The term “asset management” refers to the process of managing the capital portfolios of a company by a professional management team. The team can invest capital in any of the following areas.
Fixed Income Securities are investments that provide fixed periodic returns. Since the interest rate on these securities is fixed, there is little risk involved with them. As the saying goes, ‘you should not put all your eggs in one basket’. The same applies to investment portfolios also. These fixed income plans do not have much risk involved. This also means that the income returns may not be that high. But they have a benefit of providing investors with the security of a fixed return at periodic intervals.
Investments in variable income securities have payments that change based on some underlying measures such as short term interest rates. This means that unlike fixed income securities, investors don’t know the payments that they will get from them. Since interest rates change based on market conditions, there is some amount of risk involved. Rising market will mean higher returns and vice versa.
Liquidity funds can be converted into liquid cash on a short notice. These funds are best meant for temporary cash investments. Consider a situation where one has some amount of cash lying idle that they won’t need for some purpose in the near future. People can make the best use of the cash by investing in liquidity funds. These funds involve same day settlement and are a better alternative than bank deposits. This is because they offer better yields at reduced credit risks.
Balanced Funds are funds that aim to maintain a balance between income and security. Thus, a mutual fund, or asset allocation fund, as it is known, involves the investment of assets into the money market, bonds, or preferred stocks. As said, the purpose of balanced funds is to maintain a balance between income and securities. Given this nature, they are very popular across the globe.
Equity Funds are also mutual funds, but unlike balanced funds that aim at both income and security, the equity funds’ purpose is long term growth through capital appreciation, dividends and interest. An equity fund investment is usually through cash or stock and not through bonds or notes.
Each of these types of investments has its pros and cons. It is wise for people to consider their investment goals before choosing one.