INVESTMENT PROCESS The investment process is generally described in four stages.

These stages are investment policy, investment analysis, valuation of securities, and portfolio construction. I. Investment policy : Determination of ingestible wealth determination of portfolioobjectives. Identification potential investment as sets consideration of attributes of investment assets allocation of wealth to asset categories. II Investment Valuation : Valuation of stocks, debentures, other assets and bonds. III. Investment Analysis : Equity stock analysisScreenings of industriesAnalysis of industriesQuantitative analysis of stocksAnalysis of the economyDebentures and bond analysisQualitative analysis of debenturesOther assets analysis IV. Portfolio Construction : Determination of diversification level consideration of investment assets evaluation of portfolio for feedback Disadvantages of preference share

Remember that your investors will actually own a piece of your business; howlarge that piece is depends on how much money they invest. You probably will not want to give up control of your business, so you have to be aware of that whenyou agree to take on investors. Investors do expect a share of the profits where, if you obtain debt financing, banks or individuals only expect their loans repaid. If you do not make a profit during the first years of your business, then investorsdont expect to be paid and you dont have the monkey on your back of paying back loans. Since your investors own a piece of your business, you are expected to act in their best interests as well as your own, or you could open yourself up to a lawsuit. Insome cases, if you make your firms securities available to just a few investors,you may not have to get into a lot of paperwork, but if you open yourself up to wide public trading, the paperwork may overwhelm you. You will need to check with the Securities and Exchange Commission to see the requirements before youmake decisions on how widely you want to open up your business for investment. B) Preference Shares Preference shares offer their owners preferences over ordinary shareholders. There aretwo major differences between ordinary and preference shares:

Preference shareholders are often entitled to a fixed dividend even when ordinaryshareholders are not. Preference shareholders cannot normally vote at general meetings.The preference dividend is fixed in the sense that preference shares are often issued withthe rate of dividend fixed at the time of issue and you might see something like this:4% preference dividend $ 0.25 Note, that if by any chance a company cannot pay its preference share dividend then itcannot pay any ordinary share dividend since the preference shareholders have the rightto receive their dividend before the ordinary shareholders under all circumstances - hencethe term 'preference'. 3.1.4)Types of preference shares: 1. Cumulative preference shares :Preference shares are usually cumulative and this means that if this year's dividend wasn't paid, then it will be carried forward to next year.

2. Non-Cumulative preference shares: Some preference shares are non-cumulative, if the company cant pay the dividend for one particular year, the dividend for that year lapses. 3. Redeemable preference shares: A preference share may be redeemable which means that at some time in the future, thecompany will effectively buy if back. 4. Irredeemable preference shares: A preference share may be irredeemable which means that at some time in the future, thecompany will not effectively buy it back. 5. Convertible Preference Share Preference shares may be issued with the right of conversion into ordinary shares. Theseare called Convertible Preference Share. 6. Non Convertible Preference shares: Preference shares may be issued without the right of conversion into ordi

. Participating Preference Share If a preference share is a participating preference share then the owner of such a share hasthe right to participate in, or receive, additional dividends over and above the fixed percentage dividend. 3.1.5) Advantages of preference shares: 1 .

You are assured of a dividend: If you own ordinary shares, you are not automatically entitled to a dividend every year.The dividend will be paid only if the company makes a profit and declares a dividend.This is not the case with preference shares. A preference shareh older is entitled to adividend every year. What happens if the company doesn't have the money to paydividends on preference shares in a particular year?The dividend is then added to the next year's dividend. If the company can't pay it the next year as well, the dividend keeps getting added until the company can pay. 2 . They get priority over ordinary shares: Ordinary shareholders get a dividend only after the cumulative preference shareholdersget theirs. Preference shareholders are given a preference over the rest. That's why it iscalled a preference share. 3. Preference shares are safer: In case the company is wound up and its assets (land, buildings, offices, machinery,furniture, etc) are being sold, the money that comes from this sale is given to theshareholders. After all, shareholders invest in a business and own a portion of it.Preference shareholders' get the money first. Their accounts are settled before that of theordinary shareholders, who are the last to get paid. 3.1.6) Disadvantages of preference shares: They are not easily available They are not traded on the stock exchange BANK DEPOSITS Fixed Deposit: When you deposit a certain sum in a bank with a fixed rate of interest and specified time period, it is called a bank fixed deposit (FD). At maturity, you are entitled to receivethe principal amount as well as the interest earned at the pre-specified rate duringthat period. The rate of interest varies between 4 and 6 per cent, depending on the maturity period of the FD and the amount invested. 3.2.1) How to apply in fixed deposit? One can get a bank FD at any bank, be it nationalized, private, or foreign. You have toopen a FD account with the bank, and make the deposit. However, some banks insist thatyou maintain asavings accountwith them to operate a FD. When a depositor opens an FD account with a bank, a deposit receipt or an account statement is issued to him, whichcan be updated from time to time, depending on the duration of the FD and the frequencyof the interest

