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An investment analysis and portfolio management course. Authored by Lion Dr. Nishikant Jha and Dr. Shraddha Mayuresh Bhome, it is tailored to the revised syllabus of Mumbai University for the T.Y.BMS, Semester V (2016-17). The book covers a range of topics, including investment avenues, risk-return relationships, capital market dynamics, fundamental and technical analysis, and portfolio performance measurement. It also offers case studies and exercises to reinforce learning. The resource also gives an overview of important considerations, such as types of risk, investor preferences, and objectives.
Summarizes key concepts and investment avenues discussed in the provided excerpts from "Investment Analysis and Portfolio Management"
I. Investment Avenues:
Post Office Monthly Income Scheme (MIS): This scheme is available only to individuals (single or joint). The minimum investment is ₹1,000, with maximum limits of ₹3 lakh for a single account and ₹6 lakh for a joint account. The duration is six years. Returns were stated as "8% plus a bonus of 10 per cent on maturity," but the document later mentions that the bonus was discontinued and that the scheme was giving 7.6% compounded monthly.
Treasury Bills (T-Bills): Issued by the RBI on behalf of the Government of India, making them government securities. Available in maturities of 14 days, 91 days, and 364 days, with a 182-day T-Bill planned for the future. The minimum denomination can be as low as ₹100. Auctions are held regularly by the RBI. Non-competitive bids are allowed from specific entities like State Governments.
Short-Term Corporate Debentures: Issued by corporate entities for additional funding beyond what's available from their consortium bankers. Issuers often avoid stamp duty by issuing a Letter of Allotment (LoA) instead of a formal debenture letter. These LoAs are tradable but transfers attract stamp duty.
Gilts (Government Bonds): Primarily associated with the UK market. "When a reference is made to gilts, what is generally meant is British gilts unless otherwise specified." A "Gilt Account" in India, as defined by the RBI, refers to a constituent account maintained by a custodian bank for dematerialized Government Securities owned by a retail customer. Newer gilts are generally named Treasury Stocks or Treasury Gilts.
Bonds (Fixed Securities): "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." Maturities can range from 90-day Treasury Bills to 30-year government bonds. "Two features of a bond-credit quality and durations are the principal determinants of a bond’s interest rate."
II. Risk and Return:
Definition of Risk: "Risk is a chance of loss. Investment risk exists where there is more than one possible future return."
Risks Associated with Equity Shares: These include:
Loss of dividend when no dividend is declared.
Low dividend compared to bank fixed deposit rates.
Stagnation or depreciation in the price of shares.
Insolvency of the company.
Expected Return and Standard Deviation: The document provides examples of calculating expected return and standard deviation for stocks under different economic scenarios (boom, normal, recession). It highlights that "standard deviation measures the risk of a security." Several examples demonstrate how to calculate expected return and standard deviation, and how to choose between two stocks based on these metrics.
Risk-Return Trade-off: The document illustrates that if two stocks have the same level of risk (standard deviation), the stock with the higher expected return is generally preferable.
III. Portfolio Performance Measurement:
Jensen's Index Model: Rp= Ki +Γ’(Rm-Ki). This model, also called “reward to variability “method, ranks portfolios based on their performance, with the highest index considered the best.
IV. Key Formulas & Concepts:
Holding Period Return: An illustration provides a step-by-step calculation of holding period return and annualized return.
Security Market Line (SML): The document defines the SML as "the relationship between the expected return and beta of a security or portfolio." It provides the equation: E (Rj) = Rf + Ξ±i [E(Rm) – Rf ], although the symbol Ξ±i may be intended to be Ξ² (Beta) based on context clues from the included text.
Sensex: The Sensex has 30 stocks.
V. Practical Applications (Illustrations):
The excerpts include several illustrations demonstrating how to:
Calculate the expected return and standard deviation of stocks under different economic conditions.
Compare different stocks based on their risk and return profiles.
Decide which stock is preferable based on expected return and risk, especially when probabilities change.
Calculate the standard deviation.
Calculate holding period return, annualized return, brokerage, capital gains and total returns.
VI. Caveats and Considerations:
Context: The provided excerpts are limited and likely part of a larger curriculum. Some concepts may require further explanation and context.
Accuracy: The document has some apparent formatting and/or possible typographical errors (such as "Ξ±i" in place of "Ξ²" within the Security Market Line Formula), suggesting that it is not a final, polished draft and readers should approach it with caution.
Bonus Discontinuation: There are conflicting accounts of the Post Office MIS returns, readers should verify information with their financial planners.
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