Non-Equity Investments: What Are They?

Non-equity investments are investments that do not reflect ownership. They are typically debt instruments such as bonds or bank deposits. Non-equity investments are usually issued by companies, government agencies, and other entities, and they offer the benefit of greater stability compared to equity investments. Examples of non-equity investments include government bonds, corporate bonds, and bank deposits. Non-equity mutual funds are another type of non-equity investment, which focuses on investing in financial instruments other than company shares or equities, such as debt securities, treasury bills, and other fixed-income instruments.

Characteristics of Non-Equity Investments

Non-equity mutual funds

Another type of non-equity mutual fund is a commodity mutual fund, which invests in physical commodities like gold, silver, or agricultural products. These funds provide investors with exposure to the commodity market without requiring direct ownership of the physical assets.

Overall, non-equity mutual funds offer investors a way to diversify their portfolios, access professional fund management, and benefit from the stability often associated with non-equity investments. These funds can provide a more conservative approach to investing, particularly attractive to those seeking consistent returns with lower risk.

Debt instruments

• Credit facilities: Mortgages, loans, lines of credit, and credit cards.
• Fixed-income assets: Bonds and debentures. Bonds are a common type of debt instrument used by governments and corporations to raise capital. They are issued with a fixed interest rate and are generally unsecured. Debentures, on the other hand, are often used to raise short-term capital for specific projects and are backed only by the credit and trustworthiness of the issuer.
• Treasury securities: These include treasury bills, notes, and bonds, which are issued by the government to raise capital. Treasury bills have maturities ranging from a few days to 52 weeks, while treasury notes and bonds have longer maturities, typically ranging from two to 30 years.
• Corporate bonds: These are issued by corporations to raise capital and usually have different maturities, influencing their interest rates.
• Mortgage-backed debt: These are debt instruments where the underlying asset is real estate, which acts as collateral.

Non-equity options

Non-equity mutual funds are another example of non-equity investments. These funds focus on investing in financial instruments other than company shares or equities, such as debt securities, government bonds, treasury bills, and other fixed-income instruments. They are popular among conservative investors seeking stable returns and lower risk. Non-equity mutual funds also provide investors with the benefit of diversification and reduced exposure to the volatility of the stock market.

Entrepreneurs, particularly small business owners, often rely on non-equity sources of financing, such as debt, to fund their ventures. This may be due to the unavailability of equity capital or the desire to avoid ownership dilution and governance constraints associated with equity investments.

Government bonds

There are several types of government bonds, including:

• Municipal bonds: Issued by local governments to fund infrastructure, libraries, or parks. These often carry tax advantages and exemptions for investors.
• US Savings Bonds: Offered by the US Treasury, these bonds have a fixed rate of interest and double in value if held for 20 years.
• Treasury Bills (T-Bills): Short-term securities with maturities from four weeks to 52 weeks. They are sold at a discount or face value and pay the investor the face value upon maturity.
• Treasury Notes (T-Notes): Intermediate-term bonds with maturities of two, three, five, or ten years. They provide fixed coupon returns and typically have a face value of $1,000.
• Treasury Bonds (T-Bonds): Long-term bonds with maturities between 20 and 30 years. They pay interest semi-annually and have a minimum investment of $100.
• Treasury Inflation-Protected Securities (TIPS): Indexed to inflation, TIPS protect investors from rising prices. The principal increases with inflation and decreases with deflation, following the Consumer Price Index (CPI).

Fixed-income instruments

The most common types of fixed-income instruments are government and corporate bonds. Bonds are loans made by investors to governments or companies, which promise to repay the principal amount (also known as the face or par value) on a fixed maturity date and to make regular interest payments, usually every six months. Bonds can be purchased directly or through fixed-income exchange-traded funds (ETFs) and mutual funds.

In addition to bonds, there are several other types of fixed-income instruments, including:

• Treasury bills (T-bills): Short-term debt instruments issued by federal governments, typically maturing within one year and highly liquid.
• Treasury notes (T-notes): Similar to T-bills but with maturities between two and ten years, and sold in multiples of $100.
• Treasury bonds (T-bonds): Similar to T-notes but with maturities of 20 or 30 years.
• Municipal bonds: Issued by state or local governments to finance local expenditures and may offer tax-free benefits to investors.
• Corporate bonds: Offered by companies, with the price and interest rate depending on the company's financial stability and creditworthiness.
• Certificates of deposit (CDs): Offered by financial institutions, with maturities of less than five years and typically higher rates than savings accounts.
• Guaranteed investment certificates (GICs): Notes issued by a trust company with a fixed yield and term, often insured for interest and principal.
• Mortgage-backed securities (MBS): Investments that combine residential mortgages and government bonds, providing investors with monthly income consisting of principal and interest payments.

Frequently asked questions