calculation. Check deposit receipts carefully to see that all particulars have been properly and accurately filled in. 3.2.2) Features of bank deposit:1. Safety Bank deposits are fairly safe because banks are subject to control of the Reserve Bank of India (RBI) with regard to several policy and operational parameters. The banks are free

to offer varying interests in fixed deposits of different maturities. Interest is compoundedonce a quarter, leading to a somewhat higher effective rate. 2. Minimum deposit The minimum deposit amount varies with each bank. It can range from as low as Rs. 100to an unlimited amount with some banks. Deposits can be made in multiples of Rs. 100/. 3. Deposit period fixed Before opening a FD account, try to check the rates of interest for different banks for different periods. It is advisable to keep the amount in five or ten small deposits insteadof making one big deposit. In case of any premature withdrawal of partial amount, thenonly one or two deposit need be prematurely encashed. The loss sustained in interest will,thus, be less than if one big deposit were to be encashed. Check deposit receipts carefullyto see that all particulars have been properly and accuratel y filled in. The thing to consider before investing in an FD is the rate of interest and the inflation rate. A high inflation rate can simply chip away your real returns. 3.2.3) Returns from Fixed bank deposit: The rate of interest for Bank Fixed Deposits varies between 4 and 11 per cent, dependingon the maturity period (duration) of the FD and the amount invested. Interest rate alsovaries between each bank. A Bank FD does not provide regular interest income, but a lumpsum amount on its maturity. Some banks have facility to pay interest every quarter or ever y month, but the interest paid may be at a discounted rate in case of monthl yinterest. The Interest payable on Fixed Deposit can also be transferred to Savings Bank or Current Account of the customer. The deposit period can vary from 15, 30 or 45 daysto 3, 6 months, 1 year, 1.5 years to 10 years. 3.2.4) Advantages of fixed bank de

) Advantages of fixed bank deposit:1. Safest investment Bank deposits are the safest investment after Post office savings because all bank deposits are insured under the Deposit Insurance & Credit Guarantee Scheme of India. Itis possible to get a loans up to75- 90% of the deposit amount. 2. Any Where in India One can get a bank FD at any bank, be it nationalized, private, or foreign. You have toopen a FD account with the bank, and make the deposit. However, some banks insist thatyou maintain asavings accountwith them to operate a FD. When a depositor opens an FD account with a bank, a deposit receipt or an account statement is issued to him, whichcan be

updated from time to time, depending on the duration of the FD and the frequencyof the interest calculation. Check deposit receipts carefully to see that all particulars have been properly and accurately filled in. B) Time deposit 3.2.5)How to start a Time Deposit? A Time Deposit account can be opened at any post-office in the country. Account may be opened by an individual, i.e., Single,J o i n t A / B ( n o t m o r e t h a n t w o a d u l t s ) T r u s t , Regimental Fund and Welfare Fund. On opening a Time Deposit, you will receive an account statement stating the amount deposited and the duration of the account. The account can be closed after 6 months of opening the account. On such closure the amount i n v e s t e d i s r e t u r n e d w i t h / w i t h o u t i n t e r e s t d e p e n d i n g o n t h e t i m e t h e d e p o s i t w a s maintained. 3.2.6) Features of Time Deposit Time Deposits can be made for the periods of 1 year, 2 years, 3 years and 5 years. The minimum investment in a post-office Time deposit is Rs 200 and then its multiples and there is no prescribed upper limit on your investment. Account may be opened by anindividual, Trust, Regimental Fund and Welfare Fund. The account can be closed after 6 months but before one year of opening the account. On such closure the amount invested is returned without interest.2 year, three year and fiveyear accounts can be closed after one year at a discount. They involve a loss in the interest accrued for the time the account has been in operation. Interest is payable annually but is calculated on a quarterly basis at the prescribed rates.One can take a loanagainst a time deposit with the balance in your account pledged as securityfor the loan.

