Wealth Creation

Started by manugarg2015 2017-04-01 at 10:42

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manugarg2015

Posted 2017-04-01 at 10:42

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HOW TO CREATE WEALTH?

Creation of wealth is not an easy path it has lots of road blocks and hurdles.To overcome these blockages it requires lots of time,patience and dedication.In this article you will find different tools that will help you in your wealth creation.

Wealth creation is a long term process. It does not include gambling or speculations as these are illegal in many parts of the world. The focus of this article will be on different tools used for the investments purposes.

The key to success in the wealth creation is the planning in terms of selection of the right financial instruments.This article will help you to know different financial instruments that are available in the market and it will also explains you how these instruments will help you in your wealth creation.

Sorely all of us come in contact with these instruments on daily bases, but only few dare to place their foot into it. Often people lack knowledge and proper guidance in regard to these instruments.

The biggest hurdle that comes in the path is the fear of losing money. Let me tell you we only loses our money when we are ignorant. People who are aware of the market trends and keep on tracking their investments never losses their money.

This article will help you in overcoming your fear and will guide you to different investment opportunities available with their pros and cons.

FINANCIAL INSTRUMENTS USED FOR WEALTH CREATION:-

Financial instruments are the assets that can be traded. Most types of the financial instruments provide an efficient flow and transfer of capital all throughout the world's investors.

BREAKING DOWN OF FINANCIAL INSTRUMENTS:-

Financial instruments can be real or virtual documents representing a large agreement involving any kind of monetary value.

The two main types of financial instruments are:-
1.Equity-based financial instruments.
2.Debt-based financial instruments.

EQUITY-BASED FINANCIAL INSTRUMENTS:-
Equity based financial instruments are the market linked instruments in which stocks are traded in the listed stock exchanges. In India BSE ( Bombay Stock Exchange) and NSE (National Stock Exchange) are the stock exchanges where stocks are traded.

TYPES OF EQUITY BASED FINANCIAL INSTRUMENTS:-

1) Mutual Funds

These days you might be hearing more and more about mutual funds as a means of investment. If you are like most of the people you might be having your money either in bank accounts or you might have invested in your house. Apart of that,investing is probably something you do not have time or knowledge to get involved in. That's the reason investing in mutual funds are becoming popular day by day.

What are mutual funds

A mutual fund is a common pool of money into which investors with common investment objectives placed their contributions that have to be invested,in accordance with the stated objective of the scheme. The investment manager invests the money collected into the assets that are defined by the state objective of the scheme.

Why invest in mutual funds

There are numerous advantages of investing your hard earned money in mutual funds.

a) Professional investment management:- One of the biggest benefit of investing in the mutual funds is that investors get advantage of professional investment managers.A good investment manager is more resourceful and more capable of monitoring the companies the mutual fund have chosen to invest in,rather than individual investors.

b) Diversification:- A crucial element in investing is asset allocation.It significantly contributes to the success of any portfolio. However small investors do not have enough money to properly allocate their assets. By pooling your funds with others, you can quickly benefit from greater diversification.

c) Liquidity:- In open ended schemes, you can get your money back at any point of time at prevailing NAV (net asset value) from your mutual fund.

d) Transparency:- Mutual fund industry in India is being regulated by SEBI ( Security and Exchange Board of India). Which had made it very transparent, you can easily track your investment which are made on your behalf to know the sectors/scripts into which your money is invested.

e) Variety:-Mutual funds offers you a whole range of industries/sectors to choose from.You can find a mutual fund that matches just about any investment strategy you select. There are funds that focus on blue chip stocks,technology stocks , bonds or mix of stocks and bonds.

2) Equities

Equities are the type of securities that represents the ownership in the company.Equities are traded (bought and sold) in the stock market. Alternately they can be purchased via IPO ( initial public offer) direct from the company, which is made for raising funds by the companies.Investing in equities is a good long term investment option as the returns in equities over the long term horizon are generally higher than other investment avenues.however, along with the possibility of greater returns comes greater risks.

3) Unit liked Insurance Plans (ULIPS)

ULIP is a life insurance product which provide risk cover for the policy holder along with investments options to invest in any number of qualified investments such as stocks,bonds or mutual funds.As single integrated plan,the investment part and the protection part can be managed according to specific needs and choices.
Its the best instrument available as it provide protection and investment.

