Monday, May 21, 2007

Begin Investing

There are various ways to get money and equally more ways to spend it. The question, most of them ask, is "Where to put in my extra money to get higher returns?"

This involves many factors like,
1. How much time you are going to remain invested? - Time span.
2. How much risk you are willing to take? - Risk
3. How often and when do you need money? - Liquidity

The banks give interest for the money you have saved with them in SB account. Surely, I will not call this as investment. You may have wondered, how come they are able to give some more money as interest. This is the time factor that comes to play here.

The thing you buy today at Rs. 100/- will not be the same after, say, 10 years. For example, The price of Gold before 20 years would be very less compared to what it is today. This is due to inflation. Inflation rate is the rise of prices in every year. It is something between 4-8% in India. Now, it is almost 6%. So, What does this mean?

If you are saving in a bank, the return what you get will not even cross the inflation rate. The rate of return in a year by a bank for deposits in Savings Account is almost 3.5% and it is far lesser than the inflation rate. Actually, you are losing the money over the period here.

If you invest some 10,000 in bank for a year. You can buy some furnitures worth 10,000 with this money, at the same time (just for the sake). The return after a year would be Rs. 10000 + 350 (3.5% interest (Roughly)) and you can buy for 10350 after a year. Now, the same furniture will be costing you (10,000 + 600 (6% inflation rate). So, your money has actually has depreciated in value. Don't believe it still?

Also, there will be tax for the money you get as interests. It would be according to your tax slab.
So, it will still be reduced. There is very high liquidity with very less risk and the rate of return will also be less. So, you should not lock the money by keeping it in the locker or putting in the bank for the sake of saving. Invest it wisely.

According to the risk, time and liquidity, you can invest in many ways and there are many ways to attain the same. Also, you shouldn't invest all the money that you have and go into credit for living your life. Always, set aside some cash for emergency. Even though, this money is not growing and beating inflation, this is for your safety. No one can predict what happens the next day and it is always better to be 0n the safe side.

Always try to make money out of your extra money. According to the risk profile, the instrument to make more money differs!

Begin Investing sooner than later. Also do your own research before investing.

1 comment:

  1. Great post. Simple, clean & informatory.. :)

    Keep writing..