INVESTMENT ANALYSIS AND

PORTFOLIO MANAGEMENT

Dr. Aron Abraham

 MEANING OF INVESTMENT

Investment is the employment of funds

with the aim of getting return on it.
In general terms, investment means the
use of money in the hope of making more
money. In finance, investment means the
purchase of a financial product or other
item of value with an expectation of
favorable future returns.
CONT..
 Investment is the commitment of funds
which have been saved from current
consumption with the hope that some
benefits will be received in future. Thus,
it is a reward for waiting for money.
Savings of the people are invested in
assets depending on their risk and return
demands.
CONT..
 Investment refers to the concept of
deferred consumption, which involves
purchasing an asset, giving a loan or
keeping funds in a bank account with the
aim of generating future returns. Various
investment options are available, offering
differing risk-reward tradeoffs. An
understanding of the core concepts and a
thorough analysis of the options can help
an investor create a portfolio that
 CONCEPTS OF INVESTMENT
There are Two concepts of Investment:
1. Economic Investment: The concept of
economic investment means addition to the
capital stock of the society. The capital stock of
the society is the goods which are used in the
production of other goods. The term
investment implies the formation of new and
productive capital in the form of new
construction and producers durable
instrument such as plant and machinery.
Inventories and human capital are also
included in this concept. Thus, an investment,
CONT..
2) Financial Investment: This is an allocation of
monetary resources to assets that are expected to yield
some gain or return over a given period of time. It
means an exchange of financial claims such as shares
and bonds, real estate, etc. Financial investment
involves contrasts written on pieces of paper such as
shares and debentures. People invest their funds in
shares, debentures, fixed deposits, national saving
certificates, life insurance policies, provident fund etc.
in their view investment is a commitment of funds to
derive future income in the form of interest,
dividends, rent, premiums, pension benefits and the
appreciation of the value of their principal capital.
CONT..
 The economic and financial concepts of
investment are related to each other
because investment is a part of the
savings of individuals which flow into the
capital market either directly or through
institutions. Thus, investment decisions
and financial decisions interact with each
other.
 INVESTMENT OBJECTIVES
These objectives may be tangible such as buying a car,
house etc. and intangible objectives such as social status,
security etc. similarly; these objectives may be classified as
financial or personal objectives.
1. Financial objectives are safety, profitability, and liquidity.
The Three financial objectives are:-
a. Safety & Security of the fund invested (Principal amount)
b. Profitability (Through interest, dividend and capital
appreciation)
c. Liquidity (Convertibility into cash as and when required)
2. Personal or individual objectives may be related to personal
characteristics of individuals such as family commitments,
status, dependents, educational requirements, income,
consumption and provision for retirement etc.
CONT..
The objectives can be classified on the basis of
the investors approach as follows:
a) Short term high priority objectives: Investors
have a high priority towards achieving certain
objectives in a short time. For example, a young
couple will give high priority to buy a house
b) Long term high priority objectives: Some
investors look forward and invest on the basis
of objectives of long term needs. They want to
achieve financial independence in long period.
For example, investing for post retirement
period or education of a child etc.
CONT..
c) Low priority objectives: These objectives have
low priority in investing. These objectives are
not painful. After investing in high priority
assets, investors can invest in these low priority
assets. For example, provision for tour, domestic
appliances etc.
