INVESTMENT AND PORTFOLIO MANAGEMENT
FIG 09208 MSc. FI & MAF
2024/2025
Topics to be covered in this module;
• Investment avenues and opportunities available
• Valuation of variable and fixed income marketable
assets
• Investment analysis
• Risk, return and the Capital Assets Pricing
Model(CAPM)
• Portfolio theory, risk diversification and risk
adjusted performance measures
INVESTMENT
 Investment is defined as the employment of funds
on assets with the aim of earning income or
capital appreciation.
 Investment may be also defined as a commitment
of funds made in the expectation of some positive
rate of return. Or
 Means the allocation of money on assets that are
expected to generate some gain over a period of
time.
PORTFOLIO
• Definition of Portfolio
• Portfolio means a group or collection
of assets or investments owned by the
same person or entity or business.
• Examples you have his/her total
wealth invested in real estate, shares,
bond and fixed deposit account with a
bank.
Portfolio management
• Portfolio Management is a process which includes
all activities involved in the investment in assets, it is a
dynamic and flexible process which include;
• Planning Stage- planning on investments to be
purchased
• Implementing stage- Purchase and sale of assets
planned
• Monitoring and Controlling Stage- Evaluating the
Perfomance of investments included in the portfolio.
CHARACTERISTICS OF INVESTMENT
• Return
• Risk
• Safety
• Liquidity
• Capital appreciation/Depreciation
OBJECTIVES OF INVESTMENT
• Thus, the objectives of an investor
can be stated as:
 Maximization of return.
 Minimization of risk
• Hedge against inflation- This involves
investing on assets which increase in
value as the inflation change.
INVESTMENT AVENUES
• There are a large number of investment
avenues for savers
• Some of them are highly risky while others
are almost riskless.
• The investor has to choose proper avenues
from among them depending on;
• Preferences
• Needs
• Ability to assume/ take risk.
INVESTMENT
AVENUS/OPPORTUNITIES
• Categories of investments
• (i)Tangible/physical investments
• (ii)Marketable investments
• (iii)Financial investments
INVESTMENT
AVENUE/OPPORTUNITIES
• (i)TANGIBLE/PHYSICAL INVESTMENTS
• The types of properties held at this category
includes retail outlets such as shops, shopping
centers, and retail warehouses; office space such as
office blocks and business parks; industrial premises
including industrial estates and distribution
warehouses; leisure facilities such as hotels, cinemas,
and pubs, Houses, Land, Buildings, Gold, Silver,
plant and machinery, Agriculture etc.
(ii)MARKETABLE
INVESTMENTS
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Under this category we have shares and bond
SHARE
TYPES OF SHARE
ORDINARY/COMMON/EQUITY SHARES
Ordinary shares represent part ownership of the issuing
company.
They pay dividends at regular intervals (typically every six
months).
The sizes of the dividends are at the discretion of the issuing
company, and are likely to be related to the level of profit
made by the company.
There is no legal obligation for the company to pay dividends
Ordinary shareholders have voting rights in the company’s
meeting
Ordinary shares
• Ordinary shares are therefore risky, but
have the potential to be very profitable and
typically will receive nothing.
• However the holders of ordinary shares
are not liable for any outstanding debts of
the company.
PREFERENCE (OR PREFERRED)
SHARE
• In some ways preference shares are more similar
to bonds than to ordinary shares.
• It pay a fixed dividend each year.
• Do not confer voting rights on the share holder.
• Preference shares constitute part ownership of the
issuing company.
• In the event of bankruptcy the holders of
preference shares have a prior right, relative to the
holders of ordinary shares, to the receipt of
remaining assets.
BONDS/ DEBENTURES
• Bonds are used for long-term borrowing by the issuer. Bonds
are issued in a wide variety of forms.
 GOVERNMENT BONDS
• Central governments are major issuers of bonds. However,
most government bonds conform to a conventional format.
• A conventional government bond pays a fixed sum of money,
known as the coupon, at regular intervals such as after every six
months.
• It has a definite redemption date on which the government is
obliged to pay the nominal, or par, value of the bond to its
owner.
CORPORATE BONDS
• Firms issue corporate bonds.
• Corporate bonds vary very considerably in
terms of their risk.
• Some corporate bonds are secured against
assets of the company that issued them
• whereas other bonds are unsecured.
• Bonds secured on the assets of the issuing
company are known as debentures.
• Property companies often issue debentures.
CORPORATE
BONDS/DEBENTURES
• Bonds that are not secured are referred to as
loan stock.
• Banks are major issuers of loan stock.
• The fact that unsecured bonds do not provide
their holders with a claim on the assets of the
issuing firm in the event of default is
normally compensated for by means of a
higher rate of coupon payment.
CORPORATE
BONDS/DEBENTURES
• There are two types of debenture.
• Mortgage (fixed charge) debentures entail a fixed
charge; which means that there are specific assets that
bondholders can sell (arrange to be sold by a receiver) in
order to reclaim their money in the event of default.
• Floating charge debentures allow the company to
change the assets used as security. The company can sell
the relevant assets so long as it replaces them with equally
satisfactory assets.
MUTUAL FUND
• A mutual fund is an investment vehicle for
investors who pool their savings for investing in
diversified portfolio of securities with the aim of
attractive yields and appreciation in their value.
• Mutual fund is a trust that attracts savings from
members which are then invested in capital
markets.
• Open Ended Mutual Fund
• Close Ended Mutual Fund
Closed Ended Mutual Fund
• Features of close ended mutual funds
• The subscription opens for investors only for
limited period.
• Once subscription period is over or target is
reached, the door is closed for the investors.
• It does not allow investors to withdraw their
funds as and when they like.
• This scheme is listed on the secondary market.
• At the time of redemption, the entire investment
pertaining to a close ended scheme is liquidated
and the proceeds are distributed among the
subscribers.
Open Ended Mutual Fund
• Features of open ended mutual funds
• Under this scheme, there is free entry and exist of
investors.
• There is no time limit, the investor can join in and
come out from the fund as and when he desires.
• These funds are not listed in secondary market.
• The main objective of this fund is income
generation. Investors get expected return from
their investment in terms of dividend and bonus.
• Net Asset value of the fund is fluctuating from
time to time.
UNIT TRUSTS
• A unit trust is an open-ended fund in
which investors buy units representing their
proportional share of the assets and income
in the trust.
• The money invested in the fund is used to
buy shares or bonds, depending on the
investment objective of the unit trust.
UNIT TRUST OF TANZANIA(UTT)
 UTT have the following products
 Umoja funds, Wekeza maisha,
Watoto fund, Jikimu income
scheme, Liquid income and Bond
fund
FINANCIAL INVESTMENTS
• Fixed Deposit account
• Money deposited in fixed deposit account
is locked up for a fixed period.
• The fixed deposit account carries high
interest rate as compared to savings account
and current account.
FINANCIAL INVESTMENTS
• PENSION SCHEME
• Pension scheme promotes savings and makes a provision for
the old age of an employee.
• Under the scheme, a specific amount is deducted from the
salary of an employee every month which is credited to his
account in the provident fund.
• The employer is also obliged to contribute a stipulated
amount every month to the credit of employee’s account in the
social security fund.
• The total amount consists of employee’s and employer’s
contributions is invested.
• Return from investment used to pay beneficiary at their old
age
FACTORS WHICH INFLUENCE
AN INVESTMENT DECISIONS
• Past market trends
• Risk appetite
• Investment horizon
• Investible surplus
• Investment need
• Expected returns