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Unit 7: Investment Strategies-II

The primary advantage of a mutual fund is that you can invest your money without the Notes
time or the experience that are often needed to choose a sound investment.

Commodity trading provides an ideal asset allocation, also helps you hedge against
inflation and buy a piece of global demand growth. Risk factors in commodity trading are
similar to futures trading in equity markets.

7.10 Keywords

Call: A call is the option to buy a futures contract.
Commodity Trading: Commodity trading is nothing but trading in commodity spot and
derivatives (futures).

Diversification: Diversification is the allocation of assets to several categories in order to spread,
and therefore possibly mitigate, risk.
Futures and Options: Futures and options are forms of exchange- regulated forward trading in
which you enter into a transaction today, the settlement of which is scheduled to take place at a
future date.
Investment Strategy: It is usually considered to be more of a branch of finance than economics.
It is defined as set of rules, a definite behavior or procedure guiding an investor to choose his
investment portfolio.
Put: A put is the option to sell a futures contract.

7.11 Review Questions

1. Define various types of investment options.

2. Explain the process of investing in stocks and bonds.
3. Explain briefly commodity market in India.
4. Describe the concept of future and options.
5. What are options strategies? Discuss using examples.

Answers: Self Assessment

1. Diversification 2. Laddering

3. Barbells 4. Bond swapping
5. Benjamin Graham 6. True
7. False 8. True
9. True 10. False

7.12 Further Readings

Books Cohen, Jerome, B.: Zinbarg, Edward D., and Zeikel, Arthur: Investment Analysis
and Portfolio Management, Homewood, Ill.: Richard D. Irwin, 2006.
Cottle, C.C., and Whitman, W.T.: Investment Timing: The Formula Plan Approach,
New York, McGraw Hill, 1953.

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