Investment: Debt funds

In mutual funds, we have the option to select equity fund, index fund, sectorial fund and debt fund.

Debt fund is the fund that invest bonds and non-existant convertible debentures (NCD). It is better to invest in a fund that invests in government bonds and NCD of high rated companies.

Some may feel it safe to start a SIP in a equity fund and later start a STP to a debt fund from the equity fund. 

Selecting the right funds become the backbone of the mutual funds investments.

Investment: Passive income

There are 2 types of income:
1) Active income
2) Passive income

Active income needs our physical presence like employee and self-employee. We may not earn if we are absent. Our salary is deducted when our paid leaves are exhausted.

Passive income does not need our presence. Our absence does not affect our business and investment.

We can earn bonus, dividend and interest from our investments.

Investment: An asset

Is investment an asset?
Yes,  if we are investing for a long time. If it is not consumed too early, our investments are the assets. Like land and house are hold for a long time.

Investments like shares, mutual funds, gold,  bonds, retirement savings are assets. These assets can be held for the longer time. The ownership of these assets can be transferred from generation to generation till they are sold to change the ownership.

These assets are such that if one does not own it,  another will own it.

So we must hold our investments as long as we can and enjoy the growth our assets. 

Investment: Patience

Once we have invested and set an investment goal, we must stick to our plan. Stopping a SIP and withdrawing an investment suddenly would not make us successful in investments.

Problem is not with the investment which will give the fixed return but with the investment which has uncertain return.

Investing is like planting a seed and watering it regularly. We must give it the required time to grow. This is really the hard work for the investors. Many investors fail in investment as they quit investing when they see the things are going as they have planned.

If we have planned well, selected well and invested or investing well, all we need is have patience. 

Investment: SIP & Lumpsum

We have two modes of investment.
1) SIP
2) Lumpsum

SIP or Systematic investment plan is investing a certain amount for a period of time. If we invest Rs. 1000 for 40 years @ 13%, we can expect the investment value above 1 crore. Here the invested amount is Rs. 480000.

Lumpsum is one time investment for a period of time. If we invest Rs. 100000 for 40 years @ 13%, our investments will grow above 1 Crore. Here the investment amount remains the same - Rs. 1 lakh.

In the investment type where the return is uncertain, SIP mode will be the best option to invest. ln mutual fund we can buy more units when the market is not performing well.

Investment: Sector preference

If we want to build our portfolio on the basis of sector, we need to consider the total weightage of the stocks in a particular sector.

Banking and financial services lead in Nifty 50, followed by energy and IT sectors. After selecting the sectors, we can build our portfolio considering the weightage of stocks in the particular sector. As for example HDFC bank leads the banking sector.

Invest in Market leaders. Invest in top 1, 2 or 3 companies in a particular sector.

Bank nifty is available in ETF to invest, if we are not able to decide where to put our money in Banking sector.

Investors should plan their portfolio in such a way that they need not worry about the selected stocks as long as the stocks remain the market leaders. 

Investment: First stock selection

In NSE & BSE,  we have a long list of listed companies. Nifty 50 is top 50 companies and Sensex is top 30 companies.

50 companies in Nifty 50 and 30 companies in Sensex contribute to the respective index according to their weightage. The stock with the most weightage becomes the main reason behind the rise or fall in the index.

We must select our first stock considering the weightage  in the index. Selecting from the top 5 or 10 companies based on their weightage is the better strategy than investing in a weak stock. 

Investment: Invest now

Once we have saved enough for our immediate requirement or emergency fund, we can start our investments.

If we start early and invest Rs. 2500 only every month for 40 years @ 9 %, we have invested Rs. 12 lakhs and the expected amount is Rs. 1,06,24,012. This is the wonder of compounding return.

If we find it difficult to invest Rs. 2500 initially, we can reduce the investment amount to  Rs. 1000 but keep the investment period and rate of return as 40 years and 9% respectively, the expected amount is over 42 lakhs. 

The above examples show we can start our investments with any amount. As our income grows,  we need to save more and increase our investments. 

