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Home Articles Investing - How to Invest in Shares, Bonds, Mutual Funds, Real Estate, Gold, Debentures, Insurance?

Investing - How to Invest in Shares, Bonds, Mutual Funds, Real Estate, Gold, Debentures, Insurance?

IndianMoney.com Research Team | Updated On Saturday, June 06,2009, 07:33 PM

Investing - How to Invest in Shares, Bonds, Mutual Funds, Real Estate, Gold, Debentures, Insurance?

 

 

Start your Journey to Becoming Rich with a right Investment Plan. This article will help you understand investing in Shares, Bonds, Mutual Funds, Real Estate, Gold, Debentures, and Insurance in simple ways. 

Investment means putting your money to earn more money. It can help you to meet your financial goals like buying a new house, paying for college Education of your Children, and to enjoy a comfortable Retirement, or whatever is important to you. You do not have to be rich to be an investor. Investing even a small amount can produce considerable rewards over the long-term, especially if you do it regularly. But you need to make a decision about how much you want to invest and where. To choose wisely, you need to know the Investment Options thoroughly and their relative risk exposures.

In finance, Investment means buying securities or other monetary or paper (financial) assets in the Money markets or Capital markets, or in fairly liquid real assets, such as Gold, Real estate etc. Types of financial investments include shares and other equity investments and bonds. Equity investments generally refer to the buying and holding of shares of stock on a stock market by individuals and funds in anticipation of income from dividends and capital gain as the value of Stock rises.

Definitely, there are financial interruptions for most people along the way - things such as buying a home, starting a business, paying for children's education, taking care of elderly family members, etc. a good Financial Planning makes it possible to meet those challenges. In simple terms Financial Planning is all about three things they are:

  • Wealth accumulation

  • Wealth protection

  • Wealth distribution

 

There are only limited ways to create wealth such as: inherit it, win the lottery or spend less than you earn. Obviously, only one of those options is realistic for most people that is spend less than you earn. The sooner you start to save, the higher your wealth will be. The average person in his 50s should have to save more than half his yearly gross income to retire at the age of 65, whereas a 30-year-old who starts saving just 10% of his income will be able to maintain the stability of lifestyle after Retirement. The most important thing is start saving, no matter what your age or how little you can afford. Financial planning may seem like just another "task" in an already busy life, but failing to do that task could have horrible consequences down the road.

Investment Planning In India

India is one of the top five economies in the world in terms of market potential and is positioned above countries like France, Italy, Russia and the United Kingdom. Moreover, India is also ranked as the third biggest economy in Asia in terms of gross domestic product. All these make investment in India a beneficial option for you. The investment market in India offers a lot of possibilities for the investors as the level of purchasing power is improving over time. The investors stand to achieve in each and every areas of business in India. However the reaction from the outstation investors has been lukewarm compared to other countries like China.

In order to achieve benefits from investment in India it is very important that you should not think of any short-term profits as any financial gain could only be accrued from long-term investment. The organizations prepared to invest in India need to undertake extensive research so as to understand the workings of the Indian investment market. It is extremely necessary for the prospective investors to have an accurate understanding of the complications as well as the potential of the Indian market in order to be successful in long run.

What Is Investment Planning?

The basic idea behind any type of investment planning is to maximize future financial returns for future security. In formulating a financial plan, an individual investor must cautiously consider his or her choices before making any decision. Investment planning involves considering many possible financial options that could be used to secure the preferred financial future. Frequently groups of individuals get together for the purpose of investment planning. Investment plans require careful study of the financial market. It is mostly the responsibility of the particular individual to make the decision on the issue of management of money, which could be utilized in meeting long term financial goals.

See Also: Types of Investment Plans

An essential part of Financial planning is the system a particular investor uses to decide how much and in what ways to invest. Another essential task is to ascertain the source from where the money could be obtained. Yet another significant aspect of Investment planning is analyzing the development and performance of investments in a particular span of time. This might help the investor by cutting down on the amount of uncertainty involved in the process. Investment planning also helps investors in channeling their funds in the proper direction. The main reason for investment planning is planning for retirement. Investment calculators have proven to be a practical tool in helping people plan in advance for their retirement.

