FIO Unit 1 N
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Transcript of FIO Unit 1 N
Unit 1 What is Investment?
By Joey LaiBanking Academy, Vietnam
Content
Understand the term investment
Differentiate types of investments
Types of investors
Different Types of Risks
Definition
Any asset into which funds can be placed with the expectation that it will generate positive income and/or preserve or increase its value
Investment
An investment is to commit money at risk to purchase a financial instrument or other asset for a higher profitable return.
or
Financial Investment
A "real" investor does not simply throw his or her money at any random investment
Investing is not gambling
What Investing Is Not
Spread Betting
Gambling or Investing?
Investors speculate on two possibilities namely the upward or downward movement of an individual share, currency, or commodity, value, or a stock index
Why bother investing?
• We want more money to increase our personal freedom, sense of security and ability to afford the things we want in life.
Time Horizon of Investment
These include buying a retirement fund, shares and
bonds.
Short-term Long-term
Time Horizon
These include saving for a car or an overseas vacation. ( Bank savings)
Investment Vehicles
Investment Vehicles
Buying mutual funds
Buying gold
Buying securities
Buying real estates
Classification of Financial Investments
• By its time horizon: short-term vs. long-term– Short-term: Invest for a year or less. A shorter
repayment period. ( lower in risk, lower in return, higher in liquidity)
– Long-term: invest for more than a year. A longer repayment period. ( higher in risk, higher in return)
Classification of Financial Investments
• By its mode of invest: Direct or Indirect– Direct: investor directly owns a claim on a security
or property. (invest in a company’s shares or bonds)
– Indirect: investor owns an interest in a professionally managed collection of securities or properties
Classification of Financial Investments
• By its types: Securities and/ or Property– Securities: Equity, Debt and/ or Derivatives– Real Property: land, shop-buildings, apartments– Tangible Personal Property: gold, artwork,
antiques, collectibles
Classification of Financial Investments
• By its nature of return:– Fixed income investment
• Normal bank savings, fixed-term deposits, bonds, preference shares
– Non-fixed income investment• Ordinary shares
Major Types of Investments• Debt, Equity or Derivative Securities, Mutual
Funds– Debt: investor lends funds in exchange for interest
income and repayment of loan in future (bonds)– Equity: represents ongoing ownership in a
business or property (common stocks)– Derivative Securities: neither debt nor equity;
derive value from an underlying asset (options)– Mutual Funds: operated by an investment
company which raises money from shareholders and invests in a group of assets
单击图标添加图片
A financial advisor explains to an investor about mutual funds.
Photograph : Joe Readle
Types of Investors
• Individual Investors– Invest for personal financial goals
(income, retirement, house, education)
• Institutional Investors– Paid to manage other people’s money– Trade large volumes of securities– Include: banks, insurance companies, mutual
funds, pension funds
Risk in Investment
Every investment opportunity carries some risks.
Risk in Investment
Risk in Investment
7
4
1
3
5Liquidity Risk
Default Risk
Inflation risk
Political risk Market risk
6Interest rate risk
2 Business risk
Liquidity of Various InvestmentsLiquidity Some Examples
Very high Cash, gold, silver, savings and current accounts in banks, G-Securities
High Fixed deposits with banks, shares of listed companies that are actively traded, units, mutual fund shares
Medium Fixed deposits with companies enjoying high credit rating, debentures of good companies that are actively traded
Low and very low
Deposits and debentures of loss-making and cash-strapped companies, inactively traded shares, unlisted shares and debentures, real estate
Savings vs. Investment
money that is supposed to be immediately liquid and safe.
money that is supposed to be generating more money
Partnership Investment
Started out this way by pooling money from seven family members or extremely close friends.
Warren Buffet
Upcoming... In next unit
Success skill in managing your investments lies in achieving the right balance between risks and returns. Where risk is high, returns can also be expected to be high
THANKS!
By Joey LaiBanking Academy, Vietnam