Finxpert - Investment

Have you seen a magician put Rs. 10 into your pocket and pull out a Rs. 100 note? Don’t you wish that your money could grow like that too - just slip a Rs. 500 currency note between the pages of a book and hope it grows to Rs. 5000 someday. You must have definitely heard your father or mother say something on these lines! Yeah, that's just wishful thinking.

But what if you were told there was a way to grow your money over time. Doesn't that sound intriguing?

Although it is unlikely that your money will multiply in a notebook or a piggy bank, there is a way to make your money grow with time. Wondering how? Well, by INVESTING!

Savings safeguard your money. For instance, if you put away Rs. 1000 every month in a safe at home, you will have savings worth Rs. 12,000 at the end of the year. Instead of spending the money you had in hand, you decided to put it away for later.

Investing is making that money grow. Sitting in your safe at home, the money may stay intact but it won’t multiply. Put that same Rs. 1000 in a bank for 12 months and at an interest rate of 6%, it will be Rs. 12,395.

How did we arrive at that? Recall all that you learnt about Interest.

For the first month, you would earn a 6% interest for a month on Rs. 1000, that would amount to Rs. 5 (Rs. 1000 x 6/100 x 1/12). Next month, you would put in another Rs. 1000, so your principal becomes Rs. 2005. So, you would have earned Rs. 20.05 interest (Rs. 2005 x 6/100 x 2/12) in the second month. You would have Rs. 2020.05 at the end of two months and so it goes on for the next 10 months.

Had you put the money in a box at home, you would have lost out on the interest of Rs. 395. By investing your money rather than simply saving, you can have more money! How cool is that?

• Bank deposits: Putting your money in a bank savings account may earn you a small interest, but if you put it in a fixed deposit or a recurring deposit, you can earn more. In a Fixed Deposit you put a lump sum money in the bank for a specific period of time and earn interest on it. A recurring deposit is where you put a money in the account every month and earn interest on it.
• Silver or Gold: Buying silver or gold is another way to invest your money. Here, you don’t earn an interest, but the value of silver or gold you buy may increase with time.
• Stocks: Buying shares of a company is yet another way to make your money grow.

To invest in bank deposits, stocks and mutual funds, you will need the help of a guardian.

• Mutual funds: Mutual funds are financial instruments where someone else does the investing on your behalf. You give money to a financial manager who then invests in stocks of different companies that are listed on the stock exchanges or in other financial instruments such as bonds. This can save you the trouble of monitoring how the market works.
• Business: Another way to invest is to put money in a business. Say your friend wants to start a home-baking company and wants to buy an oven for it. He doesn’t have enough funds. You can offer to buy the oven for him as an investment and in turn, get a share of the profits he makes on selling his baked goods. Instead of earning an interest, you will get a share of the profit.