that activity in which a manufacturer buys a physical
asset, for example, stock or production equipment, in expectation that this will help the
business to prosper in the long run. In simple words investment meaning buying securities or
other monetary or paper assets in the money markets and capital markets, in fairly liquid real
assets such as gold as an investment, real estate, or collectibles. Valuation is the method for
assessing whether a potential investment is worth its price. Types of financial investments
include shares or other equity investment, and bonds (including bonds denominated in
foreign currencies). These investments assets are then expected to provide income or positive
future cash flows, but may increase or decrease in value giving the investor capital gain or
losses.

Features of an investment programme

In choosing specific investments, investors will need definite ideas regarding features, which
their investment avenue should possess. These features should be consistent with the
investors general objectives and in addition, should afford them all the incidental
conveniences and advantages, which are possible under the circumstances. The following are
the suggested features as the ingredients from which many successful investors compound
their selection policies.

1. Safety of principle

The safety sought in investment is not absolute or complete; it rather implies protection
against loss under reasonably likely conditions or variations. It calls for careful review of
economic and industry trends before deciding types and/or timing of investments. Thus, it
recognizes that errors are unavoidable for which extensive diversification is suggested as
an antidote. Adequate diversification involves mixing investment commitments by
industry, geographically, by management, by financial type and maturities. A proper
combination of these factors would reduce losses.

2. Adequate Liquidity and Collateral Value

An investment is a liquid asset if it can be converted into cash without delay at full
market value in any quantity. For an investment to be liquid it must be reversible or
marketable. The difference between reversibility and marketability is that reversibility is
the process whereby the transaction is reversed or terminated while marketability
involves the sale of the investment in the market for cash. To meet emergencies, every
investor must have a sound portfolio to be sure of the additional funds which may be
needed for the business opportunities.

3. Income Stability

Regularity of income at a consistent rate is necessary in any investment pattern. Not only
stability, it is also important to see that income is adequate after taxes. It is possible to
find out some good securities which pay practically all their earnings in dividends.

4. Appreciation and purchasing power stability

Investors should balance their portfolios to fight against any purchasing power instability.
Investors should judge price level inflation, explore the possibility of gain and loss in the
investments available to them, limitations of personal and family considerations.

The investors should also try and forecast which securities will possibly appreciate. A
purchase of property at the right time will lead to appreciation in time. Growth stock will
also appreciate over time. These, however, should be done thoughtfully and not in a
manner of speculation or gamble.

5. Legality and freedom from care

All investments should be approved by law. Law relating to minors, estates, trusts, shares
and insurance be studied. Illegal securities will bring out many problems for the investor.
One way of being free from care is to invest in securities like Unit Trust of India, Life
Insurance Corporation or Savings Certificates.

6. Tangibility

Intangible securities have many times lost their value due to price level inflation,
confiscatory laws or social collapse. Some investors prefer to keep a part of their wealth
invested in tangible properties like building, machinery and land. It may, however, be
considered that tangible property does not yield an income apart from the direct
satisfaction of possession or property.
 7. Tax benefits

To plan an investment programme without regard to ones tax status may be costly to the
investor. There are really two problems involved here, one concerned with the amount of
income paid by the investment and the other with the burden of income taxes upon that
income.

Investment and Speculation

Traditionally, investment is distinguished from speculation in three ways, which are based on
the factors of:

1. Capital Gain

2. Time period

3. Risk.

Investment Speculation

Time Horizon Long-term time framework Short-term planning holding

beyond 12 months. asset even for one day with
the objective.

Risk It has limited risk. There are high profits and

gains.

Return It is consistent and moderate High returns, though risk of

over a long period. loss is high.

Use of funds Own funds through savings. Own and borrowed funds.

Decisions Safety, liquidity, profitability Market behavior information,

and stability, consideration judgments on moment in the
and performance of stock market. Hunches and
companies. beliefs.