the investment process

Table of Contents
EXECUTIVE SUMMARY ........................................................................................................................2
Abstract .............................................................................................................................................2
Executive Summary ............................................................................................................................2
Preface ..............................................................................................................................................2
UNDERSTANDING THE INVESTMENT PROCESS......................................................................................3
What is Investment? ...........................................................................................................................3
History ...............................................................................................................................................3
How to Start an Investment Portfolio...................................................................................................4
Different Types of Investment .............................................................................................................5
Major Types of Investment..................................................................................................................8
Mutual fund ..................................................................................................................................... 10
Common Types of Mutual Funds.................................................................................................... 10
Definition of Investment from different Perspectives.......................................................................... 11
History of Shares .............................................................................................................................. 12
History of Stocks & Shares ............................................................................................................. 14
How Best to Invest in Shares ............................................................................................................. 17
Why Might a Company Invest in Another Company's Stock? ............................................................... 17
RISK FACTORS................................................................................................................................... 18
References ....................................................................................................................................... 22

EXECUTIVE SUMMARY
Abstract
The data relevant to the topic is collected from different websites and
as well as by taking interview from the person who is directly
connected with the investment side.
Executive Summary
Basically my topic is all about investment. In my report I have told each
and every thing about investment like by the point of view of a single
person or any company point of view that why they invest in other
companies. The types of investment, how risk factor involve in it. How a
single person can get knowledge about investing in share or another
where. All things are clearly explained in the report.
Preface
This report is prepared for those who don’t know about investment,
who are interested to invest somewhere but don’t know to utilize their
money. It will help all individuals and businessman as well.
2 UNIVERSITY OF MANAGEMENT & TECHNOLOGY

UNDERSTANDING THE INVESTMENT PROCESS
What is Investment?
In simple terms, Investment refers to purchase of financial assets. While Investment Goods are those
goods, which are used for further production.
History
The Code of Hammurabi 1700 B.C. provided a legal framework for investment establishing a means for
the pledge of collateral by codifying debtor and creditor rights in regard to pledged land. Punishments
for breaking financial obligations were not as severe as those for crimes involving injury or death.
In the early 1900s purchasers of stocks, bonds, and other securities were described in media, academia,
and commerce as speculators. By the 1950s the term investment had been co-opted by financial brokers
and their advertising agencies to promote speculation. By the late 1900s the terms speculation and
speculator were somewhat down played by the media, likely due to turmoil in the capital markets ever
since the tech boom bubble pop, and the historical fascination with blaming Wall Street speculators for
all the ills of the world, had mysteriously returned to the newspapers. The public is instead fed the word
investor or investment instead of speculator or speculation, even though the bulk of the activities are
not investment grade
The Investment Process
Successful investing is never so easy. An orderly, disciplined approach is necessary for successful
management of your investment assets. It's a step-by-step process, starting with the assessment of your
goals and needs.

How to Start an Investment Portfolio
Investment is usually the last thing you want to think about when you just got your first paycheck. Blow
it all! Some clothes….a decent watch…the car…a killer mobile and the flat screen. OK, for a few months,
but if you don’t back off a bit, then, those things will own you and you’ll spend your life paying off your
history at 20% more than the “bargain” price you bought it for! Think about investment….as part of your
life NOW. If you start an investment program setting just a small part of your money aside, you will have
the freedom no one will never even imagine!
Step 1
Set a vision of what you want. Money is not the thing...it's the dream you can make happen. So you're
not into money management...you are into dream realization! The earlier you get started, the faster
your dreams will happen. Based on your vision, write down your goals, not money goals, but "I want to
be" goals or "I want to be able to" goals. Motivation is your vision of the dreams and that is really
powerful.
Step 2
Educate yourself on investment. It is important that you start learning early so you have solid
information on which to make your investment decisions. Start by reading the quarterly reports and
annual reports of the company you are working with. Start tracking their stocks. Get to know the other
companies in your field of work. Read their reports. Warren Buffet says buy what you know. That extra
money in your paycheck may just be the starting base for your portfolio. Meet your bank investment
advisor. They will be able to provide information and you can ask some of your questions as well. Read
books in your library or financial sections in the newspapers. Or search for information online.
Step 3
Find a mentor. Get someone who is not interested in selling you a product or a service, someone who
has done well in investing. There is always one in your family or circle of friends or at work. Ask people
what they do about investment. Listen to their experience and find out what you need to do to prepare
yourself to become a better investor.
Step 4
Determine your risk tolerance. How much risk are you prepared to take? Fear and greed drive the
markets...if you have a problem with these, stay in forgiving investments like mutual funds or bonds.
Look for investment products that are within your level of risk. Get to understand these products and
how you can get better returns from these. Remember...this is supposed to be fun, and it really can be,
but not if you're terrified. Maybe start with something safe to build up your confidence.

