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There are seven basic ways to invest your money by

  1. 1. There are seven basic ways to invest your money by: Putting it in the bank Lending it to someone Buying stocks Buying a house Buying gold and silver Buying collectibles Buying mutual funds Let’s use an example to demonstrate the types of investments. For instance, pretend you are going to start a lemonade stand. You need some money to get your stand started. You ask your grandmother to lend you $100 and write this down on a piece of paper: "I owe you (IOU) $100, and I will pay you back in a year plus 5% interest." Your grandmother just bought a bond (IOU) by lending money to your "company" named Lemo. To get more money, you sell half of your company for $50 to your brother Tom. You put this transaction in writing: "Lemo will issue 100 shares of stock. Tom will buy 50 shares for $50." Tom has just bought 50% of the shares of stock from Lemo. You sell $500 worth of lemonade. Business is good. Your costs for setting up the stand are $150, plus you pay yourself $100 for the hours you work. Thecompany makes profits of $250.After one year, from the $250 profits, you pay back your grandmother $100 plus $5 interest. Youpay $20 to Tom and yourself, shareholders (a fancy name for owner). In business, the $20 paid tothe owners is called a dividend. You decide to put the dividend money in the bank. Banking themoney is a short-term investment.This example covers three types of investments: short-term investments, bonds, and stocks.Besides these three, there are real estate (buying a house), commodities (gold and silver),collectibles (such as baseball cards), and mutual funds. Let’s examine these seven, one at a time.Financial Investment Options Summarised below are the short-term and long-term financial investment options available for Indian investors. Click on the instrument names to see a short explanation. Short-term investing Savings bank account Use only for short-term (less than 30 days) surpluses
  2. 2. Money market fundsOffer better returns than savings account without compromising liquidityBank fixed depositsFor investors with low risk appetite, best for 6-12 months investment periodLong-term investingPost Office savingsLow risk and no TDSPublic Provident FundBest fixed-income investment for high tax payersCompany fixed depositsOption to maximise returns within a fixed-income portfolioBonds and debenturesOption for large investments or to avail of some capital gains tax rebatesMutual FundsUnless you rate high on our Investment IQ Test, use mutual funds as a vehicle to investLife Insurance PoliciesDont buy life insurance solely as an investmentEquity sharesMaximum returns over the long-term, invest funds you do not need for at least five years1. Savings Bank AccountUse only for short-term (less than 30 days) surplusesOften the first banking product people use, savings accounts offer low interest (4%-5% p.a.), making them onlymarginally better than safe deposit lockers.Back2. Money Market Funds (also known as liquid funds)Offer better returns than savings account without compromising liquidityMoney market funds are a specialized form of mutual funds that invest in extremely short-term fixed incomeinstruments. Unlike most mutual funds, money market funds are primarily oriented towards protecting yourcapital and then, aim to maximise returns.Money market funds usually yield better returns than savings accounts, but lower than bank fixed deposits. Withthe flexibility to issue cheques from a money market fund account now available, explore this option beforeputting your money in a savings account.Back3. Bank Fixed Deposit (Bank FDs)For investors with low risk appetite, best for 6-12 months investment period
  3. 3. Also referred to as term deposits, this product would be offered by all banks. Minimum investment period forbank FDs is 30 days.The ideal investment time for bank FDs is 6 to 12 months as normally interest on bank less than 6 months bankFDs is likely to be lower than money market fund returns.It is important to plan your investment time frame while investing in this instrument because early withdrawalstypically carry a penalty.Back1. Post Office Savings Schemes (POSS)Low risk and no TDSPOSS are popular because they typically yield a higher return than bank FDs. The monthly income plan couldsuit you if you are a retired individual or have regular income needs.Besides the low (Government) risk, the fact that there is no tax deducted at source (TDS) in a POSS is amongstthe key attractive features.The Post Office offers various schemes that include National Savings Certificates (NSC), National SavingsScheme(NSS), KisanVikasPatra, Monthly Income Scheme and Recurring Deposit Scheme.Back2. Public Provident Fund (PPF)Best fixed-income investment for high tax payersPPF is a very attractive fixed income investment option for small investors primarily because of -1. An 11% post-tax return - effective pre-tax rate of 15.7% assuming a 30% tax rate2. A tax-rebate - deduction of 20% of the amount invested from your tax liability for the year, subject to amaximum Rs60,000 for a tax rebate3. Low risk - risk attached is Government riskSo, whats the catch? Lack of liquidity is a big negative. You can withdraw your investment made in Year 1 onlyin Year 7 (although there are some loan options that begin earlier).If you are willing to live with poor liquidity, you should invest as much as you can in this scheme before lookingfor other fixed income investment options.Back3. Company Fixed Deposits (FDs)Option to maximise returns within a fixed-income portfolioFDs are instruments used by companies to borrow from small investors. Typically FDs are open throughout theyear. Invest in FDs only if you have surplus funds for more than 12 months. Select your investment periodcarefully as most FDs are not encashable prior to their maturity.
