TYPES OF

INVESTMEN
T
BUSINESS FINANCE
QUARTER 2 – MODULE 1
 1. How savings (i.e., Php 10,000) could have
grown under different types if investments

Investment Type Holding Value of Php 10,000 Today % Return

Period
Bank (Time deposit) 10 years PHP14,000 40%
Stocks (Universal Robina 10 years PHP140,500 1,305%
Corporation “URC”)
Stocks (DMCI Holdings, Inc. 12 years PHP3,204,878 31,949%
“DMC”)
Mutual funds (Philequity PSE 5 years PHP23,426 134%
Index Fund)
Mutual funds (Sunlife 5 years PHP20,805 108%
Prosperity Philippine Equity
Fund)
• Bank (Time Deposit )
• Stocks (Universal Robina Corporation “URC”)
• Stocks (DMCI Holdings, Inc. “DMC”)
• Mutual funds (Philequity PSE Index Fund and Sunlife
Prosperity Philippine Equity Fund)
2. How many loses value in buying material things such as
toys, gadgets, etc.
Item Purchase Holding Value Today % Return
Price Period

iPhone 4 32gb PHP29,200 3.5 years PHP8,900 -70% return

(October 2011)

PlayStation 4 PHP22,500 1.5 years PHP18,000 -20% return

(November 2013)

Toyota Vios PHP850,000 7.5 years PHP300,000 -65% return

(December 2007)
 • Commitment of money that is expected
to generate additional money.
WHAT IS AN • Investment is the application of money or
INVESTMENT? other assets in the hope that in the future
it would appreciate or generate more
income.
 THE DIFFERENT TYPES OF INVESTMENTS WILL BE
GROUPED INTO THREE:

1. FIXED INCOME AND EQUITIES

2. ALTERNATIVES TO FIXED INCOME
AND EQUITIES
3. OTHER INVESTMENT ASSETS
FIXED INCOME AND EQUITIES
1. STOCKS (EQUITY)
Type of security that signifies ownership in a corporation and represents a claim
on part of the corporation's assets and earnings.

ADVANTAGES:
• Unlimited Upside

DISADVANTAGES:
• No guaranteed returns.
• Riskiest of all assets (can lose even more than 50% of their money in one day)
 For example:
•  X Corp is an e-commerce listed company in the Philippines. The following are its stock
trading price over 2 years.
Date Open High Low Close

January 1, 2017 Php 1,940.00 Php 1,980.00 Php 1,920.00 Php 1,950.00

January 1, 2018 Php 2,250.00 Php 2,350.00 Php 2,200.00 Php 2,300.00

January 1, 2019 Php 2,500.00 Php 2,650.00 Php 2,450.00 Php 2,600.00

• If Mr. Y has purchased 10 X Corp shares on 1st Jan’17 at Php 1940/share, the investment valu
is Php 19,400, the same share price on 1st Jan’19trades at Php 2600/share, the value of the
investment increased to Php 26,000. The capital appreciation over 2 years is Php 6,600 which
is 34%. The risk in this investment is high, so the returns are also high.
2. BANK DEPOSITS (FIXED INCOME)
Money placed into a banking institution for safekeeping.

ADVANTAGES:
• Known income based on outstanding principal and current interest rate.
• Shorter, if any, holding period vs. bonds.

DISADVANTAGES:
• Lower interest income vs. bonds
• Settlement risk if the bank closes

FOR EXAMPLE:
• Mr. B deposited Php 1 Million in XY bank which pays 10% interest per annum. This
is a one-year deposit plan. On completion of one year, Mr. B will be paid Php
100,000 as interest and Php 1 Million the initial deposit value.
 REMEMBER
• Settlement risk is a risk that the bank may not be able
to give back their deposit. Philippine banks are
normally insured by the Philippine Deposit Insurance
Corporation (PDIC). Depositors may recover up to
PHP500,000 per depositor from PDIC in case of bank
default/bankruptcy.
3. BONDS (FIXED INCOME)
 Debt investments where an investor loans money to an entity which borrows the funds for
a defined period of time at a variable or commonly, fixed interest rate.