Step 5
Decide how much you can afford. Start with the amount you can regularly take out from your bank
account without pain. 10% is a good target but to get started, anything will do. Look at your goals as
well. If it is something you really want to have sooner, set aside more money to reach it in less time.. If
you just want to start saving for retirement, a safe way to start is to contribute to your company's pre -
tax investment program like 401K for Americans or RRSPs for Canadians. Many European countri es have
similar tax incentives. You will be surprised at how much a little amount put in regularly accumulates in
a period of time.
Step 6
Open an investment account. Shop around for better performance and deals that suit your own unique
requirements. Some financial institutions offer to set aside a regular amount to put in your investment
account and once accumulated, you can then decide to put it in stocks or whatever funds. Meanwhile,
this will earn interest.
Step 7
Start investing. If you want, you can first start with a trial investment account. You can build a trial
portfolio of stocks you choose yourself based on your research. Invest in what you know well. If you are
ready, go for it. You learn faster when the stakes are high. You can start by buying the stocks of
companies offering Dividend Reinvestment Program (DRIP). As the dividends come in, they
automatically buy more stock. Most of these companies are well established and very conservative and
will allow you to buy one stock (through a brokerage) to get in the game.
Once you have one stock, the company will allow you on a regular basis, at a date they set, to buy extra
stocks. No matter what decisions you make, the key is to START NOW.
Different Types of Investment
Different types or kinds of investment are discussed in the following points.

1. Autonomous Investment
Investment which does not change with the changes in income level, is called as Autonomous or
Government Investment.
Autonomous Investment remains constant irrespective of income level. Which means even if the income
is low, the autonomous, Investment remains the same. It refers to the investment made on houses,
roads, public buildings and other parts of Infrastructure. The Government normally makes such a type of
investment.

2. Induced Investment
Investment which changes with the changes in the income level, is called as Induced Investment.
Induced Investment is positively related to the income level. That is, at high levels of income
entrepreneurs are induced to invest more and vice-versa. At a high level of income, Consumption
expenditure increases this leads to an increase in investment of capital goods, in order to produce more
consumer goods.
3. Financial Investment
Investment made in buying financial instruments such as new shares, bonds, securities, etc. is
considered as a Financial Investment.
However, the money used for purchasing existing financial instruments such as old bonds, old shares,
etc., cannot be considered as financial investment. It is a mere transfer of a financial asset from one
individual to another. In financial investment, money invested for buying of new shares and bonds as
well as debentures have a positive impact on employment level, production and economic growth.
4. Real Investment
Investment made in new plant and equipment, construction of public utilities like schools, roads and
railways, etc., is considered as Real Investment.
Real investment in new machine tools, plant and equipments purchased factory buildings, etc. increases
employment, production and economic growth of the nation. Thus real investment has a direct impact
on employment generation, economic growth, etc.
5. Planned Investment
Investment made with a plan in several sectors of the economy with specific objectives is called as
Planned or Intended Investment.
Planned Investment can also be called as Intended Investment because an investor while making
investment makes a concrete plan of his investment.
6. Unplanned Investment
Investment done without any planning is called as an Unplanned or Unintended Investment.
In unplanned type of investment, investors make investment randomly without making any concrete
plans. Hence it can also be called as Unintended Investment. Under this type of investment, the investor
may not consider the specific objectives while making an investment decision.