d) Money making objectives: Investors put their
surplus money in these kinds of investment.
Their objective is to maximize wealth. Usually,
the investors invest in shares of companies
which provide capital appreciation apart from
regular income from dividend.
CONT..
Every investor has common objectives with
regard to the investment of their capital. The
importance of each objective varies from
investor to investor and depends upon the age
and the amount of capital they have. These
objectives are broadly defined as follows.
a. Lifestyle – Investors want to ensure that their
assets can meet their financial needs over their
lifetimes.
b. Financial security – Investors want to protect
their financial needs against financial risks at
all times.
CONT..
c. Return – Investors want a balance of risk
and return that is suitable to their
personal risk preferences.
d. Value for money – Investors want to
minimize the costs of managing their
assets and their financial needs.
e. Peace of mind – Investors do not want to
worry about the day to day movements of
markets and their present and future
financial security.
 INVESTMENT AND SPECULATION
Speculation has a special meaning when talking about
money. The person who speculates is called a
speculator. A speculator does not buy goods to own
them, but to sell them later. The reason is that
speculator wants to profit from the changes of market
prices. One tries to buy the goods when they are cheap
and to sell them when they are expensive.
Speculation includes the buying, holding, selling and
short selling of stocks, bonds, commodities, currencies,
real estate collectibles, derivatives or any valuable
financial instrument. It is the opposite of buying
because one wants to use them for daily life or to get
income from them (as dividends or interest).
 Investor Speculator
Planning horizon An investor has a A speculator has a
Relatively longer Very short planning
planning horizon. His horizon. His holding
holding period is period may be a few
usually at least 1 year. days to a few months.
Risk disposition An investor is A speculator is
normally not willing ordinarily willing to
to assume more than assume high risk.
moderate risk. Rarely
does he knowingly
assume high risk.
Return expectation An investor usually A speculator looks for
seeks a modest rate of a high rate of return
return which is in exchange for the
commensurate with high risk borne by
the limited risk him/her.
assumed by him/her.
 ELEMENTS OF INVESTMENTS
The Elements of Investments are as follows:
a) Return: Investors buy or sell financial instruments in
order to earn return on them. The return on
investment is the reward to the investors. The return
includes both current income and capital gain or
losses, which arises by the increase or decrease of the
security price.
b) Risk: Risk is the chance of loss due to variability of
returns on an investment. In case of every
investment, there is a chance of loss. It may be loss of
interest, dividend or principal amount of investment.
However, risk and return are inseparable. Return is a
precise statistical term and it is measurable
CONT..
c) Time: time is an important factor in investment. It
offers several different courses of action. Time period
depends on the attitude of the investor who follows a
‘buy and hold’ policy. As time moves on, analysis
believes that conditions may change and investors may
revaluate expected returns and risk for each
investment.
d) Liquidity: Liquidity is also important factor to be
considered while making an investment. Liquidity
refers to the ability of an investment to be converted
into cash as and when required. The investor wants his
money back any time. Therefore, the investment should
provide liquidity to the investor
CONT..
e) Tax Saving: The investors should get the
benefit of tax exemption from the investments.
There are certain investments which provide
tax exemption to the investor. The tax saving
investments increases the return on
investment. Therefore, the investors should
also think of saving income tax and invest
money in order to maximize the return on
investment.
INVESTMENT AVENUE

