INTRODUCTION TO INVESTMENT

Introduction to Investment (Part 1)

Learning Objectives: Understand the types of investment, including equity, fixed income, commodities, real estate, structured products, and other investment opportunities.
Key Concepts:
- Types of Investment: Investments can be classified into financial or non-financial investments, with financial investments further divided into debt and equity.
- Financial Markets: Financial investments can be classified based on the markets they trade in, such as public or private markets, and their maturity profile, such as capital market or money market.

Definition: Equity shares represent ownership in a company, providing holders with profit-sharing and voting rights.
Characteristics: Equity investments offer returns through dividends and capital appreciation, with time diversification benefits reducing risk fluctuations.
Types of Equity:
- Equity Shares: Represent ownership in a company, with voting rights and profit-sharing.
- Preference Shares: Rank above equity shares in terms of dividend payment and asset distribution, but typically do not have voting rights.
- Convertible Preference Shares: Can be converted into equity shares, offering a combination of debt and equity characteristics.

Definition: Debt instruments, also known as fixed income instruments, are contracts promising a stream of cash flows to investors.
Characteristics: Fixed income investments offer regular income through interest payments, with returns based on the creditworthiness of the issuer.
Types of Fixed Income:
- Government Securities: Issued by governments to raise funds, with low default risk and returns based on interest rates.
- Corporate Debt Securities: Issued by companies to raise funds, with higher default risk and returns based on creditworthiness.
- Credit Spread: The difference in yield between a government security and a corporate security of the same maturity, reflecting default risk.

Definition: Investments in physical goods, such as soft commodities (e.g., corn, wheat) and hard commodities (e.g., gold, oil).
Characteristics: Commodities offer diversification benefits, with prices determined by global demand and supply.
Types of Commodities:
- Soft Commodities: Perishable goods with high price volatility, subject to business cycle risk.
- Hard Commodities: Non-perishable goods with prices determined by global demand and supply, often used as reserve assets.

Definition: Investments in property, such as residential or commercial real estate.
Characteristics: Real estate offers diversification benefits, with potential for capital appreciation and regular income through rents.
Types of Real Estate:
- Residential Real Estate: Investments in housing, with potential for capital appreciation and rental income.
- Commercial Real Estate: Investments in office buildings, retail spaces, or other commercial properties, with potential for rental income and capital appreciation.

Structured Products: Offer risk-adjusted exposure to traditional investments or assets that are difficult to obtain, using derivatives to create desired risk exposures.
Key Characteristics: Can be designed for short or long terms, offer investment protection from 0% to 100%, and/or attractive yields, with performance driven by the underlying strategy and market conditions.
Investment Options: Include Market Linked Debentures (MLDs), which are a common type of structured product.

Definition: Securities of companies in financial distress or near bankruptcy, available at huge discounts.
Investment Requirements: Require higher skills and greater experience in business valuation, suitable for evolved investors with understanding and appetite for risk.
Investment Vehicles: Include hedge funds, PMS, and AIF products.

Art and Collectibles: Emerging as an attractive long-term investment opportunity, generating moderate returns with low correlation to financial investments.
Characteristics: Big-ticket investments, unique, unregulated market, no income generation, and relatively illiquid.
Investment Options: Art and painting-based investment funds, allowing investors to take exposure through these funds.

Direct Investments: Investors buy securities, commodities, or gold and silver directly from sellers or dealers.
Role of RIAs: SEBI Registered Investment Advisers provide investment advice, paid fees by investors, and are accountable to them, required to follow a strict code of conduct.
Investment Vehicles: Include mutual funds, alternative investment funds, portfolio managers, and collective investment schemes, offering indirect investments with professional expertise at lower costs.

Examples: Mutual Funds (MFs), Alternative Investment Funds (AIFs), Portfolio Managers (PMs), and Collective Investment Schemes (CISs).
Comparison: MFs, AIFs, and PMs are managed portfolios, regulated by SEBI, with differences in regulation, investment requirements, and investor catered to.
Key Differences: MFs are more stringently regulated, AIFs and PMs have lighter regulation, with AIFs and PMs catering to institutional and high net worth investors.