Article

How to invest Rs1,000

07 Aug 2019

It is a common misconception that you need to have a substantial amount of money before you start an investment. Even if you have as little as Rs1,000, you can get started, and with the right knowledge about where to invest, expect good returns. You need to clearly understand your investment objective and the risks you are exposed to with each investment. Here is a pyramid that tells you about the different kinds of investments.

The pyramid provides a view of 4 different types of investments with varying objectives and associated risks. Any investment must be dictated by-

  • The objective.

  • The risk associated.

  • The term period.

Let us go through each one in detail. Scenario 1-

If your goals are –

  • Capital growth

  • Over a relatively long period of 5 years or more

  • And a capacity to absorb medium to high risks

Then it's better to stick to Growth Fund Stocks.

  • Definition: It is a type of mutual fund that has a diversified stock portfolio. It focuses on capital appreciation and negligible dividend pay-outs.

  • Definition:

    • It follows the high-risk, high-reward dictum

    • A tolerance for risk and a 4-10 year holding period are musts.

    • These portfolios club shares of major banks, telecom and technology companies, oil and gas industries among others.

This scenario favours risk-taking, relatively young investors with time on their hands.

Scenario 2-

If your goals are –

  • Capital growth and current income generation

  • Over a mid-term period of 3-5 years

  • And a capacity to absorb medium to high risks

Then your choice should be:

  • Balanced Fund Stocks

    • Definition: They are a type of hybrid mutual fund with investments in both stocks and bonds.

    • Characteristics:

      • They offer of mix of investments in stocks and bonds and this helps to scale back risk and invest in higher dividend-paying companies. They generally provide around 10% interest and perform consistently.

      • The investment in bonds provides a steady source of interest income.

     

  • Bonds and Debentures

    • Definition: These are debt instruments by means of which corporations or the Treasury borrows money from investors. They agree to pay the face-value (cost price) at maturity and pay a coupon rate (as interest) until then.

    • Characteristics:

      • They come in various ratings, from very safe Treasury and AAA bonds to unsafe BBB- bonds.

      • Their value grows inverse to prevailing interest rates. If interest rates are lower than the coupon rate, then the bond sells at a premium and vice versa.

     

These are more suited for pensioners and those with a limited investment timeframe.

Scenario 3-

If your goals are –

  • Current income generation

  • Over a short-term period of 1-3 years

  • And a tendency to take low-medium risks

Then you may be attracted to Income Fund Stocks.

  • Definition: Mutual funds with an emphasis on generating income. Their portfolio consists of corporate and government indentures and dividend-paying stocks.

  • Characteristics:

    • They have an inverse relation to prevailing interest rates.

    • They have several varieties based upon the securities invested in.

Type Securities
Money Market Funds Certificates of Deposits, commercial paper, short-term Treasury bills
Bond Funds Corporate and government bonds
Equity Income Funds Stocks that pay regular dividends
This is ideal for the investor who wants to generate a safe and regular income with an interest higher than a savings account.

Scenario 4-

If your goals are –

  • Capital preservation

  • Over a very short period of one year or less.

  • And a predilection for low-risk ventures

You may consider

  • Liquid funds:

    • Definition: Mutual funds with investment cap of ₹10,000,000 and term period up to 91 days.

    • Characteristics:

      • Low-risk

      • Can be converted to cash without any exit load

  • Short-term deposits

    • Bank deposits for a maximum 12 months.

This is for preserving capital and earning a decent margin within a short time.

So, get your priorities right, and put that Rs1,000 to good use.

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Beginner's Corner

How to invest Rs1,000

07 Aug 2019

It is a common misconception that you need to have a substantial amount of money before you start an investment. Even if you have as little as Rs1,000, you can get started, and with the right knowledge about where to invest, expect good returns. You need to clearly understand your investment objective and the risks you are exposed to with each investment. Here is a pyramid that tells you about the different kinds of investments.

The pyramid provides a view of 4 different types of investments with varying objectives and associated risks. Any investment must be dictated by-

  • The objective.

  • The risk associated.

  • The term period.

Let us go through each one in detail. Scenario 1-

If your goals are –

  • Capital growth

  • Over a relatively long period of 5 years or more

  • And a capacity to absorb medium to high risks

Then it's better to stick to Growth Fund Stocks.

  • Definition: It is a type of mutual fund that has a diversified stock portfolio. It focuses on capital appreciation and negligible dividend pay-outs.

  • Definition:

    • It follows the high-risk, high-reward dictum

    • A tolerance for risk and a 4-10 year holding period are musts.

    • These portfolios club shares of major banks, telecom and technology companies, oil and gas industries among others.

This scenario favours risk-taking, relatively young investors with time on their hands.

Scenario 2-

If your goals are –

  • Capital growth and current income generation

  • Over a mid-term period of 3-5 years

  • And a capacity to absorb medium to high risks

Then your choice should be:

  • Balanced Fund Stocks

    • Definition: They are a type of hybrid mutual fund with investments in both stocks and bonds.

    • Characteristics:

      • They offer of mix of investments in stocks and bonds and this helps to scale back risk and invest in higher dividend-paying companies. They generally provide around 10% interest and perform consistently.

      • The investment in bonds provides a steady source of interest income.

     

  • Bonds and Debentures

    • Definition: These are debt instruments by means of which corporations or the Treasury borrows money from investors. They agree to pay the face-value (cost price) at maturity and pay a coupon rate (as interest) until then.

    • Characteristics:

      • They come in various ratings, from very safe Treasury and AAA bonds to unsafe BBB- bonds.

      • Their value grows inverse to prevailing interest rates. If interest rates are lower than the coupon rate, then the bond sells at a premium and vice versa.

     

These are more suited for pensioners and those with a limited investment timeframe.

Scenario 3-

If your goals are –

  • Current income generation

  • Over a short-term period of 1-3 years

  • And a tendency to take low-medium risks

Then you may be attracted to Income Fund Stocks.

  • Definition: Mutual funds with an emphasis on generating income. Their portfolio consists of corporate and government indentures and dividend-paying stocks.

  • Characteristics:

    • They have an inverse relation to prevailing interest rates.

    • They have several varieties based upon the securities invested in.

Type Securities
Money Market Funds Certificates of Deposits, commercial paper, short-term Treasury bills
Bond Funds Corporate and government bonds
Equity Income Funds Stocks that pay regular dividends
This is ideal for the investor who wants to generate a safe and regular income with an interest higher than a savings account.

Scenario 4-

If your goals are –

  • Capital preservation

  • Over a very short period of one year or less.

  • And a predilection for low-risk ventures

You may consider

  • Liquid funds:

    • Definition: Mutual funds with investment cap of ₹10,000,000 and term period up to 91 days.

    • Characteristics:

      • Low-risk

      • Can be converted to cash without any exit load

  • Short-term deposits

    • Bank deposits for a maximum 12 months.

This is for preserving capital and earning a decent margin within a short time.

So, get your priorities right, and put that Rs1,000 to good use.