DIFFERENT AVENUES AND ALTERNATIVES OF INVESTMENT INCLUDE
Stock market,
Debentures,
Bonds,
Money market
instruments,
Mutual funds,
Life insurance,
Real estate,
Precious objects,
Derivatives,
Crypto currency,
Antique,
Non-marketable
securities etc
All are differentiated
based on their different features in terms of risk, return, term etc.
INVESTMENT
AVENUES:
Are you looking for investment..... This article
will make you independent to take correct decision as we will discuss each
avenue in detail. Each alternatives depends on need and requirement of the
investor. Everyone has its own unique needs while big corporate has its own
needs and investment style.
To learn this concept one need to analyze Risk,
Return, Terms, Liquidity, Reward etc of each avenues.
Stock market:
Equity
shares represent ownership in a running company. by taking
part in any business as business doesn't have any fixed or guarantee return on
profit, so equity shares doesn't provide any sure return or fixed returns. It
is considered risky investment but provide full of liquidity. Even in good time
it provide huge unbeatable return with all avenues. In current situation of
stock market equity provide huge liquidity and flow of trading opportunity
.Equity shares of companies can be classified as follows:
Blue chip scrip:
Cyclical scrip:
There are list of stock which
depends on cycle of economy. Example: agriculture seed company like cotton
seeds comes under cyclical business, kaveri seed limited. There are lot of such
stock which comes under this sector it may be agri stock, tea business etc
Speculative scrip:
Scrip comes under preview of
speculation it can be merger, acquisition, buy back or bonus shares etc
DEBENTURES & 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:
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,
It
includes treasury bills, treasury notes, treasury bonds, TIPS,
I savings bonds, and EE/E savings bonds. Municipal bonds are debt obligations
issued by state and local governments.
Savings bonds:
Tax-saving bonds are great instruments offered by the government to help people save tax. These are special
documents which offer tax benefits to the owners as permitted under the Income
Tax Act. These bond have a lock-in period of 5 years.
Public Sector Units bonds:
Public Sector Undertakings (PSU) Bonds.
... PSU are medium and long term obligations issued by public sector companies
in which the government share holding is generally greater than 51%. some
PSU Bonds carry tax exemptions. the minimum maturity is 5
years for taxable bonds and 7 years for tax-free bonds.
Debentures of private sector
companies
Preference share:
- Convertible and Non-Convertible Preference Shares.
- Redeemable and Irredeemable Preference Shares.
- Participating and Non-Participating Preference Shares.
- Cumulative and Non-Cumulative Preference Shares.
- Preference Shares with Callable Options.
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
we can select among the
following types,
Balanced Schemes:
Sector Specific Schemes:
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 corporate.
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
CRYPTO CURRENCY:
A
cryptocurrency is a digital asset designed to work as a medium of exchange that
uses strong cryptography to secure financial transactions, control the creation
of additional units, and verify the transfer of assets.
Check volume of crypto as below
PRECIOUS OBJECTS & ANTIQUE:
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:
Futures
Forward
Options
Swaps etc
The owner of an option can decide to
exercise it or not.
Every option has limited life and
after that time period it expires.
American options can be exercised at any
time before or at expiration.
European options can be exercised only at expiration.
Strike Price of an Option
Every option has a fixed strike price,
which is the price that applies to the buying or selling of the underlying
asset when the option’s owner exercises the option.
Market Price
Market price of an option (or market value
or option premium) consists of intrinsic value and time
value. Market price is something totally different from strike price.
Option premium is sum of Intrinsic value plus
time value.
Option value = Intrinsic value + Time value
How to find intrinsic value of an option, let we understand following concept first....
In the Money, At the Money, Out of the Money
Options with intrinsic value are said
to be in the money.
Options whose strike price is equal or very
close to the current market price of the underlying asset are said to
be at the money.
Other options, which have no intrinsic value,
are said to be out of the money.
Call options are in the money when their
strike price is lower than the current market price of the underlying asset.
Put options are in the money when their
strike price is higher than the current market price of the underlying asset.
Pay
off of call option
Strike
price < Market price
Pay
off of Put Option
Strike
Price > Market price
IN short,
ITM option consist more of Intrinsic value
ATM option consist of both Intrinsic and Time
Value
OTM option consist only Time value
Time Value of Options and Time Decay
Time value of an option depends on many
factors, primarily on the option’s moneyness, time left to expiration, and volatility.
The more time is left to expiration, the higher the time value (other things being equal).
The decrease in options’ time value with passing time is called time decay.
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
INVESTMENT ALTERNATIVES WITH THEIR ATTRIBUTES MEASURE DECISION.....
Investment alternatives for any person divided into two parts;
Real
assets and
Financial
asset
Real asset can be property, precious objects require a large portion of money when it comes to investment require lot more exercise
of mind before taking such huge decision. while investment has two aspect Time
and Risk with Reward. Even Real asset provide passive income of rent with
expected to rate go high in future. One should analyze TIME AND RISK in this decision
with high amount of weight age.
While, Financial asset can be
equity, debt, or cash or cash equivalent. It is portfolio building process where one should add all avenue with ideal proportion to get maximum risk in
any situation. Derivative can be used for hedging of portfolio. One should
clear with Goal and associated timer with proper amount of investment in discipline
manner.
INVESTMENT MONITORING:
Investment management does not just end with building the portfolio,
but the work starts here required a periodic review of portfolio it can be qtr or six monthly review. Now, one needs to regularly monitor, review and upgrade
it. Investor should make sure that at correct time investment is made and at
correct time investment is sold. in short right entry and exit is important.
one should learn fundamental analysis and technical analysis for perfect entry
and exit. Also, performance evaluation of the same is crucial because feedback
of results can only ensure you whether you have made right Decision or
not. No time is too late to build a portfolio because it can be tailored as per
the needs and objectives of the individual. However, a better return can be
achieved, if one believes and follow the process of investment management.
Happy Reading
Derivativelearn
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