Investment Alternatives

Chapter Objectives

To understand the concept of investment alternatives To distinguish between negotiable and non-negotiable securities To know the various types of real assets

Concept of Investment Alternatives

Investment alternatives mean investment in assets other than the shares or debentures of a company. The alternatives range from financial securities to traditional non-security investments. The financial securities may be negotiable or non-negotiable securities.

Negotiable Securities
The financial securities that are transferable are known as negotiable securities. Negotiable securities can be of two types:

Variable income securities Fixed income securities

Equity shares comes under the category of variable income securities Debentures, Bonds, Kisan Vikas Patras, Indira Vikas Patras and Government securities all come under the category of fixed income securities.

Fixed Income Securities

Fixed income securities are the financial claims with promised cash flows of fixed amounts, paid at fixed dates. Fixed income securities are classified as:

Preference shares: Refer to the shares that provide a fixed rate of dividend to the preference shareholders. Debentures: Refer to a long term debt instrument issued by corporate entities to acquire finance. Bonds: Refer to a debt security issued by the government, quasi-government, public enterprises and financial institutions. Government securities: Refer to the securities that are issued by the Central, State and quasi-government agencies. Money market securities: Refer to the securities that have a very short term maturity period.

Non-negotiable Securities

The financial securities that are not transferable are known as non-negotiable securities. They are also known as non-securitized financial investments. The deposit schemes that are offered by the post offices, companies, banks, etc. form a part of the non-negotiable securities. Deposit facility is offered by banks and post offices.

Tax Sheltered Savings Schemes

The various types of tax sheltered savings schemes are:

Public Provident Fund Scheme: It provides yearly interest which is exempted from income tax under Section 88.

National Savings Scheme: It provides 100 per cent tax rebate to the depositors.
National Savings Certificate: It is a scheme provided by the post offices for a period of six years. Once money is deposited, no withdrawals are permitted, but loans can be taken.

Life Insurance

It is an agreement made between the insurance company and the insured person. The insurance company has to pay a certain amount of money on the occurrence of the event insured against. The advantages of life insurance are:

Protection Liquidity Easy payments Tax relief on specified schemes

Mutual Funds

These are professionally managed portfolios of securities. They can be classified into two forms:

Open-ended schemes: These offer their unit on a continuous basis. Repurchase is also carried out on a continuous basis. It is not traded in the stock exchange. Close ended schemes: These are schemes in which the number of units are fixed and are traded in the stock exchange.

The factors to be considered in the selection of mutual funds are:

Net assets Portfolio composition

Income composition Expense ratio

Real Assets
Real assets are tangible assets, which include:

Gold and silver

Real estate Art Antique items

Chapter Summary
By now, you should have: Understood the concept of investment alternatives Learnt to distinguish between negotiable and non-negotiable securities Knowledge of the various types of real assets