Investment Factors

Investment Factors

Friends let us  start the journey to the fascinating world  of  wealth creation through investments.

I feel there are 2 basic  Investment Factors  which  further have sub factors.

A]  Internal Factors

•  Neutral Mindset
•  Discipline
•  Willingness to learn new things
•  Unbiased approach while evaluating any new investment proposal.
•  Above all a passion to create wealth.

Internal factors needs to be developed by one himself by reading appropriate books,articles.  

B] External Factors

     Macro Factors

    There are macro factors like government policies,inflation,crude,

           political stability,interest rates etc.

          These cannot be changed by any individual .

    One only has to accept them and perform in the given conditions. 

  Investment Products

So lets try to understand how we can develop our knowledge about the products which are given to us and play them right in the given set of macro factors.

First of all let us understand the basic difference between the investment products.
Investment products can be classified into 2 categories.
Physical assets and Financial Assets.

Physical Assets	Financial Assets
Real Estate , Gold, Silver Poor transparency Poor liquidity Fluctuating returns High maintenance cost Not tax efficient	Equity Shares, Fixed Income Securities, Mutual Funds. Highly transparent Highly liquid Depends upon the instrument Low  maintenance cost Equity and Mutual Funds are tax efficient

Now let us understand the Financial Assets

1] Equity Shares

For simplicity purpose

Assume a company issues 100 shares of Rupees 10 each and raises a capital of Rs 1000/- to do business. You purchase 10 shares by investing 100 Rupees.

This means you are owner of the co to the extent of your share capital in the company.

If the company makes progress your share  appreciates , your dividend income goes up etc. Similarly if the company does not progress you stand to make losses.

Essentially it means when  you own equity shares you own the company to the extent of your capital.

You take a risk on the performance of the company .The returns on your investment can be high or low or even losses are possible.

Equity is all about owning a business. It is a good instrument for creating wealth.

B]  Fixed Income Instruments also known as Debt Instruments

Fixed Income Instruments are all about lending your capital to the borrower at a predetermined  fixed rate of interest also called as coupon for a fixed tenure and the borrower returns the capital back after the tenure is over.

The interest rates are determined by the market forces like inflation, demand and supply etc credit rating of borrower etc.

The risk here is comparatively very less (depends upon the borrower) and the returns are predecided , which are in line with inflation.

This is a good instrument for savings, short to medium term goals and protecting the  capital  created through equity investment.

C] Mutual Funds

Equity investment carries risk and hence it is very difficult to decide which cos to invest .

Similarly there is also some element of risk in fixed income investment  like counter party risk , interest rate risk,  etc.

So there is a option of Mutual Funds where the funds are handled by experts in the particular asset class and the investor invests into the units of mutual fund scheme.

Here also there a lot of schemes in each asset class and to decide which scheme is suitable to  the investor it is better to consult a financial advisor.

The benefits of mutual funds are

1) Professional Management
Fund managers monitor market and economic trends  and analyze securities in order to make informed investment decisions.

2) Diversification – Mutual Funds offer investors an opportunity to diversify across assets depending on their investment needs.

3) Liquidity   -(Subject to no lock in )
Investors can sell their units on any business day and receive the current market value of their investments within a  short period.

4) Affordability
The minimum initial  investment for a mutual fund is fairly low for most schemes (as low as Rupees 500/- for most schemes)

5) Convenience
Mutual Funds are highly convenient  as the investor can make  lumpsum investments, monthly investments, automatic withdrawal plans, automatic reinvestment of dividends etc.

6) Various Investment options
There are various investment options in Mutual Funds like equity funds, debt funds, hybrid funds, money market funds, gold funds etc.

7) Simplicity
Mutual Funds provide you with detailed reports and  statements that makes record keeping simple.

8) Tax Benefits
The income tax act provides various tax benefits  on returns earned from investment in mutual funds.

Following are some of the Basic Investment rules for success and achieving financial independence 

In my next article we shall discuss the techniques of investing .

Regards

Vivek R Mulay
AUM Financial Consultants
Office no 18 , Shreeram Complex , Model Colony,
Shivajinagar, Pune - 411016
M-9822107757
vivekmulay@gmail.com
www.aumfinancialconsultants.com

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