Introduction

to Asset Classes

Introduction to Asset Classes 1

What and Why of Asset Classes?
• What?
Asset class is a broad group of investments that share similarities such
as how they behave in the market, buying process, how they are
regulated, etc. Each asset class has its own risk & return profile that are
constantly being impacted by economic, political and social events

• Why?
If you are capitalistic then you already or are required to know the asset
classes! Asset classes is the key to creating wealth

2
Types of Asset Classes

Cash & Cash Alternative

1 2 Equity 3 Fixed Income 4 Real Estate 5 Commodities 6
Equivalents Investments
✓ Physical cash ✓ Standalone ✓ Government ✓ Land ✓ Gold ✓ Hedge Funds
company stocks Bonds
✓ Checking / ✓ Residential ✓ Silver ✓ Private Equity
Savings account ✓ Exchange traded ✓ Municipal
✓ Commercial ✓ Crude Oil ✓ Venture Capital
funds Bonds
✓ Fixed Deposits
✓ REITs ✓ Agriculture ✓ Crypto
✓ Mutual Funds ✓ Corporate
✓ Money market goods
Bonds ✓ Private Credit
funds ✓ Derivatives
✓ Asset-Based Generally, investors seek
✓ Art/Collectibles
✓ Treasury Bills ✓ Forex exposure via commodity
Securities derivatives
Convertible debt is the overlapping investment
product that has an option for equity conversion This list is evolving as
at maturity time passes by

3
1 Cash & Cash Equivalents
• Highly liquid, short-term assets with minimal risk, often used for capital preservation or emergency funds
• Cash: Includes physical currency (coins and banknotes) and demand deposits (funds in checking or savings
accounts that can be withdrawn at any time without penalty)
• Cash Equivalents: Short-term, highly liquid investments that are readily convertible to known amounts of cash
and have minimal risk of changes in value
o Treasury Bills (T-Bills): Government-issued securities with maturities of one year or less
Description o Certificates of Deposit: Bank deposits with a fixed term and interest rate
o Commercial Paper: Short-term, unsecured promissory notes issued by corporations to meet immediate
funding needs
o Banker’s Acceptances: Short-term credit instruments guaranteed by a bank, commonly used in IT
o Money Market Funds: Mutual funds that invest in short-term, high-quality debt instruments, offering high
liquidity and stability

• Extremely low risk of loss, making them ideal for preserving capital
Select Benefits • Immediate liquidity for easy access to funds
• Efficient capital use – earns more interest than standard checking accounts while maintaining liquidity
• Low returns, often failing to outpace inflation • Although rare, there is still a small risk of default by the
• High inflation risk issuer / banks
Select
• Minimal growth potential compared to other assets • Liquidity: Highest liquidity (easily convertible to cash)
Considerations
• Risk Profile: Very low

4
2 Equity
• Commonly referred to as stocks, represent ownership in a company. When you buy a share of stock, you acquire a fractional
ownership and certain rights such as voting on corporate matters and receiving dividends
• Apart from the common stock, equity asset class consists of –
o Preferred stock offers fixed dividends and priority over common stock in asset claims, but usually lacks voting rights
o Mutual funds pool money from many investors to invest in a diversified portfolio of stocks, bonds, or other securities;
Description Managed by professional fund managers
o ETFs are Investment funds that trade on stock exchanges, similar to individual stocks. They hold assets such as stocks,
commodities, or bonds and typically track an index
o Derivatives are financial contracts whose value is derived from the performance of an underlying asset, such as stocks, bonds,
commodities, or market indexes. They are used for hedging risk or speculative purposes.

• Historically high long-term returns (e.g., Nifty 50 averaged ~12% annually)

Select Benefits • Dividend income and ownership benefits

• Publicly traded stocks are highly liquid, allowing for easy buying and selling

• High volatility and susceptibility to market downturns

Select • Company-specific risks (e.g., management changes, industry shifts) and also carry macro economic risk

Considerations • Liquidity: High for publicly traded stocks; low for private equities
• Risk Profile: High

5
3 Fixed income
• Investments that provide regular, predictable payments (typically interest) and the return of principal at maturity

• Securities are essentially loans made by investors to issuers—such as governments, corporations, or other entities
Description
• Government and corporate bonds trade publicly (India’s debt public market was $2.69tn in Dec 2024), offering
liquidity similar to public stocks

• Predictable income stream via interest payments

Select Benefits • Lower risk than equities, especially high-quality of issuers

• Often moves inversely to equities, helping to balance portfolio risk

• Vulnerable to interest rate hikes (prices fall when rates rise)

• Corporate bonds carry credit/default risk and an asset class as whole carries macro economic risk
Select
Considerations • Liquidity: Moderate to high for government bonds; lower for corporate bonds.

• Risk Profile: Low to medium (depends on issuer creditworthiness).

