Here are three good reasons why your money is best invested in mutual funds

 

Don’t just let it sit!

Finance gurus around the world will tell you that it is best to invest your money in some place where there is a chance of it growing. Saving money or parking it in a saving account at a bank makes it sit and over a period of time, there is a devaluation in the currency.

A lot of people around the world have suddenly woken up to mutual funds as a viable proposition as an investment. In the same breath, it is noteworthy that a lot of the people and a big chunk of mutual fund investors do not understand the positive implications that investing in mutual funds brings. Here are three great reasons why you must think in investing in them the moment you start making money.

  1. Diversification:

Let us see this one with a small example. Say Mr. A has $X to invest in a company that is doing average at the stock exchange. Now when Mr. A invests his money in the said company and the company does not do well, A has to bear the brunt of it. Now, if the same Mr. A has invested the Same $X amount in a mutual fund, the company would have split his investment and invested in a lot of companies across the sector.

It is quite possible that not all the companies will perform well at the same time. So, the loss that a few companies make is set loss automatically with the companies that have done well. this precise benefit draws a lot of people towards investing in mutual funds.

  1. Professionally managed funds:

As far as money matters are concerned, a lot of people either do not have the time and the energy nor the aptitude and the proficiency to manage their own portfolio. In this scenario, a portfolio manager who manages the person’s investment and is able to invest the money in different companies and decides when to sell and buy in order to make a profit is one of the best things to happen. A portfolio manager in a mutual funds company in charge of the client’s investment will take a call to buy or sell the shares of the company that he has invested the client’s money.

  1. There is something for everyone:

Mutual funds are not like a savings account or a current account in a bank where one size fits all. On the contrary, there is a variety of mutual funds to choose from the basket.

  1. A young professional will choose equity mutual funds because the savings are often regular. Equity mutual funds are more risk-friendly and the returns are commiserating high.
  2. A balanced mutual fund: this mutual fund balances a person’ risks and also keeps the returns of such funds on a positive keynote. This one is a combination of stocks and bonds.
  3. Bond fund: a person who is closing in on retirement can definitely not care too much for risks and hope t build up a robust portfolio. The bond fund is easiest to buy and sell and thereby also causing fewer hassles in acquiring and disposal.

 

The Benefits Of Financial Risk Analysis

 

First of all, let us understand what exactly does risk mean. It is a value and can be calculated as the probability of any event that may happen and the quantitative or qualitative loss arising due to this risk. It is a potential event, which may happen. In the corporate sector, it is a possible event that may have a damaging impact on the productivity or financial health or impact the company in a negative way.

The risk assessment is done on the basis of some criteria.

  1. What is the attitude of the company and the people towards risk? Are they risk averse or risk takers?
  2. What do they expect from their investment and what has been their past experience? How does that influence their acceptance of risks?
  3. How much loss or profit the people or company can manage if any investment leads to huge losses or profits? Yes, profits, as some risks may also lead to a huge gain. For example, when people gamble there is always a chance that the person may be lost or he may hit a jackpot.

What do companies gain by risk analysis and evaluation?

  1. Proper assessment helps companies and people to plan their future accordingly. They will be prepared to face any kind of changes when they know what to expect.
  2. The risk assessment can also guide them to allocate their resources in a suitable way to get the maximum advantage and reduce the impact of risks in the future.
  3. This also helps them to plan their finances in a completely effective way to ensure that losses are minimized and profits are maximized.

A risk assessment is done properly and through the scientific method is not only beneficial for the company or people, but it is a great help for the advisor and assessor as well. He can understand the larger picture and help the company create a safety net. An experienced assessor can create customized plans for better future investments and risk management if he has clear results of his assessment of the company.

Regulations say that risk evaluation is essential for every person and every company if any financial investments need to be made. Scientific processes help people and companies to reach their financial goals easily without any real harm from challenges if they are prepared for the same. Being forewarned is as good as forearmed. So the advice given by the experts should be followed to implement risk management techniques. After all, the risk is omnipresent and a comprehensive plan is needed to tackle it successfully.

Changes In Stock Prices – Changes In Earnings

 

The reason for a trader to either earn profits or losses is because of the fluctuations in the prices of the assets and stocks that are getting traded in the market. The best thing about investments in stocks or assets is the opportunity to either earn a profit or experience a loss when the prices of the same go up or fall low. Now, this increase or decrease in the prices of the stocks is because of the increase or decrease in the demand and supply of the same in the market. Now in such a situation, it becomes important for a trader or an investor to make the best decision regarding his investments in a particular stock or asset. This is very important because it is a wise investment decision that would result in a profit or earnings for a trader.

