What Is Investmentz

1. 1. What is investment? • Our portals Since ancient times, investments have always been made whether in time, skills, or assets to fulfill our needs or to gain something from it. While working for a company, we invest our time and skills to generate income for ourselves i.e. salary. Similarly, while doing business, we invest our money or assets to generate more money.  • TIMESKILLSASSETSRETURNS%INVEST  The income we earn may be kept at home or we may utilize it to earn more and grow, by financing the needs of someone else. This could be an individual ,a government, or a business house. All these people or entities need finance to execute their goals, development work, or business activities. From such activities, they are able to achieve their objectives and generate more money or profit, the portion of which they again distribute back to the people who financed them earlier. Thus, your idle money generates more money for you. This additional money generated is known as interest or returns.  • To simplify this, we have now have instruments such as government bonds floated by the Government of India or corporate bonds and company shares floated by business houses. These entities collect public money and utilize it to generate more money to finally distribute it to public , which assisted in financing them earlier. Thus, to get additional returns, you can put your money into such instruments. We call this investment or investing your money to earn more money. http://www.investmentz.com/

2. 2. Why must everyone invest? • Human needs are never ending and everyone has basic once. More importantly, these needs are not static any more. With time, even our basic needs change. For example, we may have completed our education as per the Indian education standards but today; most of us want our children to attend ICSE schools. Our entire education may have cost usaround Rs.1, 00,000whereas today, we may have to spend in excess of Rs.50, 00,000 to achieve a similar level of competent profile for our children. The change in quality and quantity of education along with inflated costs has made our income look insufficient for even our basic needs.Earning more is always a requisite in today’s fast changing world. You may achieve it by working more or having better jobs or businesses but your needs will keep growing at a higher pace than your earnings as the quality of life improves. 

3. Inflation • Efficient investments could also help you beat the inflation factor, which eats into your income most of the time. Inflation is the rise in the price of products or services you may wish to buy. It could be anything from your daily food items such as vegetables, milk, onions, and potatoes, or your monthly groceries such as toothpastes, toothbrushes, soaps, and shaving kits. It could also be your other needs such as a house, a car, supporting items such as oil, gas, and electricity. Services such as an education, a domestic help, and banking may cost you higher due to the growth in inflation. Major product prices or service costs are on the rise and this rise in product prices on a month on month basis diminishes your income.  The depreciation or appreciation in currency as against other currencies also impacts your lifestyle,either directly or indirectly. The products or services you buy may cost higher or lower due to a fluctuation in your currency. Therefore, you may end up buying the product or services.The only way to keep pace with the changing times is to invest your idle money efficiently, which will help you fulfill your basic needs and even help achieve impossible life time goals. This is reason enough for everyone to invest their idle money efficiently.

4. 3. When to invest? • you must have heard that no time is right or wrong to invest. In some cases it is true and in some it is not. But it is seriously advisable to start investing at your earliest age. • The earlier you plant a tree you are bound to get its fruits at the right time, when you need it the most. It might be true that you earn money to spend but people who earn money and then first invest the same before planning for how to spend it have survived the difficult times. • After providing for your basic needs, one should always strive to invest adequate money to keep pace with various factors such as Inflation or potential downturn in markets or income. • There are different asset classes such as equity, debt, commodities, and real estate. Every asset class might perform better or worse at any given point of time. Further, each of these asset classes might have costly or cheap valuation at some point of time due to economic conditions or various other factors such as demand/supply. If you are able to buy assets such as equities at lower valuations, you might end up with higher gains or if you buy assets at higher valuations you might end up with ongoing losses. However, these may not be permanent losses as long as you book them. Therefore, another rule of investing suggests that you should be investing your money in certain risky assets only when you have capacity to hold on to your investments for longer period.

5. 4. Where to invest? • Today, we have a number of options to choose from in assets to invest our money. Further, it is important to manage the entry and exit (switch) of your investments. Therefore, financial services/securities companies play an important role in helping you choose the right approach for your investments, which need to be customized according to your profile.

6. Equity • Companies launch their Stock IPOs to collect money from investors and subsequently, list their shares on the secondary markets/exchanges such as NSE or BSE, which we call stocks/shares. These stocks/shares fall in the equity asset category. Companies do not have to offer any guaranty on returns or principal amount collected from the investors.