7. Gross Investment
The total amount of something before various factors deduct from the total. For example, gross
revenue, gross sales, and gross income.
8. Net Investment
Net investment is the measure of a company's investment in capital assets, such as the property, plants,
software and equipment that it uses for operations.
How It Works/Example:
The formula for net investment is:
Net Investment = Capital Expenditures – Depreciation (non-cash)
Major Types of Investment
There are many things where we can invest, each with its own level of risk and return. The more money
you can make from an investment, the higher the risk that you might not get all your money back. So it’s
good to have a mix of different types of investments to spread your risk. And it's important to do your
homework and get investment advice so you understand the risks before you hand over your money.
Bank savings
Savings accounts with New Zealand’s major banks are one of the most common and least risky ways to
store your money for the short term. Credit unions and building societies also offer savings accounts.
When you deposit money in an account you are lending it to the bank, which pays you some interest in
return. The interest you can earn is relatively low, so savings accounts are not the best option if you are
looking for long-term growth.
Term deposits
Like savings accounts, term deposits also pay interest. The difference is that you agree to lend your
money to the bank for a fixed period of time such as 6 or 12 months in return for a higher rate of
interest.
Sometimes you can’t withdraw the money during the term of the investment. In other cases you can,
but get paid a lower rate of interest. Term deposits are sometimes called ‘fixe d interest’ investments.
Bonds
Tip: Investments are often called assets and different types of investments such as bonds and shares are
called asset classes.

A bond is like an IOU issued by a government, council, or company. You lend them your money for a
number of years, and they promise to pay a certain interest rate – called a coupon. The level of risk
involved when investing in bonds depends on the issuer. Unlike term deposits, you can sell your bonds
early. However the price you will get can go up and down. Bonds are also sometimes called fixed
interest investments.
Shares
When you buy a share, you’re buying a small part of a company. If that company makes money, you may
be paid a share of the profit, called a dividend. Like house prices, share prices are generally expected to
go up over time and give you a ‘capital gain’ on your money when you sell. However, prices can fall in
value as well.
Managed funds
A managed fund is a financial product that buys a number of shares and other investments such as
property, term deposits, and cash. The buying decisions are made by expert managers.
Tip: Most investors should have a mix of investments to smooth out the ups and downs.
When you buy units in a managed fund you are spreading your savings across a range of shares or other
investments within the fund. That means that your money is 'diversified’.
Alternatives
Alternatives is a broad term often used to describe investments that fall outside the standard asset
classes of cash, bonds, shares and property. Alternatives include commodities, currency and derivatives.
Commodities (including gold)
These investments don’t pay interest or dividends, but do increase and decrease in value which can
result in a capital gain. The value of commodities often moves in the opposite direction of other asset
classes (e.g. when share prices go down, gold often increases in value, and vice versa), so investors
sometimes buy them to try to protect their money.
Currency (foreign exchange)
As well as being used to buy goods and services, foreign currency is also used as an investment.
Currency investors are looking for higher interest rates overseas, or hoping exchange rates will move in
their favor resulting in a capital gain. Investors, including managed funds, may also use currency to
protect, or ‘hedge’, other investments that are invested overseas.
Derivatives (including options and futures)
Derivatives are generally only used by more sophisticated investors, such as managed funds. This can be
a confusing and complex area of investing. However, derivatives are built on a fairly simple concept -

