Chapter 1 - Basics of Investment

Chapter 1 - Basics of Investment	1.0 Introduction
	1.1 What Is Investment?
	1.2 Investment Environment
	1.3 Nature Of Investments
	1.4 Why Investment?
	1.5 Risk & Return
	1.6 Understanding Terms
	1.7 Income , Expenses, Borrowing And Investments
	1.8 Investment ,Speculation And Gambling
	1.9 Methods Of Investing
	1.10 Investment Alternatives
	1.11 Long-term Financial Instruments
	1.12 Short Term Financial Instruments
	1.13 Financial Assets Vs Real Assets
	1.14 Factors Influencing Investment Decisions
	1.15 Investment Process
	Chapter (1) end quiz

Chapter- 1.15 Investment Process

1.15 Investment Process

Process of Investment

The process of making an investment is an activity that calls for planning. It is possible with some effort to learn this and make well-informed investment decisions. This requires that the investor is able to:

Key Factors You Need To Consider Before An Investment:

There are several constraints that an individual has to take into account before making an investment. These include:

Liquidity:

This is one of the parameters used to measure the efficiency of an investment alternative or instrument. Liquidity is the ability to convert an investment into money. Higher the liquidity for an investment, higher would be its demand and vice versa. At the same time, marketability is the measure of demand for an investment instrument. The higher the demand, the easier it is to find a buyer. Liquidity of an investment provides security to the investor that the money would be available when needed. By way of example, Mrs Rupiah may sell the shares invested in a company any time because they have yielded high returns to pay off a house loan

Age:

The ability of an individual to take risk is linked with his/her age. Typically, the higher the age of an individual, the low is the risk appetite or tolerance.

Taxes

The government declares tax benefits for citizens through rebates, exemptions etc and these should be considered while making any investment. For example, under Sec 80CCC an investor gets tax benefit for his investments in ELSS(Equity Linked Savings Schemes). Investors need to take a call between the tax benefit and returns these schemes offer. Other options may not have a tax benefit but may be more lucrative in terms of returns.

Need For Regular Income:

Investors may have a need to obtain periodical or regular returns and this will influence their decision to invest in such instruments

Time Horizon:

As explained before, the time horizon will vary from short term (as short as one day) to long term which could be a few months to several years

Risk Tolerance :

Investment decisions are always a trade off between the risk appetites of the investor versus the returns expected. This relation has already been explained.

Lack of time:

Some investment instruments like equity (shares), mutual funds, real estate, and insurance products need a fair amount of analysis to ensure that the return profile is understood. Sometimes investors, typically professionals like doctors or lawyers who are interested in these investments, may not be able to spare the required time for performing the analysis. They may then seek the help of an intermediary or an advisor. The advisor’s investment objectives may or may not match with those of the investor and this in itself constitutes a risk. Therefore, there is no excuse to blindly relying on someone’s advice without possessing reasonable knowledge of the investment

Price Discovery:

Several assets such as shares are very active market instruments and may be volatile. This creates uncertainty in the minds of the buyer as to the direction the price will move towards if they buy. Will it come down leading to a loss or go up resulting in profit?

Chapter- 1.14 Factors Influencing Investment Decisions

1.14 Factors Influencing Investment Decisions

Attempt: 1

How are investment decisions made?

The important considerations for any individual investor before making an investment decision or after making the investments are as follows:

• Rate of return expected.
• Risk appetite or tolerance.
• Tax benefit (deduction in the taxable income by virtue of making the investment).
• Marketability (ability to find a buyer when we want to sell the asset or the demand for the asset).
• Liquidity (ability to sell the asset and raise money).

Example:

To make an investment decision in the stock market you have to be really aware of the factors affecting the stock market, which we would cover in this course. Apart from this, your age, earnings, savings and risk-bearing capacity will influence your investment decisions. Another important factor is the time horizon or period of time you can invest. All these affect your investment decisions.

Chapter- 1.13 Financial Assets Vs Real Assets

1.13 Financial Assets Vs Real Assets

WANT TO KNOW THE DIFFRENCE BETWEEN FINANCIAL ASSETS & REAL ASSETS?

At this point it is important to note that there are differences between financial assets and real assets. For example, purchase of a real asset such as a residential flat which may cost several lakhs of rupees and an investment in the share of a company (financial asset) is different. However, this comparison gives a measure of return each asset class offers. Sometimes comparison between investment in gold, shares and mutual fund are made to show the risk return profile of each class of investment.

Financial Assets	Real Assets
• Available through active markets like stock exchanges	• Available in traditional markets
• Off er high liquidity	• Offer low to moderate liquidity
• Easy to possess	• Difficult process to possess
• Does not require physical holding	• Requires physical holding
• Divisible to smallest unit, as for example, one share	• Unit of division is large, as for example, one flat or one bungalow

The decision to choose between the procurement of financial or real assets is made based on your need, objectives, time horizon, and risk appetite of an investor. Also sometimes you may have to go for financial assets to acquire a real asset. For example, if you plan to buy a flat after three years you can invest your money in financial assets and later acquire the real asset.