Advantages of Unit linked Insurance plans

Market linked returns :- Unit liked plans give you the opportunity to earn market-linked returns as the part of the premium invested in the market linked funds which invest in different market instruments including debt and equity instruments proportionality.
These investments are the safest investments in the market linked as the principal amount is not effected in the worse scenarios.

Life protection,Investment and savings:- Unit linked plans offers the twin benefit of life insurance and saving at market-linked returns.Thus you have the opportunity to invest your money to earn higher returns,while taking care of your primary needs.Investing in unit linked plans helps to inculcate the habit of saving and investing.Investments in ulips are important for the wealth creation over the long term.

Flexibility:- Unit linked plans offers you a wide range of flexible options such as:-
a) The option to switch between the investment funds to match your changing needs.
b) The facility to partially withdraw from your funds, subject to charges and conditions.
c) Single premium additions to enable the policy holder to add the additional sum other than the regular premium as and when desired, subject to conditions.

DEBT BASED FINANCIAL INSTRUMENTS:-
Debt based financial instruments are the obligation of issuer of such instruments as regards certain cash flow representing interest and principal,which the issuer will pay to the legal owner of the instrument. These instruments are the safest instruments as it is not linked with the market,and there is full security of the principal amount and the interest. while the returns are low as compared to the market linked securities.

TYPES OF THE DEBT BASED FINANCIAL INSTRUMENTS.

1) Bonds:-

A bond is simply an "IOU" in which an investor agrees to lend money to a company or government in exchange for a predetermined interest rates. If a business wants to expand, one of its options is to borrow money from the individual investors. The company issues bonds at different interest rates and sell them to the public. Investors purchases them with the understanding that the company will payback their original principal with some interest that is due by the set date. The interest a bondholder can get depends on the strength of a corporation.

2) Certificate of deposit:-

A certificate of deposit or CD is a time deposit. A financial product which is widely offered to customers by the banks. CD's are similar to the saving accounts in that they are issued and thus virtually risk free.They are different from the saving accounts as they are for the fixed term that is (often 3 months, 6 months and 1 to 5 years) with the fixed interest rates.It is intended that the CD's be held until maturity,at which time the money can be withdrawn along with the accrued interest.

3) MIS:-

MIS is widely offered schemes by the post offices in India. It is Monthly Income Scheme, in which interest is created every month in the investors saving account opened at the time of investment. These types of investments are beneficial to those who need income on monthly bases. Maximum up to 3 lac and up to 6 years can be invested in these instruments. Investors gets principal plus interest other than monthly interest at the end of the due date that is on the maturity.

4) Fixed deposits:-Fixed deposits or FD are the financial instruments by banks which provide investors a higher rate of interest than a saving accounts until the given maturity date.These instruments are considered very safe investments.The defining criteria is that money cannot be withdrawn until the maturity. Banks in India also provide additional service to FD holders such as loans against the FD's.The interest rate can vary from bank to bank.Banks can review its interest rates at any time considering the prevailing economic conditions.

Other debt-based financial instruments are Debentures,Commercial papers,G-secs( government securities) and National saving certificates (NSC).

NON FINANCIAL INSTRUMENTS USED FOR WEALTH CREATION.

Non financial instruments are equally important as financial instruments when creating portfolio for wealth creation. A non financial instrument is an instrument with physical value.These instruments includes high value assets which can take 50 to 60 percent of total investments if included in the portfolio for wealth creation.These instruments are also considered very long term investments.

TYPES OF NON FINANCIAL INSTRUMENTS

1) Real Estate:-

Real Estate in non financial instruments terms includes property comprising land and building on it.
With the ever-increasing cost of land,real estate has come up as a profitable investment proposition.
Investors can invest their money in the real estate as the investments. Real estate investments are considered very risky investments with very high returns.

2) Gold:-

The "yellow metal"is preferred investment option when the market is volatile.Today there are several products which derive their value from the price of gold are available as the investments. These includes gold futures and gold ETF (exchange traded funds).

Gold ETF:- Gold ETF helps you to invest in gold without the inconvenience of taking physical delivery of gold.These ETFs invest in standard gold bullion and credited the units in your demat account. These are passively managed funds and are designed to provide returns that would closely track the returns from physical gold in the spot market. You can buy and redeem the units online just like the mutual funds.

Collectively If all these investment options are added proportionately in your portfolio there are chances of gaining higher returns and maximizing your wealth.

« Last Edit: 2017-04-01 at 10:44 by manugarg2015 »