  4. 4. Just as in any other instrument, risk is an embedded feature of FDs, more so because it is not mandatory fornon-finance companies to get a credit rating for this instrument.Investors should consciously (either though a credit rating or through an expert) select the companies they investin. Quite a few small investors have lost their lifes savings by investing in FDs issued by companies that haverun into financial problems.Back4. Bonds and DebenturesOption for large investments or to avail of some capital gains tax rebatesBesides company FDs, bonds and debentures are the other fixed-income instruments issued by companies. Asa result of an illiquid secondary market and a lack-lustre primary market, investment in these instruments islargely skewed towards issues from financial institutions.While you might find some high-yielding options in the secondary market, if you do not want the problemsassociated with bad deliveries and the transfer process or you want to invest a large sum of money, the primarymarket is the better option.Back5. Mutual FundsUnless you rate high on ourInvestment IQ Test, use mutual funds as a vehicle to investHave you ever made an investment in partnership with someone else? Well, mutual funds work on more or lessthe same principles. Investors pool together their money to buy stocks, bonds, or any other investments.Investing through mutual funds allows an investor to -1. Avail the services of a professional money manager (who manages the mutual fund)2. Access a diversified portfolio despite making a limited investmentOur primer Investing in Mutual Funds should educate you a lot more on the benefits of investing in mutual fundsand strategies you could employ.Back6. Life Insurance PoliciesDont buy life insurance solely as an investmentLife insurance premiums, depending upon the policy selected, include the costs of -1) death-benefit coverage2) built-in investment returns (average 8.0% to 9.5% post-tax)3) significant overheads, including commissions.This implies that if you buy insurance solely as an investment, you are incurring costs that you would not incur inalternate investment options.
  5. 5. It is, however, important to insure your life if your financial needs and profile so require. Use our Are You Adequately Insured planning tool to find out if you need life insurance, and if yes, how much. Back 7. Equity Shares Maximum returns over the long-term, invest funds you do not need for at least five years There are two ways in which you can invest in equities- 1. through the secondary market (by buying shares that are listed on the stock exchanges) 2. through the primary market (by applying for shares that are offered to the public) Over the long term, equity shares have offered the maximum return to investors. As an investment option, investing in equity shares is also perceived to carry a high level of risk. Learn more about building an equity portfolio in Investing in EquitiesInvestmentFrom Wikipedia, the free encyclopediaJump to: navigation, searchFor other uses, see Investment (disambiguation)."Invest" redirects here. For the term in meteorology, see Invest (meteorology). This article has multiple issues. Please help improve it or discuss these issues on the talk page. This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (July 2011) The neutrality of this article is disputed. Relevant discussion may be found on the talk page. Please do not remove this message until the dispute is resolved. (July 2011)Investment has different meanings in finance and economics.In economics, investment is related to saving and deferring consumption. Investment is involvedin many areas of the economy, such as business management and finance whether forhouseholds, firms, or governments.