But the choice could be based on:

• Availability of funds.
• Need for liquidity (ability to sell the asset and generate cash).
• Time period of investment.
• Required rate of return
• Tax benefits

Matrix Of Investments And Their Relative Comparison

Features/Investment	Return	Risk	TDS	Tax Benefit	Market ability	Liquidity
Real Estate	High	Low	No	No	Low	Low
Bullion	Medium	Low	No	No	High	High
Antiques	Medium	Low	No	No	Low	Low
Bank Deposits	Low	Low	Yes	No*	No	High
P O Deposits	Low	No	Yes	Yes	No	Medium**
Government Bonds***	Low	No	Yes	Yes	Medium	Medium
Mutual funds – Debt	Low	Low	No	No	High	High
Mutual funds – Equity	High	High	No	Yes	High	High
Mutual funds Money Market	Very Low	Low	No	No	High	High
Equity Shares	High	High	No	No*	High	High
* Bank deposit with lock-in period of five years and ELSS in mutual fund gives tax benefit ** Some of the post office deposits like NSC have a lock-in period till maturity showing poor liquidity *** These bonds include bonds issued by the government or the government- sponsored and associated bodies like the RBI.

Following are the descriptions of the attributes in the table above:
Return	:	Rate of interest / dividend / capital appreciation.
Risk	:	Volatility or variation in annual or other periodic returns.
TDS	:	Tax deduction at source
Tax Benefit	:	Under Sec 80C, 80CCC and 80D.
Marketability	:	Ability of the investment instrument to find the buyer.
Liquidity	:	Ability of the investment instrument to convert itself into cash.

Chapter- 1.12 Short Term Financial Instruments

1.12 Short Term Financial Instruments

Various Financial Instruments

Short-Term Financial Instruments

Money Market Instruments

These are specialised forms of mutual funds that invest in extremely short-term fixed income instruments and thereby provide easy liquidity. Unlike most mutual funds, money market funds are primarily oriented towards protecting your capital and then aim to maximize returns. Money market funds usually yield better returns than savings accounts, but lower than bank fixed deposits. For example, treasury bills, commercial papers, certificate of deposits, bills discounting (see reference for more details).

Equity Trading

Another most popular high-risk and high-return investment option available to investors is by way of investing in shares of companies. Equity investment has the potential to yield high returns but also has equivalent risks. However, it is a time-tested theory that investing judiciously for a long-term in well-known companies always provides better returns and lowers the risk element.

Derivatives Trading

Derivatives are financial contracts or financial instruments whose values are derived from the value of something else (known as the underlying). The underlying on which a derivative is based can be an asset, as for example, commodities, equities (stocks) etc. The main types of derivatives are forwards, which if traded on an exchange are known as futures, options and swaps. We shall cover these in a separate chapter in detail. Each of the above non-traditional or innovative and short-term financial instruments are discussed individually in a detailed manner in the later chapters.

chapter- 1.11 Long-term Financial Instruments

1.11 Long-term Financial Instruments

Various Financial Instruments

Traditional Financial Investments

Term Deposits

A time deposit, also known as a term deposit, is money deposited with a banking institution that cannot be withdrawn for a certain ‘term’ or period of time. When the term is over it can be withdrawn or it can be reinvested for another term. The avenues for such investments include:

• Commercial Banks
• Post Office
• Non-Banking Financial Companies ( NBFCs )

Recurring Deposits

The objective of the scheme is to enable the depositor to make a financial position for his future needs by paying monthly installments for an agreed period. It will be known as a recurring deposit amount. The avenues for such investment are the same as above.

Chit Fund (Recognised / Unrecognised)

This is peculiar to India and operates by enrolment of members. The members’ pool money once in a month and the pooled amount is given to one of the members usually by draw of lots or using a chit. Hence the name chit fund. However, if members opt go for auction, their amount of profit could be more.

For example, let us suppose that you join a chit fund with 20 people, each promising to contribute Rs 2,000 per month for 20 months. At the end of your term you would get Rs 40,000. However, if in the first month somebody takes the amount by auction, say at 50 per cent loss, s/he would get in the first month 50 per cent of the whole amount i.e. Rs 20,000. Therefore the balance 50 per cent would be shared by all the other members i.e. in the next month every member needs to pay only Rs 1,000 instead of Rs 2,000.

Insurance Premiums

Life insurance in India is known to public or investors through LIC for many decades. The Life Insurance Corporation of India and other companies sell their products through a sales network called life insurance agents. There are several new players in the new millennium as insurance may now be offered by private companies as well. That means there are wide options open to customers which ensure life as well as give you a good return after maturity. In case the person availing the policy survives the period for which his/her risk of death is covered, s/he will receive a payment called a ‘survival benefit’ which is seen by many as protection plus investment. There are multiple insurance schemes and will be discussed later.

