Investment securities are marketable securities held by a bank in its portfolio of balance sheet assets. Investment securities, along with bank loans, are the principal source of bank earnings and generally serve two key functions – as a source of bank liquidity or funding to meet loan demand or customers’ needs for cash and as an additional source of earnings from the capital gains realized when portfolio securities are sold. Bank investment grade securities are acceptable collateral in meeting pledging requirements for holding federal government deposit, and also deposits of state and local governments. Bank investment securities are carried at amortized book value or original purchase cost less amortization or accretion to par value.
Securities completely revolutionized the way in which people invested their personal income. It is important to understand the exact meaning and components of investment securities. Investment securities refer to the purchase of stocks, bonds, treasury bills and debentures. Stocks refer to the purchase of shares of a specific company or industry. There are various types of bonds, namely government bonds, corporate bonds and such other investment bonds. Investment in securities also includes money market instruments like commercial papers, bankers’ acceptances and such other instruments. Hence, apart from investing in real estate, people can invest in securities and get great returns from them.
Eligible securities that a bank legally can hold as investments include U.S. Treasury securities, federal agency obligations, debt securities of state and local governments, stock in Federal Reserve banks, plus certain other types of investment grade debt. As a general rule, banks can own stock in bankers’ banks, Edge Act corporations, foreign banks and other companies offering bank-like services and can hold other investment grade debt so long as securities owned do not exceed 10% of a bank’s capital and surplus. Separated from the investment securities portfolio are trading account assets and other securities a bank is eligible to purchase in securities underwriting for resale to the public or to other financial institutions and also securities held under repurchase agreements.
There are many different types of investment securities, so how can you tell which ones are the best? The answer depends on each individual investor and a number of factors, like what are your acceptable risk levels? What strategies would you use to invest in securities? What are your investment goals? The answers to all the above questions may change which types of investment securities are right for you and your investment capital. One way to keep your risks to a minimum and choose better quality investments is to only invest in investment grade securities. These investment securities are considered fairly safe with low risks attached. When you choose these options, you know that the company that you are investing in has a solid financial rating and good credit.
Bonds and equities are two types of investment securities and there are also commodities and derivatives that are included under this category of securities investments. All of these are covered by the investment and securities tribunal, which oversees and enforces all regulations, rules and laws in this sector. No matter which types of investment securities you choose, always remember that no investment is guaranteed and there is always a risk of loss. Never invest capital that you can not afford to lose if things do not turn out the way you want and always make sure to do all the necessary research and evaluations before picking a place to invest your precious money.
Different types of investment securities play important role in the working of the financial system. Big businesses revolve around the exchange of different investment securities by using different types of investment vehicles. Relative to banking, investment securities provide a much higher percentage of earning returns than use of simple savings accounts or money saving through time deposit accounts.
One may choose from various kinds of money saving institutions and firms such as banks and investment companies offering various kinds of investment products to grow money. However, investment securities are the top preferred instruments to grow income or money.
These investment securities and instruments are not only available to big businesses but to the common individuals as well. Thus, knowing how to leverage these financial investment securities through the use of investment vehicles can help one reach the goal of a debt-free life.
There are several types of securities that are used as significant investment instruments by individual investors as well as commercial investors. The main types of investment securities are described as follows:
- Shares: Shares can be defined as a unit of account of different instruments like stocks, mutual funds and limited partnerships. Business firms and corporations raise capital for further investments by floating their shares in the market. When individuals purchase the shares of a company, they are the owners of the company equivalent to the value of the shares purchased. The term shares implies to the below securities:
– Stocks: Stocks refer to the amount of capital collected by the total sales of the shares of the company. The amount of shares issued and distributed by a company determines the stocks.
– Mutual Funds: Mutual fund is mainly a form collective investment instrument. A mutual fund company collects money from several small investors and invests the collected money in various other bonds, money market instruments and other securities. The mutual fund companies also collect the premium on behalf of the investors. - Bonds: Unlike shares, a bond is a very different form of securities investment. They are often referred to as debt securities. In these types of securities, the investor purchasing a bond of a company basically gives a debt to the issuer of the bond. The issuer must repay this debt along with a fixed rate of interest known as the coupon rate at a particular date. This date is known as the maturity date or the bond maturity. Usually, bonds are available with minimum one-year tenure.
The evolution of investment securities ensured that the common investors had a greater role in the overall economic sphere. These securities ensured that the investors widen their capital base along with providing growth opportunities to the companies.
If you want to explore more profitable investment opportunities, you may consider being an angel investor as well.