Finance

Asset Class

Asset Class

An asset class is a group of investment securities that can be classified as physical assets or financial assets. A set of financial instruments have similar characteristics and can react similarly the same in the marketplace based upon the market events. It is important to understand where your money goes and what the asset class is going since each investment belongs to one or more groups of assets. Such asset classification definitely made investment easier to understand for the investors.

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Types of the asset class: 

They are five traditional asset class which are popularly known as:

  1. Cash and cash equivalents
  2. Equity
  3. Bonds
  4. Property
  5. Commodities

Other Alternative asset classes are:

  • Cryptocurrency
  • Collectables
  • Alternative investments
  • Derivatives
  • Venture capitals
  • Hedge funds

Cash and cash equivalents:

Cash and cash equivalents are in liquidity form which is easily available to convert into cash for daily or short-term expenses.

Examples of cash are Coins, Currencies, Saving account, Bank drafts, Money drafts, and Petty cash.

Examples of cash equivalents are:

  • Commercial Paper
  • Certificate of Deposits
  • Treasury bills
  • Marketable Short-term Securities

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Equities:

Equities are known as the money invested in the entity for purchasing some shares for the capital appreciation or to gain some returns, the factors to get returns by an increase in share price or dividends.

Examples of Equities

  1. Common shares
  2. Preference shares

Bonds:

Bonds are fixed-income securities is issued by the government sectors and corporate companies to raise funds to fulfill their capital requirements. They are Short-term bonds, Intermediate bonds, and Long-term bonds are available in the economy.

Types of bonds:

  • Zero-coupon bonds
  • Government securities bonds
  • Convertible bonds
  • Sovereign bonds
  • Inflation-linked bonds
  • Treasury bonds
  • Domestic bonds
  • Foreign bonds
  • Emerging bonds

Commodities:

Commodities are one of the Important aspects of daily life. It is interchangeable with other goods of the same type. commodities are highly traded in the global market.                                             Examples of commodities are:

  • Gold
  • Sliver
  • Oil
  • Livestock and meat
  • Agriculture items

Real Estate:

Real estate is a property of a piece of land used for business purposes to construct buildings, commercial plots, residential plots, villas, etc. these are real tangible assets as opposed to other asset classes.

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Strategies Involved in Asset Class:

  • Asset allocation: Asset allocation is an investment strategy to balance the risk and reward based upon current market conditions by adjusting the investment portfolio of the client(investor) according to their risk tolerance, gains, and time to achieve a return.
  • Strategic asset allocation: It is a portfolio investment strategy periodically rebalances the Portfolio in order to maintain a long-term goal of asset allocation.
  • Tactical asset allocation: Involves to achieve a goal of risk-adjusted returns of passive management investing
  •  Dynamic asset allocation: The most active allocation strategy is a dynamic asset allocation, to adjust the mix of assets as a market rise and falls due to the economic strengths and weakness.

Author: John Earla

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