  • To know the impact of stock market fluctuations on business and its performance, it is very important to keep an eye on the earnings made by a company. Earnings of a company are nothing but the amount that is left in the accounts of the company after it has finished paying all its liabilities. Now it is this that would determine the financial status of the company. Now how does this impact the stock prices? Yes, when a company has a good balance in the name of earnings in its account, the share prices of the company`s stocks automatically increases and when the earnings are low, the share prices automatically go down.
  • The dividend is another important thing that determines stock prices. The dividend is distributed to the shareholders when the company experiences share profits or profits in a trading activity. So when a company declares its dividends, the stock prices of the shares of the company increases because investors enjoy ownership rights in the company. On the other hand, when the dividend declaration exists for a longer time, the prices of the stocks automatically start falling down thereby decreasing the stock prices.
  • In many situations, companies try to buy back their shares with the sole aim of increasing the value of their own shares. They also opt to buy back their shares when they feel that their stocks are getting undervalued. In such situations to improve and increase its prices, they also opt for spitting their shares.

So, these are some of the reasons for how and why the share prices of a company impact and influence the business performance of a company.

 

Four FIYs Before Taking A Home Loan


1. Are you eligible for a home loan?


The sanctioned loan amount, papers to be furnished and submitted, repayment period and even the interest rate depend on a number of factors based on which the bank or the lender calculates your credit score. Your eligible loan amount depends on this score. Bad loans, late or no repayments, current liabilities, property value, other liquid assets, years of service remaining, employer etc affect this score negatively and positively, apart from the main income. Lenders usually have an eligibility calculator for the applicant to check for himself his eligible loan amount and repayment period by giving some details like net income, years of service etc.


2. How is the repayment scheduled?

The repayment period, repayment installments etc depend on your monthly net income and number of years left in service. Every bank has a rule that the equated monthly installment (EMI) should not exceed beyond a particular percentage of the take-home pay. The longer the repayment period, the higher will be your EMI. Some lenders have specific packages for a home loan in which they give flexible payment options like compromised installments according to the change in your income, closure of a pre-existing loan, diversion of secondary income etc. There are other provisions like the applicants employed with a government service get additional repayment period including the retirement age, applicants belonging to some professions like doctors, lawyers etc get extra relaxation etc.

3. What property should be bought with a home loan?

The nature of the purchased property affects the sanction and amount of loan. Housing loans are given to purchase a house. The house can be for a residential purpose, rental purpose or investment purpose, the loan terms remain the same and only the tax rules vary. While buying already constructed house, its quality and age of construction matters to calculate depreciation. For some lenders, the age of the property can be bypassed by the current good condition of the building or apartment.

4. Do you get a tax benefit from home loans?

Yes, allowing relaxation in the income tax payable by you is one of the biggest attractions of a home loan. The tax reduction is usually separate based on the amount paid as the interest and the amount paid as the principal. Also, you can apply for tax exemption only after the submission of possession certificate or when the construction is complete, as evaluated by the lending firm.

Before applying for a home loan, make sure you have all the agreements and prior deeds in place and if you have a joint owner, make him or her as the co-applicant.


Risk Management Is Essential To Survive

If a small kid is thrown in the river, he will try to swim even if he has never learned swimming before. Many people belonging to the old school of thought taught their kids swimming this way. They imparted real skills of survival to their children and most of the times, their lessons were tough and were based in the real time. The life was tough and there was no time for assessment and learning. Families were always struggling to survive the various challenges they faced. Natural calamities were the biggest hurdles they faced.

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Risk assessment evolved slowly

But with the evolution of cities and the industrial revolution, now people have many more challenges and now almost every aspect of our life is governed by laws and regulations. Before we take any decision, it is important to think about the consequences and how it will impact the life in the long term. Survival of fittest as the basic theory still applies. If we use the same example given above, today’s parents would equip their child with a safety life jacket or floater ring and be around while the child learns swimming from a trained instructor.

Being aware of risks is good

We can see that people are more aware and careful about the risks that may challenge their decisions and they are better prepared to face the future. The same thing applies to business and finance as well. This is called risk management. It is not enough to identify the risks that might be present or may challenge the company in future. It is critical to analyze any probability of a mishap and then find ways to mitigate that to the best possible extent.

