4. Investment Products*
4.1. What is a nominal (face) value?
The nominal (face) value is the value of a security indicated on it, which is paid out on its maturity. In case of shares the nominal (face) value is the value at which the shareholder participates in the subscribed capital of the company.
4.2. What is the market price of a financial instrument?
The market price is the cash value at which a financial instrument can be sold in a certain moment in a direct deal between informed independent and willing to make a deal buyers and sellers.
4.3. What is diversification of the client’s portfolio?
Diversification of the client’s portfolio means distribution of client’s assets among different financial instruments and markets aiming at reducing the risk.
4.4.What are bonds?
Bonds are debt instruments, which are an evidence for the issuer’s obligation to pay the buyer their nominal (face) value plus a certain interest (coupon) or a number of interest payments at definite future dates. Applied interest rates can be fixed or floating.
Bonds can be sold on the secondary market usually on prices different than their nominal (face) value. Fluctuations in bond prices on the secondary market are caused by different factors.
4.5. What are shares?
Shares are securities, which certify that their owners (shareholders) participate in the subscribed capital of the shareholders’ company up to the amount of the nominal (face) value of shares. The market price of shares traded on the secondary market is usually different than their nominal value and it is defined by a number of factors. Each shareholder has the right to get a dividend, which depends on the financial results of the company and it is determined by a decision of the shareholders’ General assembly.
Shares can be personal or to the bearer, common and preferred. Shares can be also on paper or registered in the respective depositary institution (in Bulgaria it is the Central depositary) and a depositary receipt or other document, certifying the right of their ownership, is issued.
4.6. What are shares of UCITS?
Shares of UCITS, which are also known as collective investment schemes or mutual funds, are a mechanism that gives possibility to a big number of investors to unite their assets and to leave them for a professional management to an independent manager. Buying shares of UCITS is an alternative of direct investments in different types of assets, which is practically impossible or unprofitable if the client does not have much funds at his/her disposal. This type of investment allows portfolio diversification and a choice of appropriate individual levels of risk. The collective investment scheme buys back the issued units at a price based on the net asset value, which depends on market fluctuations of the prices of different assets in the portfolio
4.7. What are derivatives?
Derivatives are financial instruments, whose value changes as a result of the value change of a concrete underlying asset, e.g. a bond, share, stock, interest rate, credit index, etc. Derivatives require a small initial investment compared to the direct investments in the underlying assets. Derivatives can be used for limiting risks in investments in definite instruments but trading with derivatives requires profound financial knowledge by the investors and for that reason when choosing such an investment it is recommended to get advice and consultations by professionals.
4.8. What is wealth management?
Wealth management is a service where the depositor gives the bank a certain amount of money for management and on the basis of a concluded contract for wealth management and the bank takes a decision to invest this money in certain types of assets. The yield in this case is not guaranteed and it depends on the yield gained on the chosen financial instruments.
4.9. What are custody services?
Custody services represent granting funds and securities to an investment intermediary (bank) for storing, making transactions and transfers at client’s order and respectively giving the right to the investment intermediary to exercise the rights on securities (collecting dividends, participation, voting in the shareholders’ General Assembly, tax payments and repatriating income from it) in an amount according to the their rights. Custodian services are directed mainly to institutional clients – pension funds, investment companies, mutual funds, etc. They are used more often by foreign clients who own securities traded on the local market and vice versa – by local clients who own securities that are traded on exchanges outside Bulgaria.
4.10. What is a market-maker?
The market-maker is physical or legal person that is constantly at the financial markets in order to trade for his own account by buying and selling financial instruments with own funds at prices defined by him.
4.11. What is the primary market of financial instruments?
The primary market of financial instruments is the market where financial instruments are initially issued and placed for the first time.
4.12. What is the secondary market of financial instruments?
The secondary market of financial instrument is the market where already issued and initially acquired financial instruments can change many times their owners. The stock exchange is a typical example of a secondary market but the secondary market can also exist outside the stock exchange (OTC market).
*This information has only educational purpose.