With increasing disposable income at hand and awareness of financial planning, more and more people are considering to invest their savings for a better and secured future. This has given rise to numerous financial products in the market.
Today you will find a variety of financial instruments available in the market which offer promising returns. Selecting one or few options out of them can be a daunting task. Moreover, making the right choice of financial instrument is also important because you are putting in your hard earned income in these investment avenues and want your money to grow over time.
To assist you with money investment tips, we have brought to you two of the popular investment products that have given good return to the investors over a span of time. They are Unit Linked Insurance Plans and Mutual Funds. In this article, you will understand the basic concepts of ULIP and mutual funds, ULIP plans vs. mutual funds, and much more.
Let us begin by first understanding what is ULIP?
What Is ULIP?
Unit Linked Insurance Plan is a financial product that offers insurance policy along with investment in different investment avenues. The companies that provide ULIPs bifurcate your money into two parts. Some amount of money is used to provide you with the insurance policy and the remaining amount of money acts as an investment. As an investor, you can generate returns with the money invested by the company. The money is invested in debt instruments, equities, bonds, etc.
The meaning of ULIP must have clarified every individual’s doubt about why should I invest in ULIP. Let us now understand what are mutual funds?
What are Mutual Funds?
Mutual Funds are the most popular investment option among investors. The mutual fund companies collect money from different investors and pool them to invest in various investment classes such as stocks, bonds, money market instruments and other assets.
The mutual funds hire dedicated fund managers who look after all the investment decisions on your behalf. Thus, a mutual fund gives you access to a professionally managed portfolio making it an ideal choice for investors who do not know much about investing. All you need to do is, choose a mutual fund scheme depending on your financial goals and rest will be taken care of by the fund house. The mutual fund company structures and maintains your portfolio in a way to match your investment objectives.
After understanding the meaning of both investment options, let us now learn about the difference between ULIP and mutual fund.
Difference between ULIP and Mutual Fund / ULIP vs. mutual fund
• When you buy a mutual fund, the motive is solely investment. On the contrary, when you buy ULIP, it gives you insurance cover and also acts as an investment.
• When you wonder why should I invest in ULIP, the answer is simple – In case of ULIP, you are eligible for a deduction from your taxable income as per section 80C of the Income Tax Act. Whereas, in case of mutual funds only Equity Linked Saving Schemes (ELSS) are eligible for tax deductions.
• Most mutual funds are liquid in nature. They can be withdrawn within a year. However, 1% of the fund value is deducted as exit load. On the other hand, ULIP is not so liquid in nature. Their liquidity is restricted due to a minimum lock-in period of 5 years.
• The returns in mutual fund vary depending upon the performance of the stock market and risk factor. The mutual funds which have higher exposure to equity can generate higher returns because of the higher risk. Mutual funds with exposure to debt market give slightly lower returns. On the other hand, the returns from ULIPs are lower in comparison to mutual funds. This is because ULIPs provide insurance cover along with an investment avenue.
• ULIPs offer insurance plans that cover the life of the policyholder and in case of an unfortunate event, it gives the assured sum of money to the policyholder’s family. But in the case of a mutual fund, there is no such insurance cover.
• When a comparison is made between ULIP plans vs. mutual funds, it is important to consider the expenses. The expenses in ULIPs are higher in comparison to mutual funds. This is because, in the case of mutual funds, SEBI has capped the total expense ratio to 2.25% . No such limit exists for ULIPs.
The above mentioned points suggest ULIP vs. mutual fund differences. Investors often have a question in mind i.e. why should I invest in ULIP or mutual fund. Well, to solve this doubt, we list down certain points that will help investors in taking the right investment decision.
When You Can Invest In Mutual Funds
• When the time horizon is short term or medium term.
• When you want to invest in a highly liquid asset.
• When you have a good risk appetite.
• When you already have an insurance policy in place.
When You Can Invest In ULIPs
• When your investment horizon is for the long term.
• When your risk appetite is low.
• When your aim is to save a good amount of tax.
• When you want insurance policy along with the investment.
