Introduction on sapm
- 1. INTRODUCTION
- 2. Financial Markets A financial market is a market in which people and entities can trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural goods.
- 3. Functions Of Financial Markets • Facilitate price discovery. • Provide liquidity to financial assets. • Considerably reduce the cost of Transcations.
- 4. Classification of Financial Markets. • According to Nature of Claim : Debt Market & Equity Market. • According to Maturity Of Claim ; Money Market & Capital Market. • According to Seasoning of Claim : Primary Market & Secondary Market. • According to Timings of Delivery : Cash or Spot Market & Forward or Futures Market. • According to Organizational Structure : Exchange Traded Market & Over the Counter Market.
- 5. Instruments Of Direct & Indirect Investing
- 6. Direct Investing Indirect Investing • Money Markets • Mutual Funds : Open :Treasury Bills , Ended , Close Ended. Commercial Paper , • Exchange Traded Certificates Of Deposits. Funds. • Capital Market : Shares , Bonds & Debentures. • Capital Market Derivatives : Futures & Options.
- 7. Direct Investing Indirect Investing • Direct investment refers to • Indirect investing refers to a an investment which is way of investing in real sufficiently large to affect a state without actually company's subsequent investing in the property. decisions. • Indirect investment can be • This is sometimes a done in many ways, majority ownership, but including securities, funds, sometimes it's just a or private equity. Most significant minority investors interested in ownerships. indirect investment would do so through a company or advisor who has experience in this type of investing.
- 8. • Investments in financial assets can be used to built up diverse types of strategies they are : Hedging Arbitrage. Diversification.
- 9. Hedging • Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract. • Example : A hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations. Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces your risk to nothing (except for the cost of the hedge).
- 10. ARBITRAGE • Arbitrage refers to the opportunity of taking advantage between the price difference between two different markets for that same stock or commodity. • The trade is carried simultaneously at both the markets so theoretically there is no risk. • Arbitrage trading, a trading system, works in this way: • Example : A trader wants to sell a share at a specific price. He places sell order on the first exchange at that price and simultaneously buys order at a higher price on the second exchange.
- 11. • Arbitrage is the process of making profit from the price difference between two or more markets and a person who engages in arbitrage is called an arbitrageur. • For example, an investor is trading simultaneously in NSE and BSE, for particular stock the price in BSE is lower than the trading price in NSE. • He can then make profit from this price difference by opting for arbitrage. • But arbitrage is not the simple act of buying one asset at one market and then selling it to another market at a later time when the price is higher. • Rather to avoid market risks of price change you need to make sure that both the transactions at both the market are done simultaneously. • To eliminate the risk of price fluctuation you need to make sure that both the transaction is completed even before the change in the price at any of the markets.
- 12. Diversification • Diversification is a method of portfolio management whereby an investor reduces the volatility (and thus risk) of his or her portfolio by holding a variety of different investments that have low correlations with each other. • The basic idea behind diversification is that the good performance of some investments balances or outweighs the negative performance of other investments.
- 13. Example
- 15. Real Assets
- 16. Real Estate • For the bulk of the investors the most important asset in their portfolio is a residential house. • In addition to a residential house the most affluent investors are likely to be interested in the following types of real estate : Agricultural Land. Semi-Urban Land. Commercial Property. A Resort Home. A second House.