Provident Fund Schemes

These investments are available only to employees of a firm. The employees contribute to this fund through their monthly deduction in their salary. They are attractive because they also offer income tax benefits.

Pension Fund Schemes

The employee may access these funds usually after a period or 15 to 20 years or after retirement. Insurance, provident fund and pension funds have attracted investors as they offer certain income tax benefits. In India, investors traditionally invest the surplus money available to them in banks (public and private sector) despite low to modest interest rates because they consider them ‘safe’. Post offices also offer deposit schemes. They usually offer better rates of interest than commercial banks. Post offices are seen by many urban people as lacking in service (customer care) and are typically used in non-urban areas and by investors who are able to invest only small sums of money. However, the well-informed are willing to take the risk for better returns.

__________________________________________________________________________________

Non-Traditional Financial Investments

Equity Instruments

These are documents which serve as legally enforceable evidence of the right of ownership in a firm, such as a share certificate/stock certificate. (We shall cover it in detail later).

Debt Instruments

These are documents or electronic obligations that enable the issuing party to raise funds by promising to repay a lender in accordance with the terms of a contract. It can be in the form of following (see the reference for more details).

• Corporate Securities
• Company Deposits
• Bonds
• Debentures

Bonds

It is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell these bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest on a specified date, called the maturity date.

Hybrid Instruments

Generally hybrid instruments are used to refer to financial instruments that blend characteristics of debt and equity markets. For example, convertible debentures, warrants etc.

Mutual Funds

Mutual funds are investment companies that pool money from investors at large and offer to sell and buy back its shares on a continuous basis and use the capital thus raised to invest in securities of different companies. (We shall cover this extensively in the following sections).

Unit-Linked Insurance Plans (ULIPs)

A ULIP is a life insurance policy which provides a combination of risk cover and investment. The dynamics of the capital market have a direct bearing on the performance of the ULIPs.

chapter- 1.10 Investment Alternatives

1.10 Investment Alternatives

Attempt: 1

What are the Investment Alternatives available for an Investor?

There are several investment options:

Real assets

are assets that are intrinsically valuable because of their utility. They include real estate, gold, equipment, patents, etc. They are directly opposite to financial assets. Real assets can be tangible or intangible.

Tangible Assets:

Investment to procure assets like a car, television, washing machine and any other household articles which are physical and have a long life are considered as tangible investments as they result in the creation of tangible assets. Procuring these assets may be viewed as either an expense or an investment based on the reasons for buying the same. For example, buying a car for personal use is considered as expenditure. If a car is purchased with a view to generate income by operating a taxi service, the purchase would be considered as an investment as it can potentially result in the generation of periodic income.

Intangible Assets:

The procurement of knowledge such as this course for which you have paid with the intention of becoming a smart investor may be considered as an investment in an intangible asset. The asset that is being acquired by you - knowledge related to investments - is an intangible asset.

An individual may make a decision to procure an asset with either a short or long-term horizon in mind. This decision is based on the individual’s need at that point in time. Some examples of investment in assets that are tangible include:

Real Estate:

It could be an apartment, either residential or commercial. It could be the purchase of vacant land for the construction of residential or commercial buildings or individual houses or bungalows.

Bullion: One can invest in precious metals like gold, silver etc.

Precious Stones:

Investments in precious stones like diamonds and gems etc are also bound to fetch good returns.

Business:

Fixed assets such as land and building, plant and machinery or intangible assets such as patents, royalty etc.

Others:

Antiques, paintings etc.

Individual investors are normally attracted to tangible assets and procure them to meet their financial needs that may cater to the short-term or long-term needs. The following section provides example of financial instruments classified on a time horizon. Financial instruments are cash, evidence of an ownership interest in an entity or a contractual right to receive or deliver cash or another financial instrument.

Financial Instruments

Are cash, evidence of an ownership interest in an entity or a contractual right to receive or deliver cash or another financial instrument.

Chapter- 1.9 Methods Of Investing

1.9 Methods Of Investing

Attempt: 1

Direct Vs Indirect Investing

There are many options or avenues for an individual to invest as briefly explained at the beginning of this chapter. The choice should be based on knowledge, expert advice, availability of the opportunity to invest and several other factors. The objective of this course is to try and help people make an informed decision.

At a high level we can differentiate between two types of investments: direct investment and indirect investment.

A direct investment is one where the investor directly makes the investment decision and assumes entire responsibility for the result of the investment which may be profitable or may result in losses.

In the case of indirect investment the investor takes the help of an advisor working in a bank or uses instruments like a mutual fund to take advantage of the investment knowledge of the bank or the financial institution to make a good investment. In this case also the investor is the beneficiary of the profits or losses. The people or institutions that offer investment advisory take their respective professional charges for their services rendered and don’t take the responsibility for the profit or loss resulting from the investments.

