There are particular means by which investors go about investing in financial instruments. While the means of investment may be basic, they may vary across investment companies.
(a) Primary market investment: An investor may purchase stocks during a company’s initial public offering when a company announces the total number of shares on offer.
The investor determines the number of shares to buy at the specified offer price and gives a purchase order to a stockbroker, who then executes the transaction on the investors’ behalf.
(b) Secondary market investment: After all shares have been issued during the initial public offer, investors may trade (buy and sell) shares in the secondary market.
The investor now looks at the price at which the stock is being traded on the stock exchange and determines whether to buy or sell. The selected order is given to a stockbroker, who executes the transaction on the investor’s behalf.
(a) Primary market investment: When the government raises capital by issuing a bond (whether in foreign or local currency), investors may subscribe directly to the Bank of Jamaica (depending on the type of bond) or through certain investment companies.
The investor completes the application process and subscribes directly or the investment company obtains the bond on behalf of the investor. Following the application process, the investor receives a bond certificate.
(b) Secondary market investment: For bonds previously issued, the investor may look at the prices that exist in the market and determine whether to buy or sell. The selected order is given to a broker at an investment company, who executes the transaction on the investor’s behalf.
To invest in a mutual fund, the investor completes the required application process and takes the dollar amount needed to fill the purchase order to the investment company, which invest on their behalf.
In addition to the total amount (in USD) needed to purchase the desired number of shares, in order to own shares in a Fund, investors are required to pay fees on purchase.
To invest in a Unit trust, the investor completes the required application process and takes the dollar amount needed to fill the purchase order to the investment company, which invest on their behalf.
Besides the total amount (in Jamaica dollar) needed to purchase the desired number of units, investors are not required to pay additional fees on purchase.
If an insurance policy with an investment component is selected, the investor determines the preferred investment (whether equity or a combination of securities**) and indicate their choice in the application process.
The investor decides the level of insurance coverage desired and may choose to attribute a smaller or larger portion of the insurance premium to the investment component. In so doing, the investor indicates the amount of funds to be invested on a monthly basis. These funds are invested on the investor’s behalf.
**Some insurance companies offer a savings component that is interest rate sensitive.