Tuesday, 10 December 2019

BC / BF - 6 , Banking Fundamentals to Know for Students.

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Investment

Investing can be complex and it often has risks. But with knowledge, you can choose the level of complexity and risk that you are comfortable with.
Key factors You need to know at least three key factors about every investment: its return, the risk, and liquidity.

Return is the profit that an investor makes on an investment. It can come in two different forms: as income or as a capital gain.

Risk means uncertainty. You are not sure whether your investments will give high returns or you will lose your money. Risk and return go hand-in-hand which means that to get a higher return on your investments you will be exposed to more risk.

Liquidity is the ability to cash in or sell an investment quickly at or near the current market price. It affects the value of an investment. Listed stocks and government bonds are liquid because you can usually sell them easily.

1. If your goal is to make as much money as you can, you have to be ready to take some risks. You are likely to choose shares in companies with a potential for growing rapidly.

2. If your goal is to keep your money safe, or to provide money to live on, you would choose differently investments, such as guaranteed investments or bonds that pay a low but reliable return.
  
One easy way to see how personal factors affect investment choices is to think about your stage in life or, the phase of your life that you are in.

1. If you are young, you may be willing to take more risks because you are planning for the long term. If the value of your investments goes down, you'll have time to recover and your investments can grow over a long period of time.

2. If you are starting a new family, you want to provide security. You may still be planning for the long term, but you need to keep at least part of your money available to provide for shorter-term savings goals and emergencies or to make major purchases such as a family home. 

3. If your family is becoming more independent, you may have less need for short-term savings, and be able to save more for your retirement You may be at the peak of your earning years, with cash available for investments, but unwilling to invest your money in anything risky.

4. Once you have retired, you may be relying on your investments to provide a regular, reliable income to add to benefits such as your public or private pensions.

Investing goals: What you want from your investments depends on who you are. Your investment goals will be different from those of other people, and they will change as you go through life. Usually, you have a variety of goals at the same time. You may be looking for long-term growth in value but also want a secure and flexible fund for emergencies. Each household will have a variety of objectives and will need a different investment strategy for each.

Diversification
It is never a good idea to put all your eggs in one basket. If you put all your money in one investment, it may rise or fall depending on a wide range of unpredictable factors. If you put your money into a range of investments and one or two loose money, the others may gain money to balance your investments. This is known as diversification. It is a way to reduce risk when you are making investments.

Equity
Equity is a part of a company, also known as stock or share. When you buy shares of a company, you basically own a part of that company and can expect to profit when the company profits. These shares are traded on stock exchanges, which facilitate the buying and selling of stocks, thus providing a marketplace. Investing in equities is riskier and definitely demands more time than other investments. For beginners, it’s better to invest in the share market via mutual funds which are professionally managed and are less expensive.

Mutual Funds
A mutual fund pools money from many investors and invests in stocks, bonds, short-term money market instruments, other securities or assets, or some combination of these investments. The combined holdings that the mutual fund owns are known as its portfolio. Each unit represents an investor’s proportionate ownership of the fund’s holdings and the income those holdings generate. Buying a mutual fund unit is simple and easy since these are sold by many banks, and the minimum investment amount is small. Before investing, it’s important to remember that if an offer is too good to be true, it probably is. Also, be sure that the product or company you are investing in is a registered entity engaged in a legitimate business.

Why invest?

Invest, so that your money will grow because of compound interest. If you keep your money with yourself, you risk losing purchasing power to inflation. Investing helps you achieve your financial goals. Invest so that you don’t have to rely on anyone.

Retirement and Pensions

After a full and productive working life, you look forward to a healthy, active and secure retirement. Whether you retire early or work well into your senior years, you want to know that you will be financially secure in your later life. 
Will you have enough money for your retirement?
If you're like most Indians, your younger and middle years are filled with numerous demands on your time and finances: raising children, buying and maintaining a home, enjoying festivities. You may be too busy to think about retirement, or you may find it hard to put money aside now for later.

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