Financial instruments and related risks
Each investor is willing to maximise the returns on investment. However, there is always a risk that the overall return on investment may be negative, which means that the result of the investment in such a case would be a loss.
SEB in its investment offering includes financial instruments that are divided into five risk categories.
Financial instruments are classified according to their type, complexity and investment risk. Very low risk financial instruments tend to have a fairly simple structure, and the risk they involve is the lowest. Whereas very high risk financial instruments tend to have a more complex structure and involve the highest risk.
An equity (also called a share, stock) is a security that represents a proportional share in the equity capital of a company and provides its owner – the shareholder – with certain rights. There are two main types of equities: common stock and preferred stock.
Bonds are debt instruments with which an investor lends money to an entity for a defined period at a floating or fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities.
Exchange traded products
An exchange-traded fund (ETF) is similar to an investment fund because it is a pool of funds provided by investors which are used for investment into underlying assets, but unlike a regular investment fund ETFs are traded on the stock exchange similarly to equities. An exchange-traded commodity (ETC) is similar to an ETF, but the underlying assets usually consist of commodities like metals, energy, and livestock. Exchange-traded notes (ETNs) are types of unsecured debt securities traded on exchange.
An investment fund is a pool of assets established for collective investment and generally with no maturity. An investment fund usually has numerous investors and the fund is managed by a management company. When investing in a fund, your assets are usually placed into many different asset classes, such as equities, bonds or alternative asset classes. It reduces the effect of a single investment in the asset pool.
Derivative instruments, such as options, forwards, futures, etc., is a contract between two or more parties to buy or sell underlying assets including equities, bonds, commodities, currencies, price indexes etc. Derivative contract may or may not include delivery of the underlying asset.
To simplify taxation of income received from investments, we suggest using an investment account instead of your regular current account.
Advantages of the investment account:
- Separate funds for investing from your daily expenses
- Conveniently review transactions with various financial instruments
- Less often and more convenient taxation process for investment income.
Personal Income Tax
Income from investments may be taxed. The taxation depends, for instance, on the investor’s tax residency and legal form, but also the income type and several other circumstances. If needed, consult the tax office of your country of residence or contact a tax advisor.
A private individual can postpone taxation of investment income by using an investment account. For that purpose, the transactions with financial assets must be made through an investment account only. Tax liability is created, if payments from the investment account exceed contributions into the account.
The responsibility for declaration and tax payment rests with the investor.
Further information on investment income and the submission of an annual income tax return can be found on the webpage of State Revenue Service.
Please note that the services described here are intended for persons in Estonia. We remind you that investing involves risks. Before you make your investment decision, please examine carefully the product terms and conditions and other relevant information, as well as any risks related to investments, on the website of SEB Pank at www.seb.ee and if needed, consult a representative of the bank.