INVESTMENT BANKING

SAVINGS

• Saving is an essential part of personal finance that

involves setting aside money for future use. Think of
it as putting your money in a piggy bank, but
instead of an actual piggy bank, you can use a
savings account that earns interest over time. You
can save for different reasons, such as buying a
new gadget, going on a vacation, or having
an emergency fund for unexpected expenses.
 INVESTMENT

• Investing is a way to grow your money over time by

putting it to work in financial instruments such
as stocks, bonds, and mutual funds. Unlike saving,
investing involves taking on some risk, but it also has
the potential to earn higher returns over the long
term.
• Investing is a way to reach long-term financial
goals, such as saving for college, a down payment
on a house, or retirement. Because investing
involves taking on some risk, it's essential to choose
investments that align with your goals, risk
tolerance, and time horizon
 SAVING V/S INVESTMENT

Saving Investment
• Putting aside the • Buying assets such as
money for future use stocks you don't
spend for future
• Amount will remain • Amount may
same for years decrease or Increase
• Safer than Investing • Risky but reward can
be high
• You can withdraw In • You can't withdraw
any time emergency at any time
• Easy to do • Hard to understand
 PORTFOLIO

• One of the key concepts in portfolio management is the

wisdom of diversification—which simply means not putting all
of your eggs in one basket. Diversification tries to
reduce risk by allocating investments among various financial
instruments, industries, and other categories. It aims to
maximize returns by investing in different areas that would
each react differently to the same event. There are many
ways to diversify.
• How you choose to do it is up to you. Your goals for the future,
your appetite for risk, and your personality are all factors in
deciding how to build your portfolio.
• Regardless of your portfolio's asset mix, all portfolios should
contain some degree of diversification, and reflect the
investor's tolerance for risk, return objectives, time horizon, and
other pertinent constraints, including tax position, liquidity
needs, legal situations, and unique circumstances.
 OBJECTIVES OF INVESTMENT
PORTFOLIO

Income Appreciation Liquidity

Long term Method of tax Risk

financial goal planning management
 OBJECTIVES OF INVESTMENT PORTFOLIO

The basic objective of Portfolio Management is to earn a high return at minimum risk. However,
some of the objectives of Portfolio Management are listed below:
a) Income: While some investors seek regular income that can be enjoyed through dividends,
others may prefer receiving a larger maturity corpus in the form of capital appreciation. A
portfolio manager should consider these factors when building one.
b) Appreciation: Capital appreciation means an increase in the value of an asset over a time
period. Portfolio Management intends to make the portfolio of the investor grow, so the market
value of the investment rises within the given timeline, in comparison to its purchase value.
Capital appreciation is the main source of investors’ earnings.
c) Liquidity: It gives an investor immediate access to funds for an emergency, an expense etc. A
noteworthy point here is to invest in a well-balanced mix of listed and unlisted shares because
the former has more traceability than the latter.
d) Long-term Financial Goals: An investor always invests with a motive to secure the future by
earning a high return, keeping this in mind Portfolio Management works with the objective to
fulfill the long-term financial goals of the investors by recommending the most profitable
portfolio, overseeing and rebalancing it from time to time to ensure high return with minimum
risk appetite.
e) Tax planning: Earning handsome returns but not being able to retain them due to poor tax
planning is disappointing. Different assets are taxed differently. Hence, a portfolio manager
should consider tax policies during asset allocation to help investors plan their taxes better and
not evade them.
f) Risk Management: Investment and risk are something that goes side by side and hence is a
major concern of the investors. Portfolio Management minimizes the degree of risk associated
with the investment by using the concept of diversified investment. Under this, investment is not
made in a single category of an asset or the same industry, rather the investment is scattered
into various investment classes or different industries, so even if any of the categories or
industries so a downfall the other can overcome it by experiencing the rise.
IMPORTANCE OF PORTFOLIO