allowing people to protect themselves, or ‘hedge’, against future price movements. For example a
farmer can fix the price today, for the milk they will supply in the future. While at the same time, a
supermarket owner can fix the price now for the milk they will receive in the future.
Professional investors still use derivatives for this purpose, but can now also use them to invest more
efficiently.
Other alternatives
Other alternatives can include things such as private equity, hedge funds, fine wine, exotic cars and
stamps. There are different reasons for buying each one, but, as with all investments, their value can go
up or down.
Mutual fund
A mutual fund is a pool of money that is managed on behalf of investors by a professional money
manager. The manager uses the money to buy stocks, bonds or other securities according to specific
investment objectives that have been established for the fund. In return for putting money into the
fund, you’ll receive either units or shares that represent your proportionate share of the pool of fund
assets. In return for administering the fund and managing its investment portfolio, the fund manager
charges fees based on the value of the fund’s assets.
Common Types of Mutual Funds
Money Market Funds
Invest in short-term (less than one year to maturity) corporate and government debt securities such as
treasury bills, bankers acceptances and corporate notes. Some money market funds specialize in
Canadian or US money market instruments or
Invest only in treasury bills. These are generally very low-risk funds offering low returns.
Fixed Income Funds
Invest in debt securities like bonds, debentures and mortgages that pay regular interest, or in corporate
preferred shares that pay regular dividends. The goal, typically, is to provide investors with a regular
income stream with low risk. Fund values will go up and down to some extent, particularly in response
to changes in prevailing interest rates.
Growth or Equity Funds
Invest primarily in common shares (equities) of Canadian or foreign companies, but may hold other
assets as well. The goal is typically long-term growth because the value of the assets held increases over
time. Some growth funds focus on large ‘blue -chip’ companies, while others invest in smaller or riskier
companies. Performance will be affected by the success or failure of specific investments and by the
performance of the stock markets generally.

Balanced Funds
Invest in a ‘balanced’ portfolio of equities, debt securities and money market instruments with the
objective of providing reasonable returns with low to moderate risk.
Global and Foreign Funds
May be fixed income, growth or balanced funds that invest in foreign securities. These funds can offer
investors. Mutual investor’s international diversification and exposure to foreign companies, but are
subject to risks associated with investing in foreign countries and foreign currencies.
Specialty Funds
May invest primarily in a specific geographical area (e.g., Asia)or a specific industry (e.g., high technology
companies).
Index Funds
Invest in a portfolio of securities selected to represent a specified target index or benchmark such as the
S&P/TSXComposite Index.
Definition of Investment from different Perspectives
Investment is a term frequently used in the fields of economics, business management and finance. It
can mean savings alone, or savings made through delayed consumption. Investment can be divided into
different types according to various theories and principles.
Investment in terms of Economics
According to economic theories, investment is defined as the per-unit production of goods, which have
not been consumed, but will however, be used for the purpose of future production.
Examples of this type of investment are tangible goods like construction of a factory or bridge and
intangible goods like 6 months of on-the-job training.
In terms of national production and income, Gross Domestic Product (GDP) has an essential constituent,
known as gross investment.
Investment in terms of Business Management
According to business management theories, investment refers to tangible assets like machinery and
equipments and buildings and intangible assets like copyrights or patents and goodwill. The decis ion for
investment is also known as capital budgeting decision, which is regarded as one of the key decisions.
Investment in terms of Finance

In finance, investment refers to the purchasing of securities or other financial assets from the capital
market. It also means buying money market or real properties with high market liquidity. Some
examples are gold, silver, real properties, and precious items.
Financial investments are in stocks, bonds, and other types of security investments. Indirect financial
investments can also be done with the help of mediators or third parties, such as pension funds, mutual
funds, commercial banks, and insurance companies.
Investment in terms of Personal Finance
According to personal finance theories, an investment is the implementation of money for buying
shares, mutual funds or assets with capital risk.
Investment in terms of Real Estate
According to real estate theories, investment is referred to as money utilized for buying property for the
purpose of ownership or leasing. This also involves capital risk.
COMMERCIAL REAL ESTATE
Commercial real estate involves a real estate investment in properties for commercial purposes such as
renting.
RESIDENTIAL REAL ESTATE
This is the most basic type of real estate investment, which involves buying houses as real estate
properties.
History of Shares
Shares have been around in various forms for thousands of years, serving as the primary mechanism
through which ownership in companies and entities can be divided, and the means by which n ew
investors can be welcomed into the fold. While of course, the concept of shares and the specific legal
setup has become much more refined and sophisticated with time; shares in principle have existed since
the times of ancient Rome, as a cornerstone of commerce and early corporate finance.
The Romans developed mechanisms to what we would consider to be a company today, with the
backing of the authorities, to carry out specific purposes or to deliver certain projects. These were
involved the first known classification of shareholders, who were involved to help provide capital for the
projects involved. This early construct was closely aligned with the state, and only began to develop its
own legal identity and distinct legal personality after influence from the early German thinking on
corporate structure.
After its early introduction, the company was developed considerably across Europe by the Church and
the Canon Law, which laid down some fundamental legal points as we consider them today. For the first

