What is Investment?
- It is a process in which an item or asset is acquired with the goal of generating income or appreciation over time. e.g. investment in FDs (Fixed Deposits), gold, equity (stocks), property, etc.
- Investment is better than saving as it could provide returns in the future.
- Pillars of investment: safety, liquidity, and return.
Purpose of Investment
- Wealth creation to fulfill financial & life goals like building our home, marriage, children's education, setting up business, buying land, retirement, etc. And to achieve these goals we should start investing from today.
- Inflation
- Tax benefits
- Secondary income
- Emergency savings
Savings
Investment according to its priority & time
Long Term Investment
Compound Interest
Compounding is the process whereby interest is credited to an existing principal amount as well as to interest already paid. Compounding thus can be constructed as interest on interest - the effect of which is to magnify returns to interest over time (miracle of compounding).
Rule of 72
This rule tells us in how which time our investment gets doubled. 72 is "magical number".
Risk & Return
- Risk is an investment's chance of producing a lower than expected or even losing the value.
- Return is the amount of money we earn on the assets we have invested or the investment's overall increase in value.
- The return on an investment is directly proportional to the risk of the investment. The more the risk, the more is the return on the investment.
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