Chapter 2

Investment Alternatives

Chapter Objectives

To understand the concept of investment

alternatives
To distinguish between negotiable and
non-negotiable securities
To know the various types of real assets

Concept of Investment Alternatives

Investment alternatives mean investment in

assets other than the shares or debentures of a
company.
The alternatives range from financial securities
to traditional non-security investments.
The financial securities may be negotiable or
non-negotiable securities.

Negotiable Securities

The financial securities that are transferable

are known as negotiable securities.
Negotiable securities can be of two types:

Variable income securities

Fixed income securities

Equity shares comes under the category of variable income

securities
Debentures, Bonds, Kisan Vikas Patras, Indira Vikas Patras and
Government securities all come under the category of fixed
income securities.

Fixed Income Securities

Fixed income securities are the financial claims with promised

cash flows of fixed amounts, paid at fixed dates.
Fixed income securities are classified as:

Preference shares: Refer to the shares that provide a fixed rate of

dividend to the preference shareholders.
Debentures: Refer to a long term debt instrument issued by corporate
entities to acquire finance.
Bonds: Refer to a debt security issued by the government,
quasi-government, public enterprises and financial institutions.
Government securities: Refer to the securities that are issued by the
Central, State and quasi-government agencies.
Money market securities: Refer to the securities that have a very short
term maturity period.

Non-negotiable Securities

The financial securities that are not transferable are

known as non-negotiable securities.
They are also known as non-securitized financial
investments.
The deposit schemes that are offered by the
post offices, companies, banks, etc. form a part of
the non-negotiable securities.
Deposit facility is offered by banks and post offices.

Tax Sheltered Savings Schemes

The various types of tax sheltered savings schemes
are:

Public Provident Fund Scheme: It provides yearly

interest which is exempted from income tax under
Section 88.

National Savings Scheme: It provides 100 per cent tax

rebate to the depositors.

National Savings Certificate: It is a scheme provided by

the post offices for a period of six years. Once money is
deposited, no withdrawals are permitted, but loans can be
taken.

Life Insurance

It is an agreement made between the insurance

company and the insured person. The insurance
company has to pay a certain amount of money on the
occurrence of the event insured against.
The advantages of life insurance are:

Protection
Liquidity
Easy payments
Tax relief on specified schemes

Mutual Funds

These are professionally managed portfolios of securities.

They can be classified into two forms:

Open-ended schemes: These offer their unit on a continuous

basis. Repurchase is also carried out on a continuous basis. It is
not traded in the stock exchange.
Close ended schemes: These are schemes in which the number
of units are fixed and are traded in the stock exchange.

The factors to be considered in the selection of mutual

funds are:

Net assets
Portfolio composition

Income composition
Expense ratio

Real Assets
Real assets are tangible assets, which include:

Gold and silver

Real estate
Art
Antique items

Chapter Summary
By now, you should have:
Understood the concept of investment
alternatives
Learnt to distinguish between negotiable and
non-negotiable securities
Knowledge of the various types of real assets