ADVANTAGES:
• Known periodic payments for a certain period of time
• Can’t lose money if bond investment is held until maturity

DISADVANTAGES:
• If not held until maturity and pre-terminated, investor can gain or lose depending on the
prevailing interest rates at the time of pre-termination. If interest rates are higher, investor
in bonds can lose in the pre-termination.
For example:

• HS bank issues bonds. Mr. A purchases a 5-year Php 1 Million HS bond with a
10% coupon rate.

This investment plan makes HS bank pay Mr. A, the interest of Php 100,000 every
year for 5 years and at the end of the 5th year, Php 1 Million will be paid back to
Mr. A.
 • STOCKS
• Go to a stock brokerage firm (i.e., COL Financial, AB
Capital Securities, etc.) or a bank with a stock brokerage
arm (i.e., BPI Trade, First Metro Securities, etc.) and open a
How to access stock market account by signing the necessary account
opening forms.
these investment • Minimum capital amount, depending on the broker, will be
assets? required to be deposited to successfully open the account
(i.e., PHP5,000 for BPI Trade, PHP10,000 for AB Capital
Securities, etc.).
• Most of these stock brokerage firms now provide online
access to their client’s stocks account (i.e.,
www.colfinancial.com, www.bpitrade.com,
www.abcapitalsecurities.com.ph, etc.).
 • BANK DEPOSITS
• Go to a bank (BDO, BPI, Metrobank, etc.) and open a
bank account (savings, time deposit, etc.) by signing the
necessary account opening forms.
How to access • Minimum amounts will also be required depending on
these investment which bank and the type of bank deposit they want to open.
assets?
• Some banks also now offer online access to their client’s
bank accounts (i.e. www.bpiexpressonline.com,
www.bdo.com.ph, www.lbpiacces.com, etc.) where they can
monitor their account, pay bills, transfer funds, etc. via
internet.
 • BONDS
• Same as bank deposits, go to a bank and sign the necessary
bond acquisition forms.

How to access
• Minimum purchase of bonds is normally higher relative to
these investment stocks and bank deposits.
assets?
• Clients may also view their bond’s performance online
depending on which bank they bought it from.
 ALTERNATIVES TO FIXED INCOME AND EQUITIES
1. MUTUAL FUNDS
An investment that is made up of a pool of funds collected from many investors for
the purpose of investing in stocks, bonds, and similar assets.

ADVANTAGES:
Give small investors access to professionally managed, diversified portfolios of
equities, bonds and other securities, which would be quite difficult (if not impossible)
to create with a small amount of capital

DISADVANTAGES:
Pay management fees
Values can also fluctuate just like the stock market
For example:
2. UNIT INVESTMENT TRUST FUND (UITF)
Similar to a mutual fund but is managed by banks.

ADVANTAGES:
Same as mutual funds.
Easier access because clients can open an account in any branch of the bank near
them.
No entry and management fees.

DISADVANTAGES:
No shareholder rights for investors such as dividends and voting rights.
 • MUTUAL FUNDS

• Go to an insurance company or a financial institution

that offers mutual funds (i.e., Philequity, Sunlife,
Manulife, etc.) and sign the necessary account opening
How to access forms.
these investment
assets? • As with stocks, minimum amounts will be required to
successfully open the account.

• Some of these financial institutions also provide online

access to monitor their mutual fund performance
 • UNIT INVESTMENT TRUST FUND

How to access • Same procedures as a mutual fund except that UITF’s

these investment are accessed through banks.
assets?
 REMEMBER
• Management Fee – the amount clients pay to the professionals who
manage their mutual funds, normally a certain percentage of portfolio
value.

• Dividends – distribution of the company’s income to its shareholders.

