Corporate Investments

For doing Financial investments various options are available like – real estates, commodities like - gold, shares, Commercial bonds, loans, commercial paper, Convertible bonds, Warrants, exchange, Forward contract, Futures contract, Options, Swaps, etc. This article describes briefly, classification of these terms & some features associated with it.

1. Real Estate Lease risk is involved in investments with real estates. But problem with it is liquidity. When one has his/her emergency funds liquid, & makes long term investments (more than five years) can go for real estate.

2. Share Market There are lot many investment options are available in share market. Following description about these various available options will help in investing money as per one’s investment objectives. Corporations need capital to finance business operations. How corporations raise capital? They raise money by issuing Securities in the form of Equity and Debt. Equity represents ownership of the company and takes the form of stock. Debt is funded by issuing Bonds, Debentures and various certificates. The use of debt is also referred to as Leverage Financing. The ratio of debt/equity shows a potential investor the extent of a company’s leverage.

Investors choose between debt and equity securities based on their investment objectives. Objective for a debt investor - income is paid in the form of Interest, usually as semi-annual payments. Capital Appreciation (the increase in the value of a security over time) is only a secondary consideration for debt investors. Conversely, Equity investors are primarily seeking - growth or capital appreciation. Income is usually of lesser importance, and is received in the form of Dividends. Debt is considered senior to equity (i.e.) the interest on debt is paid before dividends on stock.

It also means that if the company ceases to do business and liquidate its assets, that the debt holders have a senior claim to those assets. Terminology used for these equities & debt type of investments is Security. & can be defined as - “Security is a financial instrument that signifies ownership in a company (a stock), a creditor relationship with a corporation or government agency (a bond), or rights to ownership (an option).” Security can be classified into:

•?Debt - is money owed by one person or firm to another. Bonds, loans, and commercial paper are all examples of debt.

•?Equity - Equity (Stock) is a security, representing an ownership interest. Equity refers to the value of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses).

•?Hybrids - Hybrids are securities, which combine the characteristics of equity and debt. Examples are - Convertible bonds, Warrants.

•?Derivatives - A derivative is a product whose value is derived from the value of an underlying asset, index or reference rate.

The underlying asset can be equity, foreign exchange, commodity or any other item. For example, if the settlement price of a derivative is based on the stock price, which changes on a daily basis, then the derivative risks are also changing on a daily basis. Hence derivative risks and positions must be monitored constantly. Thus more the returns you get, more is the risk involved in securities.

Information and expertise provided by Bryant Surety Bonds. Where futher inforamtion and advise is available on  Commercial Bonds