Investment is the employment of funds with the aim of achieving additional income or growth in value. The essential quality of an investment is that, it involves 'waiting' for a reward.
Different types of investment:
If we are talking about investment we should know different types of it. Those are:
1. Mutual Funds.
2. Stocks.
3. Exchange Traded Funds.
4. Real Estate.
5. Bonds.
First three are generally related to equity investment except mutual funds having debt category too. Equity instruments have more risk as well as better returns compared to less risky and lower returns in Bonds.
Real estate investment may be considered buying lands or house or investing in Real Estate Investment Trusts(Reits) which can be considered as mutual fund of real estate.
Now let us discuss in details of each type of investments.
MUTUAL FUNDS
Mutual fund is a professionally-managed investment scheme, usually run by an asset management company that brings together a group of people and invests their money in stocks, bonds and other securities.
Generally speaking those who don't have time and skill to invest in stock market, they can invest through professionals managing pool of investment with less risk and of course better returns than FD, Bonds like fixed return instruments beating inflation.
All mutual funds has to be registered with SEBI.
As we are in digital era all of your investments are maintained by record keeping agencies with folio numbers or in demat form. Folio is maintained by respective fund houses called AMC's(Asset Management Company) and demat is maintained by NSDL Or CDSL. We will discuss this later.
Let is discuss some terminologies in mutual funds:
AMC: Asset Management Company (Company which runs mutual fund must be registered under SEBI).
NAV: Net Asset Value. It is the price of one unit of mutual fund after deducting charges. Its declared by fund house after market hours of each market
working days.
SIP: Systematic Investment Plan. It is a way of investment where after fixed intervals some amount is invested in mutual fund. Generally salary class
people prefer this as they have salary on starting of month they prefer to invest with fixed amount at the start of the month. If market is at High
mutal fund NAV will be high and lesser units of Mutual Funds will be bought, and when market is down, NAV will be low and more numbers of units
will be bought. This is called rupees cost averaging.
SWP: Systematic Withdrawl Plan. This is the way to withdraw accumulated funds over the time with fixed amount in a fixed intervals. Generally people
use it for pension.
STP: Systematic Transfer Plan. This is alternative way of SIP, where lumpsum amount is invested in fixed return instruments like bonds or liquid funds
and systematically some amount will be transferred to equity schemes over the time.
AUM: Asset under management. It is the total value of fund maintained by company under a scheme. As investors buy and redeem this always keep
changing.
REDEEM: Buying a mutual fund is considered as investing whereas selling to get money back is called REDEEM.
EXIT LOAD: Generally mutual fund is considered as long term investment purpose. To discourage investors to pull back money in short term some amount of exit charges are applied if redeemed before a fixed time like say before 1 year this is maximum up-to 2%.
These are the mutual funds terminologies. Now we will discuss categories of mutual funds.
SEBI has categorized mutual funds into broadly 5 categories. Those are:
1. Equity Schemes.
2. Debt Schemes.
3. Hybrid Schemes.
4. Solution Oriented Schemes – For Retirement and Children.
5. Other Schemes – Index Funds & ETFs and Fund of Funds.
1. Equity Schemes