functions of JSE Factors that should be considered

when making investment decisions

Serves as a barometer/indicator of
economic conditions in South Africa. • Return of investment (ROI)
Keeps investors informed on share prices by • Risk
publishing the share prices daily. • Investment term/period
Acts as a link between investors and public • Inflation rate
companies.
• Taxation
Shares are valued and assessed by experts.
• Liquidity
INVESTMENT PERIOD
HIGH RETURNS ACCRUE TO THE INVESTOR
WITH LONG TERM INVESTMENTS
THE CHOICE OF THE INVESTMENT PERIOD Return on investment
WILL DEPEND ON THE PERSONAL
CIRCUMSTANC
High risk investments yield higher returns.

Will be higher if the risks involved in the

investment are high

Risk
Shares have low risk over a longer investment
period.
Liquidity
Shares with higher risks have a greater
 An amount could be invested in a type of
potential for higher returns
investment that can easily be converted
to cash.
 It is used to describe the ease and
speed with which investors can convert
an investment into cash.

Inflation rate
People are affected by a high inflation rate,
because their purchasing power decreases.
The return on investment should be higher
than the inflation rate. Taxation
 Tax rates are not necessarily the same
for different investments.
 Investors must take note of the fact that
different tax rate are applicable for each
form of
investment.


 Types of investments opportunities and risk factors

Mutual funds/Stokvels
● Stokvels are established by a small
group of people who voluntarily make  Money in a savings account is a safe
contributions into a savings fund. investment, but with low interest rates/the
● Each member takes a turn to draw from returns are low.
the stokvels for their own personal gain.

Managed portfolio
● An investor instructs a financial
institution to manage his various  Risk is lower over a longer term/period.
investments in one portfolio The
financial advisor has full control over the
investments in the investor’s portfolio
and may change investment options
based on their performance in the
market.

32-day notice accounts/Call Low risk, as investment plus interest will be

Deposits paid out on the maturity date of investment
 Money is invested at a fixed rate,
although withdrawals may be made
provided the bank is given 32 days'
notice of the withdrawal
 The investor earns interest at a higher rate
than what he/she would have earned if the
investment was made into savings
account.

Debentures  Debentures have a low risk as they

 It is issued to raise borrowed capital need to be paid pack.
from the public.
 Most types of debentures can be
traded on the JSE.
 Business Ventures/Venture  High risk for the investor(s), if research
capital is not properly done.
 Venture capital is given by an investor
to start up a business in return to have
a share in the new business.
 Buying a franchise will be successful, if
the investors has done proper research
 Endowment/Life insurance
policies/Retirement Annuities
 A monthly payment is paid to an insurance Low risk, as the insured amount will be
company with the expectancy of receiving a pre- paid out regardless of circumstances
determined amount on a date in the future.
 This investment provides his dependants with
financial security in the event of his/her death.

Forms of investments
RSA retail savings bonds UNIT TRUST

POSITIVES
 Interest rates are market related and POSITIVES
attract more investors.
 Interest can be received twice a year  Managed by a fund manager who buys
making it a viable investment option shares on the stock exchange/JSE.
NEGATIVES  A small amount can be invested per month.
NEGATIVES
 Retail bonds cannot be ceded to banks  Not good for people who want to invest
as security for obtaining loans. for a short period
 Retail bonds are not freely transferable  Not good for people who want to avoid
amongst investors.
Impact
 of shares/Ordinary shares risks at all costs.
POSITIVES
 Can be freely transferred on the JSE. Impact of fixed deposits
 Investing in shares provides
POSITIVES
protection against inflation.  Interest is earned at a fixed rate regardless of
NEGATIVES changes in the economic climate.
 Investors can choose the investment period that
 Shareholders may receive less suits them
dividends/no dividends when company Negatives/ Disadvantages
profits are low. ● The investor doesn’t have access to any funds
 Companies have no legal obligation to invested until the end of the investment period.
pay dividends to shareholders
● Penalties may be charged for early
withdrawal.
 Ordinary shares
 Ordinary shares only receive Rights of ordinary shareholders
dividends when profit is made.  vote at the Annual General Meeting
 Normally the higher the net
 receive interim and annual reports.
profit, the higher the dividend.

Founders' shares  Bonus shares

 Issued to the founders and  Payment in the form of shares
incorporators of the company. to shareholders

Preference shares
 Some of these types of shares receive Rights of preference shareholders
dividends regardless of whether a profit is
 Receive dividends regardless of how
made.
 A fixed rate of return is paid on this type of much profits are made
shares.  They are paid first preferential rights to
dividends.
TYPES OF PREFERENCE SHARES

Participating preference shares

Shareholders are guaranteed minimum fixed Cumulative preference shares
dividends  Shareholders are compensated for past dividends
that were not paid out when profits were too low to
Non-participating preference shares declare dividends.
 do not have right to participate in profits after
equity shareholders have been paid a Non-redeemable preference shares
dividend. Shares are only bought back when the company
Non-cumulative preference shares closes down for reasons other than bankruptcy
 Shareholders are not compensated for past
dividends that were not paid out when profits
were low. Convertible preference shares
Redeemable preference shares  Shares can be converted into a predetermined
 Shares can be redeemed/ bought back at number of ordinary shares on the date specified
the option of the issuing company, either at when the preference shares were issued.
a fixed price on a specified date/over a
certain period of time. Non-convertible preference shares
 Shares cannot be converted into ordinary shares.
 Differences between ordinary and preference shares
ORDINARY SHARES PREFERENCE SHARES

 The shareholder is only entitled to receive a  The shareholders of a certain type of

return on his investment when the company preference shares are entitled to dividend
makes a profit and declares a dividend payment regardless of whether the
company declares a dividend ornot

 A higher dividend is payable to the  The Shareholder will receive a fixed rate of
shareholder if the profits are higher return regardless of the amount of profit

Investments concepts

Debentures Dividends
 it is a financial instrument that allows  The return on an investment in shares which is paid
companies to borrow money from regularly by a company to its shareholders.
the public  Dividends are decided and managed by the
● Companies that require additional company’s board of directors and approved by the
funding may access debentures on the shareholders through their voting rights.
JSE. gain
Capital
 refers to the growth in value of COMPOUND
● This SIMPLE INTEREST
property in relation to the original INTEREST
amount invested over a certain period.
● The investor is compelled to pay tax to Interest earned on the Interest earned on the
SARS on interest
Compound the additional amount of original amount original amount invested
and the interest earned in
 Interest is calculated in every period on
growth of the
property/assets/investment the preceding years is
original/principal amount plusover some
interest.
time. added to the
 As interest is added to the originalamount
investment, the capital increases. The value of the original The value of the original
amount remains the same amount increases as
Simple interest
for the duration of the additional interest is
● Refers to the amount of interest investment added in subsequent
earned based on the original years
investment of the investor.
The interest is calculated on the
original/principal amount invested

REFER TO NOTES ON CALCULATIONS ON SIMPLE AND COMPOUND INTEREST- VERY IMPORTANT