Investment Products

There are financial products where you can invest your money like shares, bonds, mutual funds, fixed deposits etc.

Risk Appetite

An individual can take risks in investments. This risk is related to your principal investment amount. The risk appetite of an individual depends on factors like age, location, income level, job profile, number of dependents etc.

The risk appetite of an individual declines with age. This means that the older you get, the less risk you can take.

Assets

These are the types of resources you can own. These resources can help you economically benefit through their value. Examples of assets are shares, bonds, property, gold, etc.

Equities

Equities are also known as shares or stocks. These are the percentage of ownership you hold in a company. Therefore, as you buy equities, you become an owner of a small portion of the company.

Bonds

Like you take a loan to meet your needs, businesses take loans for expansion. The method by which these businesses can take loans from the public is the issuance of bonds. By investing in bonds, you give debt or loans to the issuing company.

Mutual funds

Mutual funds are a collection or basket of assets in which many investors put their money. They invest in assets from different businesses to form a single basket of investments. Different mutual funds have different risk profiles.

Riskometer

The mutual fund riskometre transparently reflects the risk profile of each of the mutual funds. This is a barometer for measuring the risk in a mutual fund and is divided into low risk, moderately low risk, medium risk, moderately high risk and high risk.

Usually, mutual funds investing more in equities have a higher risk than those investing more in debt.

Stock Exchanges

Equities or shares can be bought and sold. The place where this buying and selling occurs is called the stock exchange. The equities are also listed on the stock exchange. Popular stock exchanges are the National Stock Exchange and the Bombay Stock Exchange.

Listing

When a stock or a share is added to the list of equities that can be bought and sold on the stock exchange, it is called listing. To be listed on the stock exchange, the companies must launch their shares through an IPO.

IPO

IPO or Initial Public Offering is the launch of a share or equity in the stock market. This is how a stock is launched for the first time before being listed on the stock exchange.

Demat

Demat account is where the equities you hold are electronically held. The electronic or virtual form of holding equities is called dematerialisation. The word Demat comes from the word dematerialisation.

Benchmark Indices

Benchmark indices list top companies in descending order of their market capitalisation listed on the stock exchange. These lists can change from time to time. Popular benchmark indices are the Nifty50 and SENSEX.

Principal

This is the actual amount of money you have invested in an asset. When the price of the asset goes above the principal amount, you earn a profit, and when it goes below if you experience a loss.

Maturity period

The maturity period is like a lock-in period until you cannot remove your money from an investment. This period ends at a pre-defined maturity date. Your money is locked in that investment till the date of maturity.

Coupon rate

Coupon rate – The interest rate you have invested in bonds or debt investments is called the coupon rate.

Yield

The interest amount earned on your investment over a period is called the yield of the debt investment. For example, if you have invested Rs.100 in a debt investment and the interest rate is 10 percent, then your yield from this investment would be 10 percent of Rs.100 = Rs.10/-

Compound interest

Compound interest on an investment is the interest earned when the earlier interest amount is added to your principal amount.

For example, consider a hen. The hen gives two eggs, you eat one egg, and the other grows into another hen. Therefore now, two hens give four eggs.

In this example, the egg you ate was the simple percentage interest, and the four eggs produced by the two hens are the compound interest.

Tenure

The period for which you invest is called the tenure of your investment. Similarly, the period after which you wish to achieve your goal is called the tenure of your goal. It is measured in terms of duration.

Inflation

The prices of goods and services keep on rising. The rate at which the prices rise or the percentage of change in price from the previous is called inflation. Inflation is measured in terms of percentage. In a high inflation situation, the prices rise fast. Similarly, a lower inflation figure indicates that the price rise is slower.

Deflation

A situation where the prices fall instead of rising is called deflation. Deflation is the opposite of inflation.

Prevailing inflation

The current rate of inflation is called the prevailing inflation.

Liquidity

The speed at which you can convert your assets into cash is called liquidity. The higher the liquidity, the faster you can convert it into money. Similarly, the lower the liquidity, the more time it will take to convert your assets into cash.

Redeem/Redemption

The process of selling or withdrawing your invested money is called redemption.