What is an Investment Product
An investment product is a product offered to investors based on an underlying security or group of securities that is purchased with the expectation of earning a favorable return. Investment products are based on a wide range of underlying securities and encompass a broad range of investment objectives.
BREAKING DOWN Investment Product
Investment products are available for individual and institutional investors. Investors utilize investment products to meet various investment goals and objectives. A wide range of investment products exist within the investment universe to help investors meet short-term and long-term investment goals. Overall, investors purchase investment products for their capital appreciation potential and income paying distributions.
Capital appreciation and income distribution are two standard classifications for investment products. Some investment products are purchased by an investor primarily for their potential to increase or appreciate in value over time given specified growth factors. Other investment products may have an additional income paying component. Fixed income investments such as bonds and commingled bond funds offer investors the opportunity to purchase an asset that may increase in value while also paying out fixed interest payments or capital distributions. Other income paying investment products include dividend-paying equities, real estate investment trusts and master limited partnerships. Modern portfolio theory suggests that an investor have a diversified portfolio of investments including a variety of investment products to obtain an optimal risk-return reward for their investments.
Investment Product Offerings
Below are some examples of investment products offered in the investment universe.
Stocks and stock funds – Stock investments represent equity ownership in a publicly traded company. Companies issue stock as part of a capital raising regime which funds the operations of the company. Stock investments have varying growth prospects and are typically analyzed based on characteristics such as estimated future earnings and price-to-earnings ratios. Stocks can be classified in various categories. Stocks may also offer dividends adding an income payout component to the investment. Stocks funds are a common investment product that include a diversified portfolio of stocks managed by a portfolio manager with a specific objective.
Bonds and bond funds – Bonds are one of the most well known fixed income products. They can be offered by governments or corporations. They are also issued as part of a company’s capital raising regime. Bonds pay investors interest in the form of coupon payments and offer full principal repayment at maturity. Investors can also invest in bond funds which include a portfolio of bonds managed by a portfolio manager for various objectives. Bonds and bond funds are typically classified by a credit rating which offers insight on their capital structure and ability to make timely payments.
Derivatives – Derivatives are investment products that are offered based on the movement of a specified underlying asset. Put or call options on stocks and futures based on the movement of commodities prices are a few of the market’s leading derivative investment products.
Within the investment market, investment products can be structured in various ways. Thus, investors have a wide variety of options in addition to buying an investment product focused on the movement of a single security. Structured investment products can include mutual funds, exchange traded funds, money market funds, annuities and more. In the U.S. and globally, investment products are highly regulated requiring substantial documentation to provide investors with a detailed understanding of investment products for which they may choose to invest.