- 1. Shares
- 2. Funds
- 3. Forward-deal
- 4. Futures
- 5. Investment
- 6. Investment funds
- 7. Options
- 8. Private investment portfolio
- 9. Standing subscription
- 10. Repo (or: repurchase) transaction
- 11. Bonds
- 12. Value date
A share is a security paper that represents a small part of a company. Buying shares You will gain an according part of the company and become a shareholder. You can profit from shares mostly by the rising market price. The volatility of share prices makes it possible to gain a lot in short time. But it should be remembered that it is also possible to lose a lot in short time.
Investment funds are security paper portfolios that are assembled and managed by professional fund managers. Investment funds are the most convenient way to invest in security papers – a thorough market analysis has already been conducted for You, all You have to do is buy the fund shares. The principles and goals of each investment fund practice are always stated under terms and conditions.
The tax laws are usually more advantageous in case of funds than in case of direct security paper investments. The income tax is to be paid only on collecting the fund investment. In case of direct investment, the income tax is to be paid at the end of each tax period (provided that the person has collected profits during the period).
In a word, funds are safe and convenient investment opportunities.
Forward-deal is essentially a non-standard futures contract. There are two parties in forward-deal, who will agree on the details and the dates of a future transaction. The seller has an obligation to sell the underlying assets at a set price at a set time, the buyer has an obligation to buy. Forward-deals is mainly used for managing risks.
Future is a contract that gives You the right and the obligation to buy the underlying assets at a certain agreed time and at a previously agreed price. The seller of the assets, meanwhile, has an obligation to sell the underlying assets at these pre-agreed conditions. This means, futures differ from options by compelling the purchase and the sale no matter how the agreed price and the real market price differ.
For example: You own an oil refinery, its revenue is tied to the price of crude oil. Today a barrel of oil costs 60 USD – but You suspect that the price will be considerably higher in 6 months time. A good way to protect Yourself against the price rise is to buy a future. This allows You to fix the price You pay for the oil in 6 months time and any following market changes will not affect You.
The term investment stands for various but connected things in the fields of banking and economy. In general, it applies to purchasing and managing certain assets for a longer period of time in the hope of profiting from them in the future.
6. Investment funds
- Solution fund is a fund that takes care of the whole of the investor’s investment need – a single fund to achieve a concrete investment goal. Our solution funds are put together from the shares of other funds, meaning that risk is kept at the minimum. A professional team of fund managers work to achieve the investment goal. Taking these things into account, solution fund proves a convenient and safe investment instrument.
- Short term interest fund is a very low risk fund, which makes it suitable for short term investments – weekly or fortnightly – without fear of losing money. But the main purpose of these funds is to help businesses manage their liquidity. Since revenue from these funds is taxable for individuals, we recommend deposits as a better option for short term investments.
- Long term interest funds or bond funds are suitable mostly for short term business investment. The yield of bond funds is directly dependent on the changes of interest rates. At the same time, bond funds have a relatively low risk level. Therefore the advisable investment period is usually at least 1-2 years. For individuals, bond funds are suitable primarily to balance the investment risk of long term investments.
- Mixed funds are funds incorporating both shares and bonds. The first help ensure high yield, while the second help keep the portfolio stable. Depending on the proportion of shares and bonds, the risk level of mixed funds can vary greatly.
- Share funds are for the investor whose goal is high yield and who is tolerant of high levels of risk. Although share funds may produce excellent yield in short investment period, they are primarily meant for long term investment. Experience tells us that the larger the proportion of shares in the investment, the better the average yield. Usually a share fund focuses on a particular sector or geographical area (e.g. Eastern European shares, IT-shares, Baltic shares etc.)
- Emerging market funds. The most important emerging markets are Eastern Europe, Russia, Latin America, India, China and Turkey. It is characteristic of emerging markets to have a higher-than-average risk level, but also a higher yield expectancy. The recommended investment period for all emerging markets is more than 5 years. We advise You to make emerging markets only one part of Your portfolio – for two reasons. First, in case of unexpected market decline, the loss is not so great. Second, investing both in developed and emerging markets is a way to balance Your investment portfolio – these markets move in most part independently of each other and the changes on one market may not strongly influence the other. The advantages of emerging markets are faster economic growth, large and increasing population, and low cost of labour. The disadvantages of emerging markets are the small liquidity of stock exchanges, and in some areas political instability and slow development of democracy.
Option is a security paper that gives You the right to buy or sell financial assets at a previously agreed price. When the price of the option moves into an unfavourable direction, You are not obliged to complete the transaction.
For example: You wish to buy Alcoa shares, featured in the S&P 500 index, but are currently lacking sufficient funds. To protect Yourself from a possible price rise during the time when You are securing the funds, You may buy the Alcoa share option with the suitable deadline and price. When You have secured the sufficient funding, You have two options:
- When the price of shares has risen higher than the price of Your option, You can use the option to buy the shares at an advantageous price.
- When the market price of shares has fallen and is lower than the value of the option, You can buy the shares on the market.
8. Private investment portfolio
Private investment portfolio is an individual investment into security papers on behalf of a client. The goals and terms of investment are agreed by the investor and the asset manager (the proportion of shares involved, geographical distribution, instruments used, etc.) According to the goals set, the asset manager will complete deals with security papers on behalf of the investor and using his bank account.
9. Standing subscription
Standing subscription is the most advantageous and convenient way to regularly invest in funds. To create a standing subscription, You must set the name of the fund, subscription frequency, subscription type, and the minimal available balance.
- The subscription frequency may be: 1 day, 1 week, 1 month, 1 quarter, half year or year
- The subscription types are: for all available balance, for a set amount, for a set quantity (available in case of some funds)
- Minimal available balance is the amount that will not be debited from Your account by the standing subscription. For example, if the minimal available balance is 200 EUR, the subscription amount is 100 EUR and the account holds 250 EUR, the debited amount will be 50 EUR and the account will continue to hold 200 EUR.
10. Repo (or: repurchase) transaction
In the course of repo transaction the client sells securities to the bank and obliges to buy them back at a set time and with a set price. It is, for practical purposes, a loan guaranteed by securities.
For example: Your portfolio holds 2000 shares of company X. You think that the shares of company Z are underpriced and are expecting a rise in their market price. You currently have no free funds to invest in company Z, but You also do not want to let go of the shares of company X.
The solution is repo transaction, through which You sell the shares of company X to the bank, agreeing to buy them back at a set time and set price – while acquiring sufficient funds to buy the shares of company Z.
Bonds are effectively loans given to companies, on which the they regularly pay interest, and return according to mutual agreement. By buying a bond share, You are lending money to a company.
The interests may be paid both as periodic coupon payments or be included in the the loan amount – when the bonds are put out on the market with a „discount”.
You are in possession of a larger amount of money that You will not be needing in the near future. Deposits fail to offer You sufficient yield and – because of the risk involved – You do not want to invest in shares. In such case bonds are the best investment option. All You need to do is choose a bond with an appropriate deadline, risk and yield margin and contact one of our brokers.
12. Value date
Value date is the banking day on which the securities or the money from their sale is transferred to the participants of the deal.
The value dates for different types of deals are:
- stock exchange deal: T+3, i.e. shares and transferable funds will be exchanged 3 days after the deal has been made
- delivery or receipt of securities against payment / delivery or receipt of securities without payment: T+1 to T+30, on the banking day agreed between the parties
- buying or selling fund shares, the value date of the deal is determined by the trading terms of the fund share
The securities will be transferred to Your account by the end of the value date, after confirmation has been received from the central register of securities.