Investment - Part I

CS LLB Pulkit Gupta (https://www.facebook.com/pages/Life-and-Promises/553962034682487) (16631 Points)

06 December 2010

1. Introduction

With a control free economy, supported by expert banking facilities, Indian capital market offers a plethora of investment options both for residents and NRIs. As per the investment plan an investor should thoughtfully select the best option available in the capital market that meets his requirements.

Investment refers to the concept of deferred consumption, which involves purchasing an asset, giving a loan or keeping funds in a bank account with the aim of generating future returns. Various investment options are available, offering differing risk-reward trade offs. An understanding of the core concepts and a thorough analysis of the options can help an investor create a portfolio that maximizes returns while minimizing risk exposure .

While some plans accrue short term profits some are long term deposits. The first step towards investing in Indian market is to evaluate individual requirements for cash, competence to undertake involved risks and the amount of returns that the investor is expecting.

2. Why to Invest ??

Let's face it. You will not be able to work forever. No matter how healthy you are, there will come a time when you will not be able to work, due to health problems or simply aging. What will you do for an income when the time comes to retire? This is why planning your long term investments carefully is so important.
Maybe you think you will be able to rely on Medicare and social security to take care of you during your retirement. Well, if that is your plan, it is time to look at the news. Social security is in trouble. Politicians are trying to repair the problem, but chances are in another twenty years, or even less, there will be little to nothing left for you in the social security budget.
Finally, you never know what the future is going to hold. Will you stay healthy? Or, will you have some serious medical expenses that you will need to have finances for. Long term investments give you the security to know that in dire circumstances, money is there.

3. Short-term Investments

If you need to make money quickly, consider short term investments. Short term investments allow you to invest an amount of money at a high yield interest rate, and gain access to the return sooner rather than later.

There are several short term investment options out there, and the key to making money successfully is finding the best short term investments. And that starts with learning the answer to the question you probably have: what are short term investments?

Defining Short Term Investments

A short tern investment fund is a fund that earns you a return on your money in a short period of time, such as one to ten years. This is different than retirement investing, and it can be a challenge to find short team, high yield investments. Good short term investments will have a high interest rate, allowing you to earn substantial money immediately.

The Need for Short Term Investments

You might need short term investments if you have a pressing need coming up in the near future. If, for example, you might need to have a down payment for a house or car in a year or two, you could make use out of short term investment options. Also, you might use this type of fund in replacement of a traditional savings account, because you will earn a higher rate of return. Some even choose to use short term investment funds to supplement their retirement income.

How to Use Short Term Investments

If you are interested in short term investments, talk to your financial advisor. He or she can tell you what the best short term investment opportunity you can use will be. Then, invest your money, and leave it alone. Allow it to gain interest for the course of the investment period. When the fund comes to term, you will have earned interest on the money you invested.

Decide what amount of your total income you are willing to invest in your fund. Most people are comfortable with investing around ten percent of their total income. Then, choose the investment to use. It is best to take the amount and invest it into one particular investment. Your long term investments are where diversification is helpful.

Good Short Term Investments

A money market is an example of one of the good short term investment options. Money markets have higher interest rates than traditional savings accounts, but they limit the access to the money for a period of time. During that time, the money is earning accrued interest.

Investing in gold when the price is low, and then selling it when the price is high is another example of a short term investment. This works well because gold and silver both change quickly, and you can almost always find a time when the rate is low, and then hold onto your shares of gold or silver until the rate goes back up. Mutual funds also make great short term investments. The more money you invest in gold and silver, the less the swing in price has to be to allow you to make significant money.

Pros and Cons of Short Term Investments

There are pros and cons of short term, high yield investments. One of the cons is that the short term investments that carry high interest rates are often high risk type accounts. This means that you stand to lose money. To have less risk, you sacrifice your interest rate. Another con is that some types of short term investment options come with penalties should you need access to them early.

The pros of short term investments are that they allow you to make money for those expenses that you have right away. Unlike long term loans, you will have access to the money in a few short years. Not only that, but having short term investments actually works to protect your long term financial goals. This is because you have money available when you need it right away, rather than having to break into your IRA or other retirement fund early when an emergency occurs.

If you think you could benefit from looking into short term investment options, then talk to your financial advisor. This is the best way to find short term, high yield investments that can earn you money with the safest amount of risk. So no more excuses! Start working on your short term investments.

4. Long-Term Investments

Long Term Investment Strategies that Work!

Planning for your future and retirement relies on planning the right kinds of long term investments. There are many different types of long term financing investments, and everyone needs to have some sort of investments for their future.

Planning your retirement and long term investments go hand in hand.

Long Term Investment Strategies

So, you realize that you need to start looking into long term investments. But where do you start? How do you know which investments are the best long term investments? Should you use a broker, or do it on your own. Here are some of the most tried and true long term investment strategies.

Start by Setting Goals

As with any other type of investing, proper long term investments start by setting proper goals. How much do you want to have when you retire? What age do you want to retire? How much should you invest monthly to reach that goal? Are you willing to do your own investing, or do you want someone to show you the ropes. Write these goals down to help guide you as you choose your investments.

Choose the Right Firm

If you decide to seek help looking for your investments, choosing the right firm is important. Make sure you choose a firm that will follow your investment goals. They should work with you to find the best investments, not against you. You should feel like you are in control, even with their help.

Invest at Regular Intervals

If you can invest a little every month, that is better than investing a huge lump sum at the end of the year. This is because the dollar cost average goes down, and you can invest in the cheaper shares of the same stocks.

Talk to your broker about more information about this. Remember, pay yourself before you pay anyone else. A good goal is to invest around fifteen percent of your income each month. Do this before you shop, or pay off other bills. You may want to consider having these payments automatically deducted from your paycheck, before you even see them.

Increase Your Paycheck

Yes, you can increase your paycheck, even if your boss is not offering a raise. Consider claiming a few more deductions on your W-4. Your tax return should be as close to zero as possible. Take the extra money you receive, and invest it. It does not make financial sense to give the government your money to play with free for a year.

There are some tax refunds, such as the child tax credit, that you will receive no matter what you do. In that case, consider investing your tax return, rather than spending it on a large purchase. Remember, your future is counting on what you do now!

Use Your Noggin!

Make sure you are investing wisely. Do not take on too much risk, but on the flip side, make sure your investments are earning interest. Choose funds that consistently bring in profit. That is the best way to make sure your money is safe!

Pros and Cons of Investing

Long term investments do have some negatives. If your investment portfolio is limited to one or two investments, you could lose everything, if those investments should not pan out. Not only that, but you do not have access to the money in your long term investments until the investments come to maturity.

But the pros far outweigh the cons. If you are going to invest for your future, you are going to have a secure financial future. You will not be a burden to your family when you are older this is why you need to make long term financing investments a priority. Find a broker to help you, and get started on your long term investments today. Your future is waiting!

Conclusion-

In this first part I just gave the introduction of Investment and types of Investment.

Second Part of this article will deal with Investment Options available in India .