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94.What are the key asset classes in investment?
Ans: The two main asset classes are debt and equity . Popular perception is that equity is risky,while debt is safe . However , it needs to be remembered that debt securities are as susceptible to daily change in values as are equity securities . Thus there is a potential for capital gain or risk of capital erosion in both equity and debt . Futher , the real returns on debt ( i.e., returns net of inflation ) may or may not be positive . Equity , on the other hand, can be an effective hedge against inflation particularly in normal inflation situations Fundamentally, the value of debt securities depends on interest rates and credit risk of the borrower. Equity valuation , on the other hand , vary with corporate performance and prospects , and the overall market sentiment.