Chapter- 1.8 Investment ,Speculation And Gambling

1.8 Investment ,Speculation And Gambling

Attempt: 1

How Investment , Speculation And Gambling are not the same!!

There is often some confusion between the terms investment, speculation and gambling. This confusion is often linked with investments made in the stock market. Investing is NOT gambling. Gambling is putting money at risk by betting on an uncertain outcome with the hope that you might win money. Part of the confusion between investing and gambling, however, may come from the way some people use investment vehicles. For example, it could be argued that buying a stock based on a ‘hot tip’ is essentially the same as placing a bet at a casino.

A ‘real’ investor does not simply throw his money at any random investment. S/he first analyses the situation. If there is a reasonable expectation then only s/he invests.

Many people believe that certain investments are speculative in nature. Are they? An investment may be said to be speculative in nature when the investor takes a position on the timing of making the investment and exiting from the same. The time horizon may be as short as a day or sometimes several weeks. Investments are deemed to be speculative because there is usually no firm basis other than a hunch or intuition for making that investment decision.

Examples of such speculative investments include buying and selling shares in what is called an intra-day trade. Mr Tradewallah may buy a share in the morning when the market opens at say Rs 176 and hope to sell it by the end of the day at Rs 188. Since nothing fundamentally can explain this investment decision, this may be speculative. There is the possibility that Mr Tradewallah has tracked the performance of this stock or has received a tip from Mr Brokerbhai and has taken this decision. Even in such a case, the investment is speculative. If the share finds buyers at Rs 188 or more, the speculation has been profitable. However if the price falls and Mr Tradewallah has to exit i.e. sell the share at a lower value than his purchase price, it is speculation that results in a loss.

What is the difference between investments and speculation?

The main differences between investment and speculation are listed in the table below:

Investments	Speculation
• It has a longer time horizon	• The time horizon is short
• Tries to strike a balance between risk undertaken and the expected return	• Assumes a higher risk in anticipation of higher return
• Can result in consistent or regular returns	• Is expected to deliver quick returns
• Usually a planned activity	• Usually unplanned and impulsive
• Is tailored to suit an individuals needs	• No basis

Some uninformed people compare investments in the stock market with gambling. It is not at all true. Gambling or betting is more to do with taking a guess at the probability of an event. For example, you want to bet who will win the cricket match. If there are only two teams, then the chances are 50:50. A coin has only two sides and here also the chances are 50:50, either head or tail. Therefore, the probability of head or tail is 50 per cent. It means that if the coin is tossed for a very large number of times - say 10 times - there will be 5 times when it will be heads and an equal number when it will be tails. However, if someone takes a guess on whether it will be heads or tails when the coin is tossed eight times, it is not possible to predict the outcome. In this case the outcome will be a result of gambling, especially if there is payout involved.

Investments	Gambling
• Made with a larger time horizon	• Made at the spur of the moment
• Tries to strike a balance between risk undertaken and the expected return	• Is risky and not possible to balance risk vs returns
• Can result in consistent or regular returns	• Unplanned or impulsive action
• Usually a planned activity	• Is tailored to suit an individuals needs

Chapter- 1.7 Income , Expenses, Borrowing And Investments

1.7 Income , Expenses, Borrowing And Investments

INCOME , EXPENSE, BORROWING & INVESTMENTS CYCLE EXPLAINED

The following picture (Fig 1) illustrates these terms in a simple manner, though this is already known to you.

Situation 1 : Income = Expenditure

It is the question of making both ends meet and he somehow manages to restrict his expenses to his income. His savings were nil. Doesn’t matter.

If the monthly income of Mr. Mahesh is Rs 10,000, there are several possibilities of how this income is used.

Situation 1 (Income = Expenditure)

It is the question of making both ends meet and he somehow manages to restrict his expenses to his income. His savings were nil. It doesn’t matter.

Situation 2 (Borrowing)

Due to unavoidable circumstances (say, ill-health) Mr. Mahesh had to spend an additional Rs 5,000. Though his income was just Rs 10,000, to meet this additional need he had to borrow Rs 5,000. In that case his income from subsequent months would be Rs 9,500 (i.e. salary minus loan repayment amount Rs 500 (principal + interest). It is very bad.

Situation 3 (Investment)

If he is really smart at managing his funds he might be able to restrict his expenses to just Rs 7,000. In that case he will be saving Rs 3,000. He decides to invest this amount for further returns. In such a situation his income from the next month increases (salary + interest on investment).

Is it clear?

The following picture (Fig 2) clearly depicts the flow of income to investment through saving or borrowings or a mix of both.

Chapter- 1.6 Understanding Terms

1.6 Understanding Terms

Essential terms explained

Three terms need to be understood as sometimes some of them are used interchangeably.

These terms are:

Income:

This refers to our earnings, whether through salary or through business.

Expenditure:

What we spend to fulfill our regular needs or cost of providing the services or the products that we sell.

