ypes Of Investments

Family Economics And Consumer Education 3 (2+1)

Lesson 09 : Planning for Family Financial Security-Savings and Investments

Types Of Investments

Investments are made by individuals or of different types. Some of them are more widely found. Types of investments are discussed here

1. Ownership Investments
2. Credit Investments
3. Shares and Stocks

1. Ownership Investments:

When people invest their money on land or in some business the capital purchased takes the form of material asset. Here money is converted into assets like house or equipments from which income is generated by way of rent (in case of house) and profit in case of business. Some times material assets increase in value over a period of time. This is known as capital appreciation or gain in capital. On the contrary machines loose their value over a period of time and they are replaced. In such case there is depreciation in value. However property value usually appreciates.

2. Credit Investments:

“Investments in government bonds” is an example of credit investment. A bond is a contract or a credit instrument between the lender (creditor) and the debater (borrower). An investor becomes a lender when he buys a bond of corporation or government. A bond is a record of the transaction. The word bond is a record of the transaction. The word bond means a promise on the part of the corporation or Government to repay the investor the money at a specified future time along with interest.
Investment made in house ownership. This is more popular among families than investment in bonds. It gives them a sense of independence, security, prestige, status as well as stable and strong capital assets. Such an asset has collateral value. A family can raise loans by mortgaging its house in times of need.
Investments in gold jewelry are made by families. They too are the property and have capital appreciation attributes.

3. Shares And Stocks:

Individuals can become part owners of companies by investing in stocks and shares. A company share entitles the shareholders for the dividends.
Corporations issue stocks, stocks are handled interms of rupees where as shares are in terms of number. One can buy 6000 worth of stock or 60 shares in case of a market value of share in Rs 100. One should seek the help of experts on the field of stocks and shares before investing his money. The investor should invest his money in different types of shares and of different companies in different geographical regions. This approach to investment would minimize risk of loosing.

Differnce between Bonds And Shares

Shares	Bonds
Investor role is active as he is a part owner	Investors role is passive as he is just a creditor
The share certificate of ownership	The bond is a credit investment
The risk factor is high	Risk is very less as more protection is offered
There is no maturity date	There is a maturity date as bonds are issued for a specific period as 5 years
Return is in the form of profit or dividend	Return is in the form of interest.