As opposed to physical assets, financial investments are generally a right or an entitlement to receive money (or streams of money). The Financial investments themselves may be divided in two broad categories:- a. Direct Investments that we hand over to an obligator (the party that uses our money) and get back the same in the form of profit, interest, principal, etc; examples are bank deposits and investments in the National Saving Schemes. By depositing in banks, the default risk is quite low, the investment is safe and it is quite liquid too, but the associated returns are not much and a chance of making your investment to go an extra mile is low. Government securities are said to be least risky as the government is the safest borrower, but these do not bear a very good rate of return. b. Market-Based Investments, which are tradable at a market and change hands through buying and selling. Examples are shares of companies, bonds issued by companies (called TFCs in our market) or the government, etc. For investing in TFCs, it is good to beware of the credit rating of different bond issuing entities and then go for investing as it is usually a long term investment. Financial investments are normally represented by certificates, generally referred to as "securities". However, there is a trend to convert securities into a paperless (electronic) form, which is kept track of by a custodian such as the Central Depository Company (CDC). We shall talk in detail about CDC subsequently. The essential attribute of a market-based tradable investment is that one can sell the investment and get cash for it quickly.
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