NMIMS MBA Capital Market and Portfolio Management Solved Answer Assignment
15
Oct
2024
Capital Market and Portfolio Management
Introduction
One definition of investing describes it as “allocating resources, most commonly money, to assets with the expectation of earning a return on those resources.” The phrase “investments” can refer to anything from fixed-term deposits and savings accounts to property and shares on the stock market.
Concepts and applications
Let’s talk about the considerations we need to make before investing in a particular asset class:
a) Return on investment (ROI): Return on investment, often known as ROI, refers to the benefit an investor receives after the cost of the investment has been decreased.
It could come in interest, capital appreciation (when the price of assets increases), or dividends.
The net income after taxes should be used to calculate the ROI.
The after-tax net should have a faster growth rate than the inflation rate.
In most cases, the risk and return on investment are directly proportional to one another.
Conclusion
It is a common belief that investing in the stock market is a good line of work. It is investing time and effort into a skill that cannot be acquired overnight. It is a lengthy procedure that one must go through at least once.
Introduction
More plainly, a return is a financial return, which refers to the money made or lost on an investment over time.
One way one might define or depict a return is as the change in the value of an investment stated in rupees with time. A percentage derived from the ratio of gains or profits to buy might be considered a return. It even includes an investment in a 401(k) plan. Returns can also be represented as net results, which consider taxes, fees, and inflation, or as gross returns, which do not consider the impact of price change.
Concepts and applications
When evaluating a company’s profitability over a number of different quarters and years, as well as when comparing that profitability to the profitability of other enterprises, it can be simple and helpful to calculate the return on investment (ROI). On the other hand, the performance of a company’s finances should not be evaluated using a single financial ratio.
Interpreting return on investment
When determining a company’s return on investment, the following factors are typically taken into consideration:
Companies with a lower return on capital typically have a more significant number of assets contributing to generating their gains.
Companies that generate more significant gains with fewer assets on average have a higher return on investment (ROI) than their competitors.
Conclusion
Return on investments can be computed using various formulae, but the most common method involves dividing the annual net income of a company by the company’s average total assets. You can calculate the average total assets by first adding the total ending assets of the previous period to the total assets of the current period and then dividing the amount that you get by two.
3a. Introduction
Because so many companies are traded on the stock market, choosing stocks to invest in is a form of art, as was covered in the previous question. Many types of stocks exist, from penny stocks to blue chip equities. The term “penny stocks” refers to stocks held by inefficient corporations, and investors should avoid buying shares in these kinds of businesses.
Concepts and applications
When Mr. A is looking to invest, he should keep the following strategies in mind to better manage risk:
a) Avoiding investment risk- Avoiding investment risk, which occurs when we avoid uncertainty in investing? In most cases, we are willing to settle for a potentially lower rate of return in exchange for more excellent safety and security. Some may recall the days when savings bank passbooks were kept locally. Because our savings account was FDIC-insured, making the investment or placing the bet was risk-free. We can save up to two hundred fifty thousand Rupees in an account that the FDIC insures; however, the interest rate on these accounts is relatively low. After inflation, there is a good chance that our invested rupee will decrease. We must take on more risk to achieve a more significant return.
Conclusion
To summarize, a plan or strategy is necessary to manage and reduce risk successfully. Consider ignoring, transferring, and managing risk to mitigate the dangers of investing. Think about developing an effective investment strategy for our personal needs, objectives in life, and comfort level with risk in collaboration with a seasoned financial professional. In conclusion, we need to think about our goal and adhere to it no matter how complex or turbulent the environment is.
3b. Introduction
A mutual fund is a type of investment vehicle that pools the capital of its stockholders to make investments in various types of assets and securities, such as bonds, shares, money market instruments, and other assets. Professional money managers are in charge of the operations of mutual funds.
Concepts and applications
The risk associated with mutual funds are-
a) Volatility risk- In general, equity-based mutual funds invest in companies listed on the nation’s stock exchanges. The value of those funds is determined by the performance of their respective companies, which is typically influenced by the various microeconomic factors in play. This presents a risk of volatility.
b) Liquidity risk- The risk of Mutual liquidity funds with a long-term perspective and rigorous locks, such as Motilal Oswal, typically have a chance of liquidity. These risks indicate that investors will have to take a loss to get their money back from their investments.
Conclusion
Consequently, investing in mutual funds will inevitably come with a certain degree of risk. However, investors can minimize and offset the influence of the same factors and prevent the erosion of their wealth by adopting effective investment practices.
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