Savings:

This is the difference between income and expenditure provided the prior is greater than the latter. Otherwise you will suffer from a shortfall or deficit.

To put it simply:

1. Income = Expenditure + Savings
2. Savings = Investment

What equation 2 above says is that we have the ability to invest only to the extent of the savings we have at hand. We may choose to invest your entire savings or a part of it and these investments can be one of the several options that are available to us. In certain cases when savings are either unavailable or inadequate to invest, people may borrow money to invest.

A common example of this is the investment made in the purchase of a housing property. Mr and Mrs Sayyad want to buy a house worth Rs 40 lakhs. At present they have savings of only Rs 10 lakhs. They will then approach Homewalla Bank and borrow Rs 30 lakhs to invest in the housing property. They will have to pay back the loan through monthly installments till the loan is paid up.

chapter- 1.5 Risk & Return

1.5 Risk & Return

Risk & return relationship is important in Investments

When we undertake to learn about any subject, we need to learn the basic terms used, just as we learn different words when we learn a new language. Once we learn and understand them they will become part of our everyday use. You must be already familiar with these terms in your day-to-day life. Still, here we go!

The terms include:

• Principal amount or amount initially invested.
• Date of investment.
• Period of investment.
• Date of encashment of investment.
• Return of investment or interest.

Let us take the example of Mr Swapnil, a medical representative who earns Rs 30,000 per month. He needs about Rs 20,000 for his monthly expenses and is able to save Rs 10,000 per month. He wants his son to be a doctor. He asks his wife to invest the amount in the right scheme so that they will have enough money to help their son pursue his medical studies. Mrs Swapnil knows that after five years it will cost Rs 5 lakhs to earn a medical degree. So she decides to invest Rs 5,000 per month in a five year scheme (we will explain this later) that will help meet the cost of Rs 5 lakhs.

• The amount of money invested is Rs 5,000 into 60 months (five years) or Rs 3 lakhs.
• They need Rs 5 lakhs or more at the end of five years.
• If this happens, their investment has given them their desired return.

Using the calculator you can easily find out the total amount with a 10 per cent return. If that does not materialise she needs to opt for different investment strategies.

RISK

In any activity undertaken by us there is an element of risk. For example, when you toss a coin, you are not sure about the exact outcome - it could be head or tail. There are two possible outcomes and the risk is 50 per cent.

In a football match there are three possible outcomes - win, lose or draw. In the same way, in business too the degree of risk varies. However, in investments, the degree of risk is quite high but could be minimised with proper knowledge and assessment.

Consider, for example,

That Mrs Swapnil purchased a share for Rs 200 of an oil company based on the fact that the same share was quoting only Rs 150 a year back, thus giving an approx. annual return of 33 per cent (200-150/150). Her plans were based on the recommendations of Mr Moneybhai who said that the company is doing well. In case of an unexpected event such as an increase in oil prices the company’s performance will be affected and the share price may fall to Rs 150, thereby resulting in a loss of 25 per cent.

There are several types of risks. Investors will never be able to quantify them completely. That’s why all investments carry a risk warning. Risks need not deter the investors - they just make them cautious and help them carefully choose the different investment options and plan their strategies, which we will learn in the later part of this course. Each option may have low, medium or high risk and likewise expected returns too may be low, medium or high. A good investment decision will take these risks into account and try to achieve a balance between the risk of the investment and the returns expected. This is essentially what is called risk management.

The intent of a course like this is to help people like you make informed decisions. This does not mean that the risk is eliminated. It means that the risk will be understood and by careful planning it could be minimised. The rule of any market investment is: ‘No risk, no gain’. Unless you are ready to take the risk you will never gain.

chapter-1.4 Why Investment?

1.4 Why Investment?

Attempt: 1

ONE SHOULD INVEST BECAUSE

You Can Beat Inflation

Suppose the rate of interest in a fixed deposit is 10 per cent and you know the inflation rate has touched 12 per cent. At the end of the year, the value of rupee comes down as the rate of interest is lower than the inflation rate. You therefore lose money.

Achieve Financial Goals

This could be about buying a car, dream house or higher education.

Plan Your Retirement

Yes, you should start thinking about retirement also. Why not?

Many people earn at regular intervals by means of monthly salaries or variable income in the form of fees i.e. professional consulting fee as in the case of doctors. Whatever savings are available after deduction of the monthly expenses needs to be invested. The investment needs may be to meet different needs: High priority needs like housing, education. Long-term needs like retirement funds. Low priority needs like a summer vacation or trip to a foreign country.

• High priority needs like housing, education.
• Long-term needs like retirement funds.
• Low priority needs like a summer vacation or trip to a foreign country.

The time span may vary from the next 12 to 36 months or longer terms or even 10 to 12 years or more.

How to become a crorepati ?

