Introduction to investing - for young adults
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Introduction to the world of investing - for kids. Generally the web is full of information, but it is difficult to get hold of a presentation, which will help young adults to understand the varieties of investment. It is important to have understanding of investment 101, before attaining the age of investment.
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Introduction to investing - for young adults
- 1. Introduction to Investing Education to children
- 2. Agenda 1. What is investing 2. Why Investing 3. How Investing 4. When Investing 3b. Variable Return 3a. Fixed Return Copyright - Abhijit Pal - 2013
- 3. What is Investing • Putting your money to work for you – Earn additional profit – Beat the inflation • Investment is not – Gambling • Gambling is risking money towards uncertain outcome • Investment is based on – Analysis Copyright - Abhijit Pal - 2013
- 4. Why Investing • Financial Stability During Retirement • Hedge against inflation and beat it • Plan for targeted goal • Maximizes one’s earning potential Copyright - Abhijit Pal - 2013
- 5. How Investing Fixed Deposits Stocks Mutual Funds Real Estate Gold Earn More Money Copyright - Abhijit Pal - 2013
- 6. Types of Investment Investment Avenues Fixed Return Fixed Deposit Banks Term Deposit Recurring Deposit Company Government Schemes Post Office Schemes PPF RBI Bonds Infrastructure Bonds Variable Return Stocks Equity Debenture Convertible Non- Convertible Mutual Fund Equity Large Cap Mid/ Small Cap Sectoral Debt Govt Bond Liquid Fund Fixed Maturity Fund Balanced Others Govt Pension Scheme (NPS) Mix Pure Debt Real Estate Commodity/ Metal Material ETF Copyright - Abhijit Pal - 2013
- 7. Advantage • The returns here are fixed and guaranteed • The returns generally based on market rate – but may not be volatile • In most cases – principal is guaranteed (banks and Govt) – provides high degree of safety Disadvantage • As returns are fixed – no chance of increasing it • Return need to adjusted vis-à-vis tax rates • Lock-in period Copyright - Abhijit Pal - 2013 Fixed return
- 8. Fixed Return • Easy availability, easy operatibility • Variable term – from 15 days to 15 years • Systematic Investment – Recurring Deposit • High Retail participation Banks (Public sector/ Pvt sector) • Higher rate of interest • Less ease of operation – in flexible • CRISIL rating to be observed regarding credit worthiness • No systematic investment Company Fixed Deposit Copyright - Abhijit Pal - 2013 FIXED DEPOSIT
- 9. Fixed Return •Savings / Recurring Deposit / Monthly Income Scheme (MIS) / Kisan – Indira Vikas Patra / Sr Citizen •High rural penetration •Relatively difficult to operate – due to low computerization •High rate of return – Federal Guarantee Post Office •Rate fixed by Govt •15 years – can be extended – medium flexibility as loans •Regular investment (Max Rs 70,000 pa) •Tax Credit Public Provident Fund •Rate fixed by Govt •6 years •Highest security – least flexibility – no tax credit •Demat possible RBI Bonds •Issued by Govt Organization •State Govt / Railway/ Highway Authority •Special Tax Credit •Low rate of interest •Low Flexibility Infrastructure Bond Copyright - Abhijit Pal - 2013 Government Schemes
- 10. Advantage • The returns are based on market • There is no limit – both upwards or downwards • No lock – in, highly tradable Disadvantage • No fixed return • No guarantee on return of principal • Requires broker and demat account Copyright - Abhijit Pal - 2013 Variable Return
- 11. Variable Return • Equity is ownership – Earn profit • And share the loss – Publicly traded in exchanges (NSE, BSE) • Valuation of share depends on various parameters of company (microeconomics), as well as macroeconomic factors – Investors make money through • Fluctuations in valuation – reflected in price per share – in terms of capital gain • Dividends – Ability to make profit (with inherent risk) – High liquidity – Demat account – transaction through broker (offline or online) Copyright - Abhijit Pal - 2013 Company sells shares to raise capital – in order to: 1. Fund new product manufacture or research 2. Funding expansion 3. Pay off existing debts etc. Stocks
- 12. Variable Return • Dividend – Debt instrument – used by companies to raise money • With certain coupon rate – payable at certain frequency – Publicly traded in exchanges (NSE, BSE) – Reasonable liquidity – Demat account – transaction through broker (offline or online) Copyright - Abhijit Pal - 2013 Convertible Debenture Non-Convertible Debenture •Converted into equity shares of the issuing company after a predetermined period of time •Generally the rate of interest is lower than NCDs •Convertibility is unique attraction •Regular debenture – with fixed coupon rate •Generally the rate of interest is higher Debenture
- 13. Variable Return Copyright - Abhijit Pal - 2013 Mutual Funds • A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. It is essentially a diversified portfolio of financial instruments - these could be equities, debentures/bonds or money market instruments. • Investor can make money by – Distributed earnings – say dividends or bonus – Fund makes capital gains – unit price increases – investor sells at higher price – Fund gains valuation – unit price increases – investor sells at higher price
- 14. Types of Mutual Funds By Structure By Investment Objectives Other Schemes Special Schemes •Open Ended Schemes •Close Ended Schemes •Interval Scheme •Growth Schemes •Income Schemes •Balance Schemes •Money Market Schemes •Tax Saving Schemes •Index Schemes •Sector Specific Schemes Copyright - Abhijit Pal - 2013 Liquid funds ST debt funds Gilt funds Debt Funds Balance d funds Risk Index funds Return Equity funds Sectoral funds
- 15. Equity Mutual Fund Equity (Invested in stocks. The ratio depends on the fund objective, but generally 80 – 100%) Large Cap (Invest in big companies, with large market cap. The large caps may have limited fluctuations and time-tested) Mid/ Small cap (Invest is smaller companies with relatively less market capitaization. Over period the mid/small caps may become large cap companies. The key is to identify the winner. This is riskier than large caps.) Sectoral (Invest in specific sectors – say Infrastructure, Auto, Finance, IT etc. Though the return may be large – it is the riskiest – follows the industry trends) Copyright - Abhijit Pal - 2013 Risk Factor Increases
- 16. Debt Mutual Fund Debt (Invested in bonds. It can be Government Bond, Corporate Bond, Fixed Deposit etc) Liquid/ Money Market (Invest invest in highly liquid money market instruments and provide easy liquidity.– for corporates) Ultra Short Term (Invest very short term debt securities with a small portion in longer term debt securities. Generall less than 1 yr.) Floating rate (Invest in floating rate debt securities, where the interest paid changes in line with the changing interest rate scenario) Medium/ Long Term (Invest in floating rate debt securities, the interest paid changes in line with the changing interest rate scenario) FMP (Close- ended – defined duration. Equivalent to Fixed Deposits) Copyright - Abhijit Pal - 2013 Various Types – also includes GILT (Govt Bonds)
- 17. Other Avenues • High Investment – High return • Less liquid • Relatively non-transparent Real Estate • Traditional – as ornament • As Gold Traded Fund (paper gold)Gold • Traded in exchanges • Mainly for trading purposeCommodities • Issued by Govt Organization • New investment avenue • For Retirement only National Pension Fund Copyright - Abhijit Pal - 2013