  6. 6. In finance, investment is putting money into something with the expectation of gain, usually overa longer term. This may or may not be backed by research and analysis. Most or all forms ofinvestment involve some form of risk, such as investment in equities, property, and even fixedinterest securities which are subject, inter alia, to inflationrisk.In contrast putting money into something with a hope of short-term gain, with or withoutthorough analysis, is gambling or speculation. This category would include most forms ofderivatives, which incorporate a risk element without being long-term homes for money, andbetting on horses. It would also include purchase of e.g. a company share in the hope of a short-term gain without any intention of holding it for the long term. Under the efficient markethypothesis, all investments with equal risk should have the same expected rate of return: that isto say there is a trade-off between risk and expected return. But that does not prevent one frominvesting in risky assets over the long term in the hope of benefiting from this trade-off. Thecommon usage of investment to describe speculation has had a effect in real life aswell: itreduced investor capacity to discern investment from speculation, reduced investor awareness ofrisk associated with speculation, increased capital available to speculation, and decreased capitalavailable to investment.Contents[hide] 1 In economics or macroeconomics 2 In finance 3 History 4 Types of investment 5 See also 6 Notes 7 External links[edit] In economics or macroeconomicsIn economic theory or in macroeconomics, investment is the amount purchased per unit time ofgoods which are not consumed but are to be used for future production (i.e. capital). Examplesinclude railroad or factory construction. Investment in human capital includes costs of additionalschooling or on-the-job training. Inventory investment is the accumulation of goods inventories;it can be positive or negative, and it can be intended or unintended. In measures of nationalincome and output, "gross investment" (represented by the variableI) is also a component ofgross domestic product (GDP), given in the formula GDP = C + I + G + NX, where C isconsumption, G is government spending, and NX is net exports, given by the difference betweenthe exports and imports, X − M. Thus investment is everything that remains of total expenditureafter consumption, government spending, and net exports are subtracted (i.e. I = GDP − C − G −NX).
  7. 7. Non-residential fixed investment (such as new factories) and residential investment (new houses)combine with inventory investment to make up I. "Net investment" deducts depreciation fromgross investment. Net fixed investment is the value of the net increase in the capital stock peryear.Fixed investment, as expenditure over a period of time ("per year"), is not capital. The timedimension of investment makes it a flow. By contrast, capital is a stock— that is, accumulatednet investment to a point in time (such as December 31).Investment is often modeled as a function of Income and Interest rates, given by the relation I =f(Y, r). An increase in income encourages higher investment, whereas a higher interest rate maydiscourage investment as it becomes more costly to borrow money. Even if a firm chooses to useits own funds in an investment, the interest rate represents an opportunity cost of investing thosefunds rather than lending out that amount of money for interest.[1][edit] In financeIn finance, investment is the application of funds to hold assets over a longer term in the hope ofachieving gains and/or receiving income from those assets. It generally does not include depositswith a bank or similar institution. Investment usually involves diversification of assets in order toavoid unnecessary and unproductive risk.In contrast, dollar (or pound etc) cost averaging and market timing are phrases often used inmarketing of collective investments and can be said to be associated with speculation.Investments are often made indirectly through intermediaries, such as pension funds, banks,brokers, and insurance companies. These institutions may pool money received from a largenumber of individuals into funds such as investment trusts, unit trusts, SICAVsetc to make largescale investments. Each individual investor then has an indirect or direct claim on the assetspurchased, subject to charges levied by the intermediary, which may be large and varied.[edit] HistoryThe Code of Hammurabi (around 1700 BC) provided a legal framework for investment,establishing a means for the pledge of collateral by codifying debtor and creditor rights in regardto pledged land. Punishments for breaking financial obligations were not as severe as those forcrimes involving injury or death.In the early 1900s purchasers of stocks, bonds, and other securities were described in media,academia, and commerce as speculators. By the 1950s the term investment had been co-opted byfinancial brokers and their advertising agencies to promote speculation. The terms speculationand speculator have long had negative connotations.[edit] Types of investment
