Assets are anything that has a specific intrinsic value, and the owner can claim that value anytime. It can be tangible or intangible. Financial assets are usually intangible assets that are liquid, like equities and stocks.
The value of financial assets derived is from the underlying assets and transferred to the owner for the claims at any time. Tangible assets can be economic assets with a wide variety, like real estate, financial derivatives, commodities, bonds, certificates, and much more.
Financial assets are quickly convertible into cash with a variable value. Usually, high demand increases prices, and high supply decreases the cost of financial support. The buyer of the financial assets has complete ownership with proof of the right.
What are common financial assets?
According to international reporting standards, common financial assets are cash, equities, bonds, and contractual rights of the owner's equities. Other than that, stocks, bonds, derivatives, and the money market are commonly traded financial assets.
Some financial assets have a set of values, and some do not until they are converted into cash. If we talk about stocks, their value fluctuates, and a person gets monetary value when converted or liquidated at a specific price in the market.
Types of financial assets
There are a variety of financial assets that people invest in and get to protect the investment or get returns on them. Here are some of them with the details for understanding:
Cash and cash equivalents
As the name represents, cash or cash equivalents are the assets linked with the cash. It includes the money market, cash available in the banks, securities, cheques, and pay orders quickly converted into money. Such assets ensure a high quality of credit in a short period. Usually, bills, certificates, and money market dealing provide quick cash facility, which means high liquidity in a short period.
Stocks
Stocks are linked with the stock exchange where the public limited companies are listed and their shares traded against cash—the price of the stock increase and decreases, coupled with the company's performance. People buy the stocks for an unlimited period to enjoy the profits or dividends paid by the company to every stockholder.
Bonds & certificates
Bonds and certificates are a kind of financial asset issued by financial institutions or even from the central banks. They are with the specific return rate applied on the bond's face value and certificate. Bonds and certificates have a maturity date. After that, you will be able to get the principal amount and the rate of return on the fixed date mentioned in the terms.
The government issued such bonds to raise funds or get a loan from the general public. These financial assets are with low liquidity.
Insurance
Insurance policies are also one type of financial asset. They are for financial protection or the protection of certain events like health, accidental death, education, marriage, and much more. At the time of that event, you can convert it into cash as required and decided on the terms or conditions—the risk and the possibility that cover the policy defines the value.
Certificate of deposit
The banks usually issue certificates of deposit to the depositors. In this, you have to keep the promise in the bank for a particular period, and the bank will pay the interest in return. Such certificates have a maturity period that will benefit depositors from enjoying the attractions.
Equity shares
Equity shares are financial assets that provide the owner the right to receive dividends, stock capital appreciation, and vote. Those who have equity shares are linked with the business's maximum interest. At the time of liquidation, an equity shareholder has the claim and right to claim over the assets.
Mutual funds
In mutual funds, small funds are collected by the investors and then traded in the financial markets at large. They are usually sold in equity, commodity, real estate, and foreign exchange markets. The participants receive the percentage of return against the amount of investment in mutual funds.
The profit or loss value is evenly divided among each mutual fund holder as per the size of their investment. Investors of mutual funds can withdraw the investment amount on demand with the notice of the agreed period as per agreement.
Derivatives
Derivatives are financial assets derived from the underlying assets. The value of that particular asset is traded and provides opportunities to earn money. Such financial assets are used by hedgers, speculators, or arbitragers to cash the opportunities and protect funds. Common derivatives are futures contracts, option contracts, and swap contracts.
Benefits of investing in financial assets
Investing in financial assets will add value to the business and personal equities. Moreover, they are quickly or readily convertible assets at the time of need. People choose financial help for most of the reasons. Here are some that will give benefits:
Highly liquid
One of the critical characteristics of financial assets is liquidity, which makes them remarkable in choice. The investments are easy to convert into assets and cash anytime without delays. Such assets will help protect or manage risk by supporting business or personal activities.
Security investing
Financial assets provide a sense of security, meaning you have to pay a small amount that will be organized and easy to get back after a defined time. Moreover, the financial assets are available for trade under-regulated platforms like banks, insurance companies, central banks, mutual funds, or exchanges. Further, the sense of ease that the hard cash will be available quickly.
High returns
Financial assets come with a variety of options. You can trade in high-risk portfolios if you have high-risk tolerance and affordability. In such portfolios, there are high returns with adequate liquidity. Furthermore, you can get flexible portfolios with low-risk tolerance.
