Investments can be categorized on quite a few bases like significance, size, functional activity, cost and revenue management, etc. On all the above, most appropriate way of classification is on the basis of correlation between investments.
The probable correlation between investments are listed below:
1. Prerequisite
2. Complement
3. Independent
4. Substitute
5. Mutually Exclusive
1. Prerequisite: One investment might be a prerequisite for the other. In other words, an initial investment is required for further investment.
For example: Investment in land is prerequisite for construction company
2. Complement: If secondary investment increases the expected returns from the primary (or decreases cost), then the secondary investment is said to be a complement of the primary investment.
For example, Erection of new plant to enjoy the cost advantage due to mass production.
3. Independent: Investments are said to be independent, if the cash flows from primary investment would be the same despite of whether the secondary investment is undertaken or not.
For example, Buying a lathe for the plant and computerizing administration activities are independent investments.
4. Substitutes: If secondary investment decreases the returns generated from the first investment (or increases costs), then the secondary investment is said to be a substitute of the first. This kind of investment are inversely correlated to complement investment.
For example, Producing air-coolers and fans for the same market may lead to product cannibalization and erode profitability.
5. Mutually Exclusive: In the extreme situation, the benefits from the primary investment may totally disappear if further investment is accepted or it may be technically impossible to undertake both. Such investments are called mutually exclusive investments.
For example, it is not possible to build a plant in two different locations. Accepting one will result in involuntary rejection of the other.
Classification of Investments
| Financial Management, Financial Market, Financial Service | 0 comments »Stock Exchange
| Financial Management, Financial Market, Financial Service, Forex Market | 0 comments »The Securities Contract (Regulation) Act, 1956 [SCRA] defines ‘Stock Exchange’ as any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities.
The stock exchanges in India, under the overall supervision of the regulatory authority, the Securities and Exchange Board of India (SEBI), provide a trading platform, where buyers and sellers can meet to transact in securities. The trading platform provided by Indian exchanges is an electronic one and
there is no need for buyers and sellers to meet at a physical location to trade.
Stock exchange could be a regional stock exchange whose area of operation/jurisdiction is specified at the time of its recognition or national exchanges, which are permitted to have nationwide trading since inception.
In India there are two stock exchanges dealing with equities. i.e. National Stock Exchange(NSE) & Bombay Stock Exchange (BSE).
The Securities and Exchange Board of India (SEBI) is the regulatory authority in India established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for establishment of Securities and Exchange Board of India (SEBI) with statutory powers for
1. Protecting the interests of investors in securities
2. Promoting the development of the securities market and
3. Regulating the securities market.
SEBI's regulatory jurisdiction extends over corporates in the issuance of capital and transfer of securities, in addition to all intermediaries and persons associated with securities market. SEBI has
been obligated to perform the aforesaid functions by such measures as it thinks fit. In particular, it has powers for:
• Regulating the business in stock exchanges and any other securities markets
• Registering and regulating the working of stock brokers, sub–brokers etc.
• Promoting and regulating self-regulatory organizations
• Prohibiting fraudulent and unfair trade practices
• Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, intermediaries, self –regulatory organizations, mutual funds and other persons associated with the securities market.
A depository is like a bank where securities like shares, debentures, bonds, government securities, units etc. in electronic form.
• Hold securities in an account
• Transfers securities between accounts on the instruction of the account holder.
• Facilitates transfers of ownership without having to handle securities.
• Facilitates safekeeping of shares.
The National Securities Depository Limited (NSDL) & Central Securities Depository Limited (CDSL) are two depositories in India.
Financial Service is concerned with design and delivery of advice and financial products to individuals, business and governments.
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