COMMERCE

 COMMERCE

INVESTMENT

 SECURITY

A security means a document that gives its owner a specific claim of ownership of a particular finance asset. Financial market provide facilities for buying and selling of financial claims and services. Thus, securities are financial instruments which are bought and sold in the financial market for investment. The important financial instruments are shares, debentures, bonds, etc. Other financial instruments are also known as securities such as Treasury Bill, Mutual Fund Units, Fixed Deposits, Insurance Policies, Post Office Savings like National Savings Certificates, Kisan Vikas Patras, Public Provident Funds, etc. Some of these securities are transferable while some of them are not transferable.

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 INVESTMENT OBJECTIVES

Investment is a widespread practice and many have made their fortunes the process. The starting point in this process is to determine the characteristics of the various investment and then matching them with the individuals need and preferences. All personal investing is designed in order to achieve certain objectives. These objectives may be tangible such as buying a car, house, etc., and intangible objectives such as social status, security, etc. Similarly, these objectives may be classified as financial or personal objectives. Financial objectives are safety, profitability and liquidity. Personal or individual objectives may be related to personal characteristics of individual such as family commitments, status, etc.

The objectives can be classified on the basis of the investors approach as follows:

(a)     Short-term high priority objectives: Some investors have high priority towards achieving certain objectives in short time. For example, a young couple will give high priority to buy a house.

(b)     Long-term high priority objectives: Some investors look forward and invest on the basis of objectives of long-term needs. They want to achieve financial independence in long period. For example, investing for post-retirement period or education of child, etc.

(c)     Low priority objectives: These objectives have low priority in investing. These objectives are not painful. After investing in high priorities assets, investors can invest in these low priority assets. For example, provision for tour, domestic appliance, etc.

(d)     Money making objectives: Investors put their surplus money in this kind of investment. Their objective is to maximize wealth. Usually, the investors invest in shares of companies which provides capital appreciation apart from regular income from dividend.

FACTORS INFLUENCING SELECTION OF INVESTMENT ALTERNATIVES

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

These include:

1. 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

2. 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.

3. 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.

4. 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

5. 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

6. 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.

7. 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

8. 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?

Types of investments 

1. Shares and debentures.

2. Government funds

3. Money market instruments

4. Public deposits

5. Bank deposits

6. Post office savings

7. HDFC schemes/Housing bank schemes

8. Mutual Fund Schemes

9. Life Insurance Schemes

10. Public provident fund

11. Gold-silver

12. Real estates

Benefits of Investment 

Financial Management

Financial Management 

Financial management is the process of planning, organizing, directing, and controlling financial resources to achieve a company's objectives. It involves making strategic decisions about how to allocate funds, manage risk, and maximize returns.

Financial Management is the management of finance. Finance is the life blood of the organisation without finance a business cannot work properly.

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Definition of Financial Management 

This are some of the main definitions of financial management:

According to PG Hastings "Financial Management is the art of raising and spending money".

According to Howard and Upton "Financial Management is the application of planning and controlling function to finance functions".

Objectives of financial management

1. Profit maximization 

2.Wealth maximization 

3.Value maximization 

The main objective of financial Management is profit maximization but lately it has been changed to wealth maximization also we can add value maximization as one of another objective of financial management.

Scope of Financial Management 

1. Investment Decision 

 a. Capital budgeting decision 

 b. Working capital management 

2. Financial Decision 

 a. Cost of capital 

 b.Capital structure 

 c. Leverage 

3.Dividend decision 

a.Dividend policy 

 b. Retained earnings.

4. Liquidity decision 

Financial Management Techniques

1. Financial ratio analysis: Using financial ratios to assess profitability, liquidity, solvency, and efficiency.

2. Time value of money: Understanding the concept of the time value of money to make informed investment decisions.

3.Capital budgeting techniques: Using methods like net present value (NPV), internal rate of return (IRR), and payback period to evaluate investment projects.

4. Cost-benefit analysis: Comparing the costs and benefits of different financial decisions.

5. Risk management tools: Using techniques like hedging, insurance, and diversification to manage risk.

Functions of Financial Management 

Process of Financial Management 

Challenges in Financial Management

1. Economic uncertainty: Fluctuations in interest rates, exchange rates, and market conditions can impact financial performance.

2. Regulatory changes: Changes in tax laws, accounting standards, and industry regulations can affect financial strategies.

3. Technological advancements: The rapid pace of technological change can create new opportunities and challenges for financial management.

4. Global competition: Increasing competition from international businesses can put pressure on margins and profitability.