Investment securities Flashcards
Functions of the JSE?
- Acts as a link between investors and public companies.
- Shares are valued and assessed by experts.
- Regulates the market for dealing with shares.
- Provides protection for investors.
- Encourages short-term investment.
Factors that should be considered when making investment decisions?
RRIPTL
Explain Returns in investment?
- High risk investments yield higher returns.
- direct link between risk and return.
Explain risk in terms of investment?
- Shares have low/medium risk over a longer investment period.
- Shares with higher risks have a greater potential for higher returns.
How does Inflation rate affect investments?
- The return on investment should be higher than the inflation rate.
What is Liquidity in terms of investment?
- An amount could be invested in a type of investment that can easily be converted to cash.
- It is used to describe the ease and speed with which investors can convert an investment into cash.
Explain taxation in investments?
- A good investment will yield high after-tax returns.
- Tax rates are not necessarily the same for different investments.
Types of investments?
M M 32 DBE
What is Stokvel(Mutual fund)?
It is an informal savings scheme to which a relatively small group of people are contributing.
Risks of Stokvel?
● Schemers who claim to be running stokvels may be running illegal pyramid schemes and pay-outs may not be possible as cash has run out/members may lose their savings.
● Money in a savings account is a safe investment, but with low interest rates/the returns are low.
Explain ‘Managed portfolio’?
● An investor instructs a financial advisor to manage various investments/assets in one portfolio.
● If the portfolio does not perform as expected, the portfolio may be changed with/without informing the investor.
What is a 32 day Notice account?
● Money is invested at a fixed rate, although withdrawals may be made provided the bank is given 32 days’ notice
● It earns more interest than a current /cheque /savings account
What is a debenture?
Debt issued to raise borrowed capital from the public without collateral.
Explain Venture capital
Venture capital is given by an investor to start up or expand a business in return to have a share in the new/expanded business.
Explain the reason for Life insurance or Retirement Annuity
To provide for a future expenses and give peace of mind to the dependants of the insured.
Risks of stokvel?
● Schemers who claim to be running stokvels may be running illegal pyramid schemes and pay-outs may not be possible
● In a savings account - low interest rates/the returns are low.
Risks of Managed portfolio?
● Risk is lower over a longer term/period.
● Investments are made in various sectors /companies, therefore the risk is spread and better managed by the portfolio manager.
Risks of 32-Day Notice Accounts?
● Low risk, as investment plus interest will be paid out on the maturity date.
● Interest rate may fluctuate with market conditions
Risk of Debentures?
● Debentures have a low risk as they need to be paid back.
● Companies are liable to repay the amount of the debenture plus interest, which decrease the risk for the investor.
Risk of business venture/venture capital?
● High risk for the investor(s) if research is not properly done.
● Inexperienced business owners that make wrong business decisions may experience big losses
Risks of Endowment/Life insurance policies/Retirement Annuities?
● Low risk, as the insured amount will be paid out regardless of circumstances.
● Only the closing down/bankruptcy of the insurance company may result in losing the monthly contributions made up to the close down date.
The personal assets of partners can be sold to pay off the debts of the partnership due to bankruptcy. This refers to … liability.
Unlimited liability
