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Investment Securities
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles
J Woelfel
(We recommend this as work of authority.)
Generally,
all classes of bonds and stocks, regardless of quality. In the strict sense, however, INVESTMENT securities are those
obligations and equities whose characteristics are distinctly or predominantly
conservative.
General
tests of investment securities are as follows.
- Security
of principal, which depends upon the character of the issuer, nature
of the business, type of security, class of lien, nature of the collateral
pledged, protective provisions in the mortgage or indenture, and provisions
for recourse in the event of default.
- Regularity
of income, which depends upon the nature and stability of the business,
and type of security.
- Fairness
of yield, a relative factor.
- Efficiency
and conservatism of management, an intangible factor of basic importance.
- Marketability,
which depends on such factors as legality for investment by fiduciaries,
degree of seasoning, and maintenance of active listed or unlisted markets
for the issue.
- Investor
convenience, including collateral value or acceptability as security
for loans, acceptability of denomination and maturity, registration
privilege, place of payment of interest and principal, exemption from
taxation, and inter-changeability of denominations.
- Financial
factors of safety, depending basically upon equities, earning power,
and position in capitalization.
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