What Is Investment Strategy?

The investment strategy is a plan, which is created to guide an investor to select the most appropriate investment portfolio that will help him achieve his financial goals within a particular period of time. A well-planned investment strategy is essential before having any investment decisions. A business strategy is generally based upon long run period. Formation of business strategy is largely dependent upon the factors such as long-term goals and risk on the investment. As the return on investment is not always clear, so the investors prepare the strategy so as to face the ongoing challenges in Investment. A balanced investment strategy is generally required in the process of investment, which possesses long time period and some risk tolerance. In the case, when a strategy is aggressive the chance of attaining a higher goal is higher. An efficient strategy can be obtained from portfolio theory, which shows good estimates on risk and return.

A number of investors like to raise their earnings through high-risk investments, At the same time others prefer investing in assets with minimum risk involved. However, the greater part of investors chooses an investment strategy that lies in the middle. Investment strategies can be broadly categorized into the subsequent types:

Active Investment strategies: Active investing, seeks to maximize short-term stock market fluctuations. An active investor tries to exploit the minor ups and downs in the market, buying stocks that drop and selling them when they go up again. If you have trouble in understanding how the stock market works, active investing may not suit for you.

Passive Investment strategies: It’s based on the assumption that the stock market tends to move upward over the long-term, meaning careful investments may be more likely to pay off. Passive investing requires very little direct management and is generally lower risk.

One of the most popular strategies is the buy and hold, which is mainly a long-term investment plan. The idea behind this is that stock markets yield a commendable rate of return in spite of stages of variation or downfall. Indexing is a severely passive variable of the buy and holds strategy and, in this case, an investor purchases a limited number of each share existing in the stock market index, for instance, the  Sensex, or more probably in an index fund, which is a form of a mutual fund.

Benefits of Investment Planning

Investment helps you to create savings and to enhance your money. It will help you to be financially equipped when an emergency arises. Following are the major importance of investment.

  • Investing for Capital Accumulation

Investment helps you to buildlong-termerm capital-base and shape your financial future. Once there is an increase in cash flow, it means that there is an increase the in capital base too. This permits one to be able to venture into various portfolio investments. With a strong capital base, you can have a wider portfolio of investment and it will help you to increase the wealth and to reduce the risk of investment.

  • Investing for Family Security

Investment is important to provide for your family's financial security. The olden days of a worker retired with a good Pension seem to be gone now. Today, you need to take charge and plan for the family's future security. You need to think how much income should I need for the family's financial security? Investment will help you to take care of all these things.
 

  • Investing for good Standard of Living

Investment helps you to maintain your family's current standard of living. This can ensure that the family remains financially protected if the head of the family or the bread winner dies. Thus, the family's standard of living doesn't get affected and will be maintained.  
 

  • Investing to Save More

Investment is used to be called saving for a rainy day. But sudden financial changes can still be able to change the standard of living of people. An emergency fund might be ideal in these circumstances. It must be always very liquid. It means that it should be very easy to convert into cash. Savings bank or money market investments are examples of investment with high liquidity. In this way, a systematic and structured saving and investment plan can be provided to fund children's education and to secure a Comfortable Retirement.
 

  • Investing to create Assets

Investment is important to ensure assets accumulation and liability cancellation to create maximum amount of wealth to your heirs. In the process of accumulating assets, many fail to understand that it usually comes with a liability package. So as to determine the true worth of any asset, the liabilities must be settled, or cancelled. Only then, the true value of the assets would be of use and help for your heirs. If not, assets can easily lead to unwanted or unexpected financial burden.  
 

  • Investing for Financial Security and Stability

Investment helps you to make sure asset accumulation and liability cancellation to create maximum amount of wealth to your heirs. It assists you and your family to reach the ultimate objective of financial security. Financial planning will offer directions and meaning to your financial decisions. It permits an understanding of how financial decisions made can affect other areas of finances. By viewing each financial decision as part of a whole, the short and the long term effects on your life goals can be measured. This will help in adapting more easily to changes in life and feel more secure financially, knowing that financial stability has been achieved.