time, the company was a personality distinct from its member, who would therefore survive in
perpetuity beyond the death of those involved, and the basic principles of agency law began to flesh
out. Where the Church first tread, so charities and other publi c organizations followed, adopting the
Church's model of business structure to develop the entity as we've come to know it.
Packaging company Stora Enso, still in existence today, is derived from the oldest known limited
company, and issued the first recorded example of a share certificate in 1288. By this point, the share
was a relatively understood albeit basic legal right, and one that was fundamental in helping expand the
growth of commerce throughout the middle ages.
By the early 17th century, the first signs of organized stock trading activity in Europe were evident,
thanks to the Dutch East India Company, which issued shares to the public for the first time in
Amsterdam in order to fund expeditions and activities in Asia. This first issue was pivotal in providing the
Dutch East India Company with the capital to fuel its growth into one of the world's largest companies of
its time, and one of the most influential on a multinational level.
But it was with the advent of the Joint Stock Corporation Act in the UK in 1844 that companies and
shares really started to take shape. For the first time, the liability of companies was limited, and parties
could hold a joint stock in companies, divisible by recognizable shares. This, followed by three successive
Companies Acts taking us up to 2006 helped transform the economy of the UK and the rest of the world,
and has given us the multi-trillion capitalizations of global companies we're used to seeing today.
Shares have had a long and interesting history, and their story is one that is likely to continue to change
over time. While many of the sweeping changes have already taken place, the future for shares and
share trading looks set to be increasingly shaped by technology, as the markets continue to embrace the
systemic advancements that improve share dealing efficiency and drive down cost.

History of Stocks & Shares
Investment by shares in not a new idea.
Stock represents investment in any company. A person who buys stock, known as a shareholder, holds
legal ownership of a set percentage in the company, and has a interest in business matters.
Shareholders not only share in a business’s profits when they enjoy success, but also share the financial
risk of failure. Throughout history, shares were a way for societies to afford large ventures which came
at great risk to investors. Today, it is a means for new companies to generate operating capital.
Origin
The idea of buying shares, or investing in a business venture for partial ownership, dates back to ancient
Rome. Private businesses called “publican” sold shares to generate capital. The publican also served as a
lending association, which commonly advanced money to the Roman government, in exchange for
protection. Investors were limited by the law, and excluded freemen, slaves and all governmental
officials.
Middle Ages
During the middle Ages, the expense and financial risk of sea trade was exponential. As a result, the cost
of a ship's construction was divided into shares. Investing in the ship's construction guarantee d the
investor a share of the ship's profits, if the voyage was successful, and spread out the loss if it was not.
Paper Certificates
In 1602, the Dutch East India Co. was formed, when granted a royal charter for the government of the
Netherlands. The charter granted the company full control of trade with the East for a period of 20
years. The company sold shares to generate the funds needed for a fleet of ships, and to travel, and
began paying out dividends to investors later the same year. The company issued the first-ever paper
stock certificates to investors in 1606.
Speculation
The Mississippi Company was formed in 1715 by the French government and John Law. The company
was given control over the assets in the territory of Louisiana, and was designed to generate funds to
repair the French national economy. Law devised a system that encouraged speculation investment, and
it inflated the price of shares. In 1719, speculation investment had led to gross inflation of the
company's share price, despite the company's few colonial assets. This led to the first economic bubble,
and the company's ruin.
Bonds
The Revolutionary War inspired the first investment banking in the United States. The colonial war bond
was developed by the Continental Congress to finance the Revolution. After the Revolutionary War,

