Investment awareness in Financial Instruments

Article by :- Shivani Jaju

In today’s era we all need some savings and investments. Investment is very important for everyone for their future benefit and welfare, it is an activity which is done by people through their savings. As a research we have seen that investment is growing aggressively and will be on the blooming side in future. Investments is done through various instruments, as follows:

·        Equity

·        Bonds

·        Gold

·        Derivatives

·        Mutual funds

·        Fixed deposits

·        And many more

 

Financial market is a market where trading of financial Assets like shares, debts, etc are take place. It is divided into 2 parts i.e. Money market and Capital Market.

Money Market is a random course of financial institutions, bill brokers, money dealers , etc where dealing on short term financial tools are being settled is called as money market. The financial tools which are involved are as follows: Commercial Papers, Treasury Bills, Trade Credit, etc. It is for a within a year.

Capital Market is established for a long term where savings and investments are done between 2 suppliers and those who are in need of capital. It provides various entities through different instruments. It is also divided into 2 parts i.e. primary market and secondary market.

Primary market- it is market where new shares take place which prices are fixed not variable this shares are between Company and investors and the gain which get from selling the shares transfer to Company.

Secondary Market- It is a market where Issued shares are traded is called as secondary market. The prices get fluctuate according to demand and supply of market, these shares are between Investors only and the gain of selling the shares will get to investors.

 

Anyone can start investing with the small amount minimum of 500rs. There is no restrictions in trading or doing investment. If the person having knowledge of investment instruments he can grow money and secure his future. Investing refers to long term goals. It is very important thing in common man’s life if you miss this opportunity you won’t increase your financial worth.

There are a lot of reasons why you should start investing:

·        Wealth creation

·        Tax savings

·        High returns

·        Future security

·        Beat inflation

·        Retirement corpus creation

Suggestion:

Young investors should have high proportion of equity in their portfolio as their risk taking capacity is more than Older people, who are close to their retirement age they should not invest in equity rather than look for fixed income instruments such as bonds, debentures and government securities as they would provide a steady stream of cash flows with least possible risk.

As per my personal opinion there are some shares which are growing steadily in market and are very safe compare to other instruments, they are Mutual Funds, Derivatives, SIP, Insurance these all are way better than others where risk is high.

Mutual fund is a type of Organization which would take money from people would create a pool of funds & then reinvest in several investments. They earn gain & distribute to their investors as per their ratio & keep a side some profit for their management Expense or Expense Ratio i.e. 1-3% of your total investment. There are 5 types involved in MF:

·        Equity MF

·        Debt MF

·        Hybrid MF

·        Solution Oriented

·        Other MF

 

Liquid Funds:

• Ø It is a type of Mutual Funds that invest in securities with a residual maturity of up to 91 days. LF do not have a lock-in-period.
• Ø Returns up to potential of 7%. It is a debt fund.

Insurance:

Ø It means of protection from financial loss. It is used to hedge against the risk of contingent or uncertain loss. Insurance should be cover 10 times of your investment amount.

Ø If we talk about tax benefit, it comes under 80 C deduction is Rs. 1.5 lakh.

Ø There are 2 types of insurance:

·        Life Insurance

·        General Insurance

Tip: Try to be insured at an early age when you’re an absolute fine so that your amount of an premium will be on lower side.  

Objectives:

1. To understand the pattern of investment in financial assets
2. To understand the preference of investors to different financial products.
3. To find out how investors get information about the various instruments in investments.
4. To understand the risk assessment of an investors.
5. To find out in which financial instruments they prefer to invest.

Derivatives are the investment instruments and the value is determined by the performance & price movement of the underlying Entity. It includes Stocks, Currencies, Commodities, Interest rate, etc.

The market is divided into 2 parts:

•  Exchange Traded
• Over the counter (OTC)

There are 4 types involved in Derivatives: 

• Future- It’s between 2 parties to buy or sell asset at specified time in future at specified price.

• Forward: It’s between 2 parties who sell an asset at a specified time at a price agreed upon today’s. It is not a standardized contract.

• Swaps: It is used for loan cases one might switch interest rate swap from variable to fixed or vice-a-versa. It is risky compare to future. Swaps enables the participants to exchange their streams of cash flows. There is CDS called Credit default Swaps it is a one type of swap and is useful.

•  Options: It gives a buyer the option to either buy or sell the asset at a certain price or date. Option contract are always settled in cash. It includes 2 options named as: Call and Put option.

PARTICIPANTS:

•  Hedgers
•  Speculators
•  Margin Traders
• Arbitrage

All Assets are available into investment which are broadly classified into two types:

Capital Market is a market where saving and investments is done. It is divided into Primary market and secondary market.

Meaning of terms saving and Investment

Research is done through various sources

Data is required from:

·        Primary data

·        Secondary data

·        Statistical tools

·        Percentage analysis

·        Cross-sectional tables

 

We should Aware people about investment and give them the notification that trading and investments can be done through electronically in a easy way.Also guide them about the risk tolerance according to age and income.

Thank you

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