Capital instruments are the necessary factors to operate in the capital market in different countries. Each country has its own capital market based on its monetary and banking system and economic structures, and their common feature is economic enterprises that can use all kinds of capital tools for financing and productivity and achieve their goals.
With the prosperity of the capital market, Iran’s stock market, like the international capital market, has perfected its tools, and except for a few limited cases, they have the most important and widely used investment tools in the stock market.
Types of Capital Instruments
Stock is one of the most popular investment tools in the stock market which is published by companies. Joint-stock companies make their capital in the form of shares that can be transferred to others and are tradable. There are two legal types of shares:
In general, common shares are of two types: ordinary shares with a name and ordinary shares without a name. The difference between ordinary shares with a name and ordinary shares without a name is that the name of the shareholder is written in the name of the share sheet. But this is not the case in anonymous stocks. Common stock is one of the most common and main investment tools in the stock market that can be traded.
The owner of ordinary shares is the owner of a part of the company as much as the share he/she bought, and he/she benefits from the profits and benefits that are intended for other owners of the company to the same extent. Most of the company’s shares are issued as ordinary shares and its advantage is that the owner of the share, in addition to the right to vote and receive profit, has the right to buy shares.
Preferred stock is a type of transferable ownership document that the owners have fixed and limited rights to the company’s assets. The most important privilege of the owners of the preferred shares is to receive more profit and have the priority right to pay the profit; even in bankruptcy. These shares are issued through subscription and enter the market at the same time as the establishment and operation of the company. They can be traded outside the stock market.
2. Bonds and Partnership Bonds
Bonds are documents on the basis of which the holders give loans to the issuers and receive interest for the loan they gave to the issuers, and when the maturity date, they get the principal amount back from the seller. For example, they receive interest on their loan periodically and monthly, and when the principal is received, they get back the principal from the seller.
Partnership bonds are securities that are issued to finance municipal projects and civil development. Issuers of partnership bonds undertake to pay fixed interest and principal on a specified date. The fixed interest is paid to the bondholders on account, and at the end of the project, if the amount of the project’s profit exceeds the amount of the fixed interest, the difference of this amount is paid to the bondholders.
3. Asset Management
Entering the capital and investment market requires sufficient knowledge and expertise, continuous monitoring of the market and timely action. People who want to invest in the market, but do not have enough time and knowledge, can entrust the work to companies that have expertise and experience in this field and operate in it in a specialized manner. Asset management is divided into two categories:
3.1. Investment Fund
Investment funds are under the supervision of the stock exchange. The purpose of the investment fund is to collect the funds of people who want to invest but do not have enough time and expertise. Funds invest people’s capital in various assets, including stocks, bonds, and a portion of the profits are paid to those who invested in the fund.
3.2. Portfolio Management
This method is one of the indirect investment methods. Portfolio managers choose the best stock portfolio according to the goal and risk tolerance of investors and receive profit for this work. The work of portfolio manager is done accurately and with the design of a specialized questionnaire and with the purpose and level of risk tolerance, and it is one of the best and most reliable methods of entering the capital market.
Up To Sum
Wealth management provides the conditions that every person with any level of economic and financial knowledge, according to the degree of risk taking, can indirectly use the best investment opportunities. Specialists know the investment tools and choose the most appropriate tools according to the client’s goals.