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“INVESTMENT IN VALUATION “-ALL YOU NEED TO KNOW-COMPILED BY ER. AVINASH KULKARNI

Saturday Brain Storming Thought (140) 20/11/2021

COMPILED BY ER. AVINASH KULKARNI

INVESTMENT IN VALUATION

Investment is essentially an asset that is created with the intention of allowing money to grow

If you invest in salable assets, you may earn income by way of profit

If the investment is made in return generating plan, then you will earn an income via accumulation of gains

In economic management sciences, investment means long-term savings

What is Investment

The money you earned is partially spent and the rest saved for meeting future expenses ie investment

Needs of Investment

1) earn a return on your ideal resources

2) generate a specified sum of money for a specific goal in life

3) make a provision for an uncertain future

Inflation

Inflation is the rate of increase in prices over a given period of time

1) rate at which the cost of living increases

2) cost of living is simply what it costs to buy the goods and services you need to live

3) inflation causes money to lose value

4) ex if 6% inflation rate

Today purchase value Rs 100

After 20 years it will cost Rs 321

Return

Return is the money made or lost on an investment over some period of time

1) return above inflation rate to ensure that investment does not decrease in value

2) if the annual inflation rate is 6%, then the investment will need to earn more than 6% to ensure it increases in value

3) if the after-tax return on your investment is less than the inflation rate, then your assets have actually decreased in value

Golden Rules of Investment

1) invest early

2) invest regularly

3) invest for the long term and not for the short term

Importance steps to investing

1) obtain return documents explaining the investment

2) read and understand such documents

3) verify the legitimacy of the investment

4) find out the costs and benefits associated with the investment

5) assess the risk-return profile of the investment

6) know the liquidity and safety aspects of the investment

7) ascertain if it is appropriate for your specific goals

8) compare these details with other investments opportunities available

9) examine if it fits with other investments you are considering or you have already made

10) deal only through an authorized intermediary

11) seek all clarifications about the intermediary and the investment

12) explore the options available to you if something were to go wrong, and then, if satisfied, make the investment

Interest

Interest is the monetary charge for the privilege of borrowing money

1) when we borrow money, we are expected to pay for using it

2) an amount charged to the borrower for the privilege of using the lender’s money

3) calculated as a percentage of the principal balance

Factors determining Interest Rate

1) demand money

2) level of government borrowings

3) supply of money

4) inflation rate

5) RBI & Government policies that determine some of the variables mentioned above

Options for Investment

1) Physical Assets
Real estate, gold, jewelry, commodities

2) Financial Assets
Fixed deposits, small saving instruments, mutual funds, pension funds, securities market instruments

Short-term Financial Option Instruments

1) saving bank account

a) first banking product people use
b) offers low interest (4% to 5% per annum)
c) interest is taxable in the hands of investors

2) Fixed Deposits

a) referred to as term deposits
b) minimum investment period for bank FD is 30 days
c) FDs with banks are for investors with low-risk appetite
d) FDs is lower than money market fund returns

3) money market for liquid funds

a) specialized form of mutual funds that invest in extremely short-term
b) primarily protecting your capital and then, aim to maximize returns
c) money market funds usually yield better than saving accounts, but lower than bank fixed deposits

Long-term Financial Investment

1) Post office saving scheme

a) a low risk saving instrument
b) provider interest rates of 8% PA pain monthly
c) minimum amount can be invested is Rs 1000
d) maturity period of 6 years

2) Public Provident Fund

a) a long term saving instrument with a maturity of 15 years
b) interest payable at 8% PA compounded annually
c) PPF account can be opened through a nationalized bank

3) Company Fixed Deposits

a) these are short-term to medium-term borrowings at a fixed rate of interest
b) payable monthly, quarterly, semi-annually, or annually
c) rate of interest varied between 6% to 9% PA
d) interest received after deduction of taxes

4) Bonds

a) fixed-income instrument issued for a period of more than one year
b) purpose of raising capital
c) a promise to repay the principal along with a fixed rate of interest on the specified date

5) Mutual Funds

a) operated by an investment company that raises money from the public and invests in a group of assets
b) substitute for those who are unable to invest directly in equities or debt because of resource, time or knowledge constraints
c) usually long term investment vehicle

6) Shares

a) total equity capital of a company is divided into equal units of small denominations
b) the holder of such shares are members of the company and have voting rights

Derivative

1) a product whose value is derived from the value of one or more basic variables, called underlying

2) underlying assets can be equity, index, foreign exchange (forex), commodity or any other assets

3) emerged as hedging devices against fluctuations in commodity prices and commodity-linked derivatives remained the sole form of such products for almost three hundred years

interest-on-interest

It also referred to as compound interest

It is the interest that is earned when interest payments are reinvested

Interest Inventories

Interest inventories look at

Person likes & dislikes
their favorite activities
their personality

Objectives of Investment

1) increasing the rate of return

2) reducing the risk

3) liquidity

4) hedge against inflation

5) safety

Speculation in Investment

It is the forming of a theory or conjecture without firm evidence

1) speculation means taking business risks with the anticipation of acquiring short term gain

2) it also involves the practice of buying and selling activities in order to profit from the price fluctuations

3) an individual who undertakes the activity of speculation is known as a speculator

Basics of Investing

Know what to do with your money or what others are doing with your money

Risk in Investment

Risk is the chance that the actual return will be different from the expected return

Passive Investment Strategy

A strategy that determines initial investment proportions and assets and make few changes over time

Active Investment Strategy

A strategy that seeks to change investment proportions and/or assets in the belief that profits can be made

Direct Investments

Investors buy and sell securities themselves

Indirect Investments

The buying and selling of the shares of investment companies, which, in turn, hold portfolios of securities

Diversification in Investment

Diversification is an investing strategy used to manage risk ie rather than concentrating money is a single company, make investments across s range of different companies

Investment Analysis

Investment analysis involves researching and evaluating security or an industry to predict its future performance and determine its suitability to a specific investor

Investment analysis may also involve evaluating or creating an overall financial strategy

Education is considered as an investment in human capital

1) knowledge

2) abilities and skills of an individual

Education can be acquired through

Education
Training and experience

Compiled by:-

Er. Avinash Kulkarni

Chartered Engineer
Govt Regd Valuer
IBBI Regd Valuer

 

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