Investment Securities

By: EconomyWatch   Date: 23 November 2010

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Investment securities refer to certificates or documents that indicate that you have an interest in a business or have lentmoney to a company or a government entity. Investment securities are of two types, namely equity securities (such as commonstocks) and debt securities (such as bank notes, Treasury bills and bonds). An entity or corporation that issues securities is known as the issuer.

 

What are the types of Investment Securities?

Here is a list of the main types of investment securities:

Bond: A bond is a type of loan or debt security for a certain period for which the issuer pays interest at a predetermined rate. Bonds can be issued by credit institutions, government agencies, corporations and public authorities. The principal amount is paid back at a later date – the maturity date or maturity. The issuer can pay the interest on bonds in intervals or as a lump-sum after maturity. Bonds generate fixed income in the form of interest. Underwriting is the most common method of issuing bonds. Bonds are categorised as follows:

  • Bearer and Registered Bonds
  • Treasury Bonds
  • Treasury Bills
  • Treasury Notes
  • General Obligation and Revenue Bonds
  • Participating Bonds
  • Zero Coupon Bonds

 

  • Convertible Bonds
  • High Yield (Junk) Bonds
  • Indexed Bonds
  • Warrant Bond (Bonds with warrants)
  • Mortgaged backed Securities
  • Commercial Paper
  • Sinking Bond Funds

Equities: Also known as shares, this pertains to the amount of ownership you buy in a company. The general public usually opts for equities. Consider investing in the following:

  • Common Stock
  • Preferred Stock
  • Par Value
  • Book Value
  • Classes of Stock
  • Dividends
  • Ex-Dividend
  • Stock Splits
  • Treasury Stock
  • Depository Receipts
  • DRIPS

Commodities: Commodities are those goods which are supplied by a number of suppliers irrespective of differentiation in quality. Tea, coffee, petroleum, milk, copper, rice, wheat, and coal are commodities. So, a contract for buying or selling these commodities can be termed as a security.

Derivatives: These are financial instruments that drive their value from direct securities, such as equities and bonds. Derivatives were called as hedging instruments earlier. Consider the following options:

  • Futures
  • Swaps
  • Index options
  • Covered calls
  • Uncovered calls
  • Warrants
  • Repurchase Agreements

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