The AIX officially lists over 60 securities including stocks and GDRs, bonds, ETFs and notes. More than 20 of these can be traded by retail investors. Click here for more details on AIX financial products.
Shares are securities issued by joint stock companies, in other words, issuers. Any investor purchasing a share becomes a company co-owner. Shares confer a stake in the company even if it is very small. Shares give holders the right to vote at shareholder meetings and as such participate in company management (for voting shares), receive dividends or a part of company profits (if applicable) and receive part of company assets in the event of its liquidation.
There are common shares, which do not always guarantee dividends and preferred shares, which have predetermined dividends allocated to them.
Shareholders generate share income by increasing share value. Ideally, you buy shares, the price rises, you sell them and generate income. The difference between the share purchase price and the price you sold them at is your profit. However, you need to understand that share prices may also fall. There are no guarantees on the securities market!
Bonds are actually IOUs issued by a company or the government.
Buyers are effectively lending their money to the issuer expecting to make a profit. The full amount, timing and profit amount are known at the moment of purchase. The ability to assess the benefit in advance is what differentiates bonds from other securities.
Bonds are redeemed at a specified time, with the issuer paying the bond par value to the holder. Bondholders can also sell bonds before the maturity date.
The main risk for bond investors is the issuing company’s bankruptcy, which would mean the loss of any investment. Unlike deposits, bonds are not protected by the deposit insurance system.
Exchange-traded funds (“ETF”)
ETFs represent ready-made portfolios of securities or other assets according to a specific principle. For example, it can be the S&P 500 index, which reflects the share values of the largest American companies, or an index of commodity markets, copper, gold or any other minerals markets.
ETFs are a good way of diversifying investment in foreign assets.
By purchasing ETFs you are diversifying your risks by investing in different companies in the same industry and/or country. Your portfolio matches the proportion of shares purchased in each ETF.
One ETF share costs much less than the minimum price of shares of all companies represented in it. Securities of companies purchased separately can be to be more expensive than ETFs. Also, building an investment portfolio from separate shares incurs more broker fees. It is much easier to find an ETF that invests in companies you are interested in and buy shares in it that way for far less.
However, ETF investments do not guarantee returns. For example, if the value of gold falls, the price of gold-linked ETFs will also fall. If after a global shock share values in an entire sector or even companies across an entire country decrease, the price of an ETF incorporating these shares will also decrease.
Exchange-trade notes (“ETN”)
ETNs are another option. Their general operating principles are the same as for ETFs; the only difference being that ETNs have maturity date on which investors receive back the ETN value. ETNs have ETFs as underlying instruments. If the ETF pays dividends, then the ETN holder will receive a payment as well.
Click here to learn more about ETNs