shares were sold to finance American development. Westward expansion, invention and business
development were all funded by selling stock in the venture.
Stock Exchange
In 1792, 24 merchants met daily on a street corner to trade stocks and bonds with one another. These
men formed the first, basic, New York Stock Exchange, though it was not formally organized until 1817.
The stock exchange was carried on outdoors, until it moved into a more permanent indoor location in
1921. In 1929, speculation investments and inflation of value lead to the Stock Market Crash and
subsequent Great Depression. The long-term effect of this was government involvement in stock market
activity.
Finding Companies to Invest In
Selecting an investment strategy is the relatively easy bit of learning to invest. Now comes the hard part!
Putting the strategy into practice and finding the companies that satisfy your chosen guidelines.
This section is all about how you can use the resources around you to find companies worth considering
investing in. Initially you may need to cast your net quite widely and try to come up with a list of
potential investments that might fit with your investment strategy. Once you have your list of potential
investments, you'll need to find out more about these companies, and then, after much thought and
consideration, select one or more -- or even none -- of these companies in which to invest your hard-earned
money.
So how do you find companies that will suit your investing style and your investment strategy? For
many, the fun of investing is finding that golden nugget of a company, the company that no else has
noticed and which ultimately proves to be a very shrewd investment. But finding the right company to
invest in is the most difficult thing to do for investors. The London stock market has thousands of
companies listed. In Europe there are many thousands more. And if you look at all of the world's stock
markets... well, you'll soon find that you can't see the wood for the trees. Selecting suitable companies
can become all but impossible.
The art of investment is to narrow your search down to a few companies that you can study and follow,
and, based on the information you discover about them, you can then make better informed investment
decisions.
How do you find potential investments?
If you have had some personal experience of a company, if you work for them, or are a customer of
theirs, then you are in a perfect position to assess the quality of that business. But always be wary about
personal experience. The investment world is littered with companies that may be great to work for,
that give excellent customer service and have great products, but if they don't make a profit and they
don't generate cash, then they might not be the best investment.

But if you really want to find potential investment opportunities, you need to be proactive. It is no use
waiting around hoping that your next investment is going to come along and slap you in the face. The
only way to find good investment opportunities do it is to go out and look for ideas. And that means you
need to do your own research.
Read, read, and read some more
The most important way to find suitable investments is to read. Read everything that comes your way.
Buy the Financial Times, read the Investors Chronicle and -- of course -- read the Motley Fool! Consider
signing up to the Motley Fool's flagship share recommendation service, Share Advisor.
Read as much as you can about companies and investments. Every time you read about a company,
mentally run it past your 'stock screen' in your brain. Ask yourself "does this company qualify as a
potential investment against the criteria I have set in my investment strategy?". If it does, note it down
for further research. If it doesn't, then forget about it immediately.
Some of the best sources for investment ideas are available on the Internet. We list a few here, but
there are many, many more.
The Financial Times is pretty much essential reading for anyone serious about taking control of their
own investments. When you first buy the FT you may feel a bit intimidated, but don't worry, it really
isn't as dry as it may look. The FT covers company news in more detail than any other newspaper and
the Lex column is excellent.
For those starting out, the weekend edition of the FT is a much lighter read. It contains a good personal
finance section and an informative stock market review of the week. The Weekend FT also highlights
directors' dealings, where heavy "insider" buying or selling could prove to be an investment indicator.
A subscription to the online edition of the FT is well worth considering. It means you can read the Lex
column on the day it's written, not the morning after. Even better, you can read articles from the FT
archive and other publications too.
Stock screeners
An excellent product for the really serious investor is Company REFS (Really Essential Financial
Statistics). It's essentially a database that gives a snapshot of every quoted company, detailing amongs t
other things, past financial records, various performance ratios and future profit estimates. Although
REFS is published monthly in Yellow Pages-sized volumes, perhaps the best medium to receive the
product is via a CD. The CD allows the excellent facility of setting up personal search criteria (eg: low
price to earnings ratios, high dividend yields) to present a list of suitable companies. You can also use
REFS online
The main drawback with REFS is that it is expensive (at the time of writing around £800 a year for the CD
or full online access, although 'weekends only' online access is much cheaper), but if you are a serious

