An Introduction To Various Types Of Investments

Before entering the Stock Market let us know the various types of Investment patterns and the returns obtained as follows :

Have you ever wondered how the rich got their wealth and then kept it growing? Do you dream of retiring early (or of being able to retire at all )? Do you know that you should invest, but don't know where to start?

If your answer is "yes" to any of the above questions, you've come to the right place. In this blog we will cover the practice of investing from the ground up.

The world of finance can be extremely intimidating, but we firmly believe that the stock market and greater financial world won't seem so complicated once you learn some of the lingo and major concepts.

We should emphasize, however, that investing isn't a get-rich-quick scheme. Taking control of your personal finances will take work, and, yes, there will be a learning curve. But the rewards will far outweigh the required effort.

Contrary to popular belief, you don't have to let banks, bosses or investment professionals push your money in directions that you don't understand. After all, no one is in a better position than you are to know what is best for you and your money.

Regardless of your personality type, lifestyle or interests, this blog will help you to some extent to understand what investing is, what it means and how time earns money through compounding. But it doesn't stop there.

This blog will also teach you about the building blocks of the investing world and the markets, give you some insight into techniques and strategies and help you think about which investing strategies suit you best. So do yourself a lifelong favor and keep reading.

It's actually pretty simple: investing means putting your money to work for you. Essentially, it's a different way to think about how to make money.

Growing up, most of us were taught that you can earn an income only by getting a job and working. And that's exactly what most of us do. There's one big problem with this: if you want more money, you have to work more hours.

However, there is a limit to how many hours a day we can work, not to mention the fact that having a bunch of money is no fun if we don't have the leisure time to enjoy it .You can't create a duplicate of yourself to increase your working time, so instead, you need to send an extension of yourself - your money - to work.

That way, while you are putting in hours for your employer, or even mowing your lawn, sleeping, reading the paper or socializing with friends, you can also be earning money elsewhere.

Quite simply, making your money work for you maximizes your earning potential whether or not you receive a raise, decide to work overtime or look for a higher-paying job.

There are many different ways you can go about making an investment. This includes putting money into stocks, bonds, mutual funds, or real estate (among many other things), or starting your own business.

Sometimes people refer to these options as "investment vehicles," which is just another way of saying "a way to invest." Each of these vehicles has positives and negatives, which we'll discuss in detail. The point is that it doesn't matter which method you choose for investing your money, the goal is always to put your money to work so it earns you an additional profit. Even though this is a simple idea, it's the most important concept for you to understand.

What Investing Is Not !

Investing is not gambling. Gambling is putting money at risk by betting on an uncertain outcome with the hope that you might win money.

Part of the confusion between investing and gambling, however, may come from the way some people use investment vehicles.

For example, it could be argued that buying a stock based on a " hot tip " you heard at the water cooler is essentially the same as placing a bet at a casino.

True investing doesn't happen without some action on your part. A "real" investor does not simply throw his or her money at any random investment; he or she performs thorough analysis and commits capital only when there is a reasonable expectation of profit.

Yes, there still is risk, and there are no guarantees, but investing is more than simply hoping Lady Luck is on your side.

Why Bother Investing ?

Obviously, everybody wants more money. It's pretty easy to understand that people invest because they want to increase their personal freedom, sense of security and ability to afford the things they want in life.

However, investing is becoming more of a necessity. The days when everyone worked the same job for 30 years and then retired to a nice fat pension are gone.

For average people, investing is not so much a helpful tool as the only way they can retire and maintain their present lifestyle.

Whether you live in the U.S., Canada, or pretty much any other country in the industrialized Western world, governments are tightening their belts. Almost without exception, the responsibility of planning for retirement is shifting away from the state and towards the individual.

There is much debate over how safe our old-age pension programs will be over the next 20, 30 and 50 years.

But why leave it to chance? By planning ahead you can ensure financial stability during your retirement.

Now that you have a general idea of what investing is and why you should do it, it's time to learn about how investing lets you take advantage of one of the miracles of mathematics: compound interest.

There are abun­dant invest­ment options like real estate, Gold Deposit Schemes and pri­vate equity avail­able besides the ones above. One needs to make sure of the authen­tic­ity of the orga­ni­za­tion, inter­est rates and any other ben­e­fits or con­di­tions before invest­ing. Invest­ing right can yield pleas­antly sur­pris­ingly results.

You have var­i­ous types of invest­ment options avail­able in India how­ever investing in those instru­ments may suits you in terms of invest­ment amount and risk.

An investor has many invest­ment options in India to choose from. But it is very dif­fi­cult to select the type of invest­ment among the invest­ment options avail­able. Before final­iz­ing on any of the invest­ment option, you should have a proper finan­cial plan­ning in place.

Investment Options in India -

Fixed Deposits
Life Insur­ance
Post Office Sav­ing Schemes
Real Estate
Stock Mar­ket
Gold
Sil­ver
Pub­lic Prov­i­dent Fund (PPF)
Public Sector Bonds
Finance Company Bonds
Treasury Bills
Debentures
Mutual Funds
Futures
Options
For­eign Exchange …etc…

Where you can invest is purely based ,depending on your sav­ings and your future cash inflows  ( based upon the Risk Involved and taken ). Ide­ally every indi­vid­ual should have an insur­ance cover (Many experts does not con­sider it as an invest­ment) to take care of any future uncer­tain­ities. Based on your risk appetite, invest­ment amount, invest­ment hori­zon you should make an invest­ment decision.