7. Debt Government or companies launch their bonds/money market instruments to collect money from investors. Companies might subsequently list these bonds in the secondary markets/ exchanges such as the NSE. These bonds/money market instruments fall in the debt asset category. Companies have to offer guaranty on returns (Interest) and principal amount collected from the investors.Some of these bonds or debt instruments also get traded in the secondary markets/exchanges and investors may buy them at a premium or discount from the markets and may sell them before maturity. Such investments may not guarantee principal amount or returns (interest). This is called churning of investments for short-term gains from movement in bond prices.Therefore, if debt instruments remain invested from start until maturity, they offer principal guarantee and interest with low risk, while trading in the same instruments may not offer same lower risk with potential capital loss.

8. Real Estate • Real Estate in India was not previously considered as an investment asset class by most people. Many of us would buy a home to stay and a second home as a weekend getaway. This perception has now changed, with consistent and above average rise in real estate prices. Real estate has emerged as one of the core asset classes in your portfolio.  • Globally as well, real estate asset class has proved its mettle in the long run by generating handsome returns not just in equity bull markets but also when other asset classes are not performing. Now, the Indian government is also expected to allow real estate funds, which can attract even retail investors to participate with lower minimum investments criteria

9. Commodities • Another major basic asset class is Commodity, which should also be a core part of your portfolio with essential needs as its basic characteristic. Commodities such as metals, pulses, oil, and gold have become the basic need of human beings. There is a gap in the demand and supply for such commodities. This mismatch in demand and supply makes prices of such commodities volatile. Some of these commodities such as gold and silver are classified as precious metals and act as a hedge against equity market downturn. Overall oil reserves of the earth are reducing and are expected to be drained in the long run. Oil also plays a very important role in the economy and may impact your portfolio positively or negatively at periodic intervals. You may choose to hedge your portfolio with such commodities with a direct short term investment or may invest through commodity based companies to gain from their future

10. Currencies • The INR i.e. the Indian Rupee and the US $ were at the same valuation when India got its independence in 1947. Since then, the Rupee has depreciated to levels of Rs. 60 per US $, as it stands today. That is, the Rupee is 60 times lower than the US currency. Until 1985, the Indian currency was at Rs. 12 per US $ but post 1991 crisis and after making the INR free from manual intervention for a year, it depreciated to Rs.31 per US $.  • Currency movements can impact your investments directly or indirectly. Export–import companies based in India such as IT and Oil get affected by currency movements positively or negatively. Therefore, sometimes currency hedging is also an important factor to consider to protect your portfolio.

11. Ways to Invest • You can directly invest in above three major asset classes. Apart from that Mutual Funds and Insurance also invest in above asset classes such as Equity, Debt, Commodities, and Money Market Cash Equivalent Instrument. There are no real estate funds as of now in India. However, you can choose to invest in the above mentioned asset classes i.e. Equity, Debt, and Commodities through Mutual Funds. Mutual Funds have separate schemes for each of these asset classes with further classification in terms of investment characteristic and objective. • Insurance also has certain Equity and Debt asset class investment based schemes. We still advice to use Insurance mainly to secure your Life Risk and Health Risk Cover rather than using it for investment capital growth.

12. 5. Which money is to be invested? • When we see equity markets going up every day, people usually get attracted and at times even end up investing their money in anticipation of quick gains. However, by doing this, people generally end up having losses than gains. This in-turn destroys their confidence in asset classes such as stocks. We need to understand each asset class Risk Level, Downside Probability, and Return Potential with a minimum time frame to achieve such kinds of returns. Asset classes such as equity do not guarantee returns or the capital you are investing but on an average historically, equities have delivered above average returns and were able to beat the inflation by descent margins in the long run.Considering the above, one should divide their existing money and also their monthly or annual future income in different categories such as those given below:

13. 5. Which money is to be invested? • Funds for basic expenses • Funds for luxury expenses • Liquid funds/emergency funds requirement • Amount of money on which you can’t take any risk (Risk of losing that capital) • Amount of money on which you can take some amount of risk • Amount of money on which you can take higher risk to generate higher returns • Amount of money which you may not require for say 3 or 5 or 10 years. •  The above mentioned classification will help you identify the percentage of money you can invest in asset class say “A” and/or asset class “B” with predefined minimum investment horizon. • While you may earn money to spend, people who first invest their earnings and then plan to spend have survived the difficult times.  • We advice that after providing for your basic needs, one should always strive to invest adequate money to keep pace with various factors such as Inflation or potential downturn in markets or income. • It is advisable to consult financial planners such as Investmentz.com to get your ideal asset allocation, which have more focus on comprehensive financial planning.

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