NISM VA_Ch_01_Investment Landscape

NISM VA Chapter 01- Investment Landscape July 13, 2022

Learning Objectives Learn About: • Investors And Their Financial Goals • Saving Or Investment • Different Asset Classes • Investment Risks • Risk Measures And Management Strategies • Behavioral Biases In Investment Decision Making • Risk Profiling • Understanding Asset Allocation • Do-it-yourself V/S Taking Professional Help

Investors And Their Financial Goals Short-term Financial Goals, Needs Time Horizon For Vs Achievement And Long Term Inflation Needs Why Investments? Financial Goals 3

Factors To Evaluate Investments Safety: Safety of capital 07 Ticket Size: Minimum amount 06 that can beinvested Liquidity: Easy to sell without losingvalue 03 05 Taxability of Income: What is left 04 02 after payingtaxes Returns: Income and/or Capital Appreciation 01 Tax Deduction: Extra benefit in payingtaxes Convenience: Ease of operation INVESTMENTS 4

Different Asset Classes Real Fixed Commoditie Equity Estate Income s 01 02 03 04 5

Different Asset Classes 01 02 03 04 H0yb5rid 06 Equity Fixed Income Real Estate/ Commodities Asset Others Infrastructure Classes • Rare coins • Blue-chip • Fixed Deposit- Bank Physical Asset • Gold • Hybrid Mutual • Art Companies • Recurring Deposit- • Residential/ • Silver funds or Multi • Rare • Mid-sized Bank Endowment Asset Fund stamps Companies Policies Commercial • Gold Funds 6 • Small-sized Companies • Money Back Policies Financial Asset Commodity ETFs • Unlisted • Public Provident Fund • Real Estate Mutual Companies • Sukanya Zamudio Funds (REMF) • Foreign Stocks Yojana • Real Estate • Equity Mutual Investment Trusts • Senior Citizens’ Funds Savings Scheme (ReIT) • Infrastructure • Exchange Traded • Post Office Monthly Funds Income Scheme Investment Trust • Index Funds • Recurring Deposit - Post (InvIT) Office • Company Fixed Deposit Debentures/Bonds • Debt Mutual Funds

Investment Risks Inflation Risk Liquidity Risk Credit Risk General price rise of Inability to sell the Delay or denial of commodities, investment at fair payment of interest price at a short and principal by the products & services eating away the value notice borrower of money Market & Interest Rate Price Risk Risk Bull - Bear run and Bond prices are volatility of price on inversely related to a continuousbasis interest rates 7

Risk Measures & Management Strategies Avoidance Of Certain Diversification Of Investment Products Is Investments Can Assure Known To Be A Common A Safety Net For A Lay Tendency Investor Take A Position To Benefit From Some Event/Development 8

Behavioural Biases In Investment Decision Making Investments most often Interest Of The 09 10 Ethical Standards Tendency to invest happen based on the Investors 07 08 based on norms and interest of the investors 05 06 Behaviour Recency Bias 03 04 Patterns ethics Impact of recent events 01 02 Overconfidence on decisionmaking Behaviour patterns derived Herd Mentality from individual lifestyle and Better not to loose Rs. Loss Aversion 5,000 than to gain Rs. personalities influence Familiarity Bias investing actions 5,000 Availability Tendency to believe that “A known devil is Heuristic one is far better than better than unknown others at a thing angel” Tendency to be part of a group Tendency of quickly deciding based on Confirmation Bias Looking for information to confirm already held available data beliefs 9

Risk Profiling The Ability To Take Risks The Need To Take Risks The Willingness To Take Risks TRUE RISK CLIENT 10 PROFILE

Understanding Asset Allocation Strategic Asset Tactical Asset Allocation – Allocation – The choice Considers returns to dynamically change required from the allocation between portfolio to achieve goals asset categories Rebalancing – Refers to restoring target asset allocation subject to market dynamics 11

Do-it-yourself versus Taking Professional Help Does one want to do it? Can one do the Can one job oneself? afford to outsource? 12

Summary: • The three most important factors to evaluate investments are safety, liquidity, and returns. • The four broad categories of asset are: Real estate, Commodities, Equity and Fixed income. • Many of the risks cannot be eliminated, and the investor must take some of those, in order to earn decent returns on one’s investment portfolio. • For most investors, a mutual fund would turn out to be a better option than to build the portfolio oneself.

Thank you