The stock market growth has meant growth of supply and request from forms of non-bank financing. Many companies and institutions are successfully offering their securities to a market of investors that diversify their savings beyond traditional banking instruments.
This financial market development is not a zero-sum game. It is not that what moves outside the banks and related industries, shrinks that sector. On the contrary, this increasing diversification of instruments, issuers and investors liquidity to the system and, at the same time, it encourages a competitive market and transparent.
Banks have long played a leading role in structuring, placing and investing in their own and third-party issues through their securities firms. o, en partnership with other market players. Other institutional players, such as credit unions and savings and loan cooperatives, are beginning to participate in the market.
For cooperatives, there are interesting opportunities in the market for fixed income instruments as an alternative for the placement of their liquidity. Until now, what these institutions did not place in loans to their members or third parties, was almost exclusively placed in the banking system..
Considering the fixed income market as an alternative to place investments offers several advantages. First, they are transparent instruments, which must comply with disclosure standards of their financial and cooperative information, which is also continuous and public where there are many eyes watching their performance.
In addition, investments in securities are fractionalizable and scalable, ands, the investment minimums are low and it is not necessary to buy large amounts, you can start with little and purchase little a little.
Ehere are multiple instruments in the market in which to invest, with different terms, guarantees and conditions that allow for a wide-ranging review and decision. And, of course, the instruments listed on the local stock exchange, which is almost all of them, have tax advantages similar to banking instruments.
There is a matter of concern to many investors. Si the securities can be sold quickly in case of need. There are two considerations here, one that, as opposed to a fixed term, do not wait for them to expire and can always be offered to the market. The other is that there is not always immediate liquidity. As a rule, once an instrument is put up for sale it may take several days before it is settled. But, even so, it is faster than waiting for a maturity. As market volumes have grown, the sale of these securities has become more and more immediate.
As with all investments, the issue of profitability versus the risk of fixed-income securities is fundamental. I start by saying that these risks are no different. The most feared risk, the credit risk, is the risk that a credit institution faces when lending money. Thus, the most feared risk, the credit risk; the possibility that you will not be paid or that you will be paid only in part of what you borrowed or investedis similar in a bond and a loan. As in a loan, this risk is minimized by analyzing the bond's strengths and weaknesses, the issuer's financial capacity and its track record.
Like credit, securities are subject to the risks of economic and interest rate fluctuations, which can increase the risk of default. Mitigating these risks is done by analyzing the outlook for the economy, political climate and global outlook, just like a good credit analysis.
Loans and bonds also share prepayment or reinvestment risks, when a debtor of the bank or an issuer decides to repay its obligation in advance. There the bank or credit union suddenly finds itself with an amount of money that it must reinvest. and often do not have opportunities right away or only at unattractive rates.
In short, cooperatives are familiar with these risks and are able to evaluate and select fixed-income paper and assemble a profitable and consistent portfolio. Thus, that it is a myth that the stock market is an impossibility for these institutions.
Thus, cooperatives can and should invest safely in short and medium-term fixed-income securities by placing liquidity there and diversifying into instruments more in line with their return curves and cash flow requirements, and the best is yet to come! Historically, the rates of return on fixed income from good issuers have been higher than the time deposits of the banks, and for good reason. Because these good issuers, can raise money from the public at rates in excess of the fixed terms, but much less than what the banks can lend to them. It is not true that those who go to the market do so because the banks will not lend to them.. More well, good and well-known issuers get in between banks' passive rates and lending rates, achieving a better cost of funds for growth and giving the public a better return on their savings.
There are already good examples of using the fixed income market to invest liquidity. There are also examples of using the market to match maturities with good investment opportunities. We have even seen investments in papeThe market at good rates to supplement and complement the Christmas savings payments in the cooperatives, which many of them have been able to make in the past few years. sometimes are difficult to match maturities with the need to fund Christmas savings. And there is a lot of more.
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