  8. 8. Types of investments include: Traditional investments Alternative investmentsInvestment TypesOnce you’ve made the decision to invest your money, there are two important decisions youneed to make: how much to invest and where to invest it. It’s important to understand youroptions as well as the risks associated with each of them.There are three main types of investments: Stocks Bonds Cash EquivalentYou can invest in any or all three investment types directly or indirectly by buying mutual funds.You may also want to consider an individual retirement account (IRA) or annuity, both of whichcan offer tax-deferred investment savings.StocksWhen you invest in stocks, you’re buying a share of ownership in a corporation and become ashareholder. Companies sell shares of stock to raise money for start-up or growth.There are two types of stock: common stock and preferred stock.With common stock, shareholders have a percentage of ownership. For example, if you own oneshare of common stock in a company that has 100 shares, you own 1 percent of the company.Common stock shareholders also have the right to vote on issues affecting the company.Preferred stock usually does not offer voting rights, but shareholders are generally entitled todividends (the company’s profits distributed in cash). Preferred stockholders typically receivedividends at specified times and in predetermined amounts; common stockholders may or maynot receive dividends based on company profits.Investment returns and risks for both types of stocks vary, depending on factors such as theeconomy, political scene, the companys performance and other stock market factors.BondsWhen you buy bonds, you loan money to the government or to a company. Bonds are issued fora set period of time during which interest payments are made to the bondholder. The amount of
  9. 9. these payments depends on the interest rate established by the issuer of the bond (the governmentor company) when the bond is issued. This is called a coupon rate. Coupon rates can be fixed orvariable. At the end of the set period of time (called the maturity date), the bond issuer isrequired to repay the par or face value of the bond (the original loan amount).Bonds are considered a more stable investment compared to stocks because they usually providea steady flow of income. But because they’re more stable, their long-term return probably will beless than that of stocks. Bonds, however, can sometimes outperform a stock’s rate of return,depending on the particular stock.Keep in mind that bonds are subject to a number of investment risks including credit risk,repayment risk and interest rate risk.Cash-equivalentCash equivalent investments, like passbook savings accounts, money market funds or certificatesof deposit (CDs), protect your original investment and let you have access to your money.These types of investments generally deliver a more stable rate of return. On the other hand, therate of return (after taxes are paid) is often so low that it doesn’t keep pace with inflation. Apassbook savings account, money market fund or CD may give you quick access to your cashand may provide more short-term security. However, they’re not designed for long-terminvestment goals like retirement.Here are some types of cash-equivalent investment types: Money Market: A fund usually invested in Treasury bills, CDs and commercial paper from large established institutions. They are typically safe, liquid investments.* Certificate of Deposit: A fixed period, interest-bearing investment with a bank or savings & loan. An FDIC-insured CD is a low-risk investment. Passbook Savings: A bank account that generally provides a low, guaranteed, fixed rate of return. Mutual Funds: A mix of investments that may include stocks, bonds and cash- equivalents. The fund is managed by a professional money manager and has a stated objective or investment style.More about mutual fundsSome high-growth mutual funds will consist of high-risk stocks; others may consist of morestable stocks, as well as bonds in an attempt to beat inflation.Always check the objective of the mutual fund and read the funds prospectus to make sure it’sconsistent with your goals. A good place to get independent information on a mutual fund,including its performance history is through Morningstar®, an independent fund rating service.Morningstar materials can be found on the internet and at your local library.