Better
investment
planning

Minimizes the Customizable

risk solution

Importance
of portfolio

Reduces
cost & saves
time Tax planning
 IMPORTANCE OF PORTFOLIO
• Better investment planning: With portfolio management, analysis of past
investments becomes easier, which helps better frame future investments. It also
considers the risk appetite, income, and budget. As a result, an investor can take
an informed and sensible investment decision.
• Customizable solution: When managing the portfolio, an investor gets the
opportunity to plan for the specific goals that they might have. It allows them to
customize the strategies, risks, and expected returns accordingly.
• Minimizes the risk: With proper planning and timely execution, it becomes possible
to reduce the risk of the investment strategy, increasing the chances of making
profits. Taking an expert’s opinion and getting a deeper understanding of the risks is
always worthwhile.
• Reduces cost and saves time: For investors who may not have a sound financial
background, they might find it challenging to manage their finances. When not
done in the right way, it can be a costly expense and take up a lot of time to
rebalance. Hence, portfolio management can go a long way in protecting an
individual’s finances.
• Tax planning: Taxes can drain an individual’s income. When planning for a
portfolio, an investor can design the investment plan in a way that helps them save
taxes. Hence, a well-researched and managed investment plan can go a long
way.
TYPES OF PORTFOLIO MANAGEMENT
 TYPES OF PORTFOLIO MANAGEMENT

• Active Portfolio Management: In active portfolio management, a portfolio manager is

continuously involved in the activity of trading securities to outperform the market and achieve
specific financial goals. They basically aim at buying unvalued securities and then selling them
at a high price to earn a profit. Active portfolio management is characterized by higher fees
and commissions.
• Passive Portfolio Management: It is based on the theory of invest-and-forget strategy. Under this,
investments are made into a portfolio of index funds to replicate the performance of a
particular market index like a mutual fund, a unit investment trust, and other low-cost index
funds. These generally offer lower returns but are profitable in the long term. The management
fee is comparatively lower under this category.
• Dynamic Portfolio Management: Dynamic portfolio management can be understood as hybrid
portfolio management as it includes features of both active and passive portfolio management.
Under this, Portfolio Managers implement long-term investment strategies while making tactical
adjustments and rebalancing in response to market changes.
• Discretionary Portfolio Management: Discretionary portfolio management forms authorize
managers to make all the financial decisions on behalf of their clients without seeking any
separate approval each time. However, paperwork and filing are done initially to avoid any
conflict and confusion between the manager and their clients. A portfolio manager has full
control over investment decisions, while the investor provides only general guidelines and
objectives.
• Non-discretionary Portfolio Management: Under a Non-discretionary portfolio management
system, a manager act just as an adviser to the client. The manager helps with the allocation of
assets, selecting investment strategies and suggesting investment moves to the clients. The
manager is not in the capacity to make any investment decision without seeking the approval
of the client.
FACTORS AFFECTING INVESTMENT
DECISION

Investment
Tax Benefit Objective Liquidity

Factors Affecting Return

Volatile/ Frequency
Investment
Volatility
Decision

Tax Benefit Maturity

Safety
Period
 FACTORS AFFECTING INVESTMENT
DECISION
An investment is a planned decision, and some of the factors that are responsible for these
decisions are as follows:
• Investment Objective: The purpose behind an investment determines the short-term or long-term
fund allocation. It is the starting point of the decision-making process.
• Return Frequency: The number of periodic returns an investment offer is crucial. Financial
management is based on financial needs; investors choose between investments that yield
monthly, quarterly, semi-annual, or annual returns.
• Risk Involved: An investment may possess high, medium, or low risk, and the risk appetite of
every investor and company is different. Therefore, every investment requires a risk analysis.
• Maturity Period : Investments pay off when funds are blocked for a certain period. Thus, investor
decisions are influenced by the maturity period and payback period.
• Tax Benefit: Tax liability associated with a particular asset or security is another crucial deciding
factor. Investors tend to avoid investment opportunities that are taxed heavily.
• Safety: An asset or security offered by a company that adheres to regulatory frameworks and
has a transparent financial disclosure is considered safe. Government-backed assets are
considered the most secure.
• Volatility: Market fluctuations significantly affect investment returns and, therefore, cannot be
overlooked.
• Liquidity: Investors are often worried about their emergency funds—the provision to withdraw
money before maturity. Hence, investors look at the degree of liquidity offered by a particular
asset or security; they specifically consider withdrawal restrictions and penalties.
• Inflation Rate: In financial management, investors look for investment opportunities where returns
surpass the nation’s inflation rate.
 SPECULATION
• In finance, speculation is the purchase of an asset (a commodity, goods,
or real estate) with the hope that it will become more valuable shortly. It
can also refer to short sales in which the speculator hopes for a decline in
value.
• Speculation involves trading a financial instrument involving high risk, in
expectation of significant returns. The motive is to take maximum
advantage from fluctuations in the market.
• Speculative traders and investors, or speculators, purchase an asset in
the hopes that its value will increase in the near term. Conversely, they
could also invest in the hopes that an asset will lose value, which is a
practice known as short selling.
• Speculators are dominant in the markets where price movements of
securities are highly frequent and volatile. They play very important roles
in the markets by absorbing excess risk and providing much needed
liquidity in the market by buying and selling when other investors don't
participate.
 GAMBLING
• Converse to speculation, gambling
involves a game of chance. When
gambling, the probability of losing an
investment is usually higher than the
probability of winning more than the
investment. In comparison to
speculation, gambling has a higher
risk of losing the investment.

