Types of Investment Assets

Hello, guys

Welcome to Learn Vern.

My name is Yash, and as we studied in our previous lecture as to What is a stock Market, we discussed some basic information about it.

Where we saw that the basic reason for coming into the stocks is investment,

What is the investment ? What does anyone want to invest ?

that too, we have seen previously.

Now, in Today's topic, we will be learning about the different places of investment where you can store your money, invest your money or save your Money.

So, there are many places which you can use.

Why should you do that, so that you get good returns in future.

So, let's see what are the places where you can invest?

So, first is a place which is popularly used by all Indians whether Middle class or anybody else, that is Fixed Deposit.

Where they think their money will always remain safe over there.

What happens in a Fixed Deposit is that you keep a lump sum amount of 2 lakh, 5 lakh or 10 lakh.

You have 10 lakh rupees, what have you done? You went to the bank and  there you deposited  your Money.

Next, place along with that is a Savings account.

So, these savings accounts or fixed deposits How much will they give in return annually?

Fixed deposit gives you around 5 percent or 6 percent.

So, if you invest 10 lakh into FD, then 5 percent or 6 percent of that is merely 50 thousand rupees, so will this 50 thousand ever beat the inflation?

There is no chance at all that it can.

Similarly, in a savings account, any bank will give you only 2 or 3 percent.

So, if you invest 10 lakh, this 2 or 3 percent feels like nothing.

So, if you are holding 10 lakh and you are just getting 50 thousand in Fixed Deposit and 2 percent that is 20 thousand in savings account, then with such situations you will never complete your future needs, with such investment.

Here, the only thing is that we feel there is no risk, as the bank will not run away with your money, so you have this guarantee.

However you get to see a big return only when you invest a handsome amount of money, such as 1 crore or 10 crore, then you feel that your money is safe, as you will get around 5 lakh annual return on 1 crore, so you feel good about that return initially.

But, when you don't have a big amount to invest, then in those situations you will never see a good return.

In fixed deposit you just fixed your money, but there is no magical stick they use to give you return, as they also use the same method of rolling over your money, which means:

If we from where does the bank generate income?

Buy giving loans to any XYZ company, by giving home loans or car loans to someone.

So, this means they shifted our money from one place to another.

What will the banks do?

So, banks will provide to big companies Working in the chemical sector or automobile sector and provide them with loans.

So, supposingly if a bank has given 100 rupees as loan and they generated 10 rupees as income, then the bank will keep 5 or 6 rupees from it in his pocket, and give 2 or 3 rupees to you, and rest of the money he will keep in its reserves, because it will always keep some cash in money and never distribute everything,as they are supposed to keep some reserves with them, because they are running a bank and this system requires and in reserve to run the bank.

So, this was our first asset, which is known as fixed deposit.

Now, we talk about the second one, which all Indians know about, that is buying Gold or Silver, as these are popular items, and from time immemorial people have been investing into this.

And you should also invest in this, as there is nothing wrong about it.

But, it should never happen that whatever you have you invest all the money in gold,

So,gold is a thing which turns into liquid very easily.

I will give you a simple example for it, supposingly you are staying at a hotel during a trip, there you suddenly realise that your credit or debit cards and all other stuff are lost, what remains is just your gold chain.

So, you decided to exchange that gold chain with the hotel until you pay them their money.

Which they agreed to.

So, in this way gold provides us instant liquidity, so you will never be stuck at a place with gold, and same goes with silver.

Now, normally when should the prices of gold or silver inflate mostly in India?

It happens mostly in the Diwali or Wedding season, but these two are not the only thing, we have to see the entire economy behind it.

As to when the prices of Gold or Silver will increase?.

As I told you earlier, gold is such an asset whose prices will increase when the people will show more interest in it.

When they think it's risky out there to invest in other things, let me just think of investing into gold.

And as I told you earlier, gold will easily be a liquidating thing.

So, that is when the gold prices increase normally.

So, you understand now when the prices of gold or silver increase.

Now, I will give you an example, when the gold prices had increased in the past.

When there was recession, so That had happened in 2008, Not just in India but all over the world.

What happened at that time, that there was a US Company by the name Lehman Brothers, they declared bankruptcy over there, meaning bankruptcy is when you finish up with all the money.

You have no money left, and there is no meny in your hand, then you've become completely bankrupt.

So, Lehman Brothers also faced this bankruptcy where all their money was completely finished.

So, as I told you earlier, the main way a Bank generates income is that it provides a loan to a company, so due to this a situation of people not returning the interest or the money arised, so the loan provided to these companies went under default, and they stopped giving any repayments.

