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    Add as Friendtypes of investments and benefits of investing

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    1 : Types of Investments and Benefits of Investing By K. V. Ramana, Lecturer, MBA Department, IACR.
    2 : Investment The action or process of investing money for profit . Investment refers to current commitment of funds for a specified time period to derive benefits in future. Any vehicle into which funds can be placed with the expectation that it will generate positive income and/or that its value will be preserved or increased. CURRENT SACRIFICE FUTURE REWARD.
    3 : Investment The future benefits derived from an investment are known as ‘returns’. Giving loan: with an expectation to get the principal back along with the interest at a future date. Buying gold: with an expectation of appreciation in its value in future. Buying an insurance plan: for various benefits derivable in future and/or in case of an eventuality. Buying shares of companies: for dividend and/or capital appreciation. As the reward would accrue only in future, it involves ‘risk’ (of realized return being lower than that expected)
    4 : Investment Attributes People generally find the following things in an investment before making an investment. Rate of Return [It constitutes two aspects namely current income (always +ve) and capital gain (may be either +ve or -ve)] Risk Marketability Tax Shelter Convenience (can it be made and looked after easily)
    5 : Objectives of an investor Maximization of return. Minimization of risk. Hedge against inflation (if the investment cannot earn as much as the rise in price level, the ‘real’ rate of return will be negative). Face future contingencies with ease.
    6 : INVESTMENT ALTERNATIVES FINANCIAL ASSETS Equity shares Bonds Preference shares Non- marketable financial assets Money market instruments Mutual funds Life insurance Financial derivatives REAL ASSETS Real estate Precious objects
    7 : EQUITY SHARES Represents ownership capital. Risk: residual claim over income and is always fluctuating throughout the years. Rewards: 1.Dividends at the end of a year, 2.chances of getting capital gains (difference between purchase price and selling price), 3.all share holders are partners in progress.
    8 : BONDS They are long term debt instruments issued for a fixed time period. Bonds are debt securities issued by the government or PSUs. Debentures are debt securities issued by private sector companies. Debt securities issued by the central government , state government and quasi government agencies are referred to as gilt-edged securities.
    9 : BONDS (contd..) They comprise of periodic interest payments over the life of the instrument and the principal repayment at the time of redemption. Coupon rate is the nominal rate of interest fixed and printed on the bond certificate. It is calculated on the face value and is payable by the company till maturity.
    10 : PREFERENCE SHARES Represents a hybrid security that has attributes of both equity shares and debentures. They carry a fixed rate of dividend. However it is payable only out of distributable profits. Dividend on preference shares is generally cumulative. Dividend skipped in one year has to be paid subsequently before equity dividend can be paid.
    11 : NON-MARKETABLE SECURITIES These represent personal transactions between the investor and the issuer. Bank deposits Company deposits Post Office Monthly Income Scheme
    12 : Bank deposits There are various kinds of bank accounts – current, savings and fixed deposit. While a deposit in a current account does not earn any interest, deposit made in others earn an interest. Liquidity, convenience and low investment risks are the common features of the bank deposits. Deposits in scheduled banks are safe because of the regulations of RBI and the guarantee provided by the Deposit Insurance Corporation on deposits upto Rs 1,00,000 per depositor of the bank.
    13 : Company deposits Deposits mobilized by companies are governed by the provisions of section 58A of Companies Act, 1956. The interest offered on this fixed income deposits is higher than what investors would normally get from the banks. Manufacturing and trading companies are allowed to pay a maximum interest of 12.5%. The rates vary depending on the credit rating of the company offering the deposit.
    14 : Post Office Monthly Income Scheme Meant for investors who want to invest a lump sum amount initally and earn interest on a monthly basis. Minimum investment is Rs.1,000 in multiples of Rs 1,000. The maximum deposits in all the accounts taken together should not exceed Rs.3 lakh in a single account and Rs.6 lakh in a joint account. The tenure of the MIS scheme is six years.
    15 : MONEY MARKET INSTRUMENTS Debt instruments which have a maturity of less than a year at the time of issue are called money market instruments. These are highly liquid instruments. Types of money market instruments : Treasury bills Certificate of deposits Commercial papers
    16 : Treasury bills Issued by GOI. They are of two durations – 91 days and 364 days Are negotiable instruments and can be rediscounted with GOI. They are sold on an auction basis every week in certain minimum denominations by the RBI. They do not carry an explicit interest rate. Instead they are issued at a discount to be redeemed at par. The implicit return is a function of the size of discount and the period of maturity. They have zero default risk, assured return, are easily available.
