If we make a certain amount of money, we do not use it to the full, it could lead to our misfortune in old age. We have found ways where we can invest our money so that what we work for is protected and also grows at a fixed rate. In this article, we will discuss all the investment basics that you need to know as a beginner before investing.
Investing in start-ups can be very difficult with different options, different policies and procedures, different concepts, risks, minimums, implicit taxes, cancellations and closed facilities, qualifications, etc. The first thing investors should do is consider their financial goals, risk and commitment to get the best return on their small investment.
Investment Basics You Should Know As A Beginners
what are investments?
Investments are the act of using money to obtain a certain asset for future profits. Investments are made for various reasons, such as retirement plans, saving on unexpected expenses, increasing your wealth, protecting excess money.
There are two ways you can make money by investing.
The first way is to buy the asset and then sell it. The difference in the price of your purchase and sale will bring you a profit.
In the second technique, if money is invested in return plans, the money will continue to grow and so you will make a profit.
If someone buys things as an investment. He doesn't buy it to consume things instead, he does it to increase future wealth through sale or take-back.
Why Is Investments Necessary?
Just money and costs in today's world are not enough. You should also offer money from an unpredictable future. You work hard to meet your family's needs. But it may not be enough for your absolute financial purpose or to ensure the future. It's not good to keep money from the bank savings account. The current inflation rate is about 6% per annum and saving account offers interest rates of interest from 3 to 4 percent or less, so your money depreciates over time if you do not invest it in the proper place.
Type Of Investments In India
Indian investors have a choice of many options. Everyone has their own meaning in life, a financial need that needs to be met.
These types of investments have existed for many centuries, now many new investment schemes are being launched, on the contrary, with higher returns, better investment strategy, less risk and higher user suitability. So, as a newbie see what is more useful to you.
1. Stocks
The most famous investment tool in India is Stocks that represent part ownership in the company. When you buy stocks, you start earning with the company. It gives you the title of the shareholder for the company.
A company for its growth launches new products that will require a huge workforce and factory installation. For carrying out these a company will require hefty funds.
The company looks for loans with banks but in-turn they have to pay interest with it. They look for ways where they can get the funds but they do not pay interest.
One legal way to do this is by issuing shares. The company adds partners with its organization, in turn asking them to provide funds.
The company adds a partner with the organization by issuing shares, the investor purchases the shares, more the number of shares you hold is the percentage of your ownership with the company.(alert-success)
Basically, there are two types of share, common and preferred stock. Buying common stock gives you a special voting rite, which can be exercised during certain decisions. In preferred stocks, you earn certain dividends even before the dividends are issued to other shareholders.
2. Mutual Funds
Mutual funds are an investment where various people put the money and then the schemes invest in securities such as stocks, bonds, gold, and short term debt.
Mutual funds are broadly classified into four types:
- Stock Funds:– Schemes under this invest in stocks of multiple companies. In this also it is diversified based on different goals.
- Bonds:- Schemes investing in bonds tend to have a higher risk than the rest of the mutual fund’s type, but they also aim to provide higher returns.
- Money market funds:– These funds possess lesser risk and invest only in the companies issued or mentioned by the Indian government.
- Hybrid Funds:– These schemes is the perfect blend of stocks and bonds to giver higher returns at a lesser risk.
3. Fixed Deposits
A fixed deposit unlike the above two does not vary in returns. It gives a fixed return until the maturity period. They are offered by almost all the cooperate banks, for the different periods and at a different rate of interest. They are best for people not wanting to bear any risk on their investments.
Fixed Deposit rates are determined by the banks and mostly depend on the current market conditions. Their interest rate increase in the inflation period and decreases in the depression phase. They also help you save a lot of taxes and have a certain lock-in period.
4. Recurring Deposits
These can be said as a SIP investment for fixed deposit; Where you can invest a minimum amount each month for a predefined period. Recurring Deposits are offered by all the commercial banks and post offices and then interest rates depend and are changed depending on the institution offering it. RD helps you build a certain corpus for a specific time.
5. Public Provident Fund
It has a low risk and gives stable returns. If the safe-keeping of your money is the prime goal you want to secure, then PPF is best for you. It is usually a long term investment giving stable and high returns
PPF comes with a security lock-in period of 15 years. During this period, the depositor cannot withdraw complete funds. After the maturity, the period of the policy can be extended for more 5 years.(alert-success)
The minimum investments that can be made are 500 and the maximum is 1.5lakhs. In this fund, the investor can either do a lump sum payment or in SIP. The SIP investments can be narrowed only up to monthly payments
On can also get loans against their deposits in PPF. The loan can only be availed from the start of 3rd year to the end of the 6th year from the starting date. Loan tenure can be a maximum of 36 months and only a total claim of 25% can be made on the investments.
6. National Pension Scheme (NPS)
Indian Government launched a scheme to help to counter the growing concern of the senior citizens, which is known as the National Pension Scheme.NPS is a contributory scheme where each employee contributes a part of his income each month in NPS.
NPS is a market-linked scheme managed by the fund managers, contributions are collected and the money collected grows concerning the market and then the employee receives a monthly pension after his retirement.(alert-success)
Flexibility and liquidity are offered under NPS via two different tier account.
Minimum deposits for tier 1 start from 500Rs and minimum deposits for tier 2 start from 250Rs. Where you voluntarily deposit this money each month through your salary in NPS.
7. Employee Provident Fund (EPF)
The Employee Provident Fund (EPF) is a scheme launched by the government in 1952 that helps people save up a sufficient corpus for retirement. EPF ( Employee Provident Fund) is managed by the Employees’ Provident Fund Organization (EPFO).
According to the scheme, every month the employee will contribute 12% of their basic income towards EPFO. The employer matches this amount and contributes to EPFO.(alert-success)
When you retire, you get a lump sum amount of the investment, you and your employer have done along with interest.
The government has control over EPF and gives an interest over the contribution made.
As per the 2018-2019 Union Budget, new women employees could contribute only 8% instead of the normal 12% towards their EPF account for the first three years of employment.
8. Real Estate
This option can be the investment option giving you maximum returns. It is a highly profitable investment depending on how, when, and where you invest in.
Real estate can give you multiple benefits; first you can earn by renting the real estate till the time you get a great price to sell the real estate. After you get a good price higher than what you spent, sell it and then again invest the money to buy another property and then the cycle continues.
9. E-Gold
How to avoid the hassle of keeping the Gold, by buying an E-gold. Gold prices have been surging quite high recently and are expected to rise even further, so buying gold can be also a good option for people looking for diversification.
Add these investments in your portfolio to diversify and gain from multiple sources. You can add these both option, physical real estate and E-Gold to increase diversification in your investments.