Therefore, before taking any investment decision about ULIP vs. mutual fund, you must consider the above mentioned points. You can even purchase these plans from a reputed broker like IndiaNivesh Ltd. They can further assist you in the money investment tips and can guide you on various investment options available to you.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Forex Trading: A Beginner’s Guide for 2019
Trading in foreign currency is very easy and convenient in today’s time. Its popularity can be seen from the fact that forex trading has become a source of regular income for many people. However, forex trading for beginners can be tricky as they do not have sufficient experience of how does forex trading work. To assist the beginners, this article will highlight the basics of the forex trading, forex trading strategies, forex trading tips and much more. Firstly, let us understand the meaning of forex.Meaning of ForexForex, also termed as foreign exchange is a market place where currencies of various countries are traded. Currency trading takes place in pairs and the currency pair movement determines the value of one currency against another. For example, INR/USD currency pair measures the value of the Indian Rupee against the US Dollar. The first currency of the currency pair is termed as the “base currency” and the second currency is termed as the “quote currency”. After understanding the meaning of Forex, let us now learn about how does forex trading work.How Does Forex Trading WorkWhen you start trading in foreign currency, you will notice that “Bid” and “Ask” prices are quoted. The price at which you can buy the currency is called the bid price and the price at which you can sell it is called the ask price. In foreign currency trading, you can take two types of trade; long trade and short trade.• Long TradeWhen you purchase currency in the trade, you expect the currency pair to increase in its value so that you can make the profit by selling it at a higher price. This is known as a long trade. • Short TradeWhen you sell currency in the trade, you expect the currency pair to decline in its value so that you can make the profit by selling it at a lower price. This is known as a short trade.Let us now understand how to start forex trading.How to Start Forex TradingTo start forex trading, you must open an account with a registered broker like IndiaNivesh Ltd. Only with the help of a trading account, you can take the long and short trades. In order to open a trading account, you will need basic documents like account opening form, address proof, identity proof, income proof, passport size photograph, cancelled cheque or bank statement, PAN card, etc.Since you now know about how to start trading in forex, it is important that you know about the right strategies also. Let us learn about forex trading strategies.Forex Trading StrategiesForex trading for beginners can be fruitful if they follow certain trading strategies. The trading strategies can help the beginner to make good returns. Some of the trading strategies are as follows:• Day Trading StrategyAs the name suggests, the day trading strategy is meant for the same day trading. In this strategy, you will have to exit the trade before the end of the day (trading session). The main advantage of this trading strategy is that you are protected against adverse events that may happen overnight when the forex market is closed. • Swing TradingSwing trading involves making short term profits on the trade by holding the position for a few days. Monitoring the price movement on the bars after every half an hour or hour is helpful in this strategy. • ScalpingScalping is a trading strategy that uses tick charts. This trading strategy involves quick trades that last for just a few minutes. One can make profits in this strategy by playing for a few points by quickly beating the bid/offer spread. • Positional TradingPositional trading strategy involves maximising profits from a major shift in the price. This trading strategy requires a good amount of patience, discipline and knowledge about the market fundamentals.After learning about forex trading strategies, let us learn some quick tips that can prove to be very helpful in forex trading for beginners.Forex Trading Tips• Before taking a trade, always understand the trend of the market. • Avoid taking a trade against the market trend.• Preserving capital is most important in forex trading. So stay focused and trade only when the opportunity for you arises in the market.• Try to avoid trading in a foreign currency using borrowed money.• Do not take a trade without putting a stop loss in place. • Emotions have no place in forex trading.• Always choose a methodology while trading and stay consistent with that. • Always know your entry and exit points when you go long or short.• Avoid being greedy in forex trading. Timely booking profits will help your capital to grow at a rapid pace. The above mentioned forex trading tips shall help the beginners to become successful in the market. To encourage forex trading for beginners, we list down certain advantages of forex trading.Advantages of Forex Trading• It is a highly liquid market.• It allows a wide range of currency pairs to be traded.• Forex is a good hedging tool.• Large profits can be made from the volatility in the forex market.• It provides easy to enter and exit positions.If you are a beginner in the forex market, IndiaNivesh Ltd. holds the expertise to guide you on the various topics regarding forex trading for beginners. You may get in touch with us to know how to start forex trading and much more. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Equity Shares: Features, Advantages and Types of Equity Shares