Risk management in the corporate world

Risk management is a part of the corporate world and even the smallest family held companies follow some kind of management strategy to avoid risks or find solutions for the same. We can see examples in the corporate world when a small company opts to invest its money in a safe scheme even if it brings in less interest as the safety aspect is important. Banks always ensure that they strictly follow all guidelines and adhere to regulations so that no fraudulent transactions can take place. People do not stick to only one investment plan or put all the eggs in one basket. They ensure diversification of funds to safeguard their investments.

Companies have to complete, risk assessments periodically and then devise a strategy for risk management. These steps make sure that the company can face the challenges that come in its way, as that is inevitable. However, this also helps it to fight and overcome the challenges with the help of risk management methods in place.

 

Strategize Business on Stock Market Fluctuations.

The Connection

The stock market and businesses are like the two sides of a coin when we look at it from the economic perspective. The performance of both sectors affects each other and there exists a direct relationship between them. The ups and downs in business and stock market help in ascertaining any future business booms or depression in the economy.

The Strategy

Businesses can formulate their strategies based on the stock market fluctuations. For Instance, when there is a bullish trend in the stock market, the businesses that deal in luxury items can price their products competitively to woo the customers. The boom in the stock market is sure to promote the spending spree among the investors and hence they can take advantage of this opportunity. The portfolio managers can also adopt the market strategy approach to maximize their capital gains based on the fluctuations in the stock market. These stocks would be highly risky but they guarantee maximum returns. When the markets are down, the business needs to move to a more conservative and less risky strategy.

Positive and Negative Impacts

The Businesses need to keep a close watch on the stock market trends and formulate their strategy in line with it to reap the benefits of the positive fluctuations. Whilst doing that, they also need to devise a plan for the negative impacts. There should be a strong business plan in place to deal with the gloomy situations. The negative fluctuations are sure to impact but if the business plans effectively it can reduce the extent of the damage.

Diversification

The investment companies usually resort to diversifying their portfolio so that they are not affected by the drop in one sector. Likewise business needs to adopt these models and diversify their products/services. There are certain businesses that are not affected by the stock market trends and some that are heavily dependent. The FMCG sectors are generally less affected by the stock market trends but the conspicuous goods/services are affected by the fluctuations. The firms can have a right mix of both these lines to ensure sustained and profitable growth.

There is no one quick solution or remedy to the adverse effects of market volatility but we can adjust our strategies to ensure sustained development. This will increase the investor confidence in the business and promote more participation by the way of re-investment.

How Inflation Affects Startup Businesses

Startup businesses already have a lot to take care of. They have their own challenges that take a good deal of time to be restored and recovered from. Inflation is like a sandstorm in an already burning desert for startup businesses. Since inflation has a major impact on the value of money, the purchasing power of customers naturally decline. The value of a dollar drops and the prices of products increase. Inflation is a huge risk for an entrepreneur who has just started his business. It is a great idea to be focused on all things positive as a startup but it is very important to be able to focus on the challenges that can come your way.

Here are some of the ways inflation could affect your startup business.

  1. Reduction in the margin of profit

There are a million things that a startup business needs to do and that includes labor costs and raw materials. When the prices of labor and raw materials up then it can be difficult to retain a margin of profit. Startups attract customers because of the competitive pricing that they offer. If you increase the prices of your products, you might as well drive away your customers. In such a situation, expansion becomes next to impossible.

  1. Reduction in purchasing power

During inflation, everyone is trying to save money. Even your loyal customers try their best to make fewer purchases as possible. When the economy is unstable, people want to save money to face unpredictable circumstances. Since the demand will start declining, your production will have to cut down. Reduced purchasing power will not let you make enough profits to expand further.

  1. Funding might be halted

You completely rely on your financial sponsors as a startup. However, when inflation is on the rise, everyone from investors to sponsors wants to save money. Lenders and financial companies become selective while offering money during a phase of inflation. Given a preference, they will always opt for settled and larger businesses instead of startups so your funding might be halted.

  1. Cost of management increases

Everyone faces the brunt of inflation. Your employees might demand higher wages because of the increased cost of living. If you are not making enough money, it will be impossible for you to live up to their demands. In such a scenario, you might also lose workforce for not being able to live up to their expectations.