Movie Case Study
The scene that you saw shows Allegra Cole (played by Amber Valletta) asking for advice from her team of financial advisors. Her wish is to invest in her friend’s business but the team thinks differently. Albert (played by Kevin James) stresses how she should trust her gut and go with her own investment decision.
In this blog, Learning Perspectives will explore the meaning of investments.
What are Investments?
Investing deals with apportioning money or assets with the expectation of earning a return. While making an investment, the concept of risk and return is involved. Generally, low risks fetch lower returns and high risks fetch higher returns. While risk and return can vary. Investments are generally done for a longer duration so that a significant return can be earned.
Investment does not come without the risk of losing money. Investments can be done in many instruments. Bonds, mutual funds, and shares to name a few. It is always better to diversify your investment to get a higher return at low risk. In simple language, when you have large amounts of money, never invest at a single place rather divide that money and put it in different instruments. This is called assets allocation.
Types of Investments
Investments can be made either in the debt and equity sectors. Debt market is also called the bond market. Equity market means the stock exchange where shares are traded. Bombay stock exchange (BSE) and National stock exchange (NSE) are the equity marketplaces. Both individuals and large corporations invest in debt and equity markets. Some of the options for individuals to invest in the debt market include.
- Public Provident fund
- Fixed deposits
- National Saving Certificates (NSCs)
- Government securities (G-Secs)
- Non- convertible Debentures (NCDs)
- Senior Citizens’ Saving Scheme-SCSS
- National Pension Scheme (NPS)
PPF or public provident fund is considered one of the safest financial instruments as it is supported by the government of India. PPF or public provident fund has a lock-in period of 15 years but this is one of the instruments that provide interest that is compounded. Interest for 2019-2020 stands at 8%. The minimum amount of investment is Rs. 500 while the maximum amount that one can invest is Rs. 1,50,000 per annum. One can also avail of tax benefits under section 80C.
Fixed deposits (FDs) are the most trusted instrument of investment in our country. FDs are provided by banks at high-interest rates for a given duration. One can pay a lump-sum amount and earn interest on it for the duration taken. Some banks also provide loans against FDs. One can also avail of tax benefits under section 80C.
For businesses, investments are considered the assets of the business as they would earn interest and return. Similar to the scene that we saw, Allegra Cole wants to invest money in her friend’s company. She considers that a good investment opportunity as she has seen the business plan and it predicts that the business will grow in the future. Implying that her investment will give a good return on the same.