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Introduction to the world of investing - for kids. Generally the web is full of information, but it is difficult to get hold of a presentation, which will help young adults to understand the varieties of investment. It is important to have understanding of investment 101, before attaining the age of investment.
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Introduction to Investing
Education to children
Copyright - Abhijit Pal - 2013
Agenda
1. What is investing1. What is investing
2. Why Investing2. Why Investing
3. How Investing3. How Investing
4. When Investing4. When Investing
3b. Variable Return3b. Variable Return
3a. Fixed Return3a. Fixed Return
Copyright - Abhijit Pal - 2013
What is Investing
• Putting your money to work for you– Earn additional profit– Beat the inflation
• Investment is not– Gambling
• Gambling is risking money towards uncertain outcome
• Investment is based on– Analysis
Copyright - Abhijit Pal - 2013
Why Investing
• Financial Stability During Retirement• Hedge against inflation and beat it• Plan for targeted goal• Maximizes one’s earning potential
Copyright - Abhijit Pal - 2013
How Investing
FixedDeposits
StocksMutualFunds
RealEstate
Gold
Earn More Money
Earn More Money
Copyright - Abhijit Pal - 2013
Types of Investment
Investment Avenues
Fixed Return
Fixed Deposit
Banks
Term Deposit
Recurring Deposit
Company
Government Schemes
Post Office Schemes
PPF
RBI Bonds
Infrastructure Bonds
Variable Return
Stocks
Equity Debenture
Convertible
Non-Convertible
Mutual Fund
Equity
Large Cap
Mid/ Small Cap
Sectoral
Debt
Govt Bond
Liquid Fund
Fixed Maturity Fund
Balanced
Others
Govt Pension Scheme (NPS)
Mix
Pure Debt
Real Estate Commodity/ Metal
Material
ETF
Copyright - Abhijit Pal - 2013
Advantage• The returns here are fixed
and guaranteed• The returns generally
based on market rate – but may not be volatile
• In most cases – principal is guaranteed (banks and Govt) – provides high degree of safety
Disadvantage• As returns are fixed – no
chance of increasing it• Return need to adjusted
vis-à-vis tax rates• Lock-in period
Fixed return
Copyright - Abhijit Pal - 2013
Fixed Return
•Easy availability, easy operatibility
•Variable term – from 15 days to 15 years
•Systematic Investment – Recurring Deposit
•High Retail participation
Banks
(Public sector/ Pvt sector)
•Higher rate of interest
•Less ease of operation – in flexible
•CRISIL rating to be observed regarding credit worthiness
•No systematic investment
Company Fixed Deposit
FIXED DEPOSIT
Copyright - Abhijit Pal - 2013
Fixed Return
•Savings / Recurring Deposit / Monthly Income Scheme (MIS) / Kisan – Indira Vikas Patra / Sr Citizen
•High rural penetration
•Relatively difficult to operate – due to low computerization
•High rate of return – Federal Guarantee
Post Office•Rate fixed by Govt
•15 years – can be extended – medium flexibility as loans
•Regular investment (Max Rs 70,000 pa)
•Tax Credit
Public Provident Fund
•Rate fixed by Govt
•6 years•Highest security – least flexibility – no tax credit
•Demat possible
RBI Bonds
•Issued by Govt Organization
•State Govt / Railway/ Highway Authority
•Special Tax Credit
•Low rate of interest
•Low Flexibility
Infrastructure Bond
Government Schemes
Copyright - Abhijit Pal - 2013
Advantage• The returns are based on
market• There is no limit – both
upwards or downwards• No lock – in, highly
tradable
Disadvantage• No fixed return• No guarantee on return of
principal• Requires broker and
demat account
Variable Return
Copyright - Abhijit Pal - 2013
Variable Return
• Equity is ownership– Earn profit
• And share the loss– Publicly traded in exchanges (NSE, BSE)
• Valuation of share depends on various parameters of company (microeconomics), as well as macroeconomic factors
– Investors make money through• Fluctuations in valuation – reflected in price per share – in terms of
capital gain• Dividends
– Ability to make profit (with inherent risk)– High liquidity– Demat account – transaction through broker (offline or online)
Company sells shares to raise capital – in order to:1. Fund new product
manufacture or research2. Funding expansion3. Pay off existing debts etc.
Stocks
Copyright - Abhijit Pal - 2013
Variable Return
• Dividend– Debt instrument – used by companies to raise money
• With certain coupon rate – payable at certain frequency
– Publicly traded in exchanges (NSE, BSE)– Reasonable liquidity– Demat account – transaction through broker (offline or online)
ConvertibleDebenture
Non-ConvertibleDebenture
• Converted into equity shares of the issuing company after a predetermined period of time
• Generally the rate of interest is lower than NCDs
• Convertibility is unique attraction
• Regular debenture – with fixed coupon rate
• Generally the rate of interest is higher
Debenture
Copyright - Abhijit Pal - 2013
Variable Return Mutual Funds• A Mutual Fund is a trust that pools the savings of a number of
investors who share a common financial goal. It is essentially a diversified portfolio of financial instruments - these could be equities, debentures/bonds or money market instruments.
• Investor can make money by– Distributed earnings – say dividends or bonus– Fund makes capital gains – unit price increases – investor sells at higher price– Fund gains valuation – unit price increases – investor sells at higher price
Copyright - Abhijit Pal - 2013
Types of Mutual Funds
By Structure
By Investment Objectives
Other Schemes
Special Schemes
•Open Ended Schemes•Close Ended Schemes•Interval Scheme
•Growth Schemes•Income Schemes•Balance Schemes•Money Market Schemes
•Tax Saving Schemes
•Index Schemes•Sector Specific Schemes
Liquid funds
ST debt
funds
Gilt funds
Debt Funds
Balanced funds
Risk
Index funds
Return
Equity funds
Sectoral funds
Copyright - Abhijit Pal - 2013
Equity Mutual Fund
Equity (Invested in stocks. The ratio depends on the fund objective,
but generally 80 – 100%)
Large Cap (Invest in big companies, with large market cap. The large caps may have limited fluctuations and time-
tested)
Mid/ Small cap (Invest is smaller companies with
relatively less market capitaization. Over period the mid/small caps may become
large cap companies. The key is to identify the winner. This is
riskier than large caps.)
Sectoral (Invest in specific sectors – say Infrastructure,
Auto, Finance, IT etc. Though the return may be large – it is
the riskiest – follows the industry trends)
Risk Factor Increases
Copyright - Abhijit Pal - 2013
Debt Mutual Fund
Debt (Invested in bonds. It can be Government Bond, Corporate
Bond, Fixed Deposit etc)
Liquid/ Money
Market (Invest invest in highly liquid money
market instruments and
provide easy liquidity.– for corporates)
Ultra Short Term (Invest very short term debt securities
with a small portion in longer
term debt securities.
Generall less than 1 yr.)
Floating rate (Invest in
floating rate debt securities, where the interest paid changes in line
with the changing interest rate
scenario)
Medium/ Long Term
(Invest in floating rate debt
securities, the interest paid
changes in line with the changing
interest rate scenario)
FMP (Close-ended – defined
duration. Equivalent to
Fixed Deposits)
Various Types – also includes GILT (Govt Bonds)
Copyright - Abhijit Pal - 2013
Other Avenues
•High Investment – High return
•Less liquid
•Relatively non-transparent
Real Estate•Traditi
onal – as ornament
•As Gold Traded Fund (paper gold)
Gold
•Traded in exchanges
•Mainly for trading purpose
Commodities
•Issued by Govt Organization
•New investment avenue
•For Retirement only
National Pension Fund