It’s time to explore a different side of the investment avenue. It’s time for the second article in the series.
Welcome back! It’s time we wet our feet again. This time we go ankle-deep into the seas of financial well-being. It’s time for the second article in the series. The new year is just around the corner, and we want to ensure that you are able to surf towards financial freedom by the end of this series, standing on the board.
The aim is to simplify financial planning and discuss the various options available for better investment planning.
Maintaining sound finances is a life skill, and having good finances is one less cause for worry. But before we learn to accumulate wealth or behave with money, we must learn about it.
The aim is to simplify financial planning and discuss the various options available for better investment planning. So that, you can be stress-free money-wise this coming year and all the years after that.
In the previous article, we discussed two extremely important ways of ensuring a peaceful retirement life: National Pension Scheme (NPS) & Public Provident Fund (PPF)
In this article, we will discuss two other ways of growing your savings: Share Markets and Mutual Funds.
The Equity Ocean
Share markets, also known as stock markets, are dynamic ecosystems where the buying and selling of stocks takes place. Imagine a bustling marketplace where the very essence of capitalism goes to the deepest depths of this ocean. And stocks? They are the treasures you find under the water. Stocks represent ownership in companies, making investors like you and me partial owners with associated rights.
Owning stocks means holding a stake in a company. Companies distribute dividends as a share of profits, and the value of stocks can appreciate, resulting in capital gains.
The value of stocks increases on the basis of how the company is doing business. The better the companies perform financially, the better your stocks perform.
Now this is where it starts getting tricky; obviously, you can’t expect to hit gold every time you are under water. So, you have to do thorough research if you hope to discover good stocks.
Saying that, you must also understand that the water is not going to always be smooth. There will be phases of rough seas and calm seas.
Additional Reading: How To Start Invesvting In The Stock Market
Say Hello to Bull and Bear Markets
Share markets experience trends known as bull and bear markets. Bull markets signify rising prices and optimism, while bear markets denote falling prices and pessimism.
Gear You Need To Get Into The Equity Ocean
There is just one thing that you need to participate in the market: a demat (dematerialised) account. This account holds shares and securities in electronic form, eliminating the need for physical share certificates.
Open a demat account with online stockbrokers by submitting the necessary documents and completing a verification process.
Once you have this account activated, you’ll be ready to go for your first swim into the equity ocean.
The Mutual Fund Sea
Now that we’ve dipped our feet into the waters of the equity ocean, it’s time to dip our feet into another realm of investments: Mutual Funds. This alternative approach to investing is particularly for those who seek lower costs, less risk and more diversification and don’t have the time to research which stocks to buy.
Mutual funds get funding from a lot of different investors and pool it together. After that, the money is used to buy stocks, bonds, and other assets. Mutual funds offer diversification (lower risk) to investors because they are not just exposed to the share price fluctuation of a single company; rather, they are exposed to different companies. If one of the companies does badly one day, the presence of other companies in the same fund mitigates the risk.
Additional Reading: Investing In Mutual Funds? Read This First
Diversified Investing
Just because, while explaining mutual funds, we only mentioned their exposure to the share market doesn’t mean they exist only for equities. In the world of mutual funds, there is something for everyone’s risk appetite.
Equity funds, akin to the adventurous explorers of the sea, focus on stocks, seeking high returns but with higher risks. On the other hand, debt funds navigate the calmer waters of fixed-income securities, offering stability but with moderate returns. Not just that, if you want exposure to commodities, then you’ll be happy to know that there are funds that focus on gold. A gold fund holds assets that are related to the precious metal.
All in all, if you are someone who wants to invest in a certain industry or different asset class, mutual funds are the way for you.
Additional Reading: End-of-the-Year Financial Planning
Gear You Need To Get Into The Mutual Funds Sea
You won’t require a demat account for investing in mutual funds. You can use online platforms, often provided by fund houses, or use third-party distributors to facilitate the purchase of mutual fund units.
In the journey towards financial empowerment, understanding share markets and mutual funds is akin to unlocking a treasure chest of wealth-building opportunities. This beginner’s guide has aimed to demystify these concepts, providing a roadmap for those venturing into the world of investments. However, equipping yourself with the right tools and resources is paramount to successful investing. Numerous online platforms provide real-time market information, stock analyses, and financial news. Educational resources, both online and offline, can help beginners grasp the fundamentals of share markets and mutual funds.
Before we let you go, one thing to always remember is that to crack the code to financial freedom, you must always know where you stand financially. And that begins with a zero-cost Credit Score check.
Here’s to knowing better and investing wiser!