3.2.7) Returns Seria l 1 2 3 4 5 Rate of Rate of Capital Investmen Annual Risk Appreciatio t Term Income n Low High Long High Low Nil Average Average MeduimLow Long MeduimLow Long Long Long Nil High Tax Marketabilit Convenienc Benefi y e t High Average Average Average Average Yes Nil Yes Yes Yes High High High High High

Equity NonAverag convertible e Debentures Bank Fixed Low deposits Provident Nil fund Life insurance Nil ULIP Life insurance Nil Conventiona

Low

Long

Nil

Average

Yes

High

7 8 9

l plan Equity Mutual Low Fund Debt Mutual High Fund Real Estate Low Real Estate Investment Low Trust (REIT) Gold/silver Nil Gold ETF Nil

High Low High

Meduim- Medium High Long -High Flexible Long Low High

Yes Nil

High High

Average Low

Limite Low d High Nil Nil Average High

High Average Average Long

Average Average Average Average High

10 11

Comparison of Investment Avenues

Seria l 1 2 3 4 5

7 8 9

Equity NonAverag convertible e Debentures Bank Fixed Low deposits Provident Nil fund Life insurance Nil ULIP Life insurance Nil Conventiona l plan Equity Mutual Low Fund Debt Mutual High Fund Real Estate Low Real Estate Low Investment

Rate of Rate of Capital Investmen Annual Risk Appreciatio t Term Income n Low High Long High Low Nil Average Average MeduimLow Long MeduimLow Long Long Long Nil High

Tax Marketabilit Convenienc Benefi y e t High Average Average Average Average Yes Nil Yes Yes Yes High High High High High

Low

Long

Nil

Average

Yes

High

High Low High High

Meduim- Medium High Long -High Flexible Long Low High

Yes Nil

High High

Average Low Average

Limite Low d High

10 11

Trust (REIT) Gold/silver Nil Gold ETF Nil

Average Average

Long

Average Average Average High

Nil Nil

Average High

Real estate
Real estate is a business, not a profession. Real estate is sometimes inaccurately spoken of as a profession, but it is essentially a business. A profession applies science, art or learning to the use of others, the profit to the professor or person applying it being incidental; whereas a business is engaged in primarily for profit, and the profit is to the one engaging in the business.

A profession implies professed attainment in special knowledge. A person may engage in business with or without special knowledge and no one else is concerned with the question whether he has any knowledge of the business, because no one else is affected by the result. If he is successful the rewards are his; if he fails he bears the loss. But let him attempt to practice a profession and, if he be unskillful, others are directly affected, and the fact that his reward is diminished thereby is merely incidental to the fact that others suffer.

Ethics of the business.But whether real estate be a business or a profession has no connection at all with the body of ethics governing it.

Every business can be conducted upon a plane ethically as high as the ideals of any profession, and the men who have been conspicuously successful in the real estate business have attained success because they have applied to their business the highest ideals of commercial fair dealing. This does not mean that there is any ethical requirement for the seller or the purchaser to give away anything which belongs to him, or for either one to disclose to the other his necessity for selling or his requirements for buying; but the bargain having been made, it is absolutely necessary that it be lived up to by both parties, according to its intent; and, if there be any doubt of the intent of the bargain as it is expressed in writing, that the spirit of the transaction be carried out rather than that the catch words of a written instrument should govern. Cases are frequent of men who to their own detriment perform the thing which they have promised to do although not legally obligated, and the bigger and more successful the man who makes the promise the more surely will it be carried out. Important obligations are often incurred upon the mere promise of a well-known man to sell an important piece of property at a definite price, although no legal and enforcible obligation exist ; and the promise is always redeemed if it is made by a man who knows the business, and it is redeemed not merely from altruistic motives, but also for purely business reasons.

Divisions of the business.The principal divisions of the real estate business are investment, operation and agency. These differ from one another according to the aims of the persons engaging in them and the methods by which those persons expect to make their gains. To conduct either of the first two divisions of the business, investment or operation, actual money capital is required. The most important capital in the agency business is the good will of its customers, and that can be husbanded, increased and made very valuable.

Investment is the employment of capital in the acquisition of real estate or interests therein for permanent ownership or actual use of the person acquiring it.