Investment: Growth and dividend

Investing in mutual fund has two options:
1. Growth
2. Dividend

Growth mutual funds are the funds that invest in growing companies. Growth option is accumulating of SIP amounts till the investor decides to redeem the amount or withdraw in the form of SWP. In this growth fund investments, investors enjoy the benefits similar to compound interest.

Investors can choose for monthly, quarterly or yearly payout of dividends. The dividend payout is not fixed. Here investors enjoy the benefits of investing in the companies that declare dividends.

Investment: SIP, SWP, STP & Switch

We all know we can start a systematic investment plan (SIP) in mutual fund and shares where we invest a certain amount for a long period.

After accumulation of wealth, we have the option of systematic withdrawal plan (SWP) where we can plan our withdrawal of a certain amount monthly, quarterly or yearly.

When we near our retirement, we can transfer our accumulated wealth from a equity fund to a debt fund. Systematic transfer plan (STP)  is the process to transfer the money monthly, quarterly or yearly.

If we want to change from one fund to another,  we can switch it partially or wholly. 

Investment: Start early

We should start early in the matter of investment. Investment should start when we receive our first salary.

The process is simple. Save first to invest. If we start early, a SIP of a small amount for a long time is enough.

We can start a SIP in the mutual funds or shares. A weekly, monthly or quarterly or yearly SIP in mutual fund can be planned and a fixed amount will be debited from the bank account on a fixed date.

SIP in share is different as the price of share varies everytime and every day.

Finally, invest early to retire early.

Investment: Diversification

Do not put all the eggs in a basket.  It means do not put all the money in a single investment. Here comes the diversification of investments.

Investing is as important as its diversifying. Plan the combination of four or five types of risky and non risky investments first and invest.

Young investors can take more risk than elderly investors. Young investors can invest majority of their investments in mutual funds and share market while elderly investors can take less risk concentrating more in investment plans with fixed return.

Investment: Insurance

Insurance is considered as investment as it is done to insure one's life. Term insurance gives us no return but the nominee gets the insured amount on the death of the insured.

Policies like endowment and money back are taken with the expectations of return in the forms of bonus and loyalty. The insured gets the insured amount with bonus and loyalty if any at maturity. 

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Three generations have faced pandemic:

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Three generations have faced pandemic:

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Three generations have faced pandemic.

Investment: Government securities

To raise funds to finance important projects and budget deficits, government issues government securities (G-SEC)  or treasury bills (T-Bills).

The return is fixed and secured and usually better than the fixed deposits.

Moreover government securities are reliable and investors get a good return when there is financial crisis and other investments are not doing well. 

Investment: Other fixed deposits

Investors can invest in companies, financial institution and non-banking institution for a certain period. These companies and institutions pay higher interest to the investors.

Investing in the fixed deposits by the companies and non-banking financial institutions is not easy as the minimum investment amount is higher than the fixed deposits by the banking institutions.

Investment: Gold

Investing in gold is a safe investment. Commonly, we invest in gold in the form of jewellery. Gold in jewellery form has the issue of storage. Banks provide storage facility which is chargeable. There is also making charge in case of jewellery.

We can start a Systematic Investment Plan (SIP)  in the gold funds from mutual funds. Mutual funds save us from storage and making charges.

Additionally, we can invest in ETFs. We must open a trading and demat account with a SEBI registered broker to invest in a gold ETF.

Government issues gold bonds for the investors who are looking for a long term investments. In sovereign gold bond,  investors get a declared interest in return per year till the maturity of the bond along with the maturity value. 

Investment: Shareholder and dividend, bonus and split of shares

When we invest in a company and buy a share from the share market, we become a shareholder for the company.

We are then entitled to a share of the profit or loss of the company. The management of company can declare dividend, bonus share or split of share to reward its shareholders.

Share price moves up and down during the trading session and varies according to the performance of the company. Price appreciation is also the return against the investment for the investors. The shareholders can book the profit against the investments anytime or continue to hold the share for a longer time. 

Investment: Shares & ETF

Investors have the option to invest in company shares or index exchange traded funds (ETFs).

