1. Investment Meaning, Nature and
Scope: Decision Process

2. Investment
 In finance, the purchase of a financial product or
other item of value with an expectation of
favorable future returns. In general terms,
investment means the use money in the hope of
making more money.

3. Objective of SAPM
 To improve decision-making skills in management
of investment through better understanding of
modern theories on portfolio management and
functioning of capital market.
 To get better return on portfolio with lesser risk

4. Nature and Scope of Investment
Decision
 To understand various investment decision rules.
 To know what are the good investments decisions
rules.
 To know the category of investment decision
rules.
 You can take investment decision only after
analyzing entire process of investment that starts
with funds contribution and ends with getting
expectations fulfilled.

5. Continue…
 The investment decision rules allow you to
formalize the process and specify what condition
or conditions need to be met to accept the project.
 You will take decision only after ensuring that the
required expectations in terms of returns are
ensured at any cost.

6. Decision Process
 Understand characteristics of good investment
decision rules.
 Decide basis of calculation of return based on
required condition.
 Use constrain to eliminate investment alternatives.
 Follow decision rules to accept or reject
investment opportunity.

7. Characteristics of Good Investment
Decision Rules
 It should maintain a fair balance between allowing
manager to analyze the project and bring-in
subjective assessment into the decision and
ensuring that different projects are judged
consistently.
 It must maximize the value of the firm and
minimize risk.
 It should work across a variety of investments.

8. Category of Investment Decision Rules
 Accounting Income-based decision rule
 Return on Capital
 Return on Equity
 Cash flow-based decision rule
 Cash Return on capital
 Cash Return on Equity