Mr Rupiah is only 20 years and does not have any savings right now. But he wishes to save Rs 1 crore in the next 20 years. He is willing to save Rs 15,000 every month from his salary. Look at the following calculator:

Current age of Rupiah	20 years
Wants to be a crorepati by	40 years
Amount invested till date	Rs 0
Amount he can save per month	Rs 25,000
Rate of interest on savings	9 per cent
Tax bracket	30 per cent
Calculate If he invests Rs 15,000 every month, Rupiah will have Rs 72,69,814 by the age of 40. If he wants to be a crorepati by the age of 40, he needs to invest Rs 20,884.54 every month.

Now his options could be:

• Save Rs 20,884.54 every month or change his investment plans to fetch more returns (above 9 per cent).
• Or wait for a few more years.

Use this calculator to give shape to your dreams and plan a perspective to realise them.

Okay, now we think that you are clearer on this issue. Therefore, we will understand some basics on the nature of returns and the associated risk. Risk is a part of any activity we undertake, including our investments.

chapter- 1.3 Nature Of Investments

1.3 Nature Of Investments

Attempt: 1

Investments

Before you plan for any investments ask yourself these questions:

How do I invest?

First, get your finances in order and then pick a strategy that is right for you.

Where should I invest?

In stocks, bonds, certificates of deposits (CDs), mutual funds. We will focus mainly on stocks but give you the scoop on all of them.

When is the right time to invest?

There’s no time like right time now. Any time is as good as the other. But you will have to take a calculated decision.

In this program our focus will be on investment of surplus money that is available with us after we have met our needs. It is apt to mention few basic concepts of investment at this stage that include:

• Time value of money (see the reference).
• Return (we shall discuss it later).
• Risk (covered separately).
• Ability to cash the investment etc.

chapter- 1.2 Investment Environment

1.2 Investment Environment

Attempt: 1

INVESTMENT ENVIRONMENT ONE NEEDS TO BE AWARE OF

Why should you invest?

Obviously, to earn more money. Investment is a necessity rather than an option. For the average person, investment is the only way he can retire and yet maintain a specific standard of living. By planning ahead you can ensure financial stability during your retirement.

In today’s world, almost every person makes investments as s/he needs to meet ever-growing needs and combat the increase in prices. From a college student to a homemaker to a professional such as a doctor, engineer,etc . everyone should know how to make investment work to personal advantage.

There are several reasons why we should invest

• To meet our daily expenses.
• Additional savings that we have planned for the future.
• Availability of funds in excess of what our current needs are.
• To be tax-efficient.
• Pay for foreign trips.
• To own a house or renovate it.
• Availability of new investment options.
• To secure one’s future.
• Child's education and marriage.

Many people fail to plan their investments and find themselves in difficult situations. It is never too early or late to start planning our investments and it also does not matter if we invest a few thousand rupees or a lot more. The important thing is to make investment a habit and do it regularly and also learn the basics of investment so as to make informed decisions when investing our hard-earned money.

It would be advisable to note at this stage that due to the liberalisation process undertaken by India, we are today in an environment where events that take place in other parts of the world have a direct or indirect effect on our economy. This would further affect the specific market and finally would have an effect on your investment decisions. So we need to have broader knowledge to be effective investors.

chapter - 1.1 What Is Investment?

1.1 What Is Investment?

Investment

The price of each and every commodity is changing with the changing times. So what we invest should be able to provide enough returns to meet our future needs.
For example, if you had invested in property two years ago and if it shows reasonable appreciation now you would be really excited about having made the right investment. Sometimes we find that our savings are not able to meet our needs and we conclude that the investment was bad. You will then ask yourself: “What if I had known how to invest?” The question acquires enormous proportions depending on the quantum of the loss. An informed decision is better than relying on someone blindly or leaving things to chance. The good news is that any person who has a wish to learn can rely fully on the ‘basics of investment’ and take calculated investment decisions.

There are many types of investment options:

Fixed Deposit

Fixed Deposit is meant for those investors who want to deposit a lump sum of amount for a fixed period - say for a minimum period of 15 days to five years and above - thereby earning a higher rate of interest in return. Investor gets a lump sum (principal + interest) amount when the fixed deposit matures.

Shares

A share or a stock is a document issued by a company which entitles its holder to be one of the owners of the company. Shares are issued by the company or could be purchased from the stock market.

Bonds

A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities.

Chapter-1.0 Introduction

1.0 Introduction

Welcome To The Stock Market Enlightenment Programme!!!

What is investment?

If the foundation is firm it can withstand all the vagaries of an economic scenario. This is a universal truth. The initial chapter provides an insight into the very concept of investment. This provides the minimum common learning base for everyone. Once it is done, in the further chapters we have mainly touched upon the practical angle rather than the theoretical. Multiplying money is not an easy task. It is an art.Mastering this art takes time and real hard work. To make your learning process easy we provide the necessary guidelines in the simplest possible way.

Make your money work for you! Best Wishes and Happy Learning!