We can invest in the shares of the companies listed on BSE and NSE. Index ETFs like Nifty ETF, Sensex ETF and Nifty bank ETF are also available for the investors who do not have knowledge about the share market. Other ETFs are also available for investors to diversify their portfolio.

Investment: Investing in Share Market

Before investing in share market, we must open Trading and Demat account.

Trading account is used to buy and sell the shares while Demat account is for storing the shares. Trading account is opened with a SEBI registered broker.

Once the trading and demat account is opened, we can place an order after transferring an amount in the trading account from a linked bank account. A buy order or a sell order is placed to buy or sell shares.

Day trading is buying the shares for a single day. The shares are sold before the close of the trading session of the day. And a delivery is buying the shares to hold them for a time period. The shares are sold when the shareholder places a sell order.

Investment: Share Market

After mutual fund, it is now the time to understand share market. This is the most risky investment. Investing in equity will give a good return in short and long period. We need to be careful in investing in share market or else we will lose our money.

Share market is a place where shares are bought and sold. The shares are traded in two major stock exchanges: Bombay stock exchange (BSE) and National stock exchange (NSE).

The shares of the listed companies are available for trading in the stock exchanges. The top 30 companies in BSE is Sensex. Similarly, the top 50 companies in NSE form the index named Nifty.

These exchanges are regulated by the Securities and Exchange Board of India (SEBI).

Investment: Types of Mutual funds

There is a lot of mutual funds for the investors to choose from. Investors can choose from the lot ranging from low risk to high risk funds.

Investors have the option to select any of the funds or diversify their portfolio with more than one fund. Once invested, the fund manager takes the job of investing the money in the stocks alloted for the fund.

Large cap fund is the least risky fund while small cap fund is the most risky one. Mid cap fund is also available for investors who are not willing to take too much risk. Multi cap fund is the combination of large, mid and small cap stocks, in addition to the fund with combination of investing in shares and debt instruments.

Apart from the above funds,  index funds, sectorial and thematic funds, liquid and debt funds are also available for investors to invest their money. 

Investment: Mutual Fund

After investing a certain amount which has immediate requirement in safe deposits, investors can move up to some risky options available to us like mutual funds and stock market.

A mutual fund pools investments from many investors to buy securities.

Investing in mutual is riskier than fixed and recurring bank and post office deposits, EPF and PPF.

They are subject to market risk. Investors who have no knowledge to invest in stock market directly, can invest in mutual funds. The selection of right funds is essential to create wealth in long term. 

Investment: Post Office Savings Schemes

Investing in post office is also a safe investment. There are various saving schemes as well as National Savings Certificates.

We can invest in fixed and recurring deposits.

PPF can also be invested from any post office. 

Investment: EPF and PPF

We can invest in EPF and PPF.

EPF or Employer's Provident Fund is directly deducted from employee's salary. Employer also contributes to the EPF. A part of the employer's contribution goes to pension scheme. Since employee and employer contribute equally to the fund, it is the best investment for the investor looking for wealth accumulation with fixed return.

PPF or Public Provident Fund is contributed voluntarily by the investor who is investing  for long term and looking for secured return. PPF can be opened at any bank or post office with the facility and can be transferred to any bank or post office.

EPF and PPF are safe investments.

Investment: Fixed and recurring deposits

The amount saved for six or more months should not be kept in saving account.

We should convert it to fixed deposits. It is easy to break the deposits as and when there is any emergency and the fund is required.

We have an option of sweep-in and sweep- out wherein the excess money is automatically converted to the fixed deposits. The last deposit is broken if there is any withdrawal.

Recurring deposits can be initiated where a fixed amount is deducted from the savings account and credited to recurring deposit account every month on a scheduled date for a certain period.

The principal amount along with interest is credited to the savings account on maturity of both fixed and recurring deposits.

Investment: How much should we save?

Now the question is: How much should we save?

Saving should be enough to cover your immediate expenses for a few months. One has to decide one's comfort level of immediate expenses. Some may feel comfortable with six months expenses amount while others may need more.