investor, its well worth considering. Cheaper sites, popular with many people on our discussion boards,
include Sherlock Holmes and It Pays Dividends.
Stock screeners can save you a lot of legwork but it's best to never rely on them completely for financial
information. In practice, most people use them to draw up a shortlist of possible candidates, but then
double-check the key information for each company using their annual accounts or results statements.
How Best to Invest in Shares
The aim of making a profit from shares is to buy when they are cheap and to sell when they are
expensive. So don't be downcast when the market and share values are down. If you are a new investor,
this could be an excellent buying opportunity. There are two strategies for share buying and selling:
You can buy the market as a whole. That is you invest in a portfolio of, say, 20 shares and then forget
about them using any dividends to boost your income.
You can be an active investor, a speculator even, and buy and sell shares every week or month, seeking
to make a profit from the ups and downs of the stock market.
Why Might a Company Invest in Another Company's Stock?
Why Might a Company Invest in Another Company's Stock?
Companies have the obligation to shareholders to make the best use of all of their assets. If the
opportunity arises to invest in the stock of another company, it may be for several reasons.
Cash/Stock/Debt Transactions
A company wishing to acquire shares of another company's stock may do so with its own stock or with
available cash on hand. Debt financing is arranged in many cases, but any of these methods is usually
employed when the acquiring company wishes to enhance its own corporate performance and growth.
Cash Transactions
When a company becomes so large that its cash flow can't be reinvested into its own growth, its pace of
earnings growth will slow. Cash levels will accumulate. This cash can either be paid out in the form of
dividends to shareholders or used to buy shares in smaller, high-growth companies.
Mergers
Companies may also merge when it becomes clear that the two acting as one can share economies of
scale, and--again--add shareholder value by increasing earnings-growth potential.
Tender Offers

A company can use available cash or credit to purchase shares of another company, but only up to a
limit. Once this limit is reached, it must state how much of the acquired company it owns and whether it
plans to buy the remaining shares. This is known as a tender offer.
Takeovers
If the buying company states intentions to buy the target company, the target company may agree,
recognizing the benefit to both parties. If the target company finds this is not it its best interests, it may
take a number of measures to avert the purchase of its shares. But the acquiring company is attempting
the takeover in order to increase its long-term shareholder value.
RISK FACTORS
1. Standard Risk Factors
• Investment in Mutual Fund Units involves investment risks such as trading volumes, Settlement risk,
liquidity risk, default risk including the possible loss of principal.
• As the price / value / interest rates of the securities in which the scheme invests fluctuate, the Value of
your investment in the scheme may go up or down.
• The NAV of the Scheme’s units may be affected by change in the general market conditions, Factors
and forces affecting capital markets in particular, level of interest rates, various market related factors
and trading volumes.
• Past performance of the Sponsor/AMC/Mutual Fund does not guarantee future performance of the
scheme.
• The name of the Scheme does not in any manner indicate either the quality of the scheme orbits
future prospects and returns.
• The sponsor is not responsible or liable for any loss resulting from the operation of the scheme beyond
the initial contribution of Rs. 5 Lakhs made by it towards setting up the Fund.
• The Scheme is not a guaranteed or assured return scheme
2. Investments under the scheme may also be subject to the following risks
I. Investment in equity
Equity and equity related risk: Equity instruments carry both company specific and market Risks and
hence no assurance of returns can be made for these investments.
II. Investment in debt
(a) Credit risk: Credit risk is risk resulting from uncertainty in counterparty's ability or

