Wednesday, June 20, 2012

Investment

1) What is Investment?
The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called Investment. Investment of one investor is the income of another.

2) Why should one invest?
One needs to invest to:
§ earn return on your idle resources
§ generate a specified sum of money for a specific goal in life
§ make a provision for an uncertain future
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3)When to start Investing?
The sooner one starts investing the better. By investing early you allow your investments more time to grow, whereby the concept of compounding (as we shall see later) increases your income, by accumulating the principal and the interest or dividend earned on it, year after year. The three golden rules
for all investors are:
§ Invest early
§ Invest regularly
§ Invest for long term and not short term

4) What is meant by Interest?
When we borrow money, we are expected to pay for using it – this is known as Interest. Interest is an amount charged to the borrower for the privilege of using the lender’s money. Interest is usually calculated as a percentage of the principal balance (the amount of money borrowed). The percentage rate
may be fixed for the life of the loan, or it may be variable, depending on the terms of the loan.
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5) What factors determine interest rates?
When we talk of interest rates, there are different types of interest rates -
rates that banks offer to their depositors, rates that they lend to their
borrowers, the rate at which the Government borrows
The factors which govern these interest rates are mostly economy related
and are commonly referred to as macroeconomic factors. Some of these
factors are:
§ Demand for money
§ Level of Government borrowings
§ Supply of money
§ Inflation rate
§ The Central Bank of Nepal the Government policies which
determine some of the variables mentioned above

6) What are various options available for investment?
One may invest in:
§ Physical assets like real estate, gold/jewellery, commodities etc.
and/or
§ Financial assets such as fixed deposits with banks, small saving instruments with post offices, insurance/provident/pension fund etc. or securities market related instruments like shares, bonds,
debentures, derivatives etc
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