Investment Avenue selected should be suitable for

achieving both the financial and personal
objectives. Advantages and disadvantages of
various investment avenues need to be considered
in the context of such investment objectives.
1) Period of Investment :- It is one major consideration
while selecting avenue for investment. Such period
may be, a. Short Term (up to one year) – To meet such
objectives, investment avenues that carry minimum or
no risk are suitable. b. Medium Term (1 year to 3 years)
– Investment avenues that offers better returns and may
carry slightly more risk can be considered, and lastly c.
Long Term (3 years and above) – As the time horizon is
adequate, investor can look at investment that offers
best returns and are considered more risky.
2) Risk in Investment :- Risk is another factor which needs
careful consideration while selecting the avenue for
investment. Risk is a normal feature of every investment as
an investor has to part with his money immediately and
has to collect it back with some benefit in due course. The
risk may be more in some investment avenues and less in
others. Risk connected with the investment are, liquidity
risk, inflation risk, market risk, business risk, political risk
etc. Thus, the objective of an investor should be to
minimize the risk and to maximize the return out of the
investment made.
 An investor can select the best avenue after studying the
merits and demerits of the following investment alternatives:
Example;-
1) Shares

2) Debentures and Bonds

3) Public Deposits

4) Bank Deposits

5) Post Office Savings

6) Public Provident Fund (PPF)

7) Money Market Instruments

8) Mutual Fund Schemes

9) Life Insurance Schemes

10) Real Estates

11) Gold-Silver

12) Derivative Instruments

13) Commodity Market (commodities)

CONT..
The following investment avenues are popular.
1) SHARES ‘Share means a share in the share capital
of a company. A company is a business
organization. The shares which are issued by
companies are of two types i.e. Equity shares and
Preference shares.
There are two ways in which investment in equities
can be made:
i. Through the primary market (by applying for
shares that are offered to the public)
ii. Through the secondary market (by buying shares
that are listed on the stock exchanges)
CONT..
2) DEBENTURES AND BONDS
A debenture is a document issued by a company as an
evidence of a debt. It is a certificate issued by a
company under its seal, acknowledging a debt due by
it to its holders. The term debenture includes
debenture stock, bonds and any other securities issued
by a company.
Assignment – Discuss briefly
A. Debenture
B. Bond
C. Public Provident Fund (PPF). ( Minimum 5
pages- Weight 10%)
CONT..

3) PUBLIC DEPOSITS The Companies Act

provides that companies can accept deposits
directly from the public.
Companies accept deposits from the investors.
Such deposits are called public deposits or
company fixed deposits and are popular
particularly among the middle class investors.
 CONT…
The popularity of public deposits is due to the following
Advantages:
a) Public deposits are available easily and quickly, provided the
company enjoys public confidence.
b) This method of financing is simple and cheaper than obtaining
loans from commercial banks. This makes public deposits
attractive and agreeable to companies and also to depositors.
c) The depositors receive interest on their deposits. This rate is
higher than the interest rate offered by banks. The interest is
also paid regularly by reputed companies.
d) The formalities to be completed for depositing money are easy
and simple. There is no deduction of tax at source where
interest does not exceed a particular limit.
e) The risk involved is also limited particularly when money is
deposited with a reputed company.
CONT

4) BANK DEPOSITS Investment of surplus

money in bank deposits is quite popular
among the investors (Particularly among
salaried people). Banks (Co-operative and
Commercial) collect working capital for their
business through deposits called bank deposits.
The deposits are given by the customers for
specific period and the bank pays interest on
them.
CONT..

Different types of deposit accounts are:

1. Current Account
2. Savings Bank Account
3. Fixed Deposit Account, and
4. Recurring Deposit Account – which help
people with salaried incomes to deposit a
fixed amount and earn high interest
CONT..
Advantages of Bank Deposits:
1. Investment is reasonably safe and secured with
adequate Liquidity.
2. Banks offer reasonable return on the investment
made and that too in a regular manner.
3. Banks offer loan facility against the investments
made.
4. Procedures and formalities involved in bank
investment are limited, simple and quick.
5. Banks offer various services and facilities to
their customers.
CONT..
Limitations of Bank Deposits:
1. The rate of return in the case of bank
investment is low as compared to other
avenues of investment.
2. The return on investment is not adequate
even to give protection against the present
inflation rate in the country.
3. Capital appreciation is not possible in bank
investment.
CONT..

