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The income that a person receives may be used for purchasing goods and services that he currently requires or it may be saved for purchasing goods and services that he may require in the future .In other words, income can be what is spent for current consumption. savings are generated when a person or organization abstain from present consumption for a future use .The person saving a part of his income tries to find a temporary repository for his savings until they are required to finance his future expenditure .this result in investment.
Investment is an activity that is engaged in by people who have savings, i.e. investments are made from savings, or in other words, people invest their savings. But all savers are not investor’s .investment is an activity which is different from saving. Let us see what is meant by investment.
It may mean many things to many persons. If one person has advanced some money to another, he may consider his loan as an investment. He expect to get back the money along with interest at a future date .another person may have purchased on kilogram of gold for the purpose of price appreciation and may consider it as an investment.
In all these cases it can be seen that investment involves employment of funds with the main aim of achieving additional income or growth in the values. The essential quality of an investment is that it involves something for reward. Investment involves the commitment of resources which have been saved in the hope that some benefits will accrue in future.
Thus investment may be defined as “a commitment of funds made in the expectation of some positive rate of return “since the return is expected to realize in future, there is a possibility that the return actually realized is lower than the return expected to be realized. This possibility of variation in the actual return is known as investment risk. Thus every investment involves return and risk.