Topic 9: Forms of investment Flashcards
Positives of Government retail bonds?
- Intrest rate is fixed for the duration of the investment
- Recive payments twice per year from the government
Negatives of Government retail bonds?
- People under 18 do not have access to this type of investment
- Can not be used as a form of security in return for loans
Positives of unit trusts?
- Fund manager chooses from a variey of stock options that offer distrubted risk
- Investors have access to the funds and can convert it into cash in case of emergency
Negatives of unit trusts?
- Share price may fluctuate and thus increase risk
- Not a good investment for short term
Positives of fixed deposits?
- Period of investment ranging from short- medium- long term
- Duration of the investment period is determined by the investor
Negatives of fixed deposits?
- No access to funds invested untill the end of the period
- Fines can be charged for early withdrawal
Positives of shares?
- Can be bought and sold freely on the JSE
- Investors have voting rights athe the AGM
Negatives of shareds?
- Shareholders may recive less dividents of the companies profit is low
- Companies have no legal obligation to pay out dividents to shareholders
Ordinary shares?
- Recive dividents only when profits are made
- Normally the higher the net,the higher the divident
- Shareholders are the last to be paid out if the company is declared bankrupt
Preference shares?
- Enjoy preferential rights to divident repayment above ordinary shares
- Shareholders have preferential claims on the assets of the company in the event of bankrupcy
- Fixed rate of return is paid out on this type of share
Bonus shares?
- Payment in the form of shares to shareholders
- Issued as compensation for unpaid dividents
- Shareholders will own more shares and collect more dividents in the future
Founders shares?
- Issued to the founders of the business
- Recive dividents after all the other shareholders are paid
Types of preference shares?
Participating preference shares
- Investor is certain of reciving a minimum fixed divident from the company
Non-participating preference shares
- Wont get exra dividents in case of extra profits
Cumulative
- Investors will recive payments for past dividents not paid out due to poor preformance
Non-cumulative
- Investors will not recive payments for past dividents not paid out due to poor preformance
Redeemable
- Investors can sell back the shares they bought from the company
Non-redeemable
- Can sell back the shares should the company close for any other reson than bankrupcy
Convertable
- Can convert the shares into a predetermined amount of ordinary shares
Non- Convertable
- The investor can not convert the shares into a fixed number of ordinary shares
Difference between oridinary and preference shares?
Ordinary shares
- Shareholder is only entitled to recive a ROI when the company makes a profit
- Higher divident is payable if the profits are higher
- Should the company be liquidated the shareholder will be paid afer preference shareholders
Preference shares
- Entitled to a divident payment regardless of the profit of the company
- Will recive a fixed amount of return regardless of the profit
- Will be paid out before ordinary shareholder in the case of liquidation
Rights of ordinary shareholders?
- Right to participate and vote at the AGM
- Allowed to vote for the directors of the company
- If the company is declared bankrupt they have a claim on the assets after the preference shareholders
Rights of preference shareholders?
- Right to recive dividents regardless of the profit of the company
-If the company is declared bankrupt they have a claim on the assets before the ordinary shareholders - Recive a fixed rate of return regardless of the profit
Debenture concept?
- Allows companies to borrow money from the public
- Investor lends cerain amount of money to the company for a cerain period
- Companies that require additional funding can access debentures on the JSE
Dividents concept?
- Return on invesment paid to the companies investors
- Managed by the companies board of directors
Capital gain?
- This refers to the growth in value investments in relation to original amount invested.
- Refers to the amount of interest earned based on the original investment of the investor