MUTUAL FUNDS Mutual fund is a financial

intermediary which collects savings of the
people for secured and profitable investment.
The main function of mutual fund is to
mobilize the savings of the general public and
invest them in stock market securities.
CONT…
MONEY MARKET INSTRUMENTS
Money market is a centre in which
financial institutions join together for the
purpose of dealing in financial or
monetary assets, which may be of short
term maturity. The short term generally
means a period upto one year and the
term near substitutes to money denotes
any financial asset which may be quickly
converted into money with minimum
CONT…
 INVESTMENT IN REAL ESTATES
Investment in real estate includes properties
like building, industrial land, plantations, farm
houses, agricultural land near cities and flats
or houses. Such properties attract the
attention of affluent investors.
CONT..
 INVESTMENT IN GOLD AND SILVER Gold
and silver are the precious objects. Everybody
likes gold and hence requires gold or silver.
These two precious metals are used for making
ornaments and also for investment of surplus
funds over a long period of time
CONT..
 COMMODITIES A commodity may be
defined as a product or material or any
physical substance like food grains, processed
products and agro-based products, metals or
currencies, which investors can trade in the
commodity market. One of the characteristics
of a commodity is that its price is determined
as a function of its market as a whole.
 INTRODUCTION OF PORTFOLIO
“Portfolio means combined holding of many kinds of
financial securities i.e. shares, debentures,
government bonds, units and other financial assets.”
The term investment portfolio refers to the various
assets of an investor which are to be considered as a
unit. It is not merely a collection of unrelated assets
but a carefully blended asset combination within a
unified framework. It is necessary for investors to
take all decisions as regards their wealth position in a
context of portfolio. Making a portfolio means
putting ones eggs in different baskets with varying
element of risk and return. The object of portfolio is
to reduce risk by diversification and maximize gains.
 PORTFOLIO MANAGEMENT
Portfolio management means selection of
securities and constant shifting of the portfolio in
the light of varying attractiveness of the
constituents of the portfolio. It is a choice of
selecting and revising spectrum of securities to it
in with the characteristics of an investor.
Portfolio management includes portfolio
planning, selection and construction, review and
evaluation of securities. The skill in portfolio
management lies in achieving a sound balance
between the objectives of safety, liquidity and
profitability.
CONT..
 Portfolio management is all about
strengths, weaknesses, opportunities and
threats in the choice of debt vs. equity,
domestic vs. international, growth vs.
safety, and many other tradeoffs
encountered in the attempt to maximize
return at a given appetite for risk.
Portfolio management is an art and
science of making decisions about
investment mix and policy, matching
 OBJECTIVES OF PORTFOLIO
MANAGEMENT
1. Security/Safety of Principal: Security not
only involves keeping the principal sum
intact but also keeping intact its
purchasing power intact. Safety means
protection for investment against loss
under reasonably variations. In order to
provide safety, a careful review of
economic and industry trends is
necessary.
2. Stability of Income: So as to facilitate
CONT..
3) Capital Growth: This can be attained by reinvesting
in growth securities or through purchase of growth
securities. Capital appreciation has become an
important investment principle. Investors seek growth
stocks which provides a very large capital appreciation
by way of rights, bonus and appreciation in the market
price of a share.
4) Marketability: It is the case with which a security can
be bought or sold. This is essential for providing
flexibility to investment portfolio.
5) Liquidity i.e. nearness to money: It is desirable to
investor so as to take advantage of attractive
opportunities upcoming in the market.
CONT..

6) Diversification: The basic objective of

building a portfolio is to reduce risk of
loss of capital and / or income by
investing in various types of securities
and over a wide range of industries.
 PORTFOLIO MANAGEMENT
PROCESS
i. Identification of the investor’s objectives,
constraints and preferences.
ii. Strategies are to be developed and
implemented in tune with investment policy
formulated.
iii. Review and monitoring of the performance
of the portfolio.
iv. Finally the evaluation of the portfolio and
make some adjustments for the future.
 TYPES OF PORTFOLIO
 In general, aggressive investment strategies -
those that shoot for the highest possible
return - are most appropriate for investors
who, for the sake of this potential high
return, have a high risk tolerance and a
longer time horizon.
1. Aggressive portfolios generally have a higher
investment in equities. Aggressive investment
portfolios are for investors not afraid of high
risk.
CONT..
2. Balanced or Moderate Investment Portfolio
A moderately aggressive portfolio is meant for
individuals with a longer time horizon and an
average risk tolerance. Investors who find
these types of portfolios attractive are seeking
to balance the amount of risk and return
contained within the fund. The portfolio would
consist of approximately 50-55% equities, 35-
40% bonds, 5-10% cash and equivalents
CONT..