In the world of finance and investment, we often use the word ‘equity shares’. In fact, it is a part of everyday discussion among investors, stock market analysts, newspapers, business magazines, etc. Whether you term it shares, stocks or ordinary shares, they are all one and the same. For companies, equity shares are the biggest source of finance which helps them expand and grow. The concept of equity shares is wide and there are many types of it. To begin with, let us understand the meaning of equity shares.Equity Shares MeaningEquity shares are the shares that the companies issue to the public for long term financing. Legally the equity shares are not redeemable in nature and that is why they are referred to as long term source of finance for a company. The investors of the equity shares have the right to vote, share the profits and claim the assets of the company. The value of equity shares is expressed in the various term like par value or face value, book value, issue price, market price, intrinsic value and so on.Let us now learn about the features of equity shares.Features of Equity Shares• Equity shareholders have the right to vote on various matters of the company.• The management of the company is elected by equity shareholders.• The equity share capital is held permanently by the company and returned only upon winding up.• Equity shares give the right to the holders to claim dividend on the surplus profits of the company. The rate of dividend on the equity capital is determined by the management of the company.• Equity shares are transferable in nature. They can be transferred from one person to another with or without consideration.The above mentioned are few of the features of equity shares. Let us now learn about the advantages of equity shares.Advantages of Equity SharesFrom the Shareholder’s Point of View:• Equity shares are liquid in nature and can be sold easily in the capital market.• The dividend rate is higher for the equity shareholders when the company earns high profits.• The equity shareholders have the right to control the company’s management.• The equity shareholders not only get the benefit of dividend but they also get the benefit of price appreciation in the value of their investment.From the Company’s Point of View:• Equity shares are the permanent source of capital for a company.• There is no requirement of creating a charge over the assets of the company when equity shares are issued.• The liability of the equity shares is not required to be paid.• The company does not have any obligation to pay dividend to the shareholders.• The credit worthiness of the company increases among the investors and creditors when the company has a larger equity capital base. The above mentioned are the advantages of equity shares to both the shareholders and the company. Let us now learn about the types of equity shares.Types of Equity SharesAnyone who makes an investment in equity shares or monitors the functioning of the company must know about the various types of equity shares. The equity shares are presented in the liability side of the balance sheet and they are classified in the following types. • Authorised Share CapitalAs the name suggests, authorised capital is the maximum amount of capital that a company can issue. The authorised limit can be increased after seeking permission from the respective authorities and paying fees. • Issued Share CapitalOut of the authorised share capital, the capital which the company offers to the investors is termed as issued share capital. • Subscribed Share CapitalSubscribed capital is a part of the issued share capital that investors agree and accept. • Paid Up CapitalPaid up capital is a part of the subscribed capital for which the investors pay. In general, the companies issue the shares to the investors after collecting all the money in one go. Therefore, it is not wrong to say that subscribed and paid-up capital is the same thing where the company collects all the money and issues shares. However, conceptually the paid-up capital is the amount of capital that the company invests in the business. • Right SharesWhen you make an investment in equity shares and the company issues further shares to you, it is termed as the right shares. The right shares are issued to protect the ownership of the existing investors. • Bonus SharesBonus shares are issued by the company to its investors in the form of a dividend. • Sweat Equity SharesWhen the employees or directors perform their job well in terms of providing know-how or intellectual property rights to the company, the company issues sweat equity shares to them as a reward. The above mentioned are the different classes of equity shares. Now let us learn about the various types of equity share prices.Various Prices of Equity Shares• Par or Face ValuePar or face value represents the value of shares recorded in the books of accounts. • Issue PriceThe price at which the shares of the company are offered to the investors is called the issue price. In most of the new companies, the face value and the issue price of a share is the same. • Share at Discount and Share Security PremiumWhen the company issues its shares at a price which is lower than its face value, the deficit amount is termed as a discount. On the other hand, when the company issues its shares at a price which is higher than its face value, the excess amount is termed as premium. • Book ValueBook value is the balance sheet value of shares. The formula to calculate the book value is as follows; Paid Up Capital + Reserves and Surplus – Any Loss / Total Number of Equity Shares of the Company • Market ValueWhen the company is listed on the stock exchange, the price at which the shares of the company are traded is termed as the market value of the shares. The stock market value would differ with the fundamental value of shares because in both the cases different sentiments affect the stock value. • Fundamental ValueFundamental value or intrinsic value of the shares is determined on the basis of the fundamentals of the company. This value is mostly required during mergers and acquisitions. The above mentioned are the different types of prices of equity shares. When you make an investment in equity shares, you purchase the shares from the stock market at market value. If you are looking to make an investment in equity shares, you may seek help from a well-established broker like IndiaNivesh Ltd. who can help you make an investment in shares at the right valuations. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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