Financial assets are liquid assets such as stock equity or bank deposits that assume their value from a contractual claim or ownership on an underlying asset. An underlying asset can be anything from a commodity to a piece of real estate. Investing is allocating money towards assets in the hope of making your future better. Investments are made with the view of earning returns, which grows your amount invested to a higher sum.
SIP is usually recommended to retail investors who do not have the resources to pursue active investment. SIP investment is a good choice for those investors who do not possess enough understanding of financial markets. The benefits of SIP is it reduces the average cost of units purchased, as well as consistent investment ensures that no opportunity is missed arising out of the market rally.
The demand for products facilitating investments has grown over time in search of a better lifestyle. Adding to it the depreciating value of the currency has forced investors to look at a diverse array of investment solutions which can help them grow their wealth. A convenient way to increase potential returns and gain access to financial markets is provided by mutual funds. This is also a reason why the importance of mutual funds is growing.
Mutual funds are created as baskets of investments, which invest in financial instruments like stocks and bonds according to their defined investment objectives. Investing in them allows an investor to gain access to asset classes like equities, bonds or fixed income securities, commodities, and even bullion.
These investment vehicles are created by fund companies under the aegis of an investment trust and are owned by investors who buy units or shares in them. They are pools of investment formed from the money invested by investors in exchange for units or shares. They are managed by an investment team with portfolio composition decisions being taken by a fund or portfolio manager. The manager, with the help of research analysts, decides which instruments, stocks or bonds, go into an investment portfolio or fund, and which need to be sold off.
Stocks can be a valuable part of your investment portfolio. Owning stocks in different companies can help you build your savings, protect your money from inflation and taxes, and maximize income from your investments. It's important to know that there are risks when investing in the stock market. Like any investment, it helps to understand the risk/return relationship and your own tolerance for risk.
Let's look at three benefits of investing in stocks.
Build. Historically, long-term equity returns have been better than returns from cash or fixed-income investments such as bonds. However, stock prices tend to rise and fall over time. Investors may want to consider a long-term perspective for their equity portfolio because these stock-market fluctuations do tend to smooth out over longer periods of time.
Protect. Taxes and inflation can impact your wealth. Equity investments can give investors better tax treatment over the long term, which can help slow or prevent the negative effects of both taxes and inflation.
Maximize. Some companies pay shareholders dividends1 or special distributions. These payments can provide you with regular investment income and enhance your return.
Fixed deposits are one of the oldest and safest investment instruments provided by the banks. The interest rates on fixed deposits are higher than the interest provided on savings account or current account balances. It is necessary for every individual to diversify his or her investment portfolio into various types of fixed income and variable income investment sources. Fixed deposits are a regular income source of investment.
There are some arguments against investment in Fixed Deposits stating that some variable income investment instruments yield higher returns. The variable income instruments such as Equity shares, Mutual Funds and Derivative instruments can provide higher returns but there are higher risks associated with it. The risk tolerance level of an investor guides the investment decisions. For higher returns, there is always a higher risk element, which can also mean losing a huge chunk of money at some point of time in adverse market situations. An ideal investment portfolio is a mix of risky and risk-free investments as per the risk tolerance capacity and risk averseness of an individual.
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