• Gambling is defined as staking

something on a probability. Also
known as betting, it means risking
money on an event that has an
uncertain outcome and heavily
involves chance. Like investors,
gamblers should carefully weigh the FedEx founder and CEO Fred Smith
amount of money they want to put
“in play”.
 GAMBLING (CONT..)

• FedEx began operations in April 1973 and quickly grew.

However, rising fuel costs eventually caught up with the
young company, putting FedEx millions of dollars in debt.
• Investors declined to give FedEx more money and
"bankruptcy was a distinct possibility."
• When the company had only $5,000 left, Smith pitched
General Dynamics for more funding, but the board
refused.
• On his way home, Smith took a detour to Las Vegas and
won $27,000 playing blackjack, which he wired back to
FedEx.
• After his blackjack win, Smith was able to raise another
$11 million. And by 1976, FedEx's revenue had reached
$75 million. The company went public two years later.
 ARBITRAGE

• Arbitrage is an investment strategy in which an

investor simultaneously buys and sells an asset in
different markets to take advantage of a price
difference and generate a profit. While price
differences are typically small and short-lived, the
returns can be impressive when multiplied by a
large volume.
 ARBITRAGE: STEPS
• Identify an opportunity. The first step is to find a discrepancy in the market, which
means spotting the value of an item that's lower in one market than it is in another
market. Arbitrageurs may work at financial institutions that use algorithms or
specialized software to scour the market and quickly take advantage of price
differences.
• Review the transaction costs. Examine how much it will cost to make the sale. If the
price of transaction matches or exceeds the price difference, then it may be
challenging for you to benefit from the profit. For example, if there is a $2 price
difference, but it costs $2 to sell the product on both markets, then you have no
profit to gain.
• Purchase the asset. The next step is to buy the asset at its lower market price. For
instance, if stock from a website company is cheaper on New York Stock Exchange
(NYSE) than it is on the Toronto Stock Exchange, then it may be helpful to purchase
it on the NYSE.
• Sell the asset. To profit from the price difference, it's important to sell the asset at
the same time you purchase it. Otherwise, your trade may experience risks. For
example, if the asset's cost on one market decreases, then the price difference
decreases, which limits your profit margin.
• Pocket the profit. Once the trade is complete, you can gain profit from the price
difference. Arbitrageurs with substantial monetary resources can secure large
amounts of money from profits, since they can trade hundreds of shares at one
time.
 TRADING CONDITIONS FOR
ARBITRAGE
There are three conditions where arbitrage can take place. They
are:
• The same asset has different prices on different markets. Markets
may value an asset differently, which causes two unequal prices.
If the prices for the same commodity are the same, then it may
not be possible for the arbitrageur to gain a profit, which is why a
discrepancy between markets is essential.
• Two assets with the same cash flow have different trade
prices. Some markets may perform at a higher quality than
others, which can lead to price discrepancies. For example, if the
Shanghai Stock Exchange experiences a downturn, then its prices
may contrast from the prices on the NYSE for the same asset.
• An asset with a known future price holds a different price
today. The prices of stocks and other commodities may increase
with time, and they may appear on the market at a discounted
price. The inefficiencies on the market present an arbitrage
opportunity.
 RISKS FOR ARBITRAGE