3. Conservative Investment Portfolio The

conservative investment strategies, which
put safety at a high priority, are most
appropriate for investors who are risk
averse and have a shorter time horizon.
Conservative portfolios will generally
consist mainly of cash and cash equivalents,
or high-quality fixed-income instruments.
 CHAPTER TWO
RISK AND RETURN
 INTRODUCTION
What is Risk?
 Risk is “the variability of the actual return

from the expected returns associated with

a given asset or investment”
 Risk defined risk as “the chance that some

unfavorable event (both financial and

physical) will occur”.
 Risk is the existence of uncertainty about

future outcomes.
CONT..
 Risk can be defined as the uncertainty related to
the investment, market, or company. Investors
want profits, and the risks can potentially reduce
the profits, sometimes even making a loss for
them.
 Risk can be referred to like the chances of
having an unexpected or negative outcome. Any
action or activity that leads to loss of any type
can be termed as risk. There are different types
of risks that a firm might face and needs to
overcome.
CONT..
 A risk, in a business context, is anything
that threatens an organization's ability to
generate profits at its target levels; in the
long term, risks can threaten an
organization's sustainability.
 TYPES OF RISK
1. Business Risk: These types of risks are taken by business
enterprises themselves in order to maximize shareholder
value and profits. As for example, companies undertake
high-cost risks in marketing to launch a new product in
order to gain higher sales.
2. Non- Business Risk: These types of risks are not under
the control of firms. Risks that arise out of political and
economic imbalances can be termed as non-business risk.
3. Financial Risk: Financial Risk as the term suggests is the
risk that involves financial loss to firms. Financial risk
generally arises due to instability and losses in the
financial market caused by movements in stock prices,
currencies, interest rates and more.
 1. FINANCIAL RISK

1. Financial Risks is one of the high-priority risk types for

every business. Financial risk is caused due to market
movements and market movements can include a host of
factors.
Based on this, financial risk can be classified into various
types such as
 Market Risk,
 Credit Risk,
 Liquidity Risk,
 Operational Risk, and
 Legal Risk.
 TYPES OF FINANCIAL RISK
A. Liquidity Risk:
 This type of risk arises out of an inability to execute

transactions.
Liquidity risk can be classified into
1. Asset Liquidity Risk and

2. Funding Liquidity Risk.

Asset Liquidity risk arises either due to insufficient

buyers or insufficient sellers against sell orders and buys
orders respectively.
B. Operational Risk:
 This type of risk arises out of operational failures such as

mismanagement or technical failures. Operational risk can

be classified into Fraud Risk and Model Risk. Fraud risk
arises due to the lack of controls and Model risk arises due
C. Legal Risk:
 This type of financial risk arises out of legal

constraints such as lawsuits. Whenever a

company needs to face financial losses out of legal
proceedings, it is a legal risk.
Financial Risks for Governments
 Financial risk for a government arises in the

following situations:
 government losing control of its monetary policy

 its inability or unwillingness to control inflation

CONT.

