-By Ishika Gupta
What Is Investing?
Investing is the process of allocating funds to various financial assets in order to put your money to work and profit from the results. This can serve as a supplemental or, in certain situations, primary source of income, allowing you to achieve your financial objectives. We tend to focus on only a few of the flaws that exist. And, in the end, turn a blind eye to the numerous advantages it delivers.
Why Should One Invest?
Higher Returns:
Investing in the stock market allows you to potentially earn larger returns on your investment. As a result, Investing here allows you to compound your money over time and accumulate wealth for various life goals.
Beats Inflation:
Inflation is a significant barrier to wealth building, therefore choosing paths that outperform inflation is the only way to get wealthy in the long run. Inflation is the gradual increase in the price levels in a given economy. It eats away at the value of your investment and your money’s purchasing power.
Easy & Flexible:
Investing in the stock market isn’t difficult. All you need is a methodical approach to long term investing and some background research on the companies you wish to invest in. This can be done by yourself or you could hire a broker to assist you. All one needs is a trading and demat account to get started.
Magic of Compounding:
Warren Buffet started investing at the age of 14, but his money started to grow exponentially when he was 50. Power of compounding is often referred to as the eighth wonder of the world. And here, you must bethinking, what this power of compounding actually means?
Under the power of compounding, you not only get returns on the money which has been invested but also on the gains. And this way you are able to create a great amount of wealth over a period of time.
This way power of compounding helps your money grow exponentially.
The Three Golden Rules To Remember Before You Start Investing:
Invest Early - One of the most common pieces of advice you will hear about personal financial planning is that you should start investing as soon as possible, so that you can stay invested for a long time. So, let us understand what are the advantages of investing at an early age, and why is it critical for investors to recognize the significance of doing so at an early age? Is it not fascinating to invest at an early age or when you are a teenager? Yes, but there is more to it apart from just the excitement. The major reason is you give your corpus more time to earn returns if you start early. When you give your invested money more time to generate returns, you effectively give your returns more capability to create more returns. This is known as the power of compounding in technical terms, and it demonstrates that even small investments can provide large returns
Invest Regularly - Consistency is the most critical factor in achieving success in any area of life. Discipline is required whether you want to be a great businessman or a decent student, keep yourself active, or do anything else in life. It applies to many aspects of life, including investment.
Choosing the right type of Investment period (Long/Short term) - Both types of investments have their own set of advantages and disadvantages. Short-term investing allows you to reach your financial targets in a short period of time while minimizing risk. Long-term investment avenues, on the other hand, are suitable for investors with a greater risk appetite and a desire for better returns.
Summing up, if you are a person who prefers to achieve the small-scale financial goals with minimum risk then short-term investment plan suits you the most.
A List Of Things One Must Ensure Before One Starts His Investment Journey:
Obtain written documents explaining the investment
Read and understand such documents
Verify the legitimacy of the investment
Find out the costs and benefits associated with the investment
Assess the risk-return profile of the investment
Know the liquidity and safety aspects of the investment
Ascertain if it is appropriate for your specific goals
Compare these details with other investment opportunities available
Examine if it fits in with other investments you are considering or you have already made.
Deal only through an authorized intermediary.
Seek all clarifications about the intermediary and the investment
Explore the options available to you if something were to go wrong, and then, if satisfied, make the investment.
The Different Types Of Investment Instruments Are As Follows:
Equities:
The part of a company’s ownership held by shareholders is referred to as equity. In simple terms, it refers to a financial investment in the company’s equity stock in order to become a shareholder.
The primary distinction between equity and debt holders is that equity holders do not get regular payments, but they can profit from capital gains by selling their holdings. In addition, equity holders receive ownership rights and become one of the company’s owners. When a company goes bankrupt, equity holders can only share the remaining interest after debt holders have been paid. Companies also pay dividends to their shareholders on a regular basis as a result of earned earnings from their core business operations.
Debt Securities:
Debt Securities are divided into two categories: bonds and debentures.
Bonds – Bonds are fixed-income instruments used to fund infrastructure development and other projects by the federal and state governments, municipalities, and even private firms.
Debentures – Unlike bonds, debentures are unsecured investment choices with no collateral backing.
Derivatives:
Derivatives are capital market financial products whose values are based on underlying assets such as currency, bonds, stocks, and stock indexes.
Forwards, futures, options, and interest rate swaps are the four most prevalent types of derivative instruments. Let us learn about them:
Forwards –It is an agreement between two parties in which the exchange occurs at a pre-decided price at the end of the contract. Forward contracts are unstructured contracts and operate in an unregulated market.
Future –Futures are derivative financial contracts obligating the buyer to purchase an asset or the seller to sell an asset at a predetermined future date and set price. Underlying assets include physical commodities or other financial instruments. Futures contracts detail the quantity of the underlying asset and are standardized to facilitate trading on a futures exchange.
Options –The term option refers to a financial instrument that is based on the value of underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell depending on the type of contract, the underlying asset they hold. Each contract will have a specific expiration date by which the holder must exercise their option. The stated price on an option is known as the strike price.
Interest Rate Swap –An interest rate swap is a contract between two parties in which both parties agree to pay each other interest rates on their loans in different currencies, options, and swaps.
Exchange Traded Funds (ETFs)
An ETF, or exchange-traded fund, is a vital investing instrument for making your financial strategy a success. ETFs are a collection of securities that are traded on a regulated exchange. Stocks, bonds, commodities, currencies, or a mixture of them all are common investments in ETFs. When you buy an ETF as an investor, you’re buying a basket of assets rather than a single item. Your stake in the total number of assets is proportionate to the number of shares you own in this regard.
Mutual Funds
Mutual funds are another excellent market investment strategy to consider if you want to boost your financial returns. Mutual funds aggregate money from many investors and invest it in bonds, equities, and other assets. Mutual funds are best suited if you have an expensive long-term goal or retirement plan in mind and want to diversify across financial instruments and buffer against anticipated market volatility.
Prominent Stock Exchanges In India:
Bombay Stock Market (BSE) –
Located on Dalal Street in Mumbai, this stock exchange was founded in 1875. It is not only Asia’s oldest stock exchange, but also the world’s tenth largest stock exchange.
As of April, the market capitalization of the Bombay Stock Exchange was expected to be US$ 4.9 trillion, with roughly 6000 businesses openly listed on the exchange. The Sensex, which measures the performance of the BSE, reached an all-time high of 40312.07 in June of this year
National Stock Exchange (NSE) –
The NSE was founded in Mumbai in 1992 and is considered India’s first demutualized computerized stock exchange market. This stock exchange market was created with the goal of removing the Bombay Stock Exchange’s monopolistic influence from the Indian stock market.
As of March 2016, the National Stock Exchange has a market capitalization of US$ 4.1 trillion, making it the world’s 12th largest stock exchange. NIFTY 50 is the index of the National Stock Exchange of India, and it is widely used by investors throughout the world to assess the performance of the Indian capital market.
A stock exchange in India has a significant impact on the country’s financial industry because it is such an important aspect of the Indian stock market. Their combined performances are a key determinant of economic growth.
Furthermore, all main types of stock exchanges are highly intertwined; if one big stock exchange collapses, it will have repercussions for all other major exchanges throughout the world.
Comments