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A Guide to Investments

Mr. Rahul Singh | Posted On Thursday, March 05,2009, 10:58 AM

A Guide to Investments

 

 

A lot of people have asked me how to invest in stocks, mutual funds or other securities. I thought of putting across a brief guide on how to invest in any security.  

 How to invest in stocks?
To invest in stocks, one need to have a Demat account with a registered bank such as ICICI, Citi, HDFC and SBI or a brokerage firm such as IndiaBulls, ShareKhan and IndiaInfoline. There is another way of investing stocks as well – asks your broker to do invest in stocks on your behalf. However, trading through demat account is more safe, less costly, transparent and convenient.
 
Once you have your Demat account, you can buy, sell, transfer and transact shares online without any hassle. However, it is always advisable to so some basic research on stocks before investing in them.
 
How to invest in mutual funds?
Again, there are two ways of investing in mutual funds. First, you can invest online using your Demat account or through online banking account of your banks such as HDFC Online, ICICI and SBI. You will require an online account, either Demat or Savings, and a PIN (Personal Identification Number). Second way of investing is through brokers. These brokers may be banks such as ICICI and HDFC or financial planning companies such as Bajaj Capital.
 
Using online services, you can purchase, redeem, switch, view your account details, view your portfolio valuation and download account statements without any effort. These services are just a click away. However, in case of brokers when you redeem your investments you get your money as cash or get deposited in your account.
 
How to invest in Gold?
Investment in gold can be done directly through ownership, or indirectly through certificates, accounts, spread betting, derivatives or shares.
1.       Gold Bars or Coins: Physical investment in gold should be either in gold coins or bars. However, it should always be bought from banks which certify the quality of gold. Moreover, only buy government-certified gold coins or bars and preferably the purity level should be 99.9 as they are easy to sell. All leading banks such as ICICI and HDFC provides such an investments.
2.       Gold Certificates: A certificate which represents ownership of gold bullion held by a financial institution for convenient and safe storage. There is a fee for storage and insurance. Again leading banks provide such a service.
3.       Gold Futures: Gold contracts are the hottest commodities traded in the Indian market. It is traded on MCX (Multi Commodity Exchange) Gold has become the largest traded commodity in India’s domestic futures market as a large number of traders are taking delivery of the yellow metals through the futures route. This can be done by opening an account with brokerage firms such as Bonanza Online.
4.       Gold ETFs: You may not be able to touch and feel your Yellow metal through ETFs, but they are perhaps the safest method of buying and owning gold. ETF stands for Exchange Traded Funds. These are generally open-ended funds i.e. they are traded on the exchange just like stocks. There are quite a few ETFs in the market namely- Reliance, Kotak, UTI Gold ETF to name a few. For investment in ETFs, please read “How to invest in mutual funds” above.
 
How to invest in commodity?
Commodity trading is nothing but trading in commodity spot and derivatives (futures). Commodity derivatives are traded on the National Commodity and Derivative Exchange (NCDEX) and the Multi-Commodity Exchange (MCX). Gold, silver, agri-commodities including grains, pulses, spices, oils and oilseeds, mentha oil, metals and crude are some of the commodities that these exchanges deal in.
 
You can invest in commodity through derivative markets only. At present in India ETFs in commodity is not allowed except Gold. Thus, you have to go through commodity traders or brokers such as Bonanza Online who invests in commodity traders.
 
How to buy insurance?
You can buy insurance either through underwriters (i.e. those who design and manage plans) such as HDFC, ICICI and Kotak or through brokers and third parties such as Agents, Howden India and IndiaInfoline. You need to fill up an application form with the concerned party and make an annual payment called as “policy payment”. It is extremely simple – you just have to call any of these banks and somebody will touch base with you. You may even monitor your insurance plan online. HDFC Standard Life provides you such a facility.
 
How to invest in government bonds or securities?
Individuals can invest in government bonds in two ways: directly and indirectly. People can directly buy government securities through Kisan Vikas Patra or National Savings Certificate.
 
If you want to invest in bigger government issues such as infrastructure bonds or oil bonds you have to use the direct route i.e. mutual funds. There are a number of mutual funds which invest only in fixed income securities or a mix of securities and equities. For more information on this, please read “How to invest in mutual funds” above.
 
How to invest in corporate bonds?
Corporate bonds are “bonds” issued by companies either private limited or public companies. If you want to invest in corporate bonds you have to do it through mutual funds. There are a number of funds which invest in high investment grade bonds (BBB- or above) or junk bonds.
 
 

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