Topic 9: Types of investments and risk factors

Question 1

Stokvels?

Answer 1

• Established by a small group of individuals who informally make contributions to a mutual fund
• The stokvel allows each member to withdraw from a collective pool for personal use
• Members are encourage to save monthly for a specific goal

Question 2

Risks of stokvels?

Answer 2

• Members can be contributing to an illigal scheme and can lose all the money
• The possibility exists that a member cannot contribute their monthly funds
• Investments are linked to low risk

Question 3

Managed portfolio?

Answer 3

• Investor makes use of a financial advisor to manage all their invesments in a single portfolio
• Financial advisor has full control of the invesment and investment is based on market preformance

Question 4

Risks of managed portfolio?

Answer 4

• Lower over a long period
• Risks are spread out as they are invested in several companies
• Financial advisors prefer investing in the capital market

Question 5

Business ventures?

Answer 5

• Investors make funds availible to prospective businesses and they become co-owners of the business
• Investor must familiarise themselves with the market in which they are investing
• Investing in an existing business may be rewarding to the investor if they did pervailing market research

Question 6

Risks of business ventures?

Answer 6

• Can be high if the investor did not familiarise themselves with the market in which the business will operate
• Entrepreneurs with limited experience may not be able to manage the business correctly so the investor may lose money

Question 7

32-Day notice accounts?

Answer 7

• Investor will earn intrest at a higher rate than a normal savings account

Question 8

Risks of 32-day notice accounts?

Answer 8

• Low risk plus intrest wil be paid out on the maturity date
• Intrest is compunded daily, this increases the value of investment
• Intrest rate is subject to prevailing market conditions thus increasing the risk for the investor

Question 9

Debenture?

Answer 9

• Issued to raise borrowed capital from the public
• Most debentures can be traded on the JSE
• Debenture holders recive annual intrest payments based on the amount of debentures held

Question 10

Endowments?

Answer 10

• investor makes mothly contributions to an insurance company and is garunteed a predetermined amount
• Investment provides the investors dependants with financial security in the event of his death

Question 11

Risks of endowments?

Answer 11

• Risks are low as an amount will be paid out on a occurance in the future
• Investor may lose their investment if the company goes bankrupt