How to realise one’s dreams? Money is the answer. But how to make money is the real challenge. In today’s world everyone is concerned about making both ends meet. Uncertainties like increasing prices, changing lifestyles, pink slips, health problems etc……..there are plenty of such concerns. To maintain our status in society we have to match our income with expenses. That apart, the future is bleak and one should plan for the rainy days too. Just saving is no answer. One should be able to save in such a way that it multiplies on its own. And that is investment. You need to plan to make your money work for you and then ‘relax’ for the rest of your life.

There are many options open to us to invest our hard earned money. However, there is always the possibility of making a wrong choice which may lead to reduction of our investments. In today’s world, where it is easy to acquire simple and practical knowledge, there is no excuse if we do not learn about the various investment options and their ability to meet our needs. We all know that there are no guarantees in this world and there is always a factor called risk which may upset our plans. Just as sudden rain may upset our plans to go for a walk, risk can reduce the returns we are expecting from our investment. We, therefore, need to acquire sufficient knowledge to be more informed investors.

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Welcome note
Welcome to the DSIJ's Investors academy at www.dsij.in. This Handbook is designed to tell you everything you always wanted to know about the Investors Academy rules and procedures. We are not a an academy with a lot of rules, but the ones we have are important, and you should be familiar with them. Please refer to this handbook and consult it frequently and whenever you are in doubt about some process.
Preface
The design and development of this Handbook on CSMER was conceived, authorized and developed by DSIJ,  to facilitate adapting the Capital market oriented curriculum through different certificate and diplomas in the respective capital market subjects  for online based distance teaching-learning, and for development of self- paced learning course materials initially to facilitate  would be investors as well as those aspiring for careers in related domains to complete the certification process  successfully.
Course Handbook Objective
The aim of this Handbook on CSMER is to provide all those faculty engaged in developing self-paced learning materials for learners of online learning  at both basic and advanced levels of online education with an understanding of how to develop new curriculum or adapt existing classroom curriculum for online learning, as well as acquire the knowledge and skills involved in developing self-paced learning materials for these students.
This Course handbook also provides the students with insights about the course curriculum, the assorted tutorials, quizzes and assessment modalities that will be in process while the student undertakes the academic pursuit. This handbook also informs the students in detail the process of marking and grading that will be in place as also the academic rules and regulations which will be in force during the term of the course right from registration to certification.
Content of Handbook
1. The  Program
2. Program Requirements
3. Course Work
4. Course Conduct
5. Graded Courses
6. Course Duration and Validity
7. The One Year Rule
8. Student Evaluations
9. Grading Methodology
10. Weightages
11. Course Completion & Certification
12. Student Support Services
13. Student Grievances

Program Goals and Objectives

1. The primary goal is to develop competence in individual to become a knowledgeable and wise investor as well as  develop competence in equity research.
   
2. Students are different from each other in terms of backgrounds, strengths, needs, and goals. The Investors Academy, therefore, permits each student to develop an individualized approach while completing the curriculum under the guidance of the online faculty.
   
3. The Investors Academy encourages students to keep sight of their future career requirements in the capital market domain
   

Program Requirements
Investors Academy has a few general requirements.
The online CSMER program is based on a self paced learning model with limited interaction between students and faculty members in the virtual mode especially during, live chats and emails.It is assumed that the major part of a student's certificate education will be derived from working with individual faculty member in the virtual world and through collaboration with fellow students through various discussion forums. However, in the interests of ensuring that students are prepared to cope with methodological requirements in conducting equity research and that they have a reasonable breadth in their knowledge of stock markets, we have imposed certain requirements. The course requirements are spelled out below, followed by the additional requirements for the CSMER program.

Course Work
One of the highlights of Investors Academy is the distinction between different modules on offer in the CSMER. The different modules are described below, along with the number of hours of each that are required for same
Course Conduct
The CSMER program will combine all elements of comprehensive elearning environment comprising of the following.
1) Self Paced Learning
2) Game Based Learning
3) Online Examination

Graded Courses
These are online courses for which you attend online class, complete the non graded quizzes, complete assignments, and after successful completion of online module and  as final online examination you receive the grade by way of Certificate.
Course Duration and Validity
The CSMER program is of 3 months duration with a course validity of four months. What it means is that though the course is of 3 months duration keeping the student’s interest in mind Investors academy provides an additional month so as to allow the student to complete the program even after some forced or unforced interruption while completing the program.

