Week 13 (BF)

MODULE OF INSTRUCTION
Introduction to Investment
In the past module, you have already learned about the basic concepts
of risk and return and time value of money. Those principles are
connected with ivestments. So in this part, you will be introduced to
the basics of investments.
After going over the lesson and activities you should be able to
 Define investment
 Know the different types of investment vehicles
 Research and discover the advantages and disadvantages of
engaging in each type of investment vehicle
 To be aware of the common investment scams
Business Finance 1
Business Finance
6.1 Investment
An investment is an asset or item that is acquired with the expectation

that it will generate interest, income or appreciate its value in the
future.
Generally, the purpose of investment is to create opportunities for

people and business entities to earn. Investing is a way of beating
inflation by placing your money in investment vehicles. You are being
introduced to the element of risk with high returns and you stand a
much better chance of outpacing the inflation rate throughout a period
of years. Investing also makes your money work for you and is
considered as a valuable financial resource.
6.2 Investment Vehicles

An investment vehicle refers to the method by which individuals or
businesses can invest and grow their money. There is a wide variety
of investment vehicles, and many investors choose to hold at least
several types in their portfolios. This can allow for diversification
while minimizing risk. Common types of investment vehicles are
bank deposits, stocks, bonds, insurance, real estate and mutual funds.
Stocks
A stock is a type of security that signifies ownership in

a corporation and represents a claim on part of the corporation's assets
and earnings. When you buy stocks, you become a part owner in a
business. Depending on the size of the business, there could be
hundreds or thousands of other part owners or shareholders. Basically,
you may invest on a preferred stocks or common stocks. Stockholders
receive allocated profits in form of dividends. Preferred stockholders
are usually paid first and common stockholders are paid if there is
remaining distributable income.
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Bonds
On the part of the lender who buys a bond. He lends the money to a
government or company for a certain period of time. In return, they
promise to pay back a fixed rate of interest at certain times and to
repay the “face value” at the maturity date or end of the bond’s term.
Bank Deposits
This type of investment which consists of money placed into a banking

institution. People usually have savings account, checking account or
money market accounts wherein their money deposited earns interest
as time passes by. The account holder has the right to withdraw any
deposited funds as long as it is in accordance with the terms and
conditions of the account.
Insurance
Insurance is a means of protection from financial loss. It is a contract

in which an individual or entity receives financial protection or
reimbursement against losses from the insurer or the insurance
company. Insurance companies are in the business of assuming the
risks of adverse events in exchange for a flow of insurance premiums.
The company pools clients' risks to make payments more affordable
for the insured.
Real Estate
Real estate can be defined as properties such as land and the buildings
as well as the attached land improvements and natural resources.
Lands usually appreciate while buildings depreciate their values as
time passes by. Real estate investing involves the purchase,
ownership, management, rental and sale of the real estate for profit.
Mutual Funds
A mutual fund is a collection of investments from one or more

categories. This is a popular way to invest in securities. A mutual fund
is an investment security type that enables investors to pool their
money together into one professionally managed investment. Mutual
funds can invest in stocks, bonds, cash or other assets. These
Business Finance 3
Business Finance
underlying security types, called holdings combine to form one mutual

fund, also called a portfolio.
6.3 Investment Scams

Most of you are very eager to earn more by investing, however you
must be aware and have enough research before entrusting your money
to somebodyelse. Investment scams are all over our place. Now, let’s
tackle of them.
Ponzi scheme - is a form of fraudulent investment operation where the

individual or organization operator pays returns to its investors from
new capital paid to the operators by new investors recruited.
Pump and Dump - is a scheme that attempts to boost the price of

owned stock through false recommendations, misleading or greatly
exaggerated statements in order to sell the cheaply purchased stock at
a higher price.
Offshore Investing Scheme - these are fraudulent investment schemes

from illegitimate or non-existent organizations outside your country.
Your money invested is being withdrawn by the scammer and is being
redeposited in other accounts for several times in order to avoid
tracing of funds. It's extremely difficult for your local law
enforcement agencies to investigate and prosecute foreign criminals.
Prime Bank - the fraudsters who promote these schemes often use the
word "prime" or a synonymous phrase, such as top world banks to
cloak their illigitimate programs with an air of legitimacy. They
mislead investors by suggesting that big financially sound institutions
participate in their programs, when in fact such connections do not
exist.
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Glossary
Bank Deposits - consists of money placed into a banking institution.
Bond - a debt investment in which an investor loans money to an

entity which borrows the funds for a defined period of time at a
variable or fixed interest rate.
Insurance - a means of protection from financial loss.
Investment -an asset or item that is acquired with the expectation that
it will generate interest, income or appreciate its value in the future.
Mutual fund - collection of investments from one or more categories
Real estate - properties such as land and the buildings as well as the
attached land improvements and natural resources
Stock - a type of security that signifies ownership in a corporation and

represents a claim on part of the corporation's assets and earnings.
References
C. Paramasivan and T. Subramanian. (2005). “Financial
Management”, New Age International Ltd., Publishers.
Investopedia.com
J. Van Horne and J. Wachowics(2008). “Fundamentals of Financial

Management”, Pearson Education Limited.
KEATMX (2005), “Managerial Economics”, TVM.
S.G. Eakins (2002). “Finance: Investments, Institutions, and

Management”, Addison-Wesley Higher Education Group
Business Finance 5
Business Finance
Additional Resources
Videos
UTI MF (2013). Importance of Investment,

https://www.youtube.com/watch?v=Y-Viw4vG6IA
Zions TV (2012). Types of Asset Classes for Investing

https://www.youtube.com/watch?v=LC2QzKNslfk
Howcast (2011). How to Spot Investment Scams in 6 Simple Steps

https://www.youtube.com/watch?v=oxMc9uZ28g0
Online Readings
Investopedia (2016). 10 Tips for the Successful Long-Term Investor

http://www.investopedia.com/articles/00/082100.asp
Ivestopedia (2014). Investment Scams

http://www.investopedia.com/university/scams/
Investright (20016). Common Scams,

http://www.investright.org/common_scams.aspx

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MODULE OF INSTRUCTION

An investment is an asset or item that is acquired with the expectation

Generally, the purpose of investment is to create opportunities for

6.2 Investment Vehicles

A stock is a type of security that signifies ownership in

This type of investment which consists of money placed into a banking

Insurance is a means of protection from financial loss. It is a contract

A mutual fund is a collection of investments from one or more

underlying security types, called holdings combine to form one mutual

6.3 Investment Scams

Ponzi scheme - is a form of fraudulent investment operation where the

Pump and Dump - is a scheme that attempts to boost the price of

Offshore Investing Scheme - these are fraudulent investment schemes

Bond - a debt investment in which an investor loans money to an

Insurance - a means of protection from financial loss.

Mutual fund - collection of investments from one or more categories

Stock - a type of security that signifies ownership in a corporation and

J. Van Horne and J. Wachowics(2008). “Fundamentals of Financial

KEATMX (2005), “Managerial Economics”, TVM.

S.G. Eakins (2002). “Finance: Investments, Institutions, and

UTI MF (2013). Importance of Investment,

Zions TV (2012). Types of Asset Classes for Investing

Howcast (2011). How to Spot Investment Scams in 6 Simple Steps

Investopedia (2016). 10 Tips for the Successful Long-Term Investor

Ivestopedia (2014). Investment Scams

Investright (20016). Common Scams,

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