TYPES OF INVESTMENTS

1. Short term
2. Medium term
3. Long term

Your investment strategy will vary depending on how long you can keep your money invested. Most goals fit into one of three categories—short-term (less than three years), medium-term (three to ten years) and long-term (more than ten years).

INVESTMENT PRODUCTS

1. Mutual Funds

• Mutual funds are a type of investment that takes money from many investors and uses it to make investments based on a stated investment objective.
• Each shareholder in the mutual fund participates proportionally (based upon the number of shares owned) in the gain or loss of the fund.
• Mutual funds offer investors an affordable way to diversify their investment portfolios.
• Mutual funds allow investors the opportunity to have a financial stake in many different types of investments.
• These investments include: stocks, bonds, money markets, real estate, commodities, etc…
• Individually, an investor may be able to own stock in a few companies, a few bonds, and have money in a money market account. Participation in a mutual fund, however, allows the investor to have much greater exposure to each of these asset classes.
• Mutual funds offer investors an affordable way to diversify their investment portfolios.
• Mutual funds allow investors the opportunity to have a financial stake in many different types of investments.
• These investments include: stocks, bonds, money markets, real estate, commodities, etc..
• Individually, an investor may be able to own stock in a few companies, a few bonds, and have money in a money market account. Participation in a mutual fund, however, allows the investor to have much greater exposure to each of these asset classes.
• Mutual Funds can be divided into four basic categories based upon the funds investment objective, viz:
  • Money Market Mutual Funds
  • Stock Mutual Funds
  • Index Funds
  • Bond Mutual Funds
  • Balanced Mutual Funds

2. Company deposits

The company deposits give a slightly higher interest rate because there is a slightly higher risk associated with them. The "credit risk" associated with a company fixed deposit should be factored into while making a decision on where to invest.

The simple thumb rules to keep in mind are the following:

1. Spread your investments – an investor has a choice between PSU banks, private banks and companies when it comes to deposit options. Simply, divide your deposit portfolio into three equal parts for these categories.
2. Choose your companies wisely – no un-rated companies regardless of how high a rate they offer, and preferably chose companies that are part of a larger group so the risk is mitigated. And finally,
3. Choose the company deposits for the part of the portfolio that has the shortest tenure – say 1-2 years.
With this approach, an investor will have the potential to make a good risk-adjusted return from their deposit portfolio.

3. Stock Market

A stock market or equity market is a public entity (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.

The size of the world stock market was estimated at about $36.6 trillion at the beginning of October 2008. The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy. The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The largest stock market in the United States, by market capitalization, is the New York Stock Exchange (NYSE).

Market participants include individual retail investors, institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares. Some studies have suggested that institutional investors and corporations trading in their own shares generally receive higher risk-adjusted returns than retail investors.

Stock, shares or equity mean the same thing. Share refers to a little part in the ownership of a business/firm concern. Shares are classified into two, viz, the ordinary shares and the preference shares. Ordinary share capital is the foundation of any company’s financial structure. It is otherwise called equity share capital. Preference shareholders as the name implies are the first to buy shares before others; they are also the first to receive dividends and are liable to get refunds first incase the company goes bankrupt. The preference shareholder, unlike the ordinary shareholder has fixed dividends, whether the company made huge profits or not.

DID YOU KNOW

A Bollywood Star who was allotted shares valued Rs 6.27 lakhs in 2011 is currently worth Rs 3.4 crore as on 2013. That's the power of factual investing in shares. Let’s translates this into your own investment in a stock & see the power of returns*.

* "Consult a CFP/Financial Planner before investing"

Advantages of investing in shares

There are several benefits derived from investment in shares. Below are some of them:
1. Inflation rate is higher than commercial banks interest rate but lower than equity price appreciation.
2. You are protected from the eyes of the public. Nobody knows your worth except you tell him/her. In other investments, people can easily look at the assets of the business or your property (real estate) and come up with approximate worth of it.
3. The rate of growth is far beyond the bank interest rate.
4. Dividend: This is cash reward given to share holders as part of the profit made by the company at the end of each financial year. It is declared at the annual general meeting (AGM) of the company. The larger the units of your shareholding, the more money you receive at the end of each financial year. There are companies that have yearly dividend policy. Your financial adviser should be able to tell you some of them.
5. Bonus issues: This is free shares given to existing shareholders of a company. Sometimes, company declares bonus instead of dividend or both
6. Capital appreciation: Price of shares move up or down responding to the forces of demand and supply. Indeed stock business has the potential of making you a millionaire overnight.

4. Systematic Investment Plan (SIP)

A Systematic Investment Plan (SIP) is a vehicle offered by mutual funds to help investors save regularly. It is just like a recurring deposit with the post office orbank where you put in a small amount every month, except the amount is invested in a mutual fund. The minimum amount to be invested can be as small as 100 (100 Indian Rupees) and the frequency of investment is usually monthly or quarterly.

A SIP allows investment in the stock market without trying to second-guess its movements. It is also known as dollar cost averaging.

A SIP means the person commits to investing a fixed amount every month. Let's say it is 1,000. When the Market price of shares fall, the investor benefits by purchasing more units; and is protected by purchasing less when the price rises. Thus the average cost of units is always closer to the lower end.) { NAV : Net Asset Value, or the price of one unit of a fund. Can be computed as follows : NAV = [ market value of all the investments in the fund + current assets + deposits - liabilities ] divided by the number of units outstanding.}

Date	NAV	Approx number of units you will get at 1000
Jan 1	10	100
Feb 1	10.5	95.23
Mar 1	11	90.90
Apr 1	9.5	105.26
May 1	9	111.11
Jun 1	11.5	86.95

Within six months, this is a value of 5,89.45 units by investing just 1,000 every month. Over the long run, money can either be gained or lost. Let's say an investment in a Mutual Fund unit during the dotcom and tech boom. Say it began with 1,000 and kept investing 1,000 every month. This would be the result:

Investment period
• Mar 2000 - Mar 2005
Monthly investment
• 1,000
Total amount invested
• 61,000
Value of investment of Mar 7, 2005
• 1,09,315
Return on investment
• 23.87%

Had the units been bought on March 13, 2000 at 10.88 per unit (the NAV then), the result would be a loss because the NAV was just 7.04 on March 7, 2005. But because of spacing out the investment, it is a gain.

Conversely if the market had trended higher from the day investing started, the result would be loss of an opportunity. This would happen as subsequent purchases will get a smaller number of units for the same amount.

Systematic Investment Plan can help people to be disciplined but not solve market timing issues. Further, the Investment advisors or the Mutual Fund may have a vested interest in pitching this idea to consumers as a method of future investment would also accrue effortlessly.

Fees

A number of mutual funds do not charge an entry load for an SIP. If not exited (selling the units) within a year of buying the units, they may not charge an exit load. However, if units are sold within a year, there may be an exit load.