Operation is the employment of capital in the acquisition or improvement of real estate or interests therein for commercial operations.

Agency is dealing in or with real estate on behalf of others.

Investment in real estate is generally made for either of two purposes :

(a) to derive an income,

(b) to hold for resale in expectancy of an increase in value.

Investment for income may be for one of two purposes,

(1) the derivation of rentalthat is, the direct return for the use of real property for definite periods, or

(2) the obtaining of income through others upon money lent on the security of real property.

Operation.Real estate operation may be carried on

(a) for the purchase and sale of land,

(b) for the purpose of building,

(c) for the purpose of lending money upon mortgages.

The purchase and sale of land is that branch of operation which concerns itself with dealing in land as a thing to be bought and sold for profit and loss. It may be divided into two parts :

(1) Speculation, pure and simple, by which land is bought in the hope of a rise in value and resold when that hope is either realized or known to be unfounded.

(2) Development of land, the most conspicuous part of which is the development of vacant tracts by buying them wholesale in their wild condition, making them marketable by bringing them to such a state of development as is implied by putting streets through them, preparing them for use and then selling them in small parcels. This is a most important and useful part of the commercial side of the real estate business, and has resulted in the development and settlement of many parts of the country.

That portion of real estate operation which concerns itself in building may be similarly divided into,

(a) Speculative building which consists in building structures primarily for sale, and not necessarily for the use of the constructor, and

(b) Building for investment which consists of the erection of structures for rental or primarily for the use of the person conducting the operation.

That form of operation which is concerned with the lending of money upon real estate security is divided into two parts,

(a) the making of permanent loans,

(b) the making of building or temporary loans.

Permanent loans are moneys lent upon mortgages at current rates of interest, the security being deemed by the lender sufficient to afford an ample margin between the amount of the loan and the actual value of the property, the sum being loaned usually for a definite time.

Building and temporary loans are moneys lent for investment in property, to aid either in putting structures upon it, repairing structures or in the development of wild tracts, the intention being that the money be repaid when the development or reconstruction is finished. Because of the greater risks in the operation and the greater necessity for supervision by the lender, there is compensation in an increased rate of interest over and above the fair value of the loan of the money. For that reason it is to the interest of the borrower that the loan be made permanent and not temporary as soon as may be.

Agency.Agency is that branch of the real estate business which engages the attention of the greatest number of persons who are concerned with the business, and in that respect it is of prime importance. It is divided into two parts, brokerage and management.

A broker is a person who for compensation, usually proportioned to the value of the subject-matter, brings about transactions between principals.

Brokerage has two divisions according to the kinds of business which usually engage the attention of the broker.

The sales broker is a broker who devotes his time and attention to the bringing about of the sale or exchange of real property.

A loan broker is one who gives his attention to the obtaining of loans upon the security of real property.

One man may practice both branches of the business, or a specialist may devote himself to either of these branches.

Management, the second branch of agency, is the operation of deriving income and caring physically for real estate structures. It concerns itself not only with the deriving of income, but with the keeping down of expenses and the care in making expenditures. It is popularly known as "Agency."

Real estate, property and real property defined.Real estate is a form of property. Property is the right to possess and use. Real property, a technical legal word, is the right to possess and use land for a time which may last for a life or lives or longer. All other property is, in the

eyes of the law, personal property. A lease for 999 years, which is not measured by any life, but which must expire at a definite time, is less in term of time, in the eyes of the law, than a conveyance of a piece of land, the duration of which is measured by a life or by several lives.

When we speak of real property we use the words in their technical legal sense. When we speak of real estate as a commodity and as a business, it embraces the various parts of the business which engage the attention of those who follow it as a vocation, and includes interests which in the eye of the law are not real property, as for example, leases, mortgages, etc.

Every business has in view finally, commercial transactions resulting in the transfer of property of some kind; so in our study of the real estate business we have in mind the transfer of title to real property, and among the various subjects we shall consider, are the interests which there may be in land, limitations on ownership, the making of a contract, the conveyances used, the liens which may affect a piece of propertyall of which have an important relation to a final commercial transaction, the transfer of title to real property. The methods of dealing in real estate and the laws governing it are not arbitrary and were not made for the mystification of others or for the purpose of multiplying legal fees. All systems of law are expressions of two things, the historic customs of the people whom they affect, and the modification of those customs, as changes made those modifications advisable.