Which resulted that slowly and gradually it finished liquidating, and then they declared bankruptcy as there was no money left with them.

So, that bank was a very popular bank in the U.S.

So, it happened there but its effect percolated into the Indian Market, many other small countries were also affected.

Because, normally whenever we do Import or export, and if we want to bring any commodity from the other countries, we do the transaction in dollars.

So, the government of that country decided that they will bring out our gold reserves into the market, and provide liquidity to the market, as it is very important to provide people with cash.

So, then only things started becoming better slowly and gradually.

Similarly, if I give you one more example, during the corona period, everyone was having a bad time, so before that market was running all time high, but it started showing a sudden fall during this period, so why this sudden fall happened, because these big investors started withdrawing money, why they started  withdrawing?, because they saw during this time the market is going to be risky now, so even they considered it better that they withdraw their money from that risk and it was better for them to invest their equity in gold and silver.

So, with this if you see the prices had fluctuated way too high, somewhere around 58 or 59 thousand for gold, and silver above 70 thousand.

So, that was the price when gold prices were good, now the market after COVID has again become healthy, and people have money, so everything is slowly becoming stable and so is the market.

So, with this now slowly our money is coming out and shifting into its normal market that is the share market.

So, no doubt you can invest in gold and silver, but you will have to be prepared for the long term, and how long it will take we don't know, as gold and silver are based upon uncertainty, normally due to some season there can be fluctuations that can happen.

Now is the time for our third asset, that is real estate, so we Indians find this third thing as the best place for investment, after the above two.

It's old school taught.

We think whatever money is left, let's buy land or property.

Why?

Let's say even if the prices do not increase we will build a house there.

So, this is a normal thing for each and every household.

So, the game of reals estate will work only when, we invest a good amount let's say 1 crore, and then we will wait to see when the prices will increase, and that can only happen when a big infrastructure project is launched near your property or a corporate company builds a huge building, otherwise your property will just merely increase in pennies in a very slow rate, say about from 1 crore to 1crore 10 lakh, or 1 crore 20, that's it.

This much is only going to happen.

So, what we should expect is that our money in the property should increase immediately.

Which is very rarely to happen.

As it takes time, 5 years, 10 years or many times even 20 years, and many times we have to sell our property even at a lower rate also.

So, if you buy a property, it depends upon the government if they launch a big project near that property, and even if that happens and you want to sell your property to an inflated price of 2 crores or 3 crores, it's not necessary that the buyer will also willingly pay that much amount.

Even if you are able to sell, but it involves lot of efforts and participation, meaning you will have to talk to many people to get a single buyer, inform the brokers, place advertisement in the papers, then only people will come to see your property, and in that process also some will just come and go, so these things are going to happen much in the property.

Now, to invest in this property you should be having a good amount, and you just have 1 lakh, 2 lakh, and in that much money you will never be able to buy any land from that, so for that you require at least 25 lakh, 30 lakh or 50 lakh to invest at a good place.

So, in property it's good to invest unless you have a good capital also, and also you should do only when you're ready to forget your money for the next 5 to 10 years.

Clear till now!

Now, the fourth thing that can be an asset is debt security, so as soon as we hear this word debt we think of borrowing money, so this is something like security of that money that is borrowed.

Now, you all know about loans, so if you give some loan to a person and on that loan you will get a certain amount of interest and also the refund of the money that you have given.

So in debt securities what happens is that?

If I tell you, there are a lot of  different types of securities.

Such as debentures, bonds, psu bills, commercial papers.

So almost everything over here is the same, except for a few things that can be here and there.

I will explain you about debentures and bond briefly,

So What is debentures?

First, is non convertible debentures and bond,

Suppose that you have a company that is in growth, and some other person is having good money with him that he can invest, so you asked to borrow that money from him on 10 percent interest annually.

So, on 10 crores, you will have to pay every year 1 crore rupees.

And the amount that he has given he will have to refund after 10 years,

So, by 10 years you will get your capital back by the interest itself, that is Every year you will get back 1 crore so in 10 years you will have your money back. Ok!

And after 10 years he will also return the money.

So, this happens in non-convertible debentures and bonds.

Now, next is partly convertible debentures and bond, in this if you lend 10 crores to someone, he will pay you the interest in the same way, but after 10 years he will return 5 crore, and rest 5 crores, he will give you in the form of shares of that much value to you.

Next, is fully convertible debentures and bond.

In this you will give 10 crores to someone, he will give the interest to you, but after 10 years he will not give the money back, but give you the company shares of that much value.

This is how normal debt securities work.

So, who can take these debt securities, there are two people, one is the government and the second one is corporate structure such as big MNCs, which are run privately.