  10. 10. * An investment in a money market fund is not insured or guaranteed by the FDIC or any othergovernment agency. Although the money market fund seeks to preserve the value of yourinvestment at $1 per share, it is possible to lose money by investing in the money market.Investing may involve market risk, including possible loss of principal.3 Types Of Investment Income, Predictable, VariableOr GuaranteedWhat Source of Investment Income Will Work Best For You?By Dana Anspach, About.com GuideSee More About: retirement income annuities choosing investments investment incomeAdsBest Investment PlansPolicyBazaar.com/InvestmentsInvestRs 8300 pm and get Rs1.35Cr in returnguaranteed.Compare quotesBest Pension Planswww.bimadeals.com/RetirementPlansEnjoy 50000 Pm @ Retirement Invest 4kpm & Choose BestProperty In Gurgaon @42Lwww.commercialpropertiesdelhincr.inFood Court/ Office Space InGurgaon 12% Assure Return ! Best DiscountMore Money Over 55 Ads Retirement Income Tax Return Income Return on Investment Guaranteed Investment Investment IncomeAdsBest Equity Fundsmutualfund-birlasunlife.inAim For Growth With Our Variety Of Funds. 18Yrs OfWealth Creation!Top 5 Mutual Fundswww.fundsupermart.co.inMake these funds part of your SIP. Invest using FLEXISIP.Imagine a never ending source of investment income. Is it possible? Perhaps… if you do things right.First, you have to understand which investments generate what type of income. I find it helpful tobreak investment income into three categories: predictable income, variable income and guaranteedincome.The most effective way to generate investment income will be to use a combination of all threestrategies, each of which is outlined below.
  11. 11. Predictable Investment IncomeInterest income from corporate bonds and dividend income paid by stocks are two good examples ofpredictable investment income. These sources of income can be relied upon in most circumstances,but they are not guaranteed.You can use these predictable sources of investment income to supplement guaranteed income bybuying interest and dividend paying investments directly, or by buying funds that focus on suchinvestments.Dividend income is paid by: Dividend Paying Stocks Dividend Income Funds Closed End FundsInterest income is paid by: Bonds and Bond Funds Certificates of Deposit Money Market Funds Other Safe Investments High Yield Investments Income From Selling Covered CallsDividend and interest producing investments are best used as part of a total return portfolio asdescribed in the last section below. If used on their own rather than in combination with other incomeproducing strategies, these predictable sources of investment income are best for people: Who do not want to spend any of their principal. Who have shorter life expectancies. Who may not need their investment income to keep pace with inflation.Variable Investment IncomeOne way to create lasting investment income is to build an overall portfolio consisting of cash, fixedincome and equities.The cash and fixed income form the "safe" part of your portfolio. They will generate currentinvestment income in the form of interest. The equities form the growth portion of the portfolio, whichallows your future investment income to increase with inflation.There are capital preservation rules and withdrawal rules that need to be strictly followed whencreating this type of portfolio and the income generated will vary from year to year.Academic studies say that creating an income producing portfolio, such as described above, is the bestway to generate investment income that will last over a potentially long life expectancy.
  12. 12. If you don’t want to create your own portfolio, you can use a retirement income fund, which will domost of the work for you.This total return, or variable investment income strategy, is best for people: With long life expectancies. Who want to leave an inheritance. Who take a long term, unemotional approach to investing.A variable investment income strategy can be layered over a base of guaranteed income to createwhat I call the Ultimate Retirement Income Strategy.Guaranteed Investment IncomeGuaranteed investment income is exactly what it sounds like; income that is guaranteed by either theU.S. government, or an insurance company. Safe investments like certificates of deposit, treasurysecurities and fixed annuities are the primary sources of guaranteed investment income. Learn morein Making Safe Investments.In addition, there are several ways you can purchase additional guaranteed income: The most common way to purchase guaranteed investment income is by purchasing an annuity. If you took social security early you may be able to repay benefits and essentially purchase a higher future benefit amount. Your employer sponsored pension plan may allow you to purchase years of service so you qualify for a higher benefit.Guaranteed investment income makes an excellent foundation for a more comprehensive retirementincome strategy.

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