Learning Materials For Accounting, Management , Finance And Economics.

Monday, December 18, 2017

Difference Between Systematic Risk And Unsystematic Risk

Major differences between systematic and unsystematic risk are described as follows:

1. Meaning

Systematic Risk: It is a part of total market risk which arises due to external factors like economic factors, political factors and sociological factors.
Unsystematic Risk: It refers to the part of risk which is associated and arises due to the internal factors within the company.

2. Nature

Systematic Risk: It is non-diversifiable risk, so it cannot be reduced or controlled by the management.
Unsystematic Risk: It is diversifiable risk, so it can be reduced or controlled by the management.

3.Factors

Systematic Risk: It occurs due to the external factors.
Unsystematic Risk: It occurs due to internal or organizational factors. 

4. Affects

Systematic Risk: It affects the whole market and the economy.
Unsystematic Risk: It affects only a specific industry or business organization.

5. Measurement

Systematic Risk: It is measured by the help of security's Beta. Beta is the indicator of systematic risk.
Unsystematic Risk: There is no such tool to indicate or measure this type of risk. It is calculated by deducting systematic risk from the total market risk.

6. Sources

Systematic Risk: Market risk, interest rate risk, purchasing power risks etc are the major sources of this type of risk.
Unsystematic Risk: Business risk, financial risk, insolvency risk are the major sources of unsystematic risk.

7. Examples

Systematic Risk: Change in interest rate, inflation, price changes, high unemployment rate etc are the common examples of this types of risk.
Unsystematic Risk: High labor turnover, high operational cost, strike in the company etc. are the examples of unsystematic risk.

Sunday, December 17, 2017

Difference Between Investment And Speculation

Major differences between investment and speculation are as follows:

1. Meaning

Investment: It is a purchase of assets with the expectation of regular return.
Speculation: it is a financial transaction with an expectation of capital gain or substantial profit.

2. Planning

Investment: It is a long term planning (at least one year or more).
Speculation: It is a short term plan (only for few months).

3. Risk Disposition

Investment: It involves only modest risk.
Speculation: It involves higher level of risk.

4. Expected Rate Of Return

Investment: It expects for a modest rate of return because of moderate risk.
Speculation: Due to higher level of risk involved, it expects higher rate of return.

5. Leverage

Investment: Investor's own funds and property is used.
Speculation: Generally borrowings from others are used.

6. Income Type

Investment: Income is certain and stable in investment.
Speculation: Income is uncertain and unstable in speculation.

7. Behavior

Investment: Investor possess caring and cautious behavior.
Speculation: Speculator possess careless and daring behavior.

Tuesday, December 12, 2017

Reasons For Investment

Main reasons for investing fund are as follows:

1. For Supplementary Income

This is one of the main reason for investing the fund. Investment helps to grow money which helps to supplement the income.

2. To Minimize Tax Liabilities

Investment in life insurance, retirement fund, citizen investment fund etc. offer tax rebate. This minimizes tax liabilities and investors may enjoy tax benefit.

3. Protection From Inflation

Invest is necessary to get protection from inflation because idle fund or money reduce its value over the passage of time. Investment helps to earn nominal rate of return and maintain the purchasing power.

4. Starting Or Expanding Business

Many people invest money to start a new business or to expand their existing business for higher income. 

5. Excitement And Hobby

Some people invest their money for excitement and hobby also by following other people.