Fundamentals of Investment

Meaning of investment; Types of investment; Structure of investment process; Investment vehicles: short-term vehicles, common stock, fixed income securities, mutual funds, derivative securities, other investment vehicles; Investment plan: steps in investing, considering personal taxes, investing over the life cycle, investing in different economic environment; Meeting liquidity needs: the role of short-term vehicles, investment suitability;Ethics in investing; The investment environment in Nepal.

Meaning of securities markets; Types of securities markets: primary and secondary markets, broker and dealer markets, alternative trading system; General market conditions; Globalization of securities markets: growing importance of international markets, ways to invest in foreign securities, risk of investing internationally; Securities markets in Nepal: introduction, trading hours and regulations; Basic types of securities transactions: longpurchase, margin trading and short selling.

Introduction to online investing; Types and sources of investment information; Market averages and indexes: introduction, uses, types and their construction including NEPSE Indexes; Making securities transactions: role of stock broker, basic types of orders, online transactions, transaction costs and investor protection; Recent developments of securities transactions in Nepal: online and automation, C-ASBA and DMAT, OTC transactions, cost of trading, taxes on capital gains and dividends, credit rating in Nepal.

Concept of return: components of return, importance of return, factors affecting the level of return, historical returns; Measuring return: real, risk-free and required return, holding period return, expected return; Meaning of risk; Sources of risk; Risk of a single asset: standard deviation, coefficient of variation; Combining risk and return of single asset; Concept of portfolio; Measuring portfolio return and risk; Correlation and diversification; The CapitalAssets Pricing Model (CAPM): components of risk, beta, estimating return using CAPM, thesecurity market line; Traditional approach to portfolio management: Modern portfolio theory: the efficient frontier, portfolio beta, and the risk return trade-off.

Pros and cons of stock ownership; Basic characteristics of common stock: common stock as a corporate security, buying and selling stocks, common stock values; Common stock dividends: the dividend decision, types of dividends, dividend reinvestment plans; Alternative investment strategies.

Principles of security analysis; Economic analysis; Industry analysis; Fundamental analysis: the concept, financial statements, key financial ratios, ROA-ROE interaction, common stock ratios; The valuation process; Stock valuation models: the dividend valuation model, other approaches to stock valuations, other price relative procedures; Valuing a company; Efficient markets and behavioral finance: level of market efficiency, investor behavior and stock prices.

Meaning and types of fixed income securities; Essential features of a bond: bond interest and principal, maturity date, call features, sinking fund, bond ratings; The market for debt securities; Specialty issues; Convertible securities: conversion privilege, conversion value,conversion premium, payback period, investment value. Fixed income securities market in Nepal.

The behavior of market interest rate; The term structure of interest rate and yield curve; Thebasic bond valuation model; Measures of yield and return; Duration and immunization: theconcept of duration, measuring duration; Bond duration and price volatility; Uses of bondduration measures; Bond investment strategies.

An overview of mutual fund; Open end and closed-end fund; Exchange traded funds; Other types of investment companies; Types of mutual funds and services; Investing in mutual funds: investor uses of mutual funds, the selection process, investing in closed-end funds, measuring performance; Mutual funds in Nepal.

Constructing a portfolio: role of investor’s personal characteristics, portfolio objectives and policies, developing an asset allocation scheme; Evaluating the performance of individual investments: collection of necessary data, analyzing the index of market performance, measuring the performance of investment vehicles, comparing the performance; Assessing portfolio performance: measuring portfolio return, comparison of portfolio return with overall market measures – Sharpe’s measure, Treynor’s measure, Jensen’s measure; Portfolio revision.

Concept of derivative securities; Put and call options: basic features, advantages and disadvantages; Option markets; Stock options; Option pricing and trading: profit potential from puts and calls, intrinsic value; Other types of options: stock-index option, options on exchange-traded funds, interest rate options, currency options, LEAPS; The future market: market structure, trading in future market; Trading commodities: speculating and spreading; Financial futures: the financial futures market, trading techniques; Derivative markets in Nepal.