SHORT-TERM FINANCIAL OPTIONS :

Broadly speaking, savings bank account, money market/liquid funds and fixed deposits with banks may be considered as short-term financial investment options.

1) Savings Bank Account

It is often the first banking product people use, which offers low interest (4%-6% p.a.), making them only marginally better than fixed deposits.

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2) Money Market or Liquid Funds

These are a specialized form of mutual funds that invest in extremely short-term fixed income instruments and thereby provide easy liquidity. Unlike most mutual funds, money market funds are primarily oriented towards protecting your capital and then, aim to maximise returns. Money market funds usually yield better returns than savings accounts, but lower than bank fixed deposits.

3) Fixed Deposits with Banks

These are also referred to as term deposits and minimum investment period for bank FDs is 30 days. Fixed Deposits with banks are for investors with low risk appetite, and may be considered for 6-12 months investment period as normally interest on less than 6 months bank FDs is likely to be lower than money market fund returns.

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LONG TERM FINANCIAL OPTIONS

There are several options available for long term investments like Post Office Savings Schemes, Public Provident Fund, Company Fixed Deposits, Bonds and Debentures, Mutual Funds etc.

1) Post Office Savings

Post Office Monthly Income Scheme is a low risk saving instrument,which can be availed through any post office. It provides an interest rate of 8.4% per annum, which is paid monthly. Minimum amount, which can be invested, is Rs. 1,000/-and additional investment in multiples of 1,500/-. Maximum amount is Rs. 4,50,000/- (if Single) or Rs. 9,00,000/- (if held Jointly) during a year. It has a maturity period of 6 years. A bonus of 10% is paid at the time of maturity. Premature withdrawal is permitted if deposit is more than one year old. A deduction of 5% is levied from the principal amount if withdrawn prematurely; the 10% bonus is also denied.

2) Public Provident Fund

A long term savings instrument with a maturity of 15 years and interest payable at 8.7% per annum compounded annually. A PPF account can be opened through a nationalized bank at any time during the year and is open all through the year for depositing money. Tax benefits can be availed for the amount invested and interest accrued is tax-free. A withdrawal is permissible every year from the seventh financial year of the date of opening of the account and the amount of withdrawal will be limited to 50% of the balance at credit at the end of the 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower the amount of loan if any.

3) Company Fixed Deposits

These are short-term (six months) to medium-term (three to five years) borrowings by companies at a fixed rate of interest which is payable monthly,quarterly, semi-annually or annually. They can also be cumulative fixed deposits where the entire principal along with the interest is paid at the end of the loan period. The rate of interest varies between 8-12% per annum for company FDs. The interest received is after deduction of taxes.

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4) Bonds and Debentures

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 a fixed rate of interest on a specified date, called the Maturity date. Debentures are instruments issued by companies similar to bonds. These could be convertible, non-convertible or partly convertible. Convertible debentures can be fully converted to equity at the option of the debenture holder on maturity. Non-convertible debentures are fully repaid on maturity and partly convertible debentures are partly repaid and partly convertible on maturity, at the option of the debenture holder.

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Mutual Funds

These are funds operated by an investment company which raises money from the public and invests in a group of assets (shares, debentures etc.), in accordance with a stated set of objectives. It is a substitute for those who are unable to invest directly in equities or debt because of resource, time or knowledge constraints. Benefits include professional money management, buying in small amounts and diversification.

Mutual fund units are issued and redeemed by the Fund Management Company based on the fund’s net asset value (NAV), which is determined at the end of each trading session. NAV is calculated as the value of all the shares held by the fund, minus expenses, divided by the number of units issued. Mutual Funds are usually long term investment vehicles though there some categories of mutual funds, such as money market mutual funds which are short term instruments.

WHAT IS INVESTMENT?

The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get returns on it in the future. This is called Investment.

WHY SHOULD ONE INVEST ?

One needs to invest to:
• earn return on your idle resources
• generate a specified sum of money for a specific goal in life
• make a provision for an uncertain future

One of the important reasons why one needs to invest wisely is to meet the cost of Inflation.