As an investor, you may experience the following risks when

practicing arbitrage:
• Competing trades: Competition in the market can influence the
success of an arbitrage transaction. If multiple people purchase
and resell goods to the same markets, only one investor can
benefit from the profit. If you're an individual arbitrageur, you may
compete with companies who use specialized technology to
exploit market discrepancies within seconds.
• Mismatched assets: Suppose you buy and resell two assets that
are different and not identical. You risk losing the profit that you
had expected to gain, and you may have to sell the assets at a
loss.
• Failed resale of the asset: When you purchase the asset, there's a
chance you may not resell it, which causes you to lose your profit.
Failed resales may occur in financial crises, such as stock market
crashes.
 LEGAL FRAMEWORK OF SECURITIES
MARKETS IN NEPAL
Legal system of securities operating in Nepal falls under following Acts, Regulations, Bye-law & guidelines:
• Securities Board Regulation, 2064;
• Stock Exchange Operation Regulation, 2064;
• Securities Businessperson (Stock Broker, Dealer & Market Maker) Regulation, 2064;
• Securities Businessperson (Merchant Banker) Regulation, 2064;
• Securities Registration and Issue Regulation, 2065;
• Mutual Fund Regulation 2067;
• Central Depository Services Regulation 2067;
• Credit Rating Regulation, 2068 (2011);
• Securities Issue Guidelines, 2065
• Securities Allotment Guidelines, 2051
• Bonus Share Guidelines, 2067
• Mutual Fund guidelines 2069
• Securities Listing Bye-laws, 2053
• Membership of Stock Exchange and Trading Bye-laws, 2053
Improvements in corporate governance that is the inherent rights of shareholders and the mechanisms of
exercising such rights promote development of the capital markets. Corporate governance deals with the
market for corporate control. In order to improve the corporate governance in the concerned companies,
following regulatory measures are in operation in Nepal.
• Company Act 1997;
• Insurance Act 1992;
• Bank and Financial Institution Ordinance, 2004
 INVESTOR PROFILE

• Conservative,
• Moderately Conservative,
• Moderate,
• Moderately Aggressive and
• Aggressive
INVESTOR PROFILE
PROFILE OF NEPALESE INVESTOR

Risk Tolerance Time Horizon

Investor’s
Profile

Financial Goals Wealth Position

a) Risk tolerance
Not all people have the same level of risk tolerance. Some people love bungee
jumping or parachute jumping, while others suffer every time they have to take a
plane. In the investment arena, risk tolerance is essential because every investment
involves a certain level of risk. And in turn, each investment product presents a
different risk. Investing in Treasury bills or bonds is not the same as investing in
derivative products or shares of a company operating in an unstable economic
sector. Therefore, to define a saver’s investment profile, it is essential to determine the
level of risk they are willing to assume. Depending on this, we may find, as we shall
see below, aggressive, moderate, or conservative investors.
b) Financial Goal (Desired return)
Although it is not a rule written in stone, it is clear that, in most cases, a higher level of
risk also implies a higher return. Conversely, a product that offers low risk will also have
a lower return.
It is, therefore, essential when defining a saver’s investment profile to establish what
return they expect to obtain when investing their money. If neither the risk tolerance
nor the desired return is precise, it is impossible to define the investor profile
and design investment strategies that fit it. These strategies, like buildings, start with
the foundations.
c) Time horizon
Another aspect that must be taken into account when seeking to define the investor profile of a
saver is the time frame in which he expects to recover his investment. Time is so crucial in the
investment field that it divides products into short-, medium- and long-term investments.
For this reason, when defining an investor profile, it is essential to be clear about the period they are
willing to assume to recover the money invested.
Suppose a person wishes to make investments in the short term because he has liquidity needs or
because he wishes to be very dynamic when investing. In that case, this must be included in the
investor profile so that all investment strategies respond to this demand. On the other hand,
another person may be willing to invest in the long term because he has no liquidity needs or is not
in a hurry to get back what he has supported and can afford to be patient.
d) Wealth Position (Financial situation)
Beyond the three classic aspects for defining an investor profile (risk, profitability, and time), it is
essential to take into account other issues that influence these three parameters and also how the
investor profile is defined, helping to complement and enrich it to make it as accurate as possible.
Among these aspects, it is undoubtedly worth mentioning the personal financial situation. Some
people have different amounts of money saved, availability of cash, or obtain the same level of
earnings.
The personal financial situation inevitably determines the risk that can be assumed, the profitability
to be obtained, and the time horizon of the investments.
Therefore, when defining an investor profile, it is necessary to start with a rigorous analysis of the
personal financial situation of the future investor. If this analysis is not accurate, the investment
profile will not correspond to reality, and the investment strategies may be unsuccessful.