Lesson on Equity - 2

Savings & investment methods available.

• Personal Finances. What are those to be bothered about?
• Different investment options and their current market rate of returns.

Personal finances. Why bother?
There is always a first time for everything so also for investing. To invest you need capital free of any obligation. If you are not in the habit of saving sufficient amount every month, then you are not ready for investing. Our advice is :-

1. Save to atleast 4-5 months of your monthly income for emergencies. Do not invest from savings made for this purpose. Hold them in a liquid state and do not lock it up against any liability or in term deposits.
2. Save atleast 30-35 per cent of your monthly income. Stick to this practice and try to increase your savings.
3. Avoid unnecessary or lavish expenses as they add up to your savings. A dinner at costly restaurant can always be avoided, the pleasures of avoiding it will be far greater if the amount is saved and invested.
4. Try gifting a bundle of share certificates to yourself on your marriage anniversary or your hubby’s birthday instead of spending your money on a lavish holiday package.
5. Clear all your high interest debts first out of the savings that you make. Credit card debts (revolving credits) and loans from pawnbrokers typically carry higher interest rates than returns from investing. It is foolish to pay off debt by trying to first make money for that cause out of gambling or investing in stocks with whatever little money you hold. Infact its prudent to clear a portion of the debt with whatever amounts you have.

Different investment options and their current market rate of returns.
The investment options before you are many. Pick the right investment tool based on the risk profile, circumstance, time zone available etc. If you feel market volatility is something which you can live with then buy stocks. If you do not want to risk the volatility and simply desire some income, then you should consider fixed income securities. However, remember that risk and returns are directly proportional to each other. Higher the risk, higher the returns. A brief preview of different investment options is given below:

1. Equities: Investment in shares of companies is investing in equities. Stocks can be bought/sold from the exchanges (secondary market) or via IPOs – Initial Public Offerings (primary market). Stocks are the best long-term investment options wherein the market volatility and the resultant risk of losses, if given enough time, is mitigated by the general upward momentum of the economy. There are two streams of revenue generation from this form of investment. Dividend: Periodic payments made out of the company's profits are termed as dividends. Growth: The price of a stock appreciates commensurate to the growth posted by the company resulting in capital appreciation.
2. Bonds: It is a fixed income(debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with fixed rate of interest on a specified date, called as the maturity date. Other fixed income instruments include bank fixed deposits, debentures, preference shares etc.
3. Certificate of Deposits : These are short - to-medium-term interest bearing, debt instruments offered by banks. These are low-risk, low-return instruments. There is usually an early withdrawal penalty. Savings account, fixed deposits, recurring deposits etc are some of them. Average rate of return is usually between 4-8 %, depending on which instrument you park your funds in. Minimum required investment is Rs. 1,00,000.
4. Mutual Fund : These are open and close ended funds operated by an investment company which raises money from the public and invests in a group of assets, in accordance with a stated set of objectives. It’s a substitute for those who are unable to invest directly in equities or debt because of resource, time or knowledge constraints. Benefits include diversification and professional money management. Shares are issued and redeemed on demand, based on the fund's net asset value, which is determined at the end of each trading session. The average rate of return as a combination of all mutual funds put together is not fixed but is generally more than what earn in fixed deposits. However, each mutual fund will have its own average rate of return based on several schemes that they have floated. In the recent past, MFs have given a return of 18 – 30 %.
5. Cash Equivalents: These are highly liquid and safe instruments which can be easily converted into cash, treasury bills and money market funds are a couple of examples for cash equivalents.
6. Others : There are also other saving and investment vehicles such as gold, real estate, commodities, art and crafts, antiques, foreign currency etc. However, holding assets in foreign currency are considered more of an hedging tool (risk management) rather than an investment.

Lesson on Equity - 1

New to Investing

• Investing!! What's that?
• Why should you invest?
• When to invest?
• How much money do you need to invest ?
• What can you invest in ?
  

