The dictionary will define investments as “the action or process of investing money for profit.” In other words, when you have an amount that just lies around, you can invest or allocate money with the expectation of a positive benefit/return in the future. For example, owning assets with the expectation of gaining profits is an investment. It’s an unsaid rule in commerce that land and building never depreciate, so if you buy these it becomes an asset.
In order to understand investments better, we caught up with Nupur Joshi, an alumnus of Columbia University and a Management Consultant with EY, NYC. She says that “A mutual fund pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. Basically, mutual funds are safer to invest in than individual company stocks since your investment is diversified.”
But what about stocks, what are they?
Nupur says, “In simple terms, stocks are a stake in a company. Each share that an individual holds represent ownership in the company. As a company grows and becomes more profitable, one can benefit from the company’s growth by investing in the stock. While saving money is a good practice, if one simply keeps the money in their bank account or creates a Fixed Deposit the money will lose its value over time due to inflation. Thus, it is important to invest in stocks or mutual funds depending on one’s risk appetite.”
At the same time, investments do pose a risk. Speaking about the same, Ishan Singh, a Growth Marketer with India’s leading wealth management firm said, “There is a risk with every financial product. Even in keeping your money in a savings account. What if the bank shuts down? So, every financial product has its own risk. At the end of the day, you should divide your assets into various financial instruments like FD, Savings account, mutual funds, Stocks, Insurance etc., and ensure it’s neither too risky, nor too safe.”
It’s fair to say that investing in mutual funds is safer than investing in stocks. As Nupur said, a mutual fund provides diversification through exposure through a multitude of stocks. It’s better to own shares in a mutual fund instead of owning just one stock. Individual stocks carry a higher risk than mutual funds.
The whole idea of investing lies in purchasing something whose value is bound to increase in the future.
With the coming of age, cryptocurrencies have become the new fad. Nupur says, “Simply speaking, Cryptocurrency is decentralised digital money that is based on blockchain technology. There is no central authority that manages the value of cryptocurrency. While investing in cryptocurrency does sound exciting, purchasing it can be risky as the value can be extremely volatile. Since the value can be that volatile, one should never invest in crypto more than they can afford to lose. There are dedicated Cryptocurrency exchange platforms that can help people get started on their crypto journey.”
How does one start investing in mutual funds or stocks?
You can choose the services of a broker or there are few apps through which you can purchase secure investments – Zerodha and Groww. You should have enough knowledge and be aware of the risks before you start investing.
Successful investment is about managing risk, and not avoiding it. So, invest smartly and secure your future the way you want.