Question

Discuss the factors involved in the selection of market securities.

Answer 1

Factors involved in selection of market securities are as follows-

A. Risk associated with securities - the risk level of various securities are to be analysed in advance like equity will have a higher risk than debt.

B. Return potential of various securities- equity securities are having a higher return potential than debt securities and other securities because they are highly exposed to risk.

C. Risk aversion and nature of the investor are also playing an important role in investment into various securities.

D. Liquidity is another factor which will allow the investor to quickly enter and exit into the security and he will consider it before investing into the various asset classes.

E. Time duration of investment are also considered for various investors because investor will be wanting to invest for a longer period or shorter period according to their nature and need.

F. Diversification ability of various security is also to be considered because various securities are highly diversifiable where as various securities cannot be properly diversified

G. investor will also consider his overall capital need before investment into various securities because it's overall capital will also decide the proportion of his approach towards investment in different security.