QUESTION - Is Financial Risk Systematic or

Unsystematic?
 Financial risk is an unsystematic risk because

it does not impact every company. It is specific

to each company as it depends on an
organization’s operations and capital
structure.
CONT…
 Unsystematic risk is a risk specific to a
company or industry, while systematic
risk is the risk tied to the broader
market.
 Systematic risk is attributed to broad
market factors and is the investment
portfolio risk that is not based on
individual investments.
CONT…
 Systematic risk is a result of external and
uncontrollable variables, which are not
industry or security specific and affects
the entire market leading to the
fluctuation in prices of all the securities.
 BASIS FOR SYSTEMATIC UNSYSTEMATIC
COMPARISON RISK RISK
Meaning Systematic risk Unsystematic risk
refers to the hazard refers to the risk
which is associated associated with a
with the market or particular security,
market segment as a company or
whole. industry.
Nature Uncontrollable Controllable
Factors External factors Internal factors
Affects Large number of Only particular
securities in the company.
market.
Types Interest risk, market Business risk and
CONT…
d. Credit risk –arises when one fails to
fulfill their obligation toward their
counterparties.
 2. BUSINESS RISK
 Business risk is the exposure a company
or organization has to factor(s) that will
lower its profits or lead it to fail.
Anything that threatens a company's
ability to achieve its financial goals is
considered a business risk. Finance is one
part of operation so financial risk also it
can be considered as business risk.
CONT..
 Business risks are broadly categorized as

pure risks, which are negative events over

which the organization has no control,
and speculative risks, which are potential
effects of actions taken and choices made
that may have positive and/or negative
effects. Another model categorizes
business risks as internal (resulting from
events with the organization) and
external (resulting from events occurring
CONT..
 Business risk refers to anything that could impact your
company’s finances. In many cases, these financial risks
could destroy your company. While there are many
factors that can create a business risk, some include:
 Fire damage
 Flooding
 Natural disasters
 Theft
 Economic downturn
 Loss of important suppliers
 WHAT ARE THE 7 TYPES OF BUSINESS RISK?

1. Strategic Risk -what happens when your

operation deviates from your business
model? This is known as a strategic risk.
Some examples of strategic risks include:
 Technology changes
 Competitive pressure
 Legal changes
 Shifts in customer demand
CONT..
 Example- If your customers no longer

have interest in one of your products, that

can become a strategic risk for your
business. To manage these types of risks,
you’ll want to prioritize risk management
in your operation. It’s important to
identify these risks before they can
impact your company’s finances.
NO LONGER HAVE INTEREST IN ONE OF
YOUR PRODUCTS, WHY?
 This type of risk arise from when marketers
are produce the product before analyzing
market demand with out any market analysis
strategy. So, customers has no interest on the
product to buy.
 It is strategic risk we should revise our strategy
to minimize the risk.
 Demand in market should be analyzed. There
are different types of demand.
 CONT…..
 Demand Management : The
organization has a desired level of
demand for its products. At any point in
time, there may be no demand, adequate
demand, irregular demand, or too much
demand, and marketing management
must find ways to deal with these
different demand states.

67
CONT…
2. Compliance Risk
 If you fail to comply with a new regulation

from the government or your state, you’ll face

compliance risks. These risks often involve:
 Workplace health and safety violations

 Environmental regulations
CONT..
3. Operational Risk
 Operational risks include events that

cause your business to have to stop

running. Some examples of this include:
 Natural disasters
 Theft

 Failures in technology
CONT….
4. Reputational Risk
 Reputational risks involve the harm of your business’

public image. This can come from a negative news

story creating bad publicity or customers having poor
experiences with your business. Either way, brand
loyalty is often damaged, which ultimately reduces
your profits and your customer base. Some examples of
events that can pose reputational risks for your
business include:
 Defective products

 Negative social media posts

 Workplace accidents
CONT,…

5. Global Risk
 If you do business in a foreign country, you’ll

likely face global risks

6. Competitive Risk
 Every business has competitors, but when other business’

actions are negatively impacting your company, you face

competitive risk. One of the biggest negative impacts that
comes from your competitors is losing your customers to
them. This can occur for a variety of reasons. However,
there are ways to combat this. The most important thing
to do is build up a loyal following.
Some strategies for doing this include:
 Communicating what your business stands for and your

