Investment certificates and ETFs, i.e. ...

Investment certificates and ETFs (Exchange Traded Funds) are two popular forms of financial investment that allow you to diversify your risk and manage your investment portfolio more comprehensively.

Investment certificates are securities issued by financial institutions that, after collecting funds from various investors, invest them in various financial products (e.g. shares, bonds). Certificate holders are entitled to the potential profits from these investments without personal involvement and management of the investments. For this reason, investment certificates are extremely attractive for novice investors who do not have the appropriate knowledge and for people who want to invest, but do not have time to constantly monitor and manage their investments. Certificates are issued by companies that want to raise additional funds without reselling shares. The money obtained in this way can be spent for various purposes, the main task of which is to develop the company and increase the company's profits. The Issuer undertakes to return the invested funds, i.e. the value of the purchased certificates together with the interest rate specified in the agreement or a share in the profits from the project, if any. Certificates can be further secured with various assets to reduce the risk of losses on the investment.

ETFs are exchange-traded mutual funds that track market indices, industry sectors, or other collections of assets. They are created by financial institutions that, after raising capital from investors, invest it in sets of assets, but they must be in line with a specific investment goal. Most ETFs track specific market indices to accurately replicate the performance of that index and invest in the same assets based on that. ETFs are listed on the stock exchange, so you can buy them during trading sessions, as we talk about on Webinar Universe. ETFs are mainly chosen to diversify the financial portfolio.

Their main advantages are:

• low transaction costs;
• the ability to diversify your portfolio with a single transaction;
• Reducing the risk associated with investing in individual stocks or bonds – when investing in ETFs, it can be assumed that any losses on one stock will be compensated by an increase in the value of other assets.

Certificates and other assets

The differences between investment certificates and other assets result primarily from the nature of both solutions and the resulting rights and investment risk. Investment certificates are a form of debt capital, and investors are entitled to financial benefits specified in the terms and conditions in the form of interest or a share in profits. Stocks, on the other hand, provide shares in a company, and bonds are a form of loan granted to the issuer.

Shares are burdened with the greatest investment risk, but also offer the greatest opportunities to earn. It all depends on market changes and the company's situation, which translates into fluctuations in the value of shares. Investment certificates are not burdened with such a high risk, as they provide greater capital security – usually the funds are allocated to specific assets or projects, which minimizes losses in the event of the issuer's insolvency.

Amount of profits

Returns on shares are virtually unpredictable and depend on the company's financial performance and the market situation. Investment certificates, on the other hand, provide fairly predictable and stable income, which is why they are an ideal choice for cautious investors who want a stable increase in the value of their assets.

Choosing specific forms of investment is always associated with a certain risk, so you should consider all the options carefully. The risk of losses can of course be reduced by choosing investments with a lower investment risk, such as bonds. The best solution, however, is to diversify your portfolio, i.e. invest in various forms of assets (stocks, bonds, investment certificates, ETFs), which allows you to receive profits from various sources and minimize possible losses. In this way, you can ensure stable sources of income, e.g. by purchasing bonds or investment certificates. If you have difficulties deciding on the most advantageous form of investing in your situation, it is worth seeking advice and reaching for our online training.

Certificates in legal terms

The purchase of an investment certificate is associated with specific rights and obligations, which are precisely specified in the issue agreement and the terms of the certificate. The provisions concern, among m.in, the amount of interest and the method of distribution of profits. That is why it is so important to read all the provisions in the contract before investing and only on this basis make further decisions. Issuers are legally obliged to comply with the terms of the contract and must provide investors with at least a minimum protection of capital. Investors also have the right to information on the terms of the issue, potential investment risk and the projects or assets in which the funds will be invested.

The exact conditions for investing in investment certificates also depend on the jurisdiction and type of instrument – the issuance and trading of investment certificates are subject to strict legal regulations, the main purpose of which is to protect the interests of investors.

Is it an empty shell...?

Investing in investment certificates is relatively safe, but the risk can be further reduced by choosing the right instruments. First of all, you should carefully check the issuer: its reputation, financial situation and development plans, which is exactly what we talk about at Webinar Universe. Certificates from institutions with a solid reputation and an established position on the market are associated with lower investment risk. You also need to know the terms of the agreement carefully and check what the funds will be invested in and what risk it is associated with.

Choosing investment certificates and ETFs is an excellent way to diversify your investment portfolio, which helps you get stable returns on your investment. The risk is lower than when buying shares alone, but we will not get such high profits either. Therefore, the decision to purchase investment certificates or ETFs should be well thought out and depend on individual financial goals and the adopted investment strategy.