As an investor you have several options when it comes to investments. The following is a list of investment options available in the capital markets.
1. COMMON STOCK: Common stock is a financial instrument that represents ownership in a corporation. Holders of common stock own a portion of the corporation. They have voting rights in board member elections and other corporate policy decisions. They receive dividends from the corporation. However, in the event of a liquidation of the corporation, the holders of common stock are lower in the order or priority compared to preferred stock and other bond holders.
2. PREFERRED STOCK: Preferred stock is a financial instrument that represents ownership in a corporation. Holders of preferred stock own a portion of the corporation. They have no voting rights. In the event of a liquidation of the corporation, the holders of preferred stock have a superior claim over the firms’ assets compared to the holders of common stock.
3. BONDS: A bond is a debt instrument that is issued by a corporation or the government in order to raise money from the public. Holders of a bond are merely lenders who have lent money to the institution that issued the bond under the terms specified in the bond issue documents.
Some examples of bonds are government securities, corporate bonds, commercial paper, treasury bills, strips etc.
4. FUTURES: A future is a financial contract in which the buyer agrees to buy an underlying financial instrument on a certain future date for a certain fixed price.
5. OPTIONS: An option is a financial contract that gives its buyer the right, but not the obligation, to buy an underlying financial security at a certain price, on or before a certain date.
6. MUTUAL FUNDS. A mutual fund is a professionally managed investment fund that pools the money of several investors and makes investments on their behalf. Individual investors in the mutual fund own ‘shares’ in the fund and receive a return in proportion to their investment.