There are plenty of invest­ment options in India, but to choose a best invest­ment Option which suits you is a daunt­ing task. It is always advis­able to take help of a finan­cial advi­sor before mak­ing any decision.

The Indian cap­i­tal mar­ket offers both NRIs and res­i­dents a plethora ( an excessive amount of something ) of invest­ment options. Abun­dant choices often leave poten­tial investors in a dilemma.(choose an option between two).

Invest­ment schemes backed by the gov­ern­ment are always a safer and fool­proof option. As an investor has the lib­erty to choose, here are some of the top invest­ment options.

1.Fixed Deposits as an investment

Fixed Deposit (FD) is basi­cally an invest­ment made for a fixed period of time result­ing in a higher rate of inter­est in return. This is best suited for investors with a low risk appetite and who wants to invest a large sum of money to earn a fixed rate of interest.

Types of Fixed Deposits
There are two types of Fixed Deposits

a) Bank Fixed Deposits
b) Com­pany Fixed Deposits and
c) Fixed Matu­rity Plans

BANK FIXED DEPOSITS

Oper­ated under the guide­lines of The Reserve Bank of India, this option is one of the most sought after invest­ment schemes due to its reli­a­bil­ity.

A Fixed Deposit or an FD yields 8.5% of yearly prof­its depend­ing on the bank and tenure. The min­i­mum period is 15 days and the max­i­mum is ten years. Senior cit­i­zens can avail of spe­cial rates.

These are kind of fixed deposits which are made with a bank. The tenure can vary from 7,15, 30, 45 days to 3,6 months, 1 year, 1.5 years 5 and 10 years. The min­i­mum deposit amount and the rate of inter­est will vary from bank to bank. These are con­sid­ered as safe invest­ments as they are insured under the Deposit Insur­ance and Credit Guar­an­tee Scheme of India and pro­vide an assured rate of return.

Investors also have the flex­i­bil­ity to take the inter­est income as a lump sum amount on its matu­rity, monthly & quar­terly. One point to remem­ber is the inter­est income earned on fixed deposit is tax­able.

Ide­ally there are no charges / expenses charged for fixed deposits, how­ever pre­ma­ture with­drawal will attract a charge.

It is also pos­si­ble to get loans upto 75–90% of the deposit amount. In order to invest in a bank FD, one has to open a FD account with the bank (nation­al­ized, pri­vate or for­eign) and make the deposit.

BRIEF HIGHLIGHTS :

Flexibility of tenure - 7 days to 10 years
Liquidity
Premature / Partial withdrawal permitted (subject to applicable charges)
Loan / Overdraft upto 90% of FD amount
Option of monthly / quarterly payout available
Competitive interest rate known interest rates for various tenures
Convenient ways to open a FD
Internet Banking
Phone banking
ICICI Bank Branch

COMPANY FIXED DEPOSITS

Fixed Deposits in companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits

These are kind of fixed deposits which are made with a Company / Financial Institutions / 

Non Bank­ing Finan­cial Insti­tu­tions (NBFC). Deposits thus mobilized are governed by the Companies Act under Section 58A. The min­i­mum deposit amount and rate of inter­est will vary from com­pany to com­pany.

The ben­e­fits of invest­ing in Com­pany Fixed Deposits are higher inter­est rate as against bank FD and no income tax is deducted at source if the inter­est income is upto Rs 5000 in 
one financial year. 

Invest­ment in Com­pany FD is riskier than Bank FD’s. These deposits are unsecured, i.e., if the company defaults, the investor cannot sell the documents to recover his capital, thus making them a risky investment option.

Benefits of investing in Company Fixed Deposits !

High interest.
Short-term deposits.
Lock-in period is only 6 months.

No Income Tax is deducted at source if the interest income is up to Rs 5,000 in one financial year Investment can be spread in more than one company, so that interest from one company does not exceed Rs. 5,000

Like most investment option, Company Fixed Deposits are a mixed bag. Company FD's can be an interesting investment option if you know how to select the right FD, and how to avoid the no-so-good ones. Here are some of the points that investors should keep in mind.

Spread your Risk
 
The deposits should be spread over a large number of companies engaged in different industries. This way, you'll be able to diversify your risk among various Industries / Companies. Try not to put more than 10% of your total investments in one particular company.

Choose the Right Period of Deposit
 
Ideally, the investment should be for 1 to 3 years depending upon the rate of interest.

Periodic Review
 
The performance of the companies should be reviewed at maturity. This will help you decide whether to renew or reshuffle the deposit.

It is also wise to keep a track of these companies by checking their share prices, annual reports and other details reported in newspapers.

FIXED MATU­RITY PLAN

This kind of invest­ment is sim­i­lar to fixed deposit in terms of tenure but varies in terms of assured returns.

This is a kind of mutual fund scheme offered by mutual fund com­pa­nies pro­vid­ing an indi­ca­tion of the returns an investor can expect but do not give assured returns.

These are closed ended schemes which means that an investor can only enter them when they are launched and exit them when their pre-stated term is over.

One can exit them ear­lier, but gen­er­ally after pay­ing an exit load that is high enough to be a seri­ous discouragement.