Question

→ Investment considesation » Different calegosies of investments and pros & cons s Mutual funds poos e cons MER , lods, diversification, post pholio, long term performance s Ensider trady > ETF so satengatic funds & Home purchase How mucho margin woney requide? > " of income you boonow? Owning a bome v/s reuting emostizing open & close wootigaze. > How to reduce interest cost ou mortgage

Answer 1

Investment Consideration - Portion of cash taken out for covering the investment like acquisition fees, costs and expenses levied directly or indirectly on the investor.

Different Categories of Investments -

1. Physical Assets- Real Estate, Gold/Jewellery, Commodities etc.

Pros:

a. In real estate investment, a house can be used to lived in or turning into office and so on.

b. Gold/Jewellery can be used to hedge against inflation

c. Commodities are the asset type is great to diversify the risk in the portfolio.

Cons:

a. Real estate is not very liquid, which means they sometimes takes several months to turn into cash.

b. Precious metals don't usually provide very high returns because of the low risk that they offer.

2. Financial Assets- Fixed deposits with banks, small saving instruments with post offices, insurance/provident/pension fund etc. or securities market related instruments like shares, bonds, debentures etc.

Pros:

a. Stocks pays dividends with the possibility of very large gains.

b. They are liquid an can be easily converted into cash.

Cons:

a. High Risk instruments to invest.

b. Price changes very often so required proper knowledge to invest.

Mutual Funds- These are funds operated by an investment company which rises money from public and invests in a group of assets (shares, debentures, etc), in accordance with a stated set of objective.

Types of Mutual funds -

1. Equity Funds/ Growth funds- Funds that invest in equity shares are called equity funds.

2. Diversified funds - These funds invest in companies spread across sectors.

3. Sector funds - These funds invest primarily in equity shares of companies in a particular business sector or industry.

4. Index funds- These funds invest in the same pattern as popular market indices like S&P CNX Nifty or S&P CNX 500.

5. Tax Saving Funds - These funds offer tax benefits to investors under the Income Tax Act.

6. Debt/Income Funds - These funds invest predominantly in high-rated fixed-income-bearing instruments like bonds, debentures, government securities, commercial paper and other money market instruments.

7. Liquid Funds/Money Market Funds- These funds invest in highly liquid money market instruments.

Pros:

a. Advanced Portfolio Management

b. Dividend Reinvestment

c. Risk Reduction (Safety)

d. Convenience and Fair Pricing

Cons:

a. High Expense Ratios and Sales Charges

b. Management Abuses

c. Tax Inefficiency

d. Poor Trade Execution

MER - A management expense ratio is a fee that investors need to pay to the investment provider for running certain investment such as mutual funds or exchange traded funds (ETFs).

LOD - List of documents, Which need to be submitted for investment.

Diversification - It is a risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance.

Portfolio - A Portfolio is a combination of different investment assets mixed and matched for the purpose of achieving an investor's goal(s).

Long-term performance of stock almost always outperform the market when investors try and time their investments.

Insider trading refers to the practice of purchasing or selling a publicly-traded company's securities while in possession of material information that is not yet public information.

ETF- An exchange-traded fund as a mutual fund that trades like a stock. Just like an index fund, an ETF represents a basket of stocks that reflect an index such as the Nifty. An ETF, however, isn't a mutual fund; it trades just like any other company on a stock exchange. Unlike a mutual fund that has its net-asset value (NAV) calculated at the end of each trading day, an ETF's price changes throughout the day, fluctuating with supply and demand.

Strategic fund- Fund manager actively allocates between different assets through investments in underlying funds. This type of fund can be compared with multi asset funds where investments are made directly in equities and fixed income.

Initial margin money of 50% is required for a trade.

Almost 30%- 45% of your monthly income can be borrowed which can be repaid easily.

Owning a house considered as an investment where you have sufficient funds and it helps in tax deduction. whereas, Renting means you can move without penalty each time your lease ends.

Amortization - The process of allocating the cost of an intangible asset over a period of time. It also refers to the repayment of loan principal over time.

Open mortgages allow you to prepay any amount of your mortgage at any time. Whereas, Closed mortgages have a prepayment limit.

Ways to reduce interest cost on mortgage:

1. Shorten your loan duration.

2. Timely repayment of your amount.

3. Choose an appropriate bank/ credit union which provide loan on less interest rate.