Investing !! What's that? online broker brokerage share trading
Judging by the fact that you've taken the trouble to navigate to this blog, guess is that you don't need much convincing about the wisdom of investing. However, we hope that your quest for knowledge/information about the art/science of investing ends here. Sink in. Knowledge is power. It is common knowledge that money has to be invested wisely. If you are a novice at investing, terms such as stocks, bonds, yield, P/E ratio may sound Greek and Latin. Relax. It takes years to understand the art of investing. You're not alone in the quest to crack the jargon. To start with, take your investment decisions with as many facts as you can assimilate. But, understand that you can never know everything. Learning to live with the anxiety of the unknown is part of investing. Being enthusiastic about getting started is the first step, though daunting at the first instance. That's why our investment course begins with a dose of encouragement: With enough time and a little discipline, you are all but guaranteed to make the right moves in the market. Patience and the willingness to pepper your savings across a portfolio of securities tailored to suit your age and risk profile will propel your revenues at the same time cushion you against any major losses. Investing is not about putting all your money into the "Next Reliance," hoping to make a killing. Investing isn't gambling or speculation; it's about taking reasonable risks to reap steady rewards. Investing is a method of purchasing assets in order to gain profit in the form of reasonably predictable income (dividends, interest, or rentals) and appreciation over the long term.

Why should you invest? online broker brokerage share trading
Simply put, you should invest so that your money grows and shields you against rising inflation. The rate of return on investments should be greater than the rate of inflation, leaving you with a nice surplus over a period of time. Whether your money is invested in stocks, bonds, mutual funds or certificates of deposit (CD), the end result is to create wealth for retirement, marriage, college fees, vacations, better standard of living or to just pass on the money to the next generation. Also, it's exciting to review your investment returns and to see how they are accumulating at a faster rate than your salary.

When to Invest? online broker brokerage share trading
The sooner the better. By investing into the market right away you allow your investments more time to grow, whereby the concept of compounding interest swells your income by accumulating your earnings and dividends. Considering the unpredictability of the markets, research and history indicates these three golden rules for all investors 1. Invest early 2. Invest regularly 3. Invest for long term and not short term While it’s tempting to wait for the “best time” to invest, especially in a rising market, remember that the risk of waiting may be much greater than the potential rewards of participating. Trust in the power of compounding Compounding is growth via reinvestment of returns earned on your savings. Compounding has a snowballing effect because you earn income not only on the original investment but also on the reinvestment of dividend/interest accumulated over the years. The power of compounding is one of the most compelling reasons for investing as soon as possible. The earlier you start investing and continue to do so consistently the more money you will make. The longer you leave your money invested and the higher the interest rates, the faster your money will grow. That's why stocks are the best long-term investment tool. The general upward momentum of the economy mitigates the stock market volatility and the risk of losses. That’s the reasoning behind investing for long term rather than short term.

How much money do I need to invest? online broker brokerage share trading
There is no statutory amount that an investor needs to invest inorder to generate adequate returns from his savings. The amount that you invest will eventually depend on factors such as:

• Your risk profile
• Your Time horizon
• Savings made
  

All the above three factors will be discussed in brief later.

What can you invest in? online broker brokerage share trading
The investing options are many, to name a few

• Stocks
• Bonds
• Mutual funds
• Fixed deposits
• Others

Read about them in detail in Lesson on Equity-2.

Introduction to Trading

Are you new to investing? Or have been investing and want to become an expert in trading, here you are and would go nowhere to get the knowledge. Alright, who doesn’t like money? And more over how do you feel to just sit back home, trade and party all weekends? Exciting right! Globally while expert traders make millions a year, amateurs make few thousands and beginners after a while make hundreds. This blog is focused at shaping an expert out of a beginner interested to trade while explaining the concepts, terminology, tools and techniques involved in trading. This blog explains all tools and techniques in detail and written easy for understanding. Online trading. Online trading.

In common are the following in which a trader can invest in.
1.Equity
2.Futures
3.Options
4.Mutual funds
5.Commodities (Gold, Platinum, Silver, Palladium,etc)

In the next blog, we learn in detail the way trading is carried out in different modes stated above. Thus that makes you a smart investor.