Willingness to meet its contractual obligations. This risk pertains to the risk of default of payment of
principal and interest. Government Securities have zero credit risk while other debt instruments are
rated according to the issuer's ability to meet the obligations.
(b) Liquidity Risk pertains to how saleable a security is in the market. If a particular security does not
have a market at the time of sale, then the scheme may have to bear an impact depending on its
exposure to that particular security.
(c) Interest Rate risk is associated with movements in interest rate, which depend on various factors
such as government borrowing, inflation, economic performance etc. The values of investments will
appreciate/depreciate if the interest rates fall/rise.
(d) Reinvestment risk: This risk arises from uncertainty in the rate at which cash flows from an
investment may be reinvested. This is because the bond will pay coupons,
This will have to be reinvested. The rate at which the coupons will be reinvested will depend upon
prevailing market rates at the time the coupons are received.
3. Political Risk
Politics is playing a dominant role in financial markets today — and generally speaking, investors do not
like it. Political risk is an additional layer of uncertainty that has to be factored in while making
investment decisions. Because political risk is intimately linked with the uncertainties of human
behavior, the impact of political risk can at times seem to be almost random. After over two decades as
a professional economist, I can assert that forecasting economies is tough. Trying to forecast what
politicians are going to do is even worse. Consider how politics in one part of the world can have
repercussions on the other side of the globe.
Moreover, understanding political risk is a great deal more time consuming and ultimately more difficult
than understanding economic risk. Economics is global. As an economist, I can go anywhere in the world
and talk about consumer price inflation, or trade, or interest rates, and people will generally understand
the broad outlines of what I am talking about. Politics is not like that. Politics is local — really local.
Politics is about culture, traditions, social structures, regional variations, nationalism and so forth. It is

hard for anyone not born to a country to understand that country’s politics. This makes political risk in a
globalised financial system a dangerous force. Now markets are increasingly influenced by politics, but
investors also lack experience in pricing political risk, find it hard to price political risk in globalised
markets, and suffer from plenty of political misinformation but very little accurate political information
in advance of key decisions. This adds up to a volatile environment for financial markets, and a world
where no single asset class can truly be considered “safe” with absolute certainty.
4. Call Risk
Call risk is specific to bond issues and refers to the possibility that a debt security will be called prior to
maturity. Call risk usually goes hand in hand with reinvestment risk, discussed below, because the
bondholder must find an investment that provides the same level of income for equal risk. Call risk is
most prevalent when interest rates are falling, as companies trying to save money will usually redeem
bond issues with higher coupons and replace them on the bond market with issues with lower interest
rates. In a declining interest rate environment, the investor is usually forced to take on more risk in
order to replace the same income stream.
5. Inflationary Risk
Also known as purchasing power risk, inflationary risk is the chance that the value of an asset or income
will be eroded as inflation shrinks the value of a country's currency. Put another way, it is the risk that
future inflation will cause the purchasing power of cash flow from an investment to decline. The best
way to fight this type of risk is through appreciable investments, such as stocks or convertible bonds,
which have a growth component that stays ahead of inflation over the long term.
6. Liquidity Risk
Liquidity risk refers to the possibility that an investor may not be able to buy or sell an investment as and
when desired or in sufficient quantities because opportunities are limited. A good example of liquidity
risk is selling real estate. In most cases, it will be difficult to sell a property at any given moment should
the need arise, unlike government securities or blue chip stocks.
7. Market Risk
Market risk, also called systematic risk, is a risk that will affect all securities in the same manner. In other
words, it is caused by some factor that cannot be controlled by diversification. This is an important point
to consider when you are recommending mutual funds, which are appealing to investors in large part
because they are a quick way to diversify. You must always ask yourself what kind of diversification your
client needs.
8. Currency/Exchange Rate Risk
Currency or exchange rate risk is a form of risk that arises from the change in price of one currency
against another. The constant fluctuations in the foreign currency in which an investment is
denominated vis-à-vis one's home currency may add risk to the value of a security.

American investors will need to convert any profits from foreign assets into U.S. dollars. If the dollar is
strong, the value of a foreign stock or bond purchased on a foreign exchange will decline. This risk is
particularly augmented if the currency of one particular country drops significantly and all of one's
investments are in that country's foreign assets. If the dollar is weak, however, the value of the
American investor's foreign assets will rise.
Understandably, currency risk is greater for shorter term investments, which do not have time to level
off like longer term foreign investments.

References
http://stocks.about.com/od/tradingbasics/a/Typesrisk120704.htm
http://invest.yourdictionary.com/gross
http://www.investinganswers.com/financial-dictionary/financial-statement-analysis/net-investment-http://
www.howtodothings.com/education/how-to-start-an-investment-portfolio

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