Now, among them, who you should prefer, let's see, so here corporate will give you a higher rate as compared to the government who gives you a lower rate.

Still you should prefer the government,no doubt you will get a lower rate, but you know that the government cannot run away taking your money, or you will never face higher losses, as compared to the corporate where you will be left with no options.

So, it's better to keep your money safely invested.

After, this we have mutual funds as asset, you all must have heard about it,  it's the same way where you are giving money to a certain company, so a company hires some fund managers, who does a proper research and then does any investment, and they provide you NAV, meaning Net Asset Value, they provide you some quantities,

So, you can do Investment in mutual funds in two ways, one is  lump sum amount, and the other is SIP, that is systematic Investment Plan.

Where, every month you can invest 2000, 3000 whatever you are comfortable with, that much amount you can invest.

So, mutual funds then invest according to their choices wherever they find suitable,be it stocks, housing schemes , NBFC, whatever suits their work.

So, in this way mutual funds invest in different types of schemes, such as stocks, bonds, money markets like debentures and bonds, so it's one and the same thing.

So, for that they will prepare a plan, by identifying an x y z company who is going to do better in future.

And buy that company's share accordingly, and distribute the company's net asset value that he will get in partial return.

So, mutual funds are also good, they provide you with returns, you should invest some of your money into that, for sure you will get profits slowly and good returns also in future.

After this, the asset that we have is stock market, equity market, share market, there are different names to it.

This means a transaction of buying a share and selling a share.

So, in this supposingly I will find a certain company whose future market performance is good I feel, so the net worth value of that company was 50 crores, so I decided to invest into that company with around 15 crores, so after 6 months at the time of calculating profit and loss, it is realised that the company has got loss, now I cannot tell anything to you, as while entering the market itself I had calculated the risk of loss that can occur, I didn't just think of rewards, ok!

So, I knew if I am liable for profit, so am I for loss, I didn't just think of profit, as I will also have to bear the losses.

Apart from this I am not left with any options.

So, what happens in stock there are normally two types of people, bulls, those who are always interested in buying and earning, second are bears, those who always want to sell and earn.

This, is our normal stock market functionality,

So, we will be studying the entire Stock Market,  in our ahead lectures,

As to why do company come in stock market?

What is their goals?

What is the motive?

A company is coming, you are coming, I am coming, simple what are the reasons behind it, we will discuss in the lectures.

I will tell you about the next assest, that is index fund, it represents our share market, you might be finding "index", this word as something different, this is bench mark indices.

For instance, supposingly you go tomorrow in the market, and somebody ask your opinion about the market, you will not just look at one particular company on whose basis you will tell that the market is good here, and a particular company is in dip, then market is also not good,

This, is not the way to judge, so to understand this well,  big people in the market when they introduced it, they form an indices, which means the sector that are in the top, like Pharma, IT, banking, MCG s, and within them the companies who were top performing fundamentally and are both qualitatively and quantitatively strong, were picked and put in the indices.

Now normally when will the companies prices  increase?

when they will generate profit, that is when they will have increase in demands.

So, in this way Indices will also get formed.

So, index funds is something like this only, here suppose If i form my own index, so in my index I will not take only one company, but I will take different companies from different different sectors,

Ok!

So, the same thing happens in index funds, where there are two indices, which are mainly two exchanges , one is Bombay Stock Exchange, which is the oldest, and whose representative is Sensex.

Second, is NSE, that is National Stock Exchange, whose representative is Nifty 50.

In the Sensex top 30 companies were considered, and in the Nifty top 50 companies were considered.

Now, assume that I have to invest in the index funds of Nifty 50,  here it is not necessary that the index has 50 companies so all will have equal weightage, so all have different weightage which is decided based on different formulas which we will cover ahead, but for now assume that the Reliance has the maximum weightage in the indices, so I had 10 lakh, so 15 percent is its weightage therefore I will allocate 15 percent in the Reliance, next comes HDFC Bank, so I will invest some money over there also, so in this way I will invest 10 lakh rupees slowly slowly in different companies, now a question must be coming in your head, that How will you calculate the profits in this?,

So, it depends upon the indices, as the indices will go up, stock prices will go up, and the portfolio that you have formed of your index fund, it's valuation will also increase slowly.

So, this was our Index Fund.

These, were some of the Assests that we discussed in our today's lecture, in which You can invest.

I hope that's clear.

If you have any doubts or queries,then you can post that in the comment section, and in this way your questions will reach us, and your comment will reach the other learners, the result of which, it will help in creating discussion of queries and solutions.

So, don't forget to post your comment in the discussion box