Investment Valuation in India

There are basically two methods for computing the market values of the future cash flows of risky investment projects - Certainty Equivalent Approach and Risk Adjusted Discount Rate (RADR) method. The RADR method obtains the discount rates from widely used theories of risk and return such as Capital Asset Pricing Model (CAPM) and is thus impractical when Betas of comparison firms are difficult to estimate. In such cases where comparison firms do not exist and risk is required to be estimated, practical considerations suggest that Certainty Equivalent Method is a better valuation tool. The Present Value formula under Certainty Equivalent Method is given by: PV = SUM(Expected Future Cash Flows) - Beta (Risk of Tangency portfolio - Risk Free Rate)                                                          (1+ Risk Free Rate)

MUTUAL FUND OVERVIEW What is a Mutual Fund? A mutual fund is a pool of money that is professionally managed for the benefit of all shareholders. As an investor in a mutual fund, you own a portion of the fund, sharing in any increases or decreases in the value of the fund. A mutual fund may focus on stocks, bonds, cash, derivatives or a combination of these asset classes. There are different types of mutual funds. Some mutual funds are riskier than others. For example, it is unlikely that you will lose money in a mutual fund that buys money market instruments, such as treasury bills. Risk can sometimes work in your favor: the higher the risk, the bigger the potential return (and the bigger the potential loss); the lower the risk, the smaller the potential return (and the smaller the potential loss). To reduce your overall risk and enhance potential returns, you should invest in a diversified portfolio of mutual funds which have different risk characteristics. An investment in a Fund is ...

The statements issued by the Prime Minister, Finance Minister, RBI Chief and Bank chairmen have at least some truth in it. This is seconded by the recent Crisil report. But again, there are two sides of a coin. The report says that the global crisis is not responsible for the challenges faced by the Indian Banks; but at the same time, there are a lot of internal factors that are responsible for the same. Contrary to the stance taken by authorities, ratings major Crisil has said domestic, not global factors are responsible for the current challenges facing the banking sector. In a statement issued on Tuesday, the ratings agency has said: “ Crisil believes that the Indian banking system is relatively insulated from factors leading to the turmoil in the global banking industry .” The statement goes on to add that the recent tight liquidity in the Indian market is also qualitatively different from the global liquidity crunch, which was caused by a crisis of confidence in banks lending t...

A hedge fund is An aggressively managed portfolio of investments that uses advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark). · Private fund, · Largely unregulated · Pool of capital · require a very large initial minimum investment · Illiquid investments as they often require investors keep their money in the fund for at least one year. · Managers can buy or sell any assets, · Bet on falling as well as rising assets and · Participate substantially in profits from money invested. · Charges both Performance Fees and Management Fees · Typically open only to qualified investors · Dominate certain specialty markets such as trading within derivatives with high-yield ratings, and distressed debt. Fees Charges both a performance fee and a management fee (also known as Incentive Fees) Generally referred as “2 a...