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Inflation is the rate at which the cost of living increases. The cost of living is simply what it costs to buy the goods and services you need to live. Inflation causes money to lose value because it will not buy the same amount of a good or a service in the future as it does now or did in the past.

For example, if there was a 6% inflation rate for the next 20 years, a Rs. 100 purchase today would cost Rs. 321 in 20 years. This is why it is important to consider inflation as a factor in any long-term investment strategy. Remember to look at an investment’s ‘real’ rate of return, which is the return after inflation. The aim of investments should be to provide a return above the inflation rate to ensure that the investment does not decrease in value.

WHEN TO START INVESTING?

The sooner one starts investing the better. By investing early you allow your investments more time to grow, whereby the concept of compounding increases your income, by accumulating the principal and the interest or dividend earned on it, year after year.

The three golden rules for all investors are:
• Invest early
• Invest regularly
• Invest for long term and not short term

HOW WE SHOULD PLAN OUR INVESTMENT?

The first step in planning your investments is to figure out the right investment that fits your profile and needs.

Here are a few things to keep in mind when planning your investments:

• Choose investments carefully after doing adequate research
• Don’t fall for quick-buck schemes that promise high returns in a short time
• Review your stock and mutual fund investments periodically
• Consider the tax implications on returns you earn from your investments
• Keep things simple and avoid complicated investments that you don’t understand

WHAT CARE SHOULD TAKE WHILE INVESTING?

Before making any investment, there are certain steps to ensure safety of investments. There are Few Important steps to investing where the investor must make sure to:

• 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

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• 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 authorised intermediary
• Seek all clarifications about the intermediary and the investment and invest only if you are comfortable. Refuse to invest if you are not convinced.
• Explore the options available to you if something were to go wrong, and then, if satisfied, make the investment.

👉 In this blog, we have learned a lot about investments and the various things related to investments. very soon i will write a blog on types of investments.Till keep reading & increasing your knowledge in field of finance and keep loving & supporting my blog😊😊😊😊
– stockbuddyneeraj

What is stock exchange?

The stock exchange or market is a place where stocks, shares and other long-term commitments or investment are bought and sold.

Economic significance:

The economic significance of a stock market results from the increased marketability resulting from a stock exchange share quotation. The stock exchange is an essential institution for the existence of the capitalist system of the economy and for the smooth functioning of the corporate form of organisation.

Definition of stock exchange according the Securities Contracts (Regulation) Act of 1956 :

The Securities Contracts (Regulation) Act of 1956 defines, a stock exchange as “an association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling, business in buying, selling and dealing in securities.”

Stock Exchanges are noted as “an essential concomitant of the Capitalistic System of economy. It is indispensable for the proper functioning of corporate enterprise. It brings together large amounts of capital necessary for the economic progress of a country. It is a stronghold of capital and part of money market. It provides necessary mobility to capital and indirect the flow of capital into profitable and successful enterprises. It is the barometer of general economic progress in a country and exerts a powerful and significant influence as a stimulant of business activity.”

History of stock exchange in india:

The first organised stock exchange in India was started in 1875 at Bombay and it is stated to be the oldest in Asia. In 1894 the Ahmedabad Stock Exchange was started to facilitate dealings in the shares of textile mills there. The Calcutta stock exchange was started in 1908 to provide a market for shares of plantations and jute mills.

Then the madras stock exchange was started in 1920. At present there are 23 stock exchanges in the country, 21 of them being regional ones with allotted areas. Two others set up in the reform era, viz., the National Stock Exchange (NSE) and Over the Counter Exchange of India (OICEI), have mandate to have nation-wise trading.

Location of stock exchanges in india:

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They are located at Ahmedabad, Vadodara, Bangalore, Bhubaneswar, Mumbai, Kolkata, Kochi, Coimbatore, Delhi, Guwahati, Hyderabad, Indore, Jaipur’ Kanpur, Ludhiana, Chennai Mangalore, Meerut, Patna, Pune, Rajkot.

