Investment is a very important part of financial management. It is only common sense that whatever extra funds (other than what is needed for the short-term) we have are kept invested. Investment is done in order to earn interest, an additional income to support our needs. It is also meant to beat inflation.
Goal oriented investments: Any investment is done for a specific goal. A financial goal is a very important and necessary element of investment. We may have many financial goals such as buying a school bus for Rs 20 lakhs, setting up a computer lab costing Rs 10 lakhs, putting up a new block for Rs 6 crores, setting up a poor students’ scholarship fund of Rs 5 lakhs, etc.
Kinds of Investment: Investment can be of different types such as fixed deposit (FD), bonds, mutual funds, shares, etc. Each category is meant for a specific purpose. We know what a fixed deposit is. It is an assurance given by a bank or company which accepts a fixed amount from an investor for a fixed duration of 1 year or 3 years or 5 years with a promise to pay a fixed percentage of interest. A bond is an assurance given by the issuing party, usually the government, which borrows money from its lenders, the public, for a duration of 10 years or 15 years to pay a fixed percentage of interest. A mutual fund is a fund managed by a company which pools together the money of the investors, invests the same in specified stocks of the stock market and earns profit on its investments and distributes the same to the investors proportionately. Here, neither the duration of investment nor the percentage of income (return) is fixed. However, we need to remember the exit load (penalty paid if exited before the expiry of the load period) levied by funds for various categories of funds. Return on the mutual funds depends on the performance of the specific stocks in the stock market. Unlike investment in a mutual fund, investment in stocks is a direct investment in the stock market where an investor invests his/her money directly in a stock (buys shares of a stock with the price per share of the stock at that particular moment) and duration of his/her choice (sells the shares bought earlier at a current price of the stock per share). The difference between the purchase price and sale price of the shares of the stock is calculated as the gain or loss for the investor.
Fr Alex G SJ
To read the entire article, click Subscribe
