Investment And Portfolio Management PDF

INVESTMENT AND PORTFOLIO MANAGEMENT Investment and Portfolio Management in the Philippine context involves understanding the local financial markets, investment instruments, regulatory environment, and economic factors that influence investment decisions. Concepts of Investment...

INVESTMENT AND PORTFOLIO MANAGEMENT Investment and Portfolio Management in the Philippine context involves understanding the local financial markets, investment instruments, regulatory environment, and economic factors that influence investment decisions. Concepts of Investment An investment is an asset or item acquired with the goal of generating income or appreciation. Appreciation refers to an increase in the value of an asset over time. When an individual purchases a good as an investment, the intent is not to consume the good but rather to use it in the future to create wealth. What is Investment? Investment - is an action or process of investing money to gain profit or to obtain an additional source of income. An investment is essentially an asset that is created with the intention of allowing money to grow. The wealth created can be used for a variety of objectives such as meeting shortages in income, saving up for retirement, or fulfilling certain specific obligations such as repayment of loans, payment of tuition fees, or purchase of other assets. Portfolio management  The art of selecting the right investment policy for the individuals in terms of minimum risk and maximum return is called as portfolio management.  Portfolio management refers to managing an individual’s investments in the form of bonds, shares, cash, mutual funds etc so that he earns the maximum profits within the stipulated time frame.  Portfolio management refers to managing money of an individual under the expert guidance of portfolio managers.  In a layman’s language, the art of managing an individual’s investment is called as portfolio management.  What are the Objectives of Investment? 1. To Keep Money Safe Capital preservation is one of the primary objectives of investment for people. Some investments help keep hard-earned money safe from being eroded with time. By parking your funds in these instruments or schemes, you can ensure that you do not outlive your savings. Fixed deposits, government bonds, and even an ordinary savings account can help keep your money safe. Although the return on investment may be lower here, the objective of capital preservation is easily met. 2. To Help Money Grow Another one of the common objectives of investing money is to ensure that it grows into a sizable corpus over time. Capital appreciation is generally a long-term goal that helps people secure their financial future. To make the money you earn grow into wealth, you need to consider investment objectives and options that offer a significant return on the initial amount invested. Some of the best investments to achieve growth include real estate, mutual funds, commodities, and equity. The risk associated with these options may be high, but the return is also generally significant. 3. To Earn a Steady Stream of Income Investments can also help you earn a steady source of secondary (or primary) income. Examples of such investments include fixed deposits that pay out regular interest or stocks of companies that pay investors dividends consistently. Income-generating investments can help you pay for your everyday expenses after you have retired. Alternatively, they can also act as excellent sources of supplementary income during your working years by providing you with additional money to meet outlays like college expenses or EMIs 4. To Minimize the Burden of Tax Aside from capital growth or preservation, investors also have other compelling objectives for investment. This motivation comes in the form of tax benefits offered by the Income Tax Act, 1961. Investing in options such as Unit Linked Insurance Plans (ULIPs), Public Provident Fund (PPF), and Equity Linked Savings Schemes (ELSS) can be deducted from your total income. This has the effect of reducing your taxable income, thereby bringing down your tax liability. 5. To Save up for Retirement Saving up for retirement is a necessity. It is essential to have a retirement fund you can fall back on in your golden years, because you may not be able to continue working forever. By investing the money you earn during your working years in the right investment options, you can allow your funds to grow enough to sustain you after you’ve retired. 6. To Meet your Financial Goals Investing can also help you achieve your short-term and long-term financial goals without too much stress or trouble. Some investment options, for instance, come with short lock-in periods and high liquidity. These investments are ideal instruments to park your funds in if you wish to save up for short-term targets like funding home improvements or creating an emergency fund. Other investment options that come with a longer lock-in period are perfect for saving up for long-term goals.  THE PHILIPPINE FINANCIAL SYSTEM In the nonbank financial intermediaries, including commercial banks, specialized government banks, thrift banks and rural banks. It is also composed of offshore banking units, building and loan associations, investment and brokerage houses and finance companies. The Bangko Sentral ng Pilipinas and the Securities and Philippines settings, Financial System is composed of banking institutions and Exchange Commission maintained the regulatory and supervisory control.  A financial system is a set of institutions, such as banks, insurance companies, and stock exchanges, that permit the exchange of funds. Financial systems exist on firm, regional, and global levels.  Financial systems play a critical role for consumers – both corporates and individuals – because they bridge the aspirations of today with the economic fortunes of tomorrow. Financial system plays a vital role  in the economy. It is believed that the financial system is like a human heart, once it stop beating, a human will die. Just like in the economy, it will collapse once it stop working.  A financial system is also governed by set of rules, regulations, and practices to make sure that the people are capable of making the funds grow and not waste the money. The borrowers and lenders use to decide which projects get financed, who finances projects, and terms of financial deals. Since the money is being used by the public, it is important that there are rules and regulations to ensure that the money is being properly utilize Elements of Financial System 1. Financial Institutions These are organizations that offer financial services which includes facilitating monetary transactions such as loans, mortgages, and deposits. It is also a place where consumers can effectively manage earnings and develop financial footing 2. Financial Market Financial market is the system that allows people to buy and sell goods and services to each other. It is where trading or exchange of money occurs mostly at financial institutions but this includes the stock market, bond market, forex market, and derivatives market. Elements of Financial System 3. Financial Instruments Financial instruments are assets belonging to a person or company. It includes cash, bonds, or other assets like property or items of value. 4. Financial Services These are offered by financial institutions such as banking, insurance policies, loans and mortgages, as well as pensions.  Elements of Financial System 5. Financial Practices Financial practices are sort of guidelines around how the financial institutions should operate their services. 6. Financial Transactions These are actual exchange of assets for goods or services- paying for a new car, or a loan, for instance. Major types of Financial Institutions in the Philippines  Commercial Banks These are financial institutions which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit.  Rural Banks Rural banks are a private banking institution which mobilize financial resources and control and extends credits to farmers and other rural based economic operators.   Thrift Banks Also known as savings and loan associations. They are smaller than major retail banks or commercial banks and more community focused  Specialized Government Financial Institutions Government owned financial institutions established with each establishment acts.   Offshore Banks An offshore bank is a bank located outside the country of residence if the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. Offshore banking describes a relationship that a company or individual has with a financial institution outside the country of their residence. This requires opening a bank account, making deposits, withdrawals, and transfers from that account—the exact same way you would with a bank account at home.   Insurance Companies Financial intermediaries which offer direct insurance or reinsurance services, providing financial protection from possible hazards in the future.  Non-bank Financial Institutions Any place or system that provides buyers and seller the means to trade financial instruments. Non-bank financial institutions include insurance firms, venture capitalists, currency exchanges, some microloan organizations, and pawn shops. These non-bank financial institutions provide services that are not necessarily suited to banks, serve as competition to banks, and specialize in sectors or groups.   Purpose of Financial System The banking and finance sector performs a critical function in the Philippine economy as it is primarily responsible for the mobilization of domestic savings and the conversion of these funds into directly productive investments.