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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?
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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