Main types
1. Stocks or equities
2. Bonds or fixed income securities
3. Money market investments
Derivatives
1. Options
2. Futures
Unit trusts
1. Money market funds
2. Bond funds
3. Equity funds
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Bonds or fixed income securities
Bonds are loans issued by companies and governments to borrow money, and they have two main characteristics:
1. They have lifespan greater than 12 months at the time of issue.
2. They typically promise to make fixed interest payments according to a given schedule.
Bonds are hence also called fixed income securities.
Bonds have their own unique terms: Suppose you buy bonds with a face value of $10,000. These bonds mature in 2 years and pay 4% interest annually. The 4% interest equates to $400 a year. The face value of the bond, or the principal amount of $10,000 will be returned to you when the bond matures in 2 years.
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Money market securities
Money market securities are similar to bonds except that they are short-term investments. They have two main characteristics:
1. They are loans issued by companies and government to borrow money.
2. They mature in less than a year from the time they are sold, which means that the loan must be repaid within a year.
Some of the most common money market securities include
- Treasury Bills (issued by the government and considered the safest investments around),
- fixed deposits,
- bank savings accounts and
- certificates of deposits.
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