• Voting Rights – right to be heard on certain policies that the company

wants to implement.
OTHER INVESTMENT ASSETS
1. CURRENCIES
Generally accepted form of money, including coins and paper notes, which is
issued by a government and circulated within an economy (i.e., USD, EUR, JPY)

ADVANTAGES:
Largest market in the world in terms of trading volume, so much liquidity
 Unlike stocks, commodities, etc., currency asset itself is a medium of exchange
which people can use to transact

DISADVANTAGES:
 Volatile and trades 24-hours a day (must be closely monitored)
 Generally, uses margin trading which allows clients to bet more than their capital
(may also be an advantage)
2. COMMODITIES
A basic good used in commerce that is interchangeable with other commodities of
the same type” (i.e., gold, nickel, oil)

ADVANTAGES:
Natural hedge against inflation
Negatively correlated with equities and bonds (may be used for diversification)
Hedge against geopolitical risks

DISADVANTAGES:
Same as currencies
Impractical to invest directly considering storage, transportation and insurance
costs involved
3. REAL ESTATE
Land and any improvements on it (i.e., land, house and lot, condominiums)

ADVANTAGES:
Generally, appreciates over time because land gets scarce
Have relatively low correlations with other asset classes (may be used for diversification)
Can be a source of recurring rental income
May also be a hedge against inflation because of inflation-linked rent escalation clauses

DISADVANTAGES:
Huge capital needed, financing can be difficult
Maintenance of the property needed to preserve its value
Illiquid or difficult to sell
4. INSURANCE
A contract (policy) in which an individual or entity receives financial protection or
reimbursement against losses from an insurance company (i.e., life insurance, educational
plans, VUL)

ADVANTAGES:
Gives the insured individual/entity the cash/capital to deal with unforeseen adverse
financial consequences
May provide certain tax benefits (i.e., tax deductibility, tax-free provisions)

DISADVANTAGES:
Insurance premiums may be costly
On some of traditional insurance plans, no sickness/death until a certain age may mean not
getting any benefits at all (that’s why VUL’s are now very prevalent)
Some insurance companies can go bankrupt (i.e. College Assurance Plan) if companies fail
to factor significantly adverse unforeseen
circumstances
 • CURRENCIES AND COMMODITIES

• Open a foreign currency/forex account (i.e., oanda, fxcm,

How to access cboe, etc.) online.
these investment
assets? • Minimum amount required for forex accounts vary and
are usually higher vs. stocks and usually in USD.

• Investments may also be monitored online.

 • REAL ESTATE

How to access • Contact/visit real estate companies directly (i.e., Ayala

Land, Megaworld, SM Prime, etc.).
these investment
assets?
• Contact real estate brokers.
 • INSURANCE

How to access • Contact/visit insurance companies directly (i.e. Sunlife,

Prulife, Manulife, etc.).
these investment
assets?
• Contact insurance agents.
 • Liquidity – ability to be converted into
cash, the higher the liquidity the better.
Margin
• Trading – allows clients to trade more
than their capital. It can magnify both
DEFINITION earnings and losses. Inflation – general
increase in prices.
OF TERMS • Hedge – investment that reduces the risk
of adverse price movements in an asset.
• Diversification – process of investing in
different kinds of assets to lessen exposure
in market/price volatility.
 • Geopolitical risks – “risks of one
country's foreign policy influencing or
upsetting domestic, political, and social
policy in another country or region”
• Correlation – how price of an asset
DEFINITION moves with respect to another asset (i.e.
OF TERMS positive correlation if both assets move in
the same direction, negative correlation if
both assets move in the opposite direction)
• Escalation Clause – agreement to raise
prices in the future depending on certain
circumstances (i.e. increase in inflation
leading to higher rental rates).
 • Insurance Premium – the amount
paid on a regular basis to the
DEFINITION insurance company in return for the
insurance/protection provided.
OF TERMS • VUL – Variable Universal Life
insurance or a life insurance that
offers both death benefit and
investment features.