What are Paper Investments?

Published by Thomas Herold in Accounting, Investments, Trading

'Paper Investments' is explained in detail and with examples in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Paper investments can be several things. Where businesses are concerned, paper investments turn out to be investments in commercial paper. Commercial paper investments prove to actually be money market instruments that companies and banks sell to raise money. There are many large issuers with good credit who offer these types of paper investments to interested investors. They represent inexpensive other sources of short term funding as opposed to standard bank loans.

Commercial paper investments come with a fixed maturity of from one day to two hundred and seventy days. These types of paper investments are generally regarded as extremely secure, although they are unsecured loans. The companies that take advantage of them are commonly utilizing these short term operating funds for working capital or inventory purchases.

Corporations like to utilize commercial paper because they are able to quickly and effectively raise significant sums of money without having to get involved with costly SEC registration through selling paper investments. This can be done through working with independent dealers, or on their own efforts directly to investors. Institutional buyers commonly prove to be significant buyers of these types of paper investments.

Such notes come with amounts and maturity dates that can be specifically crafted to meet particular needs. The key features of these types of paper investments are that they are of short term maturity, commonly ranging from only three to six months of time. They liquidate on their own, with no action being required by the investing party in question. There is little to no speculation involved in their intended use as well. This gives them an appeal of clarity.

Offering this type of paper investments offers several advantages for the issuer as well. The issuer is able to access cash at rates that are lower than those offered at the bank. Companies taking advantage of commercial paper are able to leave open reserves of borrowing power at their area banks. Finally, they are capable of getting cash on hand which will allow them to benefit from trade creditors who offer special discounts for those who pay for supplies and other needs with cash.

Where traditional investments are concerned, paper investments also prove to be investments whose value is stated on and represented by paper. A number of different kinds of popular investments in the United States qualify as paper investments. These include stocks, bonds, mutual funds, certificates of deposits, and money market accounts. Shares of stock are pieces of paper that relate a certain percentage of ownership in a publicly traded company.

Most any type of investment that does not have a physical component of the investment associated with it is considered a paper investment. Commodities, as well as futures and options on futures that permit you to take delivery of the underlying commodities if you wish, represent examples of investments that are not only paper investments. These types of investments, along with real estate holdings, are considered to be physical, or hard, investments.

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The term 'Paper Investments' is included in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.