The One Year Rule
If any student who fails to complete all requirements of the Online CSMER program within one year as stipulated eligibility by Investors academy, all such students admission will be terminated without a certificate. Example: Any student who is currently in the first month of eligibility has until the 12th month from the course commencement of the academic year to complete all requirements. Scenario 1:  a student has completed  assignments, quizzes, as well as final exam module  but has failed in the same. However the student is eligible to take both the retest free of cost within the 15 days of attempting the final exam. The student can then apply for taking the test again by paying the following retest :
a.       25% of the fees amount if takes the retest after the two free retest within 15 days.
b.      50% of the fees amount if he takes the retest within 30 days after the two free retest
c.       Full course fees within 60 days if takes the retest after the two free retest.
Scenario II : Student has not completed the course within the validity period of four months he or she will be eligible for rejoining if they meet the following conditions:
a.       25% of the fees amount if he rejoins the program after the completion of the course validity within  15 days.
b.      50% of the of the fees amount if he rejoins the program after the completion of the course validity within  30 days.
c.       Full course fees if he rejoins the program after the completion of the course validity within  60 days.
In both the cases the student has to complete the course within one year failing which the student’s registration will be cancelled and the student has to take fresh admission to start the whole course again. He will not be eligible to continue from where he left the course midway and even if he has taken module end exams etc all of which will be nullified.
For detailed information regarding course policies of Investor Academy please visit http://academy.dsij.in. This site also contains valuable information regarding 1) Course requirements, 2) Registration procedures 3) Payment guidelines,4) Academic, Examination, Technical Support and others.

Student Evaluations
All students will submit the requisite numbers of assignment as per the time lines set by the faculty. The faculty reviews the progress of all students on a online mode during the duration of the course. Written evaluation feedbacks are sent to each student shortly after this review. These evaluations provide the student with an opportunity to correct or update an incomplete file as well as to review plans and to assess his or her progress. The student also has to complete the Module end exam and based on successful completion of this exam will be allowed to take the Final Online examination. Both the assignment as well module end examination with be given the requisite weightage which will be taken into consideration along with the final exmaination score. Hence it is imperative that the student works rigorously so that he is evaluated on each of these parameters so as to complete the certificate program successfully.
Grading Methodology
Grading
Students will be graded based on their performance in
1)            Assignments– 10%
2)            Module End test - 20%
3)            Live Project - 10%
3)            Final exam –  60% Can be taken on successful completion of the module end test

Weightages:
Weightages for the various examination modes will be as follows:

Sr. No	Test Mode	Weightages
1	Assignment	10%
2	Module end test	20%
3	Live project	10%
4	Final examination	60%

Student has to submit the assignments that will be provided by the faculty member. There will be 10 assignments in total which students have to submit for course completion. Each assignment will carry 100 Marks each. Total weight age for the 10 assignments will be 10%  of the program evaluation. Module end tests will be conducted at the end of every module and there will be in total 4 modules for the whole programme. Each module test will be for 100 Mark each. The weightage for the 4 module end tests together will be 20% of the program evaluation.

Live Project will be given 10% weightage in the overall score of the student

Final online examination will test the student’s comprehensive knowledge acquired during the programme. The online examination will have 100 multiple choice questions. Students will have 75 minutes in total to answer them. The weightage for the final examination will be 60% of the program evaluation.

Course Completion & Certification
On successful completion of the Online Examination  the students will be provided with a formal course certificate in hard copy form, Investor Academy will provide the same to the student and which will be dispatched to the registered address of the student. Please visit the examination section of the FAQs for further details on the same.
Attempts
In case a student is not able to clear the examination in the first attempt, he or she will be given additional two free retest to be attempted within 15 days from the date of attempting the final exam. The additional two retest will be free of cost. Therefore the student will be allowed total 3 attempts at clearing the exam. All additional attempts will be charged. Please refer to the one year rule section of the handbook.

Student Support Services
The Investors Academy does the best it can to provide general, academic as well as technical assistance to its online students. Such support is dependent in case the query is not listed in the FAQ already posted on the DSIJ's Investors academy's website. In order to get the query answered the student can avail of either email or live chat with the respective technical support executive in case if the query is technical in nature or can also email/live chat with the Faculty incase if the query is academic in nature. Students with Investors Academy need to know that although the online learning is 24/7 in nature but the support both technical and academics is provided on the 10/7 basis from morning 10 am to 8 pm. In case if your query is posted after the support services timings the same will be responded by the respective support executive in the next working hours.
It is Investor Academy’s policy to do everything possible to facilitate that all queries of the students are handled in the shortest possible time. Although this has often been possible, circumstances beyond the Investors Academy's control may make this impossibility in early redressal of the query.
Students are strongly encouraged to first go through the detailed FAQs and only if their query is not listed resort to the email and chat option. We suggest this mode so as where in will help the student in saving time in case the query is listed in the FAQ itself which otherwise the student has to wait till the query is answered through human intervention

Student Grievances
There are times when the student feels a sense of grievance while undergoing the online course, however it is Investors Academy's endeavor the ensure that the students have the best of experience while attending the program and in such instances if the students queries and other support requirements are not taken care to the best of his or her satisfaction. In all such moments the student can avail the option of writing the SBU head for prompt redressal of their queries. the students can mail at headacademy@dsij.in, please note this option is to be exercised by the student only when he or she has exhausted all other suggested avenues for grievance redressal.