Which Is Best Investment Planning?

The best investment options depending on the particular investor. Two people cannot be identical and so, the definition of this 'best' is bound to vary from investor to investor. At the same time, the market conditions are also liable for making an investment option good or bad. There are a number of factors, which are related to the definition of bet investment plan. These are:

  • Safety
  • Return
  • Liquidity

Safety of the Investment: 

The safety of the investment is the fundamental factor for investing money. There are various types of risks, which are included in an investment. The prime risk is of facing enormous loss. On the other hand the slow paced development of the investment is also a matter of concern for the investors. So, the best investment must cover these factors.
 
Return on Investment: 

Return is another issue of concern for the investors. There are many investment mediums, which promise low but safe return. On the other hand, the high yielding mediums are connected to the high level of risk. Now this depends solely on the investor to recognize the best investment option according to his or her mental set up.
 
Liquidity of the Investment: 

The availability of the invested money at time of emergencies is also very essential from the investors' perspective. The best investment options should have this flexibility that it can let the investor to draw back cash when there is any kind of emergency.

Everyone wants to save some amount of money from the Taxes. Now if the investments can do this for them, then it is certainly going to be a profitable option for them. It can also be considered as the best option if it can offer the above discussed factors with the tax relief.

Some of the important investment avenues

  • Investing In Shares
  • Investing In Debentures
  • Investing In Mutual funds
  • Investing In Insurance
  • Investing In Gold
  • Investing In Real estate

Investing in Shares

A share is one of a finite number of equal portions in the capital of a company, entitling the owner to a proportion of distributed, non-reinvested profits known as dividends, and to a portion of the value of the company in case of liquidation. Shares can be voting or non-voting, meaning they either do or do not hold the right to vote on the board of directors and corporate policy. Whether this right exists often affects the value of the share. Voting and non-voting shares are also known as Class A and B shares respectively. The income received from shares is called a dividend, and a person owning shares is called a shareholder.

Investing in Debentures

A debenture is defined as a certificate of agreement of loans which is given under the company's stamp and carries an undertaking that the debenture holder will get a fixed return and the principal amount whenever the debenture matures. The advantage of debentures to the issuer is they leave specific assets burden free, and thereby leave them open for subsequent financing. Debentures are generally freely transferrable by the debenture holder. Debenture holders have no voting rights and the interest given to them is a charge against profit.

Investing in Mutual funds

A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. The mutual fund will have a fund manager that trades the pooled money on a regular basis. In other words a Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Investing in Insurance

Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of a guaranteed small loss to prevent a large, possibly devastating loss. An insurer is a company selling the insurance. The insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.
 

Investing in Gold

It is a highly preferred precious metal, having been used as money, as a store of value, in jewellery, in sculpture, and for ornamentation since the beginning of recorded history. The metal occurs as nuggets or grains in rocks, underground "veins" and in alluvial deposits. Gold is dense, soft, shiny and the most malleable and ductile substance known. Pure Gold has a bright yellow colour traditionally considered attractive. It is one of the coinage metals and formed the basis for the gold standard used before the collapse of the Bretton Woods system in 1971. Gold is a very good avenue to invest your money as its value keeps on increasing.

Investing in Real estate

Real estate is a legal term that encompasses land along with anything permanently attached to the land, such as buildings, specifically property that is stationary, or fixed in location. Real estate law is the body of regulations and legal codes which pertain to such matters under a particular jurisdiction. Real estate is often considered synonymous with real property (also sometimes called realty), in contrast with personal property. The law broadly distinguishes between "real" property (land and anything affixed to it) and "personal" property. The conceptual difference was between immovable property, which would transfer title along with the land, and movable property, which a person would retain title to. Real estate is one of the most promising avenues, there u can invest your money and multiply it.