Regulator of stock exchanges:

The Stock Exchanges are being administered by their governing boards and executive chiefs. Policies relating to their regulation and control are laid down by the Ministry of Finance. Government also Constituted Securities and Exchange Board of India (SEBI) in April 1988 for orderly development and regulation of securities industry and stock exchanges.

Stock market is a place where we can buy or sell equity shares of listed companies.

THE PRIMARY MARKET & SECONDARY MARKET

In this topic, we will learn about Capital Market. Now we will see the types of capital market.

So, basically there are two types of capital market:

1.  Primary market
2. Secondary market

PRIMARY MARKET

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In the primary market, shares & bonds are sold for the first time or issued for collecting long-term capital. In the primary market, securities are issued by companies, government entities or public institutions directly to investors. The primary market is all about new issues hence called as “New Issue Market”. The money collected from the primary market can be used by companies to modernize the plant, repayment of debt, setting up a new business plant, for expansion of business etc.

Some common methods of raising capital in the primary market are as follows:

1) PUBLIC ISSUE : IPO & FPO

As the name suggests, public issue means selling securities to the public. An example of a primary market is the company’s initial public offering, or IPO, in which it sells stocks to the general public for the first time. An IPO occurs when a company sells stocks to the public for the first time. In IPO, the money paid by the public for the newly issued shares goes directly to the comany. If the company has already issued shares in the stock market & again want to issue its shares, then the process is known as “Follow on Public Offer”(FPO). In the primary market, you cannot buy shares directly. You need to apply separately to buy shares in the primary market. We will try to cover the whole procedure of IPO in the next session.

2) PRIVATE PLACEMENT

In this method, the securities are sold by the company to an intermediary at a fixed price and intermediaries sell these securities to  it’s selected clients at a higher price. The issuing company issues prospectus to give details about its objectives, future prospects, the reason behind raising the capital so that reputed clients prefer to buy the security from the intermediary. Under this method the intermediaries issue securities to selected investors like frequent investors, venture capital (VC’s), mutual funds and banks.

The private placement method is a cost effective method for issuing securities as the company is saved from the expenses of underwriting fees, manager fees, the listing of company’s name in stock exchange etc. Small and new companies prefer private placement as they cannot afford to raise from public issue. The private placement is all about selling securities to the restricted number of investors. IPO is a lengthy process to raise money, whereas private placement is a faster way for the company to raise capital.

3) RIGHT ISSUE

As the name suggests, a right issue is the issue of new shares to existing shareholders. When listed company issue fresh securities to existing shareholders it is known as Right Issue. It is called right issue because it is the right of shareholders that the company must offer them the new issue before allowing shares to outsiders. Each shareholder has the right to subscribe to the new shares in the proportion of shares he already holds. A right issue is mandatory for companies under Companies’ Act 1956.

Prerequisites for Investors to Participate in Primary market activities are as follows:

1.  PAN Number
2.  Bank Account
3.  Demat Account

SECONDARY MARKET

What we call stock market is nothing but the secondary market where securities are traded after being initially offered to the public in the primary market. Once issued in the primary market, the securities, then typically trade on a secondary market such as stock exchanges or bond markets.This includes the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), New York Stock Exchange (NYSE), and all major exchanges around the world. The defining characteristic of the secondary market is that investors trade among themselves i.e, money pass between investors. In the secondary market, investors trade previously issued securities without the issuing companies’ involvement.

For example, if you are buying shares of Infosys, you are dealing only with another investor who owns shares in Infosys. Infosys is in no way involved with the transaction. i.e, shares of Infosys are sold by and transferred from one investor to another. Whenever you buy shares directly from stock market, then you are actually buying shares from the secondary market.

Secondary market could be either auction or dealer market. While the stock exchange is the part of an auction market & Over the counter (OTC) is a part of the dealer market. National Stock Exchange (NSE), Bombay Stock Exchange (BSE)are the examples of the auction market. OTC is a privately negotiated contract made by two parties. Deals through OTC are not exchange traded deals. OTC uses communication modes such as the telephone, email etc. In the primary market, securities are offered to public for the purpose of raising capital. Whereas secondary market is an equity trading platform in which already existing securities are traded amongst investors.