1. Investing- When money works
Investment is the life blood for the economy. Investment is the foundation through which one can produce wealth and achieve their future goals .We all work hard to earn money but that is not enough.
'Money is always eager and ready to work for anyone who is ready to employ it.'
What if the money also works for us? What if money earns money?
Doesn't it sound strange that how money can earn money and how it can be put to work? But yes by investing our surplus in different investment opportunities we put them at work to earn for us. But this is not as easy as we read because it requires proper knowledge of principles of investing, risk associated with investing and the potential of the investment industry.
You should invest money to get decent returns and how to get the returns by investing in different products and prospects we can learn in this article. I will assure you all that at the end of reading this article you will able to manage your funds well and put them to work for fulfillment of your financial goals.
2. Where to Invest? The Investing Decision
When it comes to investment the first question arose to our mind is that -: Where to invest or what are the best options to Invest? There are many options in which one can invest which include both modern as well as traditional ones, risky and non-risky assets, Investment based on period etc. So here are the available options where one can invest and take a step forward to achieve their future goals.
- Risk Free Investments - When it comes to invest everyone goes for the risk free or a secure investment option which gives a fixed amount after fixed tenure. So individuals which have conservative approach looks for these investment options to multiply their funds. These are the investments which bears minimal or no risk of losing capital. Some of the investments options under this classification are- :
- Bank Savings Account - All banks offer their customers facility to park their extra savings to savings accounts where they will get a small returns on pooling their funds. The interest rate differs from bank to bank but it is generally around 4% while some banks offer above 6% also to their customers. If individual has practice of frequent withdrawals then saving bank is the good option to pool your funds without involvement of any risk.
- Recurring Deposits - It is a scheme provided by the banks to their customers which is based on monthly fixed installment for fixed tenure and at the end of the term the customer will get their principal money along with the interest. It is just similar to the fixed deposits but only difference is that in FD the individual has to give a single payment whereas in this scheme he has option to pay Monthly fixed installments. The interest rate under this scheme varies from 5.5% to 8% which is a good return. It is very easy to start you just have to give instruction to your banks for opening RD account or you can also open it online through banking app or website.
- Fixed Deposits - Fixed deposits is the safest and the popular investment type used by majority of persons in the country. This option is provided by all the banks and assuring the investor with guaranteed returns over a fixed term. Interest rate varies from 6% to 8.5% depending on the amount and tenure of the investment. It is the safest investing option as investor knows how much he will get on maturity of the term. Also it has tax saving option as special tax savings fixed deposits are also delivered by the banks to its customers. Even investor has option to premature withdrawal in case of any emergency arises with payment of early withdrawal fees .You also have option to open short duration fixed deposit even for 7-14 days to get some accretion in the value of the funds. You can also take loans and credit cards approval on collateral of your fixed deposits which is based on certain percentage of your fixed deposit amount.
Before starting investment you should figure out the investment type that fits your goal and need. Here are some of the steps required to start investing -:
To open your Demat Account click on the link-:https://secure.icicidirect.com/customer/accountopening?rmcode=MAYI5096
- Public Provident funds - Public provident funds or PPF is the also the one of the popular schemes used by the investors in India to pool their surplus funds as it provides them a good rate of return and also the compounding benefit also tax benefit under sec 80C of the Income Tax Act-1961 . The minimum tenure for the PPF is 15 years and it can be extended further if required. The minimum investment to start PPF is Rs 500/- per annum and maximum Rs 150,000/-, Interest rate varies from 7% to 9% depending on the banks. It can be opened in banks as well as post office. It is really a very profitable and safest investment option for the investors for long term returns as in tenure of 15 years you can double your investment .You can calculate the returns by using this calculator.
- Post Office Schemes - These are the variety of schemes provide by The Department of Post to their customers for the wealth creation and maximization of investments. The interest rates offered by the post office is really fascinating as it is higher than the banks and other financial institutions and varies from 4% to 9% depending on the schemes and the tenure of the schemes. It is very to invest in these schemes as it require very less documentations and easy approvals, but the only disadvantage is that we have to go physically to post office for opting the same as there is no digitalization or online facility available. The various schemes includes - public provident fund, sukanya samriddhi scheme, 5 years recurring deposit, kisan vikas patra, National saving certificates etc.