Types of Investment Planning

Financial Market Investment

When investing in the financial market, traders are provided with the chance to deal in financial Securities, commodities and other freely interchangeable goods at affordable rates of transaction. The prices of these are reflective of efficient market speculation.
The different financial markets that are existing in the present time are:

  • Stock or Equities Market
  • Bond Market
  • Commodities Market
  • Spot or Cash Market
  • Forex Market
  • Over-the-counter Market
  • Derivatives Market

The financial markets nowadays bring buyers with different interests onto the same platform. This process enables them to establish prospective customers and enhances the efficiency of the market operations as a whole. The most important participants of the process of financial market investment are as follows:

  • Investors
  • Institutional Investors
  • Speculators 
  • Real estate Investment

Land as an investment is a long-term investment and as the price of land all over the world has taken an upswing, this type of investment can be termed as a safe bet. The land investment forms the most important part of Real estate investment. The attachments to lands and buildings are not the necessary requirement of land investment and it is the most important point of difference between land investment and real estate investment. Land can be termed as the most basic form of asset. The land developer is entrusted with the responsibility of developing the land. Land appreciates in value with the establishment of buildings and other suitable amenities on it.

Features of Real Estate Investment

  • It is a profitable business opportunity
  • It can also be used as a means of generating rental income
  • The burden of other taxable income can be assuaged through the earnings obtained from the resale of real estate
  • It can be used as a security for securing loans for other business ventures
  • Real estate speculators look for profit by trading in real estate futures

The Benefits of Real Estate Investment

  • The value of land is influenced only by its surrounding and not the whole real estate situation
  • In order to sell land, a realtor is not required.
  • The real estate cycles in the housing market do not influence the land investors
  • Even though the purchased land is not put to major uses and left idle, it still ensures a good return on investments

Gold Investment

Gold investment is a long-term investment plan involving low risks. People willing to invest in gold have a likely advantage because the demand for gold is much more than its actual supply. The price of gold is generally in a frequent rise. However, investors should not invest all their funds in a single kind of gold investment. The gold industry is huge and has many facets, and a savvy investor can develop this. Money can be invested directly in gold mines, for instance, which can be more lucrative than investing in physical gold.

Benefits Of Gold Investment

  • Gold is a popular form of saving
  • Gold is imperishable
  • Gold is a major necessity in the jewelry industry
  • The malleability and ductility of gold make it very useful
  • Gold can be transported easily
  • Gold is the universal standard against which the value of any object can be assessed
  • It retains as well as appreciates in value

See Also: India and its association with gold

 

Investing in Business

Business investment can provide investors a chance to invest in different kinds of businesses. Business investment can be a fine option for the investors to manage their own portfolios. Several business investment opportunities exist. Investors may select from different business investment plans depending on the market conditions and trends. Business investment normally means purchasing an asset in the form of stocks or bonds with a hope of receiving returns and interest in the future. Companies also release their shares and bonds in the capital market in order to accumulate money for some financial purpose. The assets that are purchased may be physical, intangible, or financial based on the nature of the asset.

Equity Investment

Equity investment refers to the trading of stocks and bonds in the share market. It is also referred to as the acquirement of equity or ownership participation in the company. An equity investment is usually an ownership investment, where the investor owns an asset of the company. In this kind of investment there is always a risk of the investor not earning a definite amount of money. Equity investment can also be termed as payment to a firm in return for partial rights of that firm. An equity investor, in some cases, may imagine some management control of the firm and may also share in future profits.

See Also: 3 ways to invest in equity

Retirement Investment

Retirement investment planning ensures financial security in the post retirement period. The consequential retirement benefits prove to be of great use for retirees. A significant amount of money should be invested in retirement investment plans. Money must not be withdrawn arbitrarily from retirement accounts. An individual's different Retirement investments must be monitored regularly. Both social security and investment in stocks may add to an individual's retirement. The first step to success in retirement investing is to build up the habit of saving early in life. Next, a sound investment strategy is required; one which allows for an amount of risk but also enhances the average annual returns on investment. Investments in PPF, PF, ULIP, SIP, etc. are some of the examples of areas meant for Retirement investment.

Investment opportunities in India are today perhaps at a peak. Supported by India's natural strengths, India offers investment opportunities in diversified fields. Investing in any productive avenue is must for all the individuals to create sufficient cash reserve for his future. We believe this article will help you to understand the importance and benefits of Investments

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Article Author

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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