Types of Financial Assets

Financial assets refer to those assets which are in paper form, in simple words they are not tangible as they cannot be seen or touched rather they are in the form of documents specifying the ownership of the holder of such document. Financial assets are of many types; let’s look at some of those financial assets in detail –

  1. Fixed Deposits – Fixed deposit is the term used in the context of the bank, fixed deposit account gives the fixed depositor right to have interest along with principal amount on maturity of fixed deposit. For example if an individual makes a fixed deposit of $100000 with the bank at 8 percent simple interest for 1 year then on maturity he or she will get $108000, $8000 being the interest on fixed deposit.
  2. Equity Shares – Equity shares gives the shareholder right to have the dividend on profits of the company and also voting rights. In the case of equity shares they will get dividend only if the company makes profits and in the case of loss they will not be paid any dividend, also they can sell their shares in stock market whenever they want to exit the company. Equity shares provide the best opportunity as far as capital appreciation of capital is concerned.
  3. Preference Shares – Preference shares gives the preference shareholder right to receive the dividend but they do not have any voting rights. They receive a fixed rate of dividend whether the company makes profit or loss and also in the case of winding up of the company they receive payment earlier than equity shareholders, however the scope of appreciation of capital is not there in case of preference shares.
  4. Debentures – There are the debt instruments which are issued by the company giving the debenture holder the right to have monthly or quarterly interest payment at a fixed date and also principal repayment on maturity. Payment of interest on debenture is compulsory even if the company makes loss and debenture holders also get the preference over equity and preference shareholders in case of winding up of the company.
  5. Life Insurance – Life insurance policies which pay the insurance holder on maturity can also be categorized as a financial asset because at the time of maturity these policies pay maturity amount of the policy. However other insurance policies like health insurance, fire insurance, motor insurance etc…., cannot be categorized as a financial asset.
  6. Mutual funds – Mutual funds are those financial institutions that collect money from small investors and invest money of mutual fund holder in financial markets like equity market, commodity, debt market and so on. As far mutual fund holder is concerned they receive units in exchange for their investment, which can be bought and sold in the market at the market price which changes daily according to the movement of asset prices in which mutual fund has invested.

Above list of financial asset is not exhaustive besides many others can be added to the above list and also as one can see from the above that finance asset is a broad term covering many assets and it depends on the investor whether he or she wants to invest in a safe financial asset like fixed deposit or a risky financial asset like equities or mix of both.

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