Cheat sheet to Investing

Hello people , this blog is in response to the previous one I wrote Do you live from one payday to another. Thanks for the great response , I am not some one who knows the markets that well  , I have started taking baby steps through this blog I will answer some queries which were similar in nature & in the language I know ,that of an amateur and in an Indian context but most principles are same

Don't save what is left after spending; spend what is left after saving - Warren Buffet

How to invest

1)Through an agent
2)Yourself

Where to Invest

1) Shares
2) Mutual Funds
3) Fixed Deposits
4) EPF , NPS & Others



How to Invest 

The first method is considered safe as you are relieved of the risks (Not really there is no assurance just some consistency which sets them apart from us) and the commissions involved. A lot of banks help you in the case of Mutual Funds as they themselves offer mutual fund schemes like the ones at HDFC, SBI also there are conglomerates like Tata, Reliance,Birla that have mutual funds which give high returns.

You could go through various platforms like Wealthapp , ET Market these days you will be bombarded with MutualFundsSahiHai on TV & social media. There are several other brokerage firms which will help you in the share market as well

If you have to start trading , you need a demat accounts . Most banks offer this & if you have a private bank account the process happens in no time . I have an ICICIdirect account it is slightly costlier to other brokerages but after reviewing many such websites of brokerage firms , I felt the interface of ICICI is way better and easy to use . Also there are a lot of features like reports/charts which we can use for detailed analysis .

Where to Invest 

So where do you invest shares , mutual funds , EPF , NPS , FD, etc

What is A Share/Stock ? 

Imagine a company is worth 1000 Rs and if they have 100 shares worth 10 Rupees each . So each share is a percentage of that particular company . When you buy a share you own a part of the company . You are a stakeholder & you can take part in the Annual General body Meeting and make decisions if you own huge percentage of share in the said company. So if that particular company is doing good the share value increases and vice-versa if it runs into obstacles.

As per the budget presented by Late Mr Jaitley in 2018 , LTCG will attract 10% tax if the gains exceed one lakh in the fiscal year.

Benefits of investing in Shares

• You own the shares , you are a part owner of a company , If there is a bonus issue or dividend paid you get the money . If you have the share for over a year you can sell it tax free . 

• A person who bought 5 thousand worth of shares in State Bank of India in 1998 is worth 300 thousand today. Not many other investments can give similar returns

• You can understand the impact of government policies and be active as a citizen, You will be reading the newspapers and getting value out of the same 

Demerits of investing in Shares

• Shares are smart investments only if you are aware of the volatility of the market. The market may be bearish and your investments can erode.

• She / He is the sole person responsible for the profit/loss. 

• If you are investing alone i.e without the help of brokers/advisers you may lose money (Which will be good in the long run)

What is A Mutual Fund?

Mutual funds are shares of multiple companies , which are mostly diversified to earn more profit & helps in mitigating the risks involved .A mutual fund manager's job is to religiously look at the markets and invest with other people's money . In this scenario you do not own a part of the company but make money when that company is doing good .

Mutual funds are mainly classified into equity & debt . Also there are balance mutual funds ,diversified mutual funds and a whole lot of other names being thrown around these days just to confuse and attract more customers . Also there are certain ETF's if you want shares being trade in other markets (Not Indian)

Lump Sum Purchase & Systematic Investment Plans are the two methods of investing in Mutual Funds

Benefits of investing in Mutual Funds

• Someone else is doing the investing part, you just transfer money accordingly
• If you are following a SIP, you are not spending that money and saving it 

Demerits of investing in Mutual Funds

• You don't have control over the portfolio 
• There are certain aspects you miss out on like dividends, MF's do provide dividends but it is not similar to that of Shares

What is A EPF/FD/NPS.....?

These are very safe investments that do not give high returns but are better than savings banks and not as flexible as shares and mutual funds. If you have come to this article I feel that you are interested in shares and mutual funds

This kind of investments also help in reducing the amount of tax to be paid

P.S: This article will be updated from time to time based on the number of queries raised 

All these are my views & please read all that you can before making your choices 

If you have understood and are not sure whether to invest please read the article:" FIRST STEP " 

The article is informal considering the purpose it serves and lot of details are limited as it was not researched thoroughly and are my views on the same especially as this was written as a FAQ rather than a full fledged blog.

The third& forth blog in my financial series has been published "Do you BUY/ Sell in a Bear Market"  , "Where did the Bears go ? "