2) The impact of the four forms of investment and shares

• The impact of RSA Retail Savings Bonds/ Government Retail Bonds

  • South African Government offers its citizens the opportunity to invest in saving bonds as a strategy to encourage savings.
  • Two types of retail savings bonds named, fixed rate and inflation linked retail savings bonds.
• The impact of RSA Retail Savings Bonds/ Government Retail Bonds

  Positives:

  • Investment is available to people from all income groups.
  • Investor receives interest payments twice a year from government.
  • Investor has free access to his investment and may withdraw cash after first year of investment.

  Negatives:

  • Investors do not have the option of freely exchange retail bonds amongst themselves.
  • People younger than 18 do not have option of investing in this form of investment.
  • Investment type cannot be offered as form of security in return for loans from financial institutions.
• The impact of unit trusts

  • Collection of investment options made up of shares in different companies.
  • Can be bought directly from accredited service providers.
• The impact of unit trusts

  Positives:

  • Lowers the potential risk and allows more people to invest in the fund.
  • Amounts that may be invested each month varies from small amounts to big amounts.
  • Investors have free access to funds and may convert them to cash in event of an emergency.

  Negatives:

  • Investment option is not suitable for investors who want to evade risks.
  • Investment option is not recommended to investors who want to invest for limited period.
  • Share prices, as rule, are subject to fluctuations, which may increase the risk of this type of investment.
• The impact of shares

  • Shares of listed companies are traded on the JSE.
  • Shares give holder one vote per share and the right to receive a dividend.
  • Shares can be bought/ sold through stock brokers to whom a fee will be paid by the investor.
• The impact of shares

  Positives:

  • The shares can be freely sold and purchased on the JSE.
  • Investors have voting rights at the Annual General Meetings of the public company.
  • Investors return on investment is based on financial performance of the company.

  Negatives:

  • Investors must rely on the goodwill of the company to declare a dividend.
  • Value of dividends declared by the company is determined by the directors of the company.
  • Shareholders could lose their investment should the company be declared insolvent, making risk high.
• The impact of fixed deposits

  • Very conservative method of investment at a fixed rate for a fixed period at financial institution/bank.
  • Money cannot be withdrawn during the period of the deposit.
• The impact of shares

  Positives:

  • The return on investment of this type of investment is higher.
  • The duration of the investment period is determined solely by the investor.
  • Investors earn better return on investment than on an ordinary savings account.

  Negatives:

  • Penalties may be charged for early withdrawal.
  • Return in investments may be lower than the general rate of inflation.
  • Investor doesn't have access to any funds invested until the end of the investment period.
• Type of share

  Ordinary shares

  • Ordinary shares only receive dividends when profit is made.
  • Normally the higher the net profit, the higher the dividend.
  • Shareholders have a right to vote at the Annual General Meeting/ AGM.
• Type of share

  Preference shares

  • A fixed rate of return is paid on this type of shares.
  • Some of these types of shares receive dividends regardless of whether a profit is made.
  • Voting rights are restricted to particular circumstances.
• Type of share

  Bonus shares

  • Payment in the form of shares to shareholders.
  • Issued as compensation for unpaid dividends.
  • Shareholders will own more shares and collect more dividends in the future.
• Type of share

  Founders shares

  • Issued to the founders and incorporators of the company.
  • Receive dividends after all other shareholders were paid.
• Types of preference shares

  Participating preference shares

  • Investor is certain of receiving a minimum fixed dividend from the company.
  • Any surplus profit the company may have made must be shared with the investor.
  • Investor entitled to receive higher dividend payment if the company makes a higher profit.
• Types of preference shares

  Non-participating preference shares/ Ordinary preference shares

  • Do not share in any surplus profit the company may have made.
  • Investor is certain of receiving a minimum fixed dividend from the company.
  • Investor not entitled to receive higher dividend payments if the company makes a higher profit.
• Types of preference shares

  Cumulative preference shares

  • Investors receive payments for past dividends that were not paid out because of poor financial performance by the company.
• Types of preference shares

  Non-cumulative preference shares

  • Investors will not receive payments for past dividends that were not paid out because of poor financial performance by the company.
• Types of preference shares

  Redeemable preference shares

  • Investors can sell the shares back to the company they bought from at fixed price should the company desire.
• Types of preference shares

  Non-redeemable preference shares

  • Investors can sell the shares back to the company they bought them should the company close down for reasons other than bankruptcy.
• Types of preference shares

  Convertible preference shares

  • Investor can convert shares into fixed number of ordinary shares on future date determined on the date the shares were issued.
• Types of preference shares

  Non-convertible preference shares

  • Investor can convert the shares into fixed number of ordinary shares.