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Saving & Investment Tools Research Team | Posted On Tuesday, March 24,2009, 03:53 PM

Saving & Investment Tools



Following are the important saving and investment tools available in the market.

a.      Bank Deposits
Bank Deposits are time or fixed deposits placed with banks for a period of time with some interest. Savings accounts, current accounts, fixed deposits, investment accounts, time deposits are some of the bank deposits.
·         Well regulated by the Central Bank
·         Little risk of loss of principal and interest
·         Low return
·         Poor inflation hedge
·         Penalties upon early or premature withdrawals (in term deposits)
b.      Life Insurance
There are different types of life insurance. They differ on the period (term) of their coverage and how they cover. Life insurance is an amount paid upon the death of the policy holder (insured) to the policy's beneficiary.
c.       Investment Linked Funds
Investment linked insurance offers policies where policy premium is directly linked to investment performance. The premiums are used to purchase units in one of the insurance company's investment funds. The investment fund can have a wide range of investment modes such as:
·         Real estate
·         Equity or stock
·         Fixed interest
·         Money market
Investment linked funds generally fulfill the objectives of providing the investors with the following:
·         A comfortable standard of living
·         An improvement in their financial position
·         Income in retirement
·         Funds for dependants
·         Funds for the education and up-bringing of their children
·         Funds for paying necessary expenses and taxes when the person dies
d.      Unit Trusts
Unit trust is a pool of funds contributed by a number of investors kept in trust by a trustee. These are useful vehicles for small private investors without huge funds and time for professional investment management. Investments in unit trusts generate income in the form of interest, dividends, and capital gains.
·         Profit on investments are open to unit holder
·         Lower risks and consistent returns
·         Professionally managed investments 
·         Income from dividends and interest can be reinvested
·         Less volatility and costs
·         Wide selection of funds can be confusing
·         Extra charges are to be paid when switching funds
e.       Bonds, Debentures & Others
Bonds are useful financial instruments used by the government to borrow money from the public. These bonds can be classified on the basis of maturity periods : - short term bonds, medium term bonds, long term bonds.
·         Safe and marketable
·         Income for future years are guaranteed
·         Capital can be eroded in times of high inflation
f.        Listed Shares
When one is in possession of shares, he is effectively part owner of the company. The value of a share varies according to the market's view of the worth of the company. Share prices can also be affected by other factors such as a country's economic performance, general level of interest rates, inflation rate, company earnings and currency performance.
·         Investors participate directly in the company's future
·         Good dividends and capital appreciation
·         Can be traded in the open market
·         High risk
·         Highly volatile
g.      Business Venture
There are many kinds of business ventures namely;
·         Sole proprietorships
·         Partnerships
·         Corporations.
Sole proprietorship - is a type of business entity which legally has no separate existence from its owner. Hence, the limitations of liability enjoyed by a corporation and limited liability partnerships do not apply to sole proprietors. All debts of the business are debts of the owner. The person who sets up the company has sole responsibility for the company's debts.  
·         secrecy
·         Ease of information and dissolution
·         Ownership of all profits
·         Minimum capital required
·         Certain tax savings and benefits
·         Unlimited financial liability
·         Lack of continuity
·         Limited financing and capital
·         Management limitations and size restrictions

Partnerships - is a type of business entity in which partners share with each other the profits or losses of the business undertaking in which all have invested. Partnerships are often favored over corporations for taxation purposes. However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as shareholders of a corporation.
·         Management flexibility
·         Increased financial capacity
·         Legal status and broader management base
·         Unlimited financial liability
·         Lack of continuity and size limitation
·         Partner conflicts  
·         Dissolution problems and capital restrictions

Corporations – are the most common form of business organization. This form of business is characterized by the limited liability of its owners, the issuance of shares of easily transferable stock, and existence as a going concern. The process of becoming a corporation, gives the company separate legal standing from its owners and protects those owners from being personally liable in the event that the company is sued, it is known as limited liability. In all respects, corporations differ from sole proprietorships and limited partnerships.
·         Separated legal entity
·         Better financial capacity and specialized management
·         No difficulty in expanding and raising capital
·         Transferable ownership
·         Huge capital requirements
·         Legal restrictions
·         Taxation
·         Strongly regulated and difficult to obtain credit
·         Little secrecy
h.      Property
Properties means real estates, namely agricultural property, domestic property and industrial property.
·         Provide capital appreciation
·         Steady flow of income
·         Low risk investment
      .    Difficult to sell during recession

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