The term investment means employment of funds to buy an asset. Here investment means employment of funds by the banks to buy securities from the market. The securities which are purchased by the banker from the market includes:
1. Government securities: These are the securities which are issued by the governments to raise funds. These securities are the safest of all securities because these are guaranteed by the government. Government securities may be of three types:
i. Stock,
ii. Bearer bonds and
iii. Promissory notes.
2. Semi-government securities: These are the securities which are issued by semi-govt. organisations like Municipal Corporations, Port Trusts, State Financial Institutions etc and these securities include debentures or bonds.
3. Industrial securities: There are the securities which are issued by industrial or business concerns. Bank invests a small percentage of its funds in the shares and debentures issued by these industrial concerns.
Besides these securities, banks also invest in fixed deposits, units and capital of various financial institutions. However, amongst all these, a marked preference of the banker is noted in favour of government and semi-government securities. Investment by banks in these securities constitutes the “third line of defence” of the banks.