    17 : Certificate of deposits Negotiable instruments issued by banks / financial institutions with a maturity ranging from 3 months to 1 year. These are bank deposits transferable from one party to another. The principal investors are banks, financial institutions, corporates and mutual funds. These carry an explicit rate of interest. Banks normally tailor make their denominations and maturities to suit the needs of the investors.
    18 : Commercial papers Issued in form of promissory notes redeemable at par by the holder on maturity. Usually has a maturity period of 90 to 180 days. They are sold at a discount to be redeemed at par. CPs can be issued by corporates having a minimum net worth of Rs 5 crores and an investment grade from credit rating agencies. Minimum issue size is Rs 25 lacs.
    19 : MUTUAL FUNDS Also known as an instrument for collective investment. Investment is done in three broad categories of financial assets i.e. stocks, bonds and cash. Depending on the asset mix, mutual fund schemes are classified as: Equity schemes, hybrid schemes and debt schemes. On the basis of flexibility, Mutual fund schemes may be: Open ended or Close ended. Open ended schemes are open for subscription and redemption throughout the year. Close ended schemes are open for subscription only for a specified period and can be redeemed only on a fixed date of redemption. On the basis of objective, mutual funds may be growth funds, income funds, or balanced funds. NAV of a fund is the cumulative market value of the assets of the fund net of its liabilities.
    20 : FINANCIAL DERIVATIVES Derivative is a product whose value is derived from the value of the one or more underlying assets. These underlying assets may be equity, index, foreign exchange, commodity or any other asset. Derivative does not have a value of its own. Rather its value depends on the value of the underlying asset. Derivatives initially emerged as hedging devices against fluctuations in commodity prices and commodity linked derivatives remained the sole form of such products. Financial derivatives emerged post 1970 period. Financial derivatives have various financial instruments as the underlying variables. Forwards, Futures, Options & Swaps are four basic types of derivatives
    21 : Real Estate Real Estate is a tangible kind of investment. This investment could be buying a house, an apartment, or just plain land. It includes land and anything permanently attached to a piece of land. Real estate can make you a lot of money over time. This investment involves a long-term commitment of funds and gains that are generated through rental or lease income as well as capital appreciation.
    22 : Precious objects Gold and Gold Coins : The 'yellow metal' is a preferred investment option, particularly when markets are volatile. Today, beyond physical gold, a number of products which derive their value from the price of gold are available for investment. These include gold futures and gold exchange traded funds. Silver Jewels and gems Arts and antiques
    23 : Commodities A commodity is anything from gold, silver, or oil, to farm products, such as cotton, paddy, wheat, pulses, etc. The prices of commodities are driven mostly by supply and demand. For example, oil prices will go higher if there is a shortage. Investments in commodities are very speculative because their future demand is difficult to predict. These investments are best left to professionals.
    24 : The Investment Process
    25 : Benefits of Investing Liquidity Income Safety Growth Savings Reinvestment Improvement in standard of living
    26 : Types of Investors Institutional investors: professionals who are responsible for investing the money of a financial institution on behalf of their clients. Portfolio managers: employees of financial institutions who make investment decisions. Individual investors: individuals who invest a portion of their own money. Day traders: investors who buy stocks and then sell them on the same day.
    27 : Steps in Investing Step 1: Meeting Investment Prerequisites Step 2: Establishing Investment Goals Step 3: Adopting an Investment Plan Step 4: Evaluating Investment Vehicles Step 5: Selecting Suitable Investments Step 6: Constructing a Diversified Portfolio Step 7: Managing the Portfolio
    28 : Do’s of Investment Investment plan and proper asset allocation  Diversify your investments  Invest regularly through SIP (Systematic Investment Plan)  Be invested and never panic when market crash  Do invest in fundamentally liquid stocks Think market is always bullish (upward trend). Start as early as possible  Choose a Balanced Fund if you are a first time investor in Mutual Funds  Be patient while investing in equities Be mindful of tax liability Look at complete picture Equity investment is mainly for long term  Be realistic about returns Control your emotions Go through the stock invest journals.
    29 : Don’ts of Investment Don’t blindly follow media reports Don’t see price of the stock, look out for fundamentals Don’t invest and forget Don’t buy too many stocks Don’t confuse investing and trading Don’t try to time the market Don’t invest without a plan Don’t fall in love with your investments Don’t follow the herd Don’t Borrow to invest Don’t Take risks to recover losses from previous investments

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