What are financial and real assets?


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A bewildering range of investment alternatives is available. They fall into two broad categories, viz., financial assets and real assets. Financial assets are paper (or electronic) claims on some issuer such as the government or a corporate body. The important financial assets are equity shares, corporate debentures, government securities, deposit with banks, mutual fund units, insurance policies, and derivative instruments.

Real assets are represented by tangible assets like residential house, commercial property, agricultural farm, gold, precious stones, and art objects. As the economy advances, the relative importance of financial assets tends to increase. Of course, by and large the two forms of investments are complementary and not competitive.

Although the discussion is fairly up to date, the rapid changes in the world of investments leads to the creation of new investment alternatives. If you understand the basic characteristics of major alternatives currently available, you will have the background to understand new alternatives as and when they appear.


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