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Investment Alternatives

EQUITY SHARES

Equity investments represent ownership in a running company. By ownership, we mean share in the profits and assets of the company but generally, there are no fixed returns. It is considered as a risky investment but at the same time, depending upon situation, it is liquid investments due to the presence of stock markets. There are equity shares for which there is a regular trading, for those investments liquidity is more otherwise for stocks have less movement, liquidity is not highly attractive. Equity shares of companies can be classified as follows:

  • Blue chip scrip
  • Growth scrip
  • Income scrip
  • Cyclical scrip
  • Speculative scrip

DEBENTURES OR BONDS

Debentures or bonds are long-term investment options with a fixed stream of cash flows depending on the quoted rate of interest. They are considered relatively less risky. An amount of risk involved in debentures or bonds is dependent upon who the issuer is. For example, if the issue is made by a government, the risk is assumed to be zero. However, investment in long term debentures or bonds, there are risk in terms of interest rate risk and price risk. Suppose, a person requires an amount to fund his child’s education after 5 years. He is investing in a debenture having maturity period of 8 years, with coupon payment annually. In that case there is a risk of reinvesting coupon at a lower interest rate from end of year 1 to end of year 5 and there is a price risk for increase in rate of interest at the end of fifth year, in which price of security falls. In order to immunize risk, investment can be made as per duration concept. Following alternatives are available under debentures or bonds:

  • Government securities
  • Savings bonds
  • Public Sector Units bonds
  • Debentures of private sector companies
  • Preference shares

MONEY MARKET INSTRUMENTS

Money market instruments are just like the debentures but the time period is very less. It is generally less than 1 year. Corporate entities can utilize their idle working capital by investing in money market instruments. Some of the money market instruments are

  • Treasury Bills
  • Commercial Paper
  • Certificate of Deposits

MUTUAL FUNDS

Mutual funds are an easy and tension free way of investment and it automatically diversifies the investments. A mutual fund is an investment only in debt or only in equity or mix of debts and equity and ratio depending on the scheme. They provide with benefits such as professional approach, benefits of scale and convenience. Further investing in mutual fund will have advantage of getting professional management services, at a lower cost, which otherwise was not possible at all. In case of open ended mutual fund scheme, mutual fund is giving an assurance to investor that mutual fund will give support of secondary market. There is an absolute transparency about investment performance to investors. On real time basis, investors are informed about performance of investment. In mutual funds also, we can select among the following types of portfolios:

  • Equity Schemes
  • Debt Schemes
  • Balanced Schemes
  • Sector Specific Schemes etc.

LIFE INSURANCE AND GENERAL INSURANCE

They are one of the important parts of good investment portfolios. Life insurance is an investment for the security of life. The main objective of other investment avenues is to earn a return but the primary objective of life insurance is to secure our families against unfortunate event of our death. It is popular in individuals. Other kinds of general insurances are useful for corporates. There are different types of insurances which are as follows:

  • Endowment Insurance Policy
  • Money Back Policy
  • Whole Life Policy
  • Term Insurance Policy
  • General Insurance for any kind of assets.

REAL ESTATE

Every investor has some part of their portfolio invested in real assets. Almost every individual and corporate investor invest in residential and office buildings respectively. Apart from these, others include:

  • Agricultural Land
  • Semi-Urban Land
  • Commercial Property
  • Raw House
  • Farm House etc

PRECIOUS OBJECTS

Precious objects include gold, silver and other precious stones like the diamond. Some artistic people invest in art objects like paintings, ancient coins etc.

DERIVATIVES

Derivatives means indirect investments in the assets. The derivatives market is growing at a tremendous speed. The important benefit of investing in derivatives is that it leverages the investment, manages the risk and helps in doing speculation. Derivatives include:

  • Forwards
  • Futures
  • Options
  • Swaps etc

NON-MARKETABLE SECURITIES

Non-marketable securities are those securities which cannot be liquidated in the financial markets. Such securities include:

  • Bank Deposits
  • Post Office Deposits
  • Company Deposits
  • Provident Fund Deposits
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