Types of formal investment

Some types of formal investment are as follows.

• Deposits
• Purchases of assets
• Purchase of shares

Deposits
Deposits are accepted by the banks and other financial institutions registered in the Central Bank of Sri Lanka. This is a very popular form of investment among small scale investors. Financial institutions have introduced various types of deposit products with numerous other benefits built into deposits to attract
depositors. Some of these deposit products are as follows.
i. Savings Deposits
ii. Time/Fixed Deposits
iii. Certificates of Deposit

• Savings Deposits

Savings are made with the intention of earning an interest and to withdraw money as and when required. This is a very feasible form of investment to any scale of investor due to following reasons.

• It is comparatively easy to open a savings account
• Deposits can be made at any time during the working hours
• Convenient physical arrangements made by the financial institutions

Example : - Post offices
                  School Co-operative societies and other school banks
                  Co-operative Rural Banks
                  Commercial Banks
                  Non banking other financial institutions

• ¯ Ability to withdraw funds anytime

Time/Fixed Deposits
A fixed amount will be invested at a fixed rate over a fixed term and this is called a fixed deposit. If the fixed deposit is withdrawn before the maturity date, the agreed interest might not be paid. Interest may be withdrawn before the maturity of the fixed deposit in frequencies such as monthly, quarterly, bi annually and annually or may be withdrawn fully at the maturity together with the capital amount. The interest
rates will vary according to the tenor and the value of the deposit. The following benefits can be enjoyed in investing in fixed deposits.

• Receiving the interest at the end of the term at the agreed rate
• A higher interest than savings will be paid on fixed deposits
• The longer the tenure of the deposit, the higher the interest rate on the deposit

Certificate of Deposits (CDs)
Certificate of deposits can be made over a fixed term at a bank or at another financial institution. CDs will also earn a higher interest than savings and the tenor of CDs are generally one year. In addition to the interest, various other gifts will be given to depositors on drawings.