6
4 Real Estate
• Real estate is a tangible asset class that includes land and any structures on it, such as homes, offices, and
warehouses. It is widely considered an alternative investment
• REITs are companies that own, operate, or finance income-producing real estate. They allow investors to invest in
real estate portfolios without directly owning property
Description o Equity REITs: Own and manage income-producing real estate (e.g., apartment buildings, offices, shopping
centers)
o Mortgage REITs: Provide financing for real estate by purchasing or originating mortgages and mortgage-
backed securities
o Hybrid REITs: Combine both equity and mortgage REIT activities

• Rental income (or dividends in case of REITs) from tenants provides reliable cash flow
• Property values can increase over time, leading to capital gains
Select Benefits • Helps diversify portfolios beyond stocks and bonds
• Good inflation hedge
• Accessibility and liquidity are better within REITs

• Illiquid (lengthy sales process)

• High transaction costs and sensitivity to economic cycles
Select
• Interest Rate Sensitivity – rising interest rates negatively impact real estate
Considerations • Liquidity: Low (not the case with REITs)
• Risk Profile: Medium to high (location-dependent) 7
5 Commodities
• Commodities are basic goods used as inputs for production or for direct consumption. They are uniform in quality
and utility regardless of their source, making them interchangeable and widely traded globally
• Play a key role in diversifying investment portfolios and acting as a hedge against inflation, as their prices often
Description rise when inflation increases. Includes precious metals, energy, agricultural products, and livestock
• These assets are traded in two ways – Physical spot markets (involves immediate or near-term transfer of the actual
commodity) and derivatives market (widely utilized mode to gain exposure to commodities through futures,
options, or commodity-focused investment vehicles such as ETFs and mutual funds)

• Hedge against inflation and currency fluctuations

• Low correlation with traditional assets (equity and bonds)
Select Benefits • Price volatility can create opportunities for significant gains
• Driven by global demand via industrialization, population growth, and technological changes

• High volatility due to supply/demand shocks (e.g., geopolitics, weather)

• Complex trading mechanics (often requires derivatives)
Select o Leverage Risk: Futures trading involves leverage, which can amplify both gains and losses
Considerations • Liquidity: Varies (gold/oil are liquid; agricultural commodities less so)
• Risk Profile: High.

8
6 Alternative Investments
• Financial assets that do not fit into the conventional categories of stocks, bonds, or cash. They are used by investors to diversify
portfolios, seek higher returns, and reduce overall risk by having a low correlation with traditional markets
o Hedge funds: Pooled investment funds that use diverse strategies to generate returns (Long/short equity, global macro, event-
driven funds)
o Private Equity / Venture Capital: Investments in private companies, often with the aim of improving operations and selling for
Description a profit
o Private Credit: Non-bank lending to companies or individuals
o Crypto, Art / Collectibles
o Alternative investments are traded through various means but mostly in less regulated and non-transparent platforms

• Low correlation with traditional asset classes

• Some alternatives offer outsized return
Select Benefits • Allows access to unique opportunities (Invest in non-public companies, innovative startups, or rare collectibles)
• Some alternatives (e.g., private credit) provide steady income streams

• Extreme illiquidity (long lock-up periods)

• High fees, complexity, and regulatory opacity
Select • Non-transparent transaction platforms
Considerations • Tough to gain access to some of the alternatives investments (Hedge Funds, Private Equity / Venture Capital LPs)
• Liquidity: Very low (months/years to convert).
• Risk Profile: Very high

9
Summarizing Liquidity and Risk profile
Asset Liquidity Risk Notes
Cash Very High Very Low Immediate access, no market risk
Cash Equivalents Very High Very Low T-bills, money market funds - near-instant access
Government Bonds High Low Highly liquid secondary markets
Exchange Traded Funds High Moderate* Trade like stocks, risk varies by underlying assets
REITs High Moderate Trade on exchanges, real estate exposure
Mutual Funds High Moderate* Daily liquidity, risk varies by fund type
Standalone Company Stocks High High Easy to trade, but volatile
Forex High High 24/7 markets, but highly volatile
Derivatives High Very High Liquid but leveraged, complex instruments
Corporate Bonds Moderate-High Low-Moderate Liquidity varies by issuer and rating
Commodities Moderate-High High Futures markets liquid, but volatile
Crypto Moderate-High Very High 24/7 trading but extreme volatility
Asset-Based Securities Moderate Moderate-High Depends on underlying assets
Hedge Funds Low High Lock-up periods, redemption restrictions
Private Credit Low Moderate-High Illiquid loans, credit risk
Real Estate Low Moderate-High Weeks/months to sell, market dependent
Private Equity Very Low High Multi-year lock-ups, illiquid
Venture Capital Very Low Very High Long-term commitments, high failure rates
Art/Collectibles Very Low High Specialized markets, subjective valuations

*Risk levels for ETFs and Mutual Funds vary significantly based on their underlying holdings (equity funds are higher risk than bond funds)
Liquidity can deteriorate rapidly during market stress for all instruments except cash and cash equivalents
Rankings represent typical market conditions - liquidity can change dramatically during crises

10
Q&A
Thank You!

11