Investment, Savings & Speculation
There is a big difference
between Saving & Investment. Let’s have a look below two Equation:
Equation#1: Saving=Income-Expenditure
Equation#2:
Expenditure=Income-Saving
You may choose the style
of Expenses out of above two equation. Equation#1 is a typical & old style
of saving. This method of saving doesn’t require much more knowledge of
finance, so all of us choosing this option all the time.in this option, it is
difficult to minimize Expenses. If you cannot able to minimize the expenses
wisely then saving may be negative & nothing will be saved for tomorrow.
But Equation#2 however
best style for growth of your investment & minimization of expenditure.in
this option, it is very easy to minimize the expenses & saving is translate
to Investment for tomorrow.
If you not able to
control the expenses then choose Equation#2 option. Savings always eroded by
inflation. Saving always has to fight with inflation.to ride the inflation
saving has to be converted to investment, for better investment should be in
view of long term horizon.
In terms of
Economics: An investment is the purchase of goods or services
that are not utilized/consumed at the present time but are used in the future
to create wealth.
In finance
perspective: An investment is a monetary asset/interest purchased
with the idea that the asset will provide income in the future or will later be
sold at a higher price for a profit or growth of asset.
In term of
macroeconomics, investment is everything that remains of total expenditure
after consumption, government spending, and net exports are subtracted. Investment
term always refer to any ways of time, money or effort used for generation of
future income in mind. Investment can’t be imagine without Risk, it always
comes with Risk.
There is big difference
between Investment & Speculation, Assets can be built by investing over the
long term & and Through Speculation profit cab be made only for short
period without any ownership of assets. Speculation nothing but a gambling &
investment is considered as great way of making a better portfolio of assets
with minimized risk. Another name of Speculation is gambling. Today many online
trading are available which are nothing but purely example of speculation such
as Equity/index derivatives (Future/Options), Commodity derivatives, bitcoin,
games based on cards, casino games etc.
it is difficult to
identify the which is best for option for saving of your hard earn money. There
are many online platforms are available, whose intention is only to attract
youngsters to join speculative type option for making money in short term by
giving attractive offers. It is not possible to accumulate asset through
speculation or its related option, these are only a trading option for short
term
Factor affecting risk
capability: there are many factors are available in life which are blocking the
investment cycle i.e. marital status, Child education, inherit money, Job
security, afford to lose money etc. For the growth of any country depends on
trends & behavior of investment, volume & capacity of investment. Cash
in portfolio is neither good for public nor good for individual, it is always
trim by inflation.
Even though both
investment & Speculation involves Risk of losing money, but it is suggested
to be caution with speculative type of instruments. One famous phrase is
that those who cannot afford to take risks should be content with a relatively
low return on their invested funds. Investment with limited risk is always
safer for future earnings.
Brief of Investment options
Equity definition:
Equity/share is referred
to as shareholder’s equity/share represents the amount of money that would
be returned to a company’s shareholders after all of the assets liquidated and
after paid off company’s debt. In addition, shareholder equity define in the
book value of a company. It is a kind of ownership in the company as shares on
pro rata basis. Equity is giving the ownership in company’s assets as well as
liabilities. Equity represents ownership in the company to the extent of shares
held. Shareholders participate in the management of the company by exercising
the voting rights associated with the shares held. Investment in equity is a
growth-oriented asset. The primary source of return to the investor is from the
appreciation in the value of the investment. Dividends are periodic income to
the shareholders also.Dematerialized (demat) account is required to purchase
share/equity along with KYC. demat account is used to hold the shares in
electronic form. Demat account can be obtained through depository participant
(DP).DPs are act as an agent or broker between investor & depository.
Debt, Bond & Debentures:
Debt is an amount of
money borrowed by one party from other party. Debt represents the borrowings of
the issuer. Debt as an asset class represents an income-oriented asset. The
major source of return from a debt instrument is regular income in the form of interest.
The interest is typically known at the time of issue and may be guaranteed
either by an undertaking of the government or by security created on the
physical assets of the issuer.
The terms of the issue
will determine the conditions such as the coupon or interest payable on the
debt, the tenor of the borrowing after which the borrower/issuer has to return
the principal to the lenders/investors, the security against the assets of the
borrower offered as collateral, if any, and other terms.
Bonds are backed by the asset of the issuer whereas debentures are not secured by any of the physical assets or collateral.
Debentures are issued and purchased only on the creditworthiness and reputation of the issuing party.
The interest rate of bonds is generally lower than debentures.Governments and public sector companies tend to issue bonds, while private sector companies issue debenture
Mutual
Fund:
It is a vehicle/trust to
mobilize money from investors, to invest in different markets and securities,
in line with the common investment objectives agreed upon, between the mutual
fund and the investors. Through investment in a mutual fund, an investor can
get access to equities, bonds, money market instruments and/or other securities
market, investor in MF can able to avail of the professional fund management
services offered by an asset management company (AMC).AMCs prime role is to
assist investors in earning an income or building their wealth, by
participating in the opportunities available in various securities and markets.
It is possible for
mutual funds to structure a scheme for different kinds of investment
objectives. Mutual fund structured through various available schemes with
different objective for investor. MF offer different kinds of schemes to cater
to the need of diverse investor’s objective. For the purchase of Mutual fund,it
is mandatory to have a Know Your Customer (KYC) in intermediaries. It is
very important to choose the fund based on your requirement & time
horizon.
Types of Mutual Funds:
- .Open-Ended Funds, Close-Ended Funds
- Actively Managed Funds and Passive Funds
- Equity oriented, Debt oriented & Hybrid Fund
- Regular & Direct Funds
- Growth & Dividend Funds
