How to Invest ? Investing Basics, Investment Options, Manage Investments

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Investing Basics

Investing is a way of making your money work for you, so that you can make funds ready for many of your life's goals. Put in simple words, investing is a means to the end. While saving is a great habit, you have to ensure that investing your savings in the right way helps meet your objectives.

Goals

Whenever you invest, keep your goals clearly in mind. There are many stages in life when you will need large sums of money, e.g. college education, marriage, buying a house or car, and finally, to provide for your retirement. Some goals like retirement require long-term, systematic investment, while others are short term and need different methods.

Budget

Your investment budget needs to balance your future requirements against your current needs. Thus, of all your earnings and savings, you have to set aside some for household expenses as well as unexpected contingencies, and place the rest in investment instruments which will mature over different time periods.

Risk Appetite

Most investments are fraught with risks of one kind or the other. Generally, the more the potential returns on the investment, the riskier it is. E.g. Shares can be very rewarding but are unpredictable, whereas a fixed deposit has almost no risk, but the earnings are very low. Risk should be balanced such that there are allocations for both growth and conserving capital.

Why is investing necessary?

Well, like the old proverb says "save for a rainy day", it is always a prudent thing to save . Saving can mean cutting down on your expenses and then accordingly allocating money for investing.

Before you begin investing, making a complete assessment of your financial situation is important. Once done, you have to decide how much you need for daily expenses according to your lifestyle and how much you can afford to lock away in investments. Then you must decide what you are investing for - a retirement plan / money for your children's education and so on . The final choice is of instrument - what route is the most suitable for what goal. This is often tough to work out on one's own, but an experienced investor or financial advisor can help.

Investment Options

There are many financial instruments that are available today. The choice of instrument depends not only on the goal of your investment, but also on the nature of the instrument itself.

Equities

These are shares of companies traded on stock exchanges, also called securities or equities. Investing in equities and derivatives can help you attain your investment goals faster considering that most conventional investments like fixed deposits often yield less interest rate. However, investing in equity and derivatives needs to be done cautiously since market conditions may be volatile and it takes skill to spot market opportunities .This is where we can help you.

Advantages
These can be very easily bought or sold, and their value changes very fast. You can invest in shares for either short-term gains (trading) or long-term gains (by receiving dividend pay outs by the company who issued the shares) which is otherwise called value-investing.

To know what products and services we can offer you in Equity and Derivatives, please visit our section on Equity.

Derivatives

Derivatives are an asset class that can help you hedge risk. The most popular forms of derivatives are Futures and Options. Although they are typically considered as high-yield, high-risk investments, they can be used as an excellent means to hedge risk .To understand how we can help you invest in derivatives , please visit our section on Derivatives.

Advantages
Derivatives can be used to meet a variety of needs.

Derivatives can help you reduce the cost of an underlying asset that you have purchased.

Derivatives can be used as arbitrage tools (buying low in one market and selling high in the other market) and protect your securities against fluctuations in prices.

Derivatives can be used effectively for hedging risk .

Initial Public Offering (IPO)

IPOs typically fall under primary market offerings .These are shares of companies issued for the first time, when they are about to list on an exchange.

Advantages
If the company is large and has been earning well, an IPO is a good buy, because upon listing the price is expected to rise.

Disadvantages
IPOs are still fraught with risk. Sometimes, even if a company is well-regarded, for many reasons, its listing may not perform well.

To know what products and services we can offer you in IPO, please visit our section on IPO

Exchange Traded Funds (ETFs)

Exchange-traded funds are similar to MFs, but in addition they can be traded on stock exchanges directly. They are quite suitable for small investors who like the easy diversification (and hence risk mitigation) offered by MFs, but who at the same time want a faster encashable instrument. The most commonly traded ETFs are Nifty Bees, Gold Bees and Liquid Bees.

You can trade in Exchange Traded Funds (ETFs) using our online trading platform .You may visit our section on Exchange Traded Funds for more details

Investment Risks

All investments are fraught with risks of some sort or the other. It helps to know what those risks are before investing.

Volatility

This is a risk affecting shares, mutual funds and other instruments traded on exchanges. As these are bought and sold daily, and are influenced by many factors like changes in laws, interest rates, behavior of other exchanges, behavior of very large investors etc, one must be ready for sudden crashes as well as sudden booms.Generally, bonds tend to be immune to this risk.

Company performance

This affects mostly shares. Shares of a company may decline in value suddenly if a company declares poor results, and vice versa. Shares may also rise or fall depending on mergers and acquisitions. An extreme case is a company that goes bankrupt.

Crime including fraud and theft

Fraud detected in a company may lead to loss in value of its shares. Alternatively fraud in an AMC managing MFs and ETFs or in an insurance company can mean your money disappearing altogether.

Liquidity Risks

An investment should not only be safe and profitable, but also reasonably liquid. Any investment if can be converted into cash quickly, it is supposed to be carrying a low liquidity risk.

The relative liquidity of different investments is highlighted below:

Liquidity of Various Investments
Liquidity	Some Examples
Very high	Cash, gold, silver, savings and current accounts in banks, G-Secs
High	Fixed deposits with banks, shares of listed companies that are actively traded, units, mutual fund shares
Medium	Fixed deposits with companies enjoying high credit rating, debentures of good companies that are actively traded
Low	Deposits and debentures of loss-making and cash-strapped companies, inactively traded shares, unlisted shares and debentures, real estate

Force majeure

This is the biggest and most uncertain risk, posed by natural calamities like floods, bridge collapse, earthquakes, storms etc, as well as man-made disasters like, terrorist strikes, or war. There is no investment that is proof from this.