A bewildering range of investment alternatives is available. They fall into two broad categories, viz., financial assets and real assets. Financial assets are paper (or electronic) claims on some issuer such as the government or a corporate body. The important financial assets are equity shares, corporate debentures, government securities, bank deposits, mutual fund shares and insurance polices. Real assets are represented by tangible assets like residential house, commercial property agricultural farm, and precious objects.
A good portion of the financial assets of individual investors is held in the form of non-marketable financial assets such as bank deposits, post office time deposits, monthly income scheme of the post office Kisan Vikas Patras, National Savings Certificates company deposits Employees instruments which have a maturity of less than one year at the time of issue are called market instruments. The major money market instruments in India are Treasury bills, certificates of deposit, commercial paper, and Repos.
Bonds, debentures, long term debt instruments, Debt securities issued by the central government, state government and quasi-government agencies are referred to as government securities or gilt edged securities, Government securities have maturities ranging from 3-20 years and carry interest rates. These securities are typically held by banks, financial institutions, insurance companies and provident funds.
For individual investors, Savings Bonds are a popular instrument:
Akin to promissory notes, debentures are instruments for raising long term debt. The obligation of a company towards its debentures holders is similar to that of a borrower who promises to pay interest and principal at specified times.
Public Sector Undertakings (PSUs) issue debentures which are referred to as PSU bonds. There are two types of PSU bonds: taxable bonds and tax-free bonds.
Preference shares represent a hybrid security that partake features of equity shares and debentures.
Equity shares represent ownership capital. Equity shareholders collectively own the company. They bear the risks and enjoy the rewards of ownership.
In stock market parlance, it is customary to classify equity shares as follows: Blue chip shares, growth shares, income shares, cyclical shares, defensive shares and speculative shares.
Peter Lynch clarifies companies (and, by derivation shares) as follows: slow growers, stalwarts, fast growers, cyclicals, turnaround, and asset players.
A mutual fund represents a vehicle for collective investment. When you participate in a scheme of a mutual fund, you become a part owner of the investment held under that scheme.
A variety of schemes are offered by mutual funds. Based on the investment policy, the mutual fund schemes are broadly classified as follows: equity schemes, balanced schemes and debt schemes.
The investments of a mutual fund are subject to a set of regulation prescribed by SEBI.
A derivative is an instrument whose value depends on the value of some underlying asset. From the point of view of investors and portfolio managers, futures and options are the two most important financial derivatives.
A Futures contract is an agreement between two parties to exchange an asset of cash at a predetermined future date for a price that is specified today.
An option gives its owner the right to buy or sell an underlying asset on or before a given date at a predetermined price.
In a broad sense, life insurance may be viewed as an investment. Insurance premium represents the sacrifice and the assured sum the benefit. The important types of insurance policies in India are: endowment assurance policy, money back policy, whole policy, and term policy.
The most important asset for individual investors generally is a residential house, which is an attractive investment proposition for various reasons.
A variety of organizations now provides finance on attractive terms for housing finance.
The more affluent investors may be interested in investing in commercial property agricultural land, and semi urban land.
Precious objects are items that are generally small in size but highly valuable in monetary terms. The important precious objects are: Gold and silver, Precious stones (such as diamonds rubies, emeralds, sapphires and pearls), and Art objects (such as painting and antiques).