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BUSINESS FINANCE
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BUSINESS FINANCE
CHAPTER 4
The definition, purpose, kinds, advantages, and disadvantages and the risks of
investment
After going through this module, you are expected to:
1. Compare and contrast the different types of investments.
2. Differentiate investment according to its type and features.
3. Enumerate advantages and disadvantages of the different types of investments.

The Different Types of Investments.

An investment is any type of asset that is acquired by an investor with the intent to
utilize it to generate income and eventually accumulate wealth. Finance
professionals view investment as a monetary asset, like a bond, a stock or any type
of financial instrument which is purchased and in due time will be sold, hopefully at a
higher price. For instance, if the stocks were bought at P200 per share and after one
year the investor was able to sell them for P300 per share, then the investor would
have earned P100 per share. If there is a total of 1,000 shares, then the profit would
be P100,000.
Different Types of Investments and their Features:
Types of Investments Features
1. Investing in a Bank Earns minimal interest, easily
1.1 Savings account withdrawable, least risky, insured with
1.2 Time deposit PDIC up to P500,000. Higher interest,
withdrawal after the fixed time, i.e.
90days, one year, etc.,
2. Investment in Bonds Like an IOU (I owe you) issued by a
government or company with fixed
interest rate-called coupon.
3. Investment in Shares of Stocks Like buying a small part of a company,
earnings through dividends and capital
gains as price increases.
4. Managed funds An investment company, which pools the
money of various investors and invest
that money in bonds, stocks or a
combination of various investments.
5. Investment in Property Can either be real property (real estate)
or tangible personal property (gold,
precious metals, artworks,etc.)
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BUSINESS FINANCE
Advantages and Disadvantages of the Different Types of Investments:
Types of Investments Advantages
1. Investing in a Bank Security-insured by PDIC
Liquidity for savings
account
2. Investment in Bonds Safest - with fixed interest
Lending money to a
company for expansion of
business, which
contributes to economic
growth
3. Investment in Shares of Share in profits in the form
Stocks of dividends Capital gains
due to increase in market
prices
4. Managed funds Diversification, ease of
entry, convenience, fund
management and low
investment amount.
5. Investment in Property Price appreciation for real
property. Safest
investment
Disadvantages
Lower returns – 1% or less
for savings, 2-3% time
deposits Liquidity for time
deposits
With fixed term cannot be
withdrawn before maturity
or at a lower amount.
Dividends dependent on
board declaration During
liquidation, creditors have
first claim on assets
Fees, performance not
guaranteed, lack of
control, taxation
Long term process for
profits to be realized.

Types of Investments:
As depicted by the image, choose which of the following is your investment option
and explain your answer by highlighting its features and advantages:
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BUSINESS FINANCE
What I Have Learned
1. An investment is any vehicle into which funds can be placed with the expectation
that they will generate positive income and/or increase in value.
2. The following are types of investments: investing in banks, bonds, shares of
stocks, managed funds and investment in property.
3. Each type of investment has its own unique features , advantages and
disadvantages in terms of security, returns, terms, liquidity , diversification,
convenience, fees and taxation.
4. There are a lot of types of investment to choose from. Some are perfect for
beginners, while others require more experience. Each type of investment offers a
different level of risk and reward.
5. Investors should consider each type of investment before determining an asset
allocation that aligns with their goals.