Financial Assets or Securities

Before reading about the Financial Assets or Securities, have a look at Introduction to financial markets.


Financial Assets/ Securities

Whenever money is lent, the financial intermediary will issue a receipt for it, indicating its promise to pay back. These receipts are known as financial asset/ securities. These securities come in many forms including:

• Treasury bonds
• Debentures / bonds/ Eurobonds
• Equity
• Preference shares
• Certificates of deposit
• Bills of exchange 

Classification of Financial Assets/ Securities

Issuer

The issuer of the security give an insight to the risk attached with the security. For example the issuer could be the government or a corporate. Government securities are called Treasury bonds whereas securities issued by a corporate are called debentures.

Currency of denomination

Securities could also be categorized as per the currency in which they are denominated, e.g. bonds issued by domestic corporates in UK are called Sterling denominated domestic bonds where sterling denominated bonds issued by a foreign issuer sold in UK would be referred as Foreign bonds. Bonds traded in a country that are issued in the currency other than the domestic currency are referred to as Eurobonds.   

Ownership Rights

Equity Holders have the ownership rights, i.e. they own the assets of the company, where as debt holders do not have the ownership rights, i.e. they don’t own any assets except that they are creditors & have precedence over equity holders in case of bankruptcy.

Tenure/ Term to Maturity 

Some securities have fixed tenure of redemption as in the case of treasury bonds. Some have variable tenure as in the case of Callable bonds. Some have conditional tenure as in the case of Convertible bonds that get converted to ordinary shares as per the conditions.

Degree of Liquidity

Some securities are more liquid than others, e.g. Bank deposits are more liquid than Pension/ Provident fund accounts. Liquidity could also be a function of the quantity of the assets being bought or sold as in case of ordinary shares.     

Tax treatments

Securities could also be classified as per different taxes that they attract. Securities issued by certain organisations do not attract tax. Also certain securities do not attract long term capital gains tax.

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