Every investor wants has two main objective he/she wishes to achieve out of investment : capital preservation and capital appreciation.

The financial instruments available for investment

The financial markets are broadly classifies as capital markets and money markets. Each of these have a different set of instruments to invest in. The capital markets provide intermediate to long financing in the form of equity or debt instruments. They have maturity of more than one year. The money market instruments are short term investments. When corporations, municipalities and the United States government need to raise funds in the short-tem, they issue securities in the money market.

The instruments that are mostly traded in money market are commercial papers (CPs), certificates of deposit (CDs) and treasury bills (T-Bills). Corporate houses use commercial paper to raise funds for short-term (usually ranges from 30 to 270 days) And investors can buy these at discounted prices for short term investment. Treasury bills are the debt raised by the U.S. government. T-bills are considered the safest investment options and have the minimum interest-rate risk. They are again very short-term maturities. CDs (Certificates of Deposit) is another vehicle for investment which offers a higher rate of interest than regular savings account. CDs are issued by corporates to raise funds for fixed period of time. The longer this period, more is the interest offered. This instrument ties down funds and early withdrawal attracts penalties.

There are various channels available for investment of funds. For safe investments, one can deposit money in savings account. This provides ease of access and the sum is insured upto a particular limit, especially in case of emergency. But the flipside is that return in the form of interests is very low, which is because of extremely low risk this