values
 Providing quality customer service

 Asking for feedback

 Focusing on providing quality products or services

 3. NON-BUSINESS RISKS
 Non-business risks – risk can be arise
from out of political and economic
unbalance. This type of risk are not
under the control of the firm.
 5 STEPS TO MANAGE FINANCIAL RISKS:
Step 1: Identify key risks
 To begin the financial risk analysis, identify all the
risk factors faced by your business. These risk
factors include all aspects that affect
competitiveness (costs, prices, inventory, etc.),
changes in the industry to which the company
belongs, government regulations, technological
changes, changes in staff, etc.
Step 2: Calculate the weight of each risk
 Prioritizing risks is critical to the efficient
allocation of resources and efforts. That way, you
can create a plan in case a threat materializes.
CONT…
Step 3: Create a contingency plan
 Analyze what you need to do to resolve the risks of item 1
and create specific tasks to mitigate the impacts.
Remember that not all risks can be faced in the same way.
In fact, you may not be able to control them all. That is
why the contingency plan must be based on the risk
appetite and tolerance level established by the company.
Step 4: Assign responsibilities
 Although it is not possible to assign responsibilities for
each risk, try as much as possible to have a person in
charge of monitoring critical points and their evolution
over time. At this point, avoid centralizing all
responsibilities in one person. Delegate tasks to the most
appropriate staff.
 WHAT IS INSURANCE?
 Insurance is a way to manage your risk.
When you buy insurance, you purchase
protection against unexpected financial
losses. The insurance company pays you
or someone you choose if something bad
happens to you. If you have no insurance
and an accident happens, you may be
responsible for all related costs.
CONT…
 Insurance is a financial safety net,
helping you and your loved ones recover
after something bad happens — such as a
fire, theft, lawsuit or car accident. When
you purchase insurance, you’ll receive an
insurance policy, which is a legal contract
between you and your insurance
provider.
CONT..
 An insurance is a legal agreement
between an insurer (insurance company)
and an insured (individual), in which an
insured receives financial protection from
an insurer for the losses he may suffer
under specific circumstances.
 HOW DOES AN INSURANCE POLICY
WORK?
To understand how insurance works, you should know
below terms:
1. Premium:
 is the money you pay to the insurance company to avail

of insurance policy benefits.

2. Sum Insured:
 Sum insured is applicable for a non-life insurance policy

like home and health insurance. It refers to the

maximum cap on the costs you are covered for in a year
against any unfortunate event.
3. Sum Assured:
 Sum assured is the amount the life insurance company
 TYPES OF INSURANCE POLICIES
You can divide the insurance based on the type
of coverage it is providing as below:
1. Life Insurance Policy
 It is insurance on your life. You buy life

insurance to ensure that your loved ones are

financially secured even when you are not
around. If you are the only breadwinner, you
would want your family members to maintain
the same living standards in the event of your
untimely demise. The nominee gets the sum
assured in case of your death.
CONT…
2. Health Insurance Policy
 Although health insurance is usually counted as a

general insurance contract, there are a few

differences. Health insurance covers your medical
costs for expensive treatments. You can avail two
types of health insurance policies:
a. Mediclaim Insurance, which compensates you for
the medical expenses
b. Critical Health Insurance, which offers lump-
sum payments for dangerous and life-threatening
health conditions
CONT..

3. Non-life Insurance Policy

 These compensate you for the losses

sustained arising from a specific financial

event that is not related to life. Non-life
insurance could be car insurance, home
insurance, etc.
 ASSIGNMENT I
1. What are benefits of Insurance?
2. What do you mean by term ‘Insurer’ and ‘Insured’?

3. What do you understand by an insurance policy?

4. What do you understand by the term "insurance coverage"?

5. What is a premium? How does an insurance company

determine the premium?
6. What are the definitions, methods and goals of Risk
Management?
7. Discuss the following types of credit and market risks
 Directional market risk and

 Non directional market risk

 Sovereign credit risk and

 Settlement credit risk

 PRINCIPLES OF INSURANCE
The 7 Principles of Insurance Contracts:
 Utmost Good Faith.
 Insurable Interest.
 Proximate Cause.
 Indemnity.
 Subrogation.
 Contribution.
 Loss Minimization.