Page 49 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management

Notes 3. Publicly owned stock exchanges can be more professional when compared to member-
owned organisations. Further, as a result of the role played by shareholders, strengthening
of the management and the organisation, there is greater transparency in dealings,
accountability and market discipline.
4. This would enhance management flexibility. A publicly held company is better equipped
to respond to changes when compared to a closely held mutually-owned organisation.
Further, a company can spin off its subsidiaries, get into mergers and acquisitions, raise
funds, etc.
The concept of demutualised exchange most probably originated in India, where two exchanges
(OTCEI in 1990 and NSE in 1992) adopted a pure demutualised structure from their birth. The
Stockholm Stock Exchange was the first major stock exchange in the world to become demutualised
in 1993. Since then, over 20 exchanges have been demutualised. Some of them like the Australian
Stock Exchange, London Stock Exchange and Singapore Stock Exchange have gone one step
further by becoming a listed company. Many others, including commodity exchanges, are in the
process of demutualisation.

1.4 Investment alternatives

Investment is the employment of funds on assets with the aim of earning income or capital
appreciation. Investment has two attributes namely time and risk. Present consumption is
sacrificed to get a return in the future. The sacrifice that has to be borne is certain but the return
in the future may be uncertain. This attribute of investment indicates the risk factor. The risk is
undertaken with a view to reap some return from the investment. For a layman, investment
means some monetary commitment. A person’s commitment to buy a flat or a house for his
personal use may be an investment from his point of view. This cannot be considered as an
actual investment as it involves sacrifice but does not yield any financial return. The problem of
surplus gives rise to the question of where to invest. In the past, investment avenues were
limited to real assets, schemes of the post office and banks. At present, a wide variety of investment
avenues are open to the investors to suit their needs and nature. Knowledge about the different
avenues enables the investors to choose investment intelligently. The required level of return
and the risk tolerance level decide the choice of the investor. The investment alternatives range
from financial securities to traditional non-security investments. The financial securities may be
negotiable or non-negotiable. The negotiable securities are financial securities that are
transferable. The negotiable securities may yield variable income or fixed income. Securities
like equity shares are variable income securities. Bonds, debentures, Indra Vikas Patras, Kisan
Vikas Patras, Government securities and money market securities yield a fixed income.
The non-negotiable financial investment as the name itself suggests is not transferable. This is
also known as non-securitised financial investments. Deposit schemes offered by the post offices,
banks, companies, and non-banking financial companies are of this category. The tax-sheltered
schemes such as public provident fund, national savings certificate and national savings scheme
are also non-securitised financial investments. Mutual fund is another investment alternate. It is
of recent origin in India. Within a short span of time several financial institutions and banks
have floated varieties of mutual funds. The investors with limited funds can invest in the mutual
funds and can have the benefits of the stock market and money market investments as specified
by the particular fund. The real assets always find a place in the portfolio. They are gold, silver,
arts, property and antiques. These are non-financial investment.

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