Finance College Essay Example | Topics and Well Written Essays - 1500 words

Finance College - Essay Example Thus, the returns from fixed income securities remain unchanged over the period for which they are invested in. Beyond the period or before the period of investment, the rates would be prone to vary. Changes in the reserve ratio (CRR) stipulated by the Reserve/Federal Bank lead to changes in the rate of interest/ returns for the investor. A shift in the global economy and change in the CRR of the banks in the country which has a dominant role in the global economy can influence the interest rates in other countries too. An investor has a choice of investing in various assets over time. He can invest in movable assets like securities, stocks, fixed deposits and immovable assets like land, buildings etc. Each class of investment has its own risks and returns. The returns from each asset would also vary from time to time, depending on various socio-political, economic and geographical factors. The capital markets offer a wide range of investment options like shares, stocks, debentures, fixed income securities etc. While shares and stocks are high risk-high return instruments, bonds and fixed income securities are safer modes of investment. Capital markets typically tend to move in cycles or phases, called bull and bear phases . A bull market is one in which the majority of the shares move up and there is ample capital appreciation for the investor. A bear phase is one in which there is a negative trend and the prices of shares fall. There is erosion in value of the holding and the investor might not even get back his initial investment amount. The returns in a bull market have been known to be as high as 500-1000% in some cases, while the losses in a bear market have forced several investors to go bankrupt and sell whatever other assets they were holding as investments. Many a times, the economy of the country itself has had to undergo a substantial loss due to the fluctu ations in the capital markets. Fixed income securities are one of the most innovative and dynamic instruments evolved in the financial system ever since the inception of money. Based as they are on the concept of interest and time-value of money, Fixed income securities personify the essence of innovation and transformation, which have fueled the explosive growth of the financial markets over the past few centuries. http://sify.com/finance/fullstory.phpid=14201529, accessed on 27th Aug.,2008. A wise investor would have a combination of investments which give fixed and variable returns over a period of time. The risks involved in investing in stocks are offset by the returns from fixed income securities. Depending on the disposable income, age of the investor and risk-taking capacity of the investor, a financial planner would