Here we are discussing about the Concept of Assets for an Individual not for the companies or Business…
In simple words we can say that Asset is anything which can be converted into Cash or Money. Money earned from these Assets could be One time, few installments or may be regular for long tenure.
Assets can be classified mainly as:
- Current or Cash Assets: Assets, which are in Cash Form and non-cash form that are readily and easily be cold or converted in cash are Current or Cash Assets.
- Short to Medium Term Assets: These assets are kept for relatively small to medium term such as more than 3 months to 1 years or kept for more but easily convertible in cash.
- Capital Assets or Long Term Assets: These Assets are normally held for longer duration of period and requires higher amount of investment.
- Tangible Assets: Assets which we can see, touch and feel.
- Intangible Assets: Assets which we can’t see, touch and feel.
- Deferred Assets: These assets are purchased in a view to have instant or regular income in future.
People do invest in these Assets with a view to get some returns on their investments, these returns depends on the nature of the Asset, the Risk proposition attached to the Asset and the Tenure of the Investment and additional Risks available in the market.
Different Types of Assets available for Investment:
We have discussed above the 5 categories under which the Assets are classified now we will discuss all the Assets in which People do invest and we will also see that some of these Assets are falling under more than One categories. Let’s discuss them further individually:
- Cash or Cash Equivalent, Saving Accounts, Foreign Currency in Cash or Foreign Currency Account, Money Market Instruments and Cryptocurrencies such as Bitcoin: These Assets falls under the Current Assets and they are in Cash Form or can be withdrawn or transferred readily and easily from one to other account.
- Fixed Deposit, Recurring Deposit, Insurance, Mutual Funds, Shares, Stocks and Commodities and Bonds: These Assets are kept for Short to medium term or can be easily be converted into cash over a certain fixed period or maturity. Some of these assets can be uncashed early also but may lead to reduction in principal or applicable fee. Few of these products are market linked and may give negative return if we break during the fixed maturity.
- Precious Items such as Silver Jewelry & Silver Coins, Gold Jewelry & Gold Coins, Platinum and Diamond: Usually these assets are treated as Cash Equivalent as can be converted into cash readily basis. People do invest in Precious items with a view to keep them for long, or may en-cash them in case of hard times or emergencies. In India and some other countries buying these precious jewelry or items because they want to celebrate their sense of belonging to specific ethnicity or tradition, buying them is also traded as self-esteem and pride and wearing them make them feel confident and well off. The value of these assets keeps on growing.
- Real Estate Asset: Real Estate Assets are Long term Assets and sometimes they are also Deferred Assets. These Assets can be of Four types such as Residential, Commercial, Industrial and Land. These investments are usually done for longer period of time and most often these assets are transferred from one generation to other and continues to long. As Deferred Asset they may not give instant income but if given on Rent or Loan they fetch us Rent or Interest for longer tenure.
- Books, Journals, Blogs or any other such contents: These are Tangible Assets, People with high talent create these assets and earn Royalty till the time they are sold.
- Peace of Art such as Paintings, Photograph, Sculptures, Masterpiece or have some historical significance: These Assets are Possessed for Long Term and are created by renounced artists or have some significance in history and these Assets hold huge value to their owners if sold.
- Copyrights and Trademarks, Personal Knowledge and Skills and Services to others: These assets are termed as Intangible Assets, as they cannot be seen, touched and felt but have some monetary value for which they can be exchanged or traded.
- Investment in Own Business of other Peoples Business: This is Long term Asset and sometimes Differed Asset too, as the objective to invest in business is long term and the returns start after some period of time. Investment in Startups and new Business of others is a latest trend in Investment as the returns in these business if they sustained, survived and grown is huge as compare to other Assets.
We have not touched upon the income and returns on these Assets as all these Assets fall under the different categories and there is no set pattern to compare the returns on these Assets. We will further discuss in our future articles on Investment and Returns and compare them in the same asset class and share the detailed comparison.
Most of the financial experts agree that the most effective investment strategy is to diversify investment into multiple asset categories depending upon the level of Risk you can take, the Tenor up to which you want to invest, Goals or objective behind the investment and the preference you have for the investment. Diversification is a technique to diversify your risk or reduce it and reduce the risk of volatility also, there is no guarantee that diversification will protect against any loss of income.