Investment Securities Business Studies Grade 12 Study Notes. Investment securities are a category of securities—tradable financial assets such as equities or fixed income instruments—that are purchased with the intention of holding them for investment.
Topics under Investment – Securities
- Background on Investment
- Types of Investment
- Shares
- Johannesburg Stock Exchange (JSE)
- Unit Trusts
- RSA Retail Savings Bonds
- Return on Investments
- Calculation of Simple Interest
- Calculation of Compound Interest
- Calculation of Return on Dividends
Term 3: Investment – Securities
In today’s economic landscape, it is essential for individuals and businesses to understand the various investment opportunities available to them. We provide an overview of different types of investment opportunities, their risk factors, and key investment concepts. Additionally, it will cover the functions of the Johannesburg Stock Exchange (JSE) and the factors to consider when making investment decisions.
Functions of the Johannesburg Stock Exchange (JSE)
The JSE serves as a marketplace for trading financial instruments, such as shares, bonds, and derivatives. Its primary functions include:
- Providing a platform for raising capital by issuing new securities.
- Facilitating trading of securities, enabling investors to buy and sell financial instruments.
- Determining market prices for securities through supply and demand dynamics.
- Ensuring fair and transparent trading practices and maintaining investor confidence.
Investment Opportunities
A variety of investment opportunities are available, including:
- Government/RSA retail savings bonds: Low-risk investments issued by the government, offering fixed interest rates.
- Unit trusts: Pooled investment funds managed by professionals, spreading risk across a diversified portfolio of assets.
- Shares: Ownership stakes in publicly traded companies, providing potential capital gains and dividend income.
- Fixed deposits: Bank deposits offering a fixed interest rate for a specified term.
- Managed portfolios: Professionally managed investments tailored to an investor’s risk profile and goals.
- Debentures: Debt instruments issued by companies, paying interest to investors.
- Fixed property: Real estate investments, offering potential rental income and capital appreciation.
- Mutual funds/stokvels: Community-based savings and investment groups, pooling funds for collective benefits.
- Business ventures/venture capital: Investing in start-ups and small businesses with high growth potential.
- Endowment/Life insurance policies/Retirement Annuities: Long-term savings and investment products, offering tax benefits and financial security.
- 32-day notice accounts/Call Deposits: Bank accounts requiring notice before withdrawals, offering higher interest rates than regular savings accounts.
Risk Factors and Types of Shares
Different investment opportunities come with varying levels of risk. Generally, higher risk investments offer higher potential returns, while lower risk investments provide more stability.
Shares can be classified into two main types:
- Ordinary shares: Representing standard ownership in a company, offering voting rights and potential dividends.
- Preference shares: Offering a fixed dividend rate and priority over ordinary shareholders during dividend payments and liquidation. Preference shareholders usually do not have voting rights.
Key Investment Concepts
- Debentures: Debt instruments issued by companies, paying interest to investors.
- Dividends: Payments made by companies to shareholders, typically from profits.
- Capital gain: The increase in the value of an investment over time.
- Simple interest: Interest calculated solely on the initial investment amount.
- Compound interest: Interest calculated on the initial investment amount and any accumulated interest.
Factors to Consider in Investment Decisions
When making investment decisions, consider factors such as risk tolerance, investment horizon, financial goals, diversification, and liquidity needs.
Understanding Interest
It is essential to understand the differences between simple and compound interest when evaluating investment opportunities. Simple interest is calculated only on the initial investment, while compound interest is calculated on the initial investment plus any accumulated interest.
Understanding various investment opportunities and key concepts is crucial for making informed financial decisions. By considering factors such as risk tolerance, investment horizon, and financial goals, individuals and businesses can build a diversified investment portfolio to achieve their long-term objectives.