- Investments In Real Assets- It means investment in physical assets by the investors to get returns from the accretion in the value of assets with time and includes land and building ,Inventory , precious metals including gold ,silver etc .Some of the investments option under real assets are as follows -:
- Land and Building - This is the most common investment option used by the investors to pool their extra funds. Investors will get returns by the accretion in the value of these assets .Some investors also give these assets on rent or lease to get a passive fixed monthly income .So it is a good investment option to pool large surplus with you.
- Precious Metals (Gold and Silver) - This is also a very high return bearing investment option as we all know that the value of gold and silver is increasing day by day and investing in these metals will give you huge profits with passage of time . Moreover some banks and institutions also provide gold monetization schemes in which person can deposit with banks their gold and gold ornaments and earns interest rates of around 2.5% along with the value accretion. Also some banks also provide gold bonds schemes under which you don't have to purchase physical gold but only has certificate of holding the specified amount of gold and whenever requires you can sell the same in the market at the prevailing market value on the date of sale.
- Investments in Stock Market- Investing in stock market has huge potential but only if you are well aware of the market movements and have good knowledge of stock market. Investment in stock market without proper knowledge and care turns into a huge loss. So never directly invest into the stocks rather start your investment with safer securities and mutual funds and after gaining confidence and earnings go for direct equities and shares .But to start with stock market you require patience as no one can become rich in a day or a week so invest patiently and consistently is the only key to grow your portfolio into a 8 digit number. Start from basic first and then play like a boss this is the only way you can become a successful investor. Here are some of the components in which we can invest by using stock market -:
- Bonds - Bonds are the units which represent debt of the company. It is fixed income instruments that gives you fixed rate of returns. It comes with fix maturity period and at maturity it can be redeemed and sell back to the issuing authority. It is issued by the companies and the government of India. The interest rate ranges from 5% to 10%. It has risk based on the credibility of the companies issuing the same. Some of the examples are - Treasury bills, Zero coupon bonds, Corporate Bonds, Municipal bonds etc.
- Stocks or Shares - Stocks are the most famous investment option that has huge potential .Stocks refers to the shares of the company's .The investors having sound knowledge of the market and experience in trading can earn huge profits from buying and shares of the companies in the stock market. As stated earlier it has huge potential but also bears high risks, but if decisions are taken by proper due care and research then it will make you earn huge profits. Had you heard name of Mr. Rakesh Jhunjhunwala the father of Indian stock market he becomes a multi billionaire due to stock market only. But as a beginner you can't directly invest into the stock or shares of the companies as it will result in huge losses as you don't have the exact knowledge about the market , how to deal in market , which company will give you profits so start with mutual funds or index funds first.
- Derivatives - It is a contract between the parties which derive its value from the underlying assets. Some of the most common derivatives are options contract, futures contract, forward contract etc. These are the contracts done by the investors to secure them from the market fluctuations. Investors invest in the derivatives markets by regularly reviewing the price arrangements and taking a position that gives them extreme gains. Their intent is mainly to make supreme profits.
- Mutual Funds - It is the best investment option to invest in with high returns in long term. In this the Asset management company (AMC) invest the funds given by you to equity, debts, stocks, bonds of different companies and help in achieving the goals of their investors .These asset management companies gives you the units of their companies at a Net asset value (NAV) as on the date of investment .Apart from good returns it also gives tax saving options to salaried individuals. You can withdraw or redeem your units any time when you require funds but what I suggest you to hold it for long term minimum for 5 years if you want some good returns. The average returns vary from 10%-15% in long run due to compounding of units .You can also check the returns of this investment options by using the calculator. You can also invest through SIP (Systematic investment plan) option in which fixed monthly amount of investment is deducted automatically from your bank account on the date fixed by you.
3. How to start investing
- Decide investment approach you require to invest.
- Decide the amount you want to invest, whether invest in one option or want to do investment of small amounts in different options.
- To invest in risk free investments you need to contact your bank executive as all the schemes are offered by banks.
- To start investments in Stock market you must require demat account with full C-KYC done.
- You should require initial deposit in your demat account for trading in stock market.
- Don't procrastinate investment start investing from small amounts in beginning.
4. Precautions required to start investment
- Think wisely what you need and which investment options suits you
- Do proper research before investing in any scheme and option
- Do not fall prey of the persons that assure you fixed returns in stock market or that assure you to double your money.
- Always read the terms and conditions before entering into any investment contract.
- Review your portfolio periodically say after few weeks to have trace on the market functioning and take decision accordingly.
- Keep yourself updated with latest changes in the terms of your investment.
- Do not put more money blocked in your bank account rather than use the above options to earn good returns.
- Invest in schemes having less expense ratio so that your returns can't get reduce.
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