Start your Investment journey : Introduction
What is Investment ;- Purchasing or creating an asset anticipating an investment income , rental income ,dividend , profits or any combination of mentioned returns .
Investment refers to the development of funds with the objective of earning returns through price appreciation or passive income sources such as dividend , interest , coupon payments etc.
It is the process of
- Identifying financial goals
- Allocating our saving to create more wealth to achieve goals .
The fundamental reason of some sort of an investment is necessary for everyone is generally to meet the “ cost of inflation “ .Inflation is defined as the sustained increase in the price of goods and services . An Increase in inflation reduces the purchasing power of the consumer .
Therefor the objective of investing should be to earn a return in excess of the annual inflation rate .
REAL RETURN ; – Real return is nothing but return earned after factoring in the effect of inflation and taxes so as to give a clear picture of the increase in purchasing power of an individuals .
At What time / age one should start investing ?
The sooner one start investing the better it is because of the concept of compounding . The more time we give to our investment to grow , the more is the chance to increase wealth . Also investor’s appetite at a young age is high and he/she can take more risks . An individual’s risk appetite is high at a young age .
In case an investment decision at a young age goes wrong , there is more time to work towards it and cover it up . Moreover the other obligations are low at an early age.
Factors that affect/ determine your investment capability ;
.family information – number of earning members , number of dependent members etc,
.Personal info – age , employment type , nature of job , health condition etc,3. financial info – capital , income details are regularities
Net worth –
Risk appetite etc.
How to start investing ?
Most of the investing activities are facilitated through the stock market , unlike saving which are usually done with banks . the main reason is that stock market gives high returns in comparison to other asset classes .
Investing of novice should essentially begin with the identification of his short , medium and long term goals , it is very crucial to understand how much risk an individuals can take .
Risks generally refers to the the amount one can afford to lose , if an investment ends up making losses .
Investing in stock has generally involves two prospectives of the investor i.e
Long term prospective
Short term prospective
And these investing can be done with the help of two broad analysis technique
1.Fundamental Analysis ; the process of analyzing the financial status of a company and the industry in which it is operating to make an investment or trading decisions .
2. Technical Analysis ; the process of analyzing charts with the help of patterns and indicators , or to identify possible price trends in the future ,
It is always preferred to use a combination of both fundamental and technical to get the high probability return generating investment ideas .
The most common concerns that needs to be addressed , while investing and choosing the assets are . Return
Capital protection
inflation
taxation and liquidity
Return from an asset class ?
Return from an investment can be in the form of capital gain or interim cash flow.
Risk in investment ; – the most important aspects of investment is to protect capital . Because of the risk factors we leave most of our saving money in instruments earning low income ,without calculating the cost of inflation , which reduces money value in the future .
Risk is a part of our lives , if we cross a road , there is a risk of meeting with an accident . risk and reward go hand in hand , higher the risk , higher the reward .
What in inflation –
by definition , inflation is the sustained rise in the price of goods and services over a period of time , when price rises the value of money get depreciated because with the same value of money we can buy less good and services . thus we can say that the purchasing power of money get depreciated .
Various option available for investment ?
Market is flooded with different modes of investment . However , it depends on the risk aversion ability of the investor as to whether invests in high risk option with greater returns , low risk options with moderate returns or no risk modes available .
Moderate risky asset classes – real estate , gold , silver etc
Safe zone asset classes – Bank FD , RD , NPS , NSC etc
Avenues of investments – these are classified into two categories
Physical assets – Physical assets are tangible such as real estate , gold , antiques , commodities etc .return on physical asset can be earned when the assets are sold . these returns are capital gain returns .
Financial asset can be categories into two types –
Assets with Fixed Return -Government securities , Bank deposits , debentures , Public Sector Bonds
Rules of investing
Start early
Invest regularly
Invest for a period of long term
What to invest?
What is saving ?
Saving includes the money left after one’s expenditure from their income . saving is the first step towards financial security .Saving protects One selves from emergencies, Building a corpus of funds for retirement. saving are usually maintained with the usage of bank facilities like saving accounts and fixed deposits .
Apart from these one can choose from a variety of periodical yearly and monthly scheme
POST OFFICE MONTHLY INCOME SCHEMES (MIS)
PUBLIC PROVIDENT FUND (PPF )
SUKANYA SAMRIDDHI YOJNA etc
However sometimes it can be hard to save money due to an influx of expenses that go unrecorded .
Therefor one needs to set out a clear strategy to save regularly and efficiently . therefor one need to prepare a budget
A budget is a plan of action that lays down income allocations towards various expenses and help us limit our spending on unnecessary expenses .
Saving and investment scheme
There are various long term and short term saving scheme available, these saving scheme have their one set of merit and advantage , so before Investing you need to first define the objective of investment .
Difference between saving and investing
There are some essential difference between saving and investing
While saving refers to simply setting aside money for a goal , investment is the process of buying asset with these savings to grow our wealth .
Saving are mostly done for achieving short term goals , while some some medium term goals can be achieved through savings .
Investment on the other hand , are needed to achieve long term goals ,which have to be reached at least ten years from now .
Saving pose minimal risk , whereas when it comes to investing , one can find products with different risk appetite .
Saving is usually carried out through bank accounts and deposits and government saving scheme .
Investment is carried out through the various segments of the stock market namely , equity ,debt and derivatives.
An Important point to note here is that , for a beginner ,saving should always come before investing .
Summeries
Start as early as possible .
No amount is too small , start with that what you have .
Adopt the mentality of wise man .
Do not keep your saving in the form of cash .
Set the primary target and future objective of investment .
Wealth accumulation is a slow and steady process .
Stock are in a long term uptrend .
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