investment process in bonds in sapm

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A PRESENTATION ON INVESTMENT PROCESS IN BONDS :

PREPARED BY:- Mahesh Vala A PRESENTATION ON INVESTMENT PROCESS IN BONDS

MEANING OF BOND:

MEANING OF BOND   A bond is a fixed interest financial asset issued by governments, companies, banks, public utilities and other large entities. Bonds pay the holder a fixed amount a specified end date. A discount bond pays the holder only at the ending date, while a coupon bond pays the holder a fixed amount over a specified interval (month, year, etc.) as well as paying a fixed amount at the end date.

TYPES OF BONDS:

TYPES OF BONDS Premium bonds Premium bond are those bonds which are sold at the price above the par value of the same. Convertible bonds convertible bonds are the bonds which entitle its holders to convert their bonds to the share equities during a particular time span. Discount bonds Discount bonds are those bonds which have been sold by a customer at a price below the face value of the same.

Cont….:

Cont…. Mortgage bonds Mortgage bonds are a special type of bond and is essentially a debt instrument. in such a case the bond is a secured one and the underlying for the same is the real estate. the security that is given behind the mortgage bonds may not always be a property; it may be any asset like the machines. Investment bonds Investment bonds are meant solely for investment purposes where the aim of the investor is growth of capital on a long-term perspective. High yield bonds High yield bonds are the bonds for which the rate of interested offered are higher. the risk of credit associated with this type of bond is generally higher and is rated by the grading agencies as perspective in nature.

Cont…:

Cont… Fixed income bonds Fixed income bonds are the types of bonds which generate a fixed income for its investors and are isolated to the investors at a regular period of interval. Government bonds Government bonds are those debt instrument that are issued by the domestic governments for its residents only. Corporate bonds Companies, like the governments, borrow money by issuing bonds called corporate bonds. Municipal bonds Municipal bonds are the issue of states, countries, cities, and other political sub- divisions.

Cont…:

Cont… Municipal bonds Municipal bonds are the issue of states, countries, cities, and other political sub- divisions. Junk bonds Junk bonds are nothing but those bonds which have higher yield. the risks of credit associated with such bonds are generally higher than other bonds types.

INVESTMENT PROCESS IN BONDS:

INVESTMENT PROCESS IN BONDS Sector Rotation Active Duration management Volatility management Yield Inefficiencies

Sector rotation:

Sector rotation The portfolio is managed with a sector rotation style. The investors look at the market in terms of individual sectors. For example..goverment,corporates,assetbacked securities, mortgage securities,etc. Relative valuation between sectors is an important consideretion.he will invest in those sectors that offer good absolute and relative value with consideration given to the sector’s performance outlook.

ACTIVE DURATION MANAGEMENT:

ACTIVE DURATION MANAGEMENT Duration management is based on forecasts of probable trends in interest rates and is performed on a continual basis. these forecasts are supported by detailed analysis of important economic factors and lead to adjustments in the average maturity of our bond portfolios. At the same time, the changing shape of the yield curve is evaluated to determine the spacing of our maturities.

Volatility management:

Volatility management Volatility management allows to assess both portfolio and individual security risk given current and potential marketmovement.volatility is a comprehensive measure of portfolio risk that captures sector,security,duration,yield curve and other non-traditional sources of risk. This analysis is accomplished through the use of interest rate simulation , sector and security sensitivity analysis, and portfolio modeling which allows us to analyze the effect of interest rate changes on the portfolio.

Yield Inefficiencies:

Yield Inefficiencies Individual security selection is bottom-up based upon analysis of each individual investment. As value investors, identify securities that are inefficiently priced and/or misunderstood. The investor focus is on the spread between a specific security, a comparable duration and take in group issue.

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