Page 35 - Banking Finance July 2024

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Sovereign Gold Bond considered riskier than other asset classes, but they

Equity Investments offer the potential for higher returns.
Mutual Fund 2. Fixed Income: Fixed deposits, or bonds, are debt
instruments issued by governments or corporations or
SME IPO / Investments
banks. Investors purchase bonds in exchange for regular
Equity Linked Savings Scheme (Tax Saver Instruments) interest payments and the return of principal at
Commodity maturity. Fixed income investments are generally
considered less risky than equities but offer lower
Real Estate
potential returns.
Cash
3. Cash and Cash Equivalents: Cash and cash equivalents
refer to highly liquid investments such as money market
Understanding Asset Classes funds, certificates of deposit (CDs), and savings accounts.
In investment, the three primary asset classes have These investments are considered low risk and provide
traditionally been stocks (equities), bonds (fixed income), and little to no potential for capital appreciation. Cash is an
cash equivalents or money market instruments. However, often-overlooked part of building a portfolio, but it does
nowadays, investment professionals include real estate, come with certain benefits. Though it is a near certainty
commodities, futures, other financial derivatives, and even that cash will lose value over time due to inflation, it
cryptocurrencies in the mix. can provide protection in the event of a market selloff.
Depending on the amount of cash in your portfolio and
Investment assets can be tangible or intangible instruments other investments you hold, cash could help your
that investors purchase and sell to generate additional portfolio decline less than market averages during a
income, either in the short or long term. Financial advisors downturn. Cash also gives its holders optionality. This
view investment vehicles as categories that diversify an means that the value isn't from holding the cash itself,
investor's portfolio. Each asset class represents different risk but rather from the options cash gives you when the
and return investment characteristics and performs future environment is different from todays. Most
differently in any given market environment. people tend to think of the investment opportunities
available to them currently and ignore what might be
Investors aiming to maximize returns typically reduce available in the future. But when you hold some cash in
portfolio risk through diversification across asset classes. your portfolio, you'll be well-positioned to take
Financial advisors assist investors in diversifying their advantage of any future investment bargains when the
portfolios by combining assets from different classes that next market downturn comes. We have witnessed the
provide varying cash flow streams and different levels of risk. Covid pandemic led wide sell - off across all the asset
Investing in several asset classes ensures diversity in
investment selections, thus decreasing risk and increasing
the chances of positive returns.

Types of Asset Classes
Investment professionals divide asset classes into several
categories based on various factors, such as investment
structure, market capitalization, and liquidity. Below are the
most common types of asset classes:
1. Equities: Equities, also known as stocks, represent
ownership in a company. Investors purchase stocks in
hopes of earning profits through capital appreciation or
dividend payments